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Ponderings For the Week of August 14 to 20, 2017

Stocks Suffer Worst Week Since March

Saber rattling with North Korea gave Wall Street a reason to reverse course with losses over 1% for the week in large cap stocks and much steeper declines for the shares of smaller cap equities. Foreign shares offered little solace, dipping almost 2%. So any way you cut it, last week was a bummer. Bonds pretty much broke even for the week, not a great showing but still a case in point for why it’s important to diversify your investments beyond just stocks.

In addition to geopolitical problems, last week’s travails were exacerbated by some disappointing second quarter profit results, reversing a long string of positive earnings reports. Macy’s, Kohl’s, and J.C. Penney were among the victims, further stoking concerns over the ability of brick and mortar retailers to compete against the online juggernauts. Bonds have been benefitting over the past few months due to lower inflation reports than had been expected earlier in the year. This has caused interest rates to decline a tad which benefits bondholders. Declining interest rates could be the canary in the coal mine signaling that the economic outlook over the next few quarters may not be as bright as had been envisioned at the start of the year. 


Beware of Billionaires Making Investment Recommendations

They’re at it again. Some of the richest people in the country are making outlandish investment suggestions. The legendary Warren Buffet recently said (yet again) that bonds are one of the most dangerous investments you can own, and the head of one of the world’s largest investment management firms just opined that investors should put all of their money into stocks, despite stocks trading at nosebleed levels. Another just urged the opposite, stating that the next bear market is imminent and will be the worst in our lifetimes. I’m amused and bemused when the super-rich offer investment opinions to the masses, particularly ones as dangerous and ridiculous as the aforementioned. Let me do some ciphering. If you have 2 billion dollars, but lose half of it, you still have a billion dollars left. On the other hand, if you have $60,000 in your 401(k) and lose half of it, you’re in a world of hurt. True, these gentlemen have made fortunes in the stock market, but their wealth was gained largely with the help of other people’s money – their investors. Most of us have to build up our investments on our own.  Blindly adhering to their advice is dangerous and foolish.


Smart Money Tips

  • Do you have enough life insurance?  If you’ve got people in your life who would suffer financially from your demise, then you need life insurance. If you’ve got kids, you probably need a lot of life insurance -- $1 million is not an uncommon need for a breadwinner with a couple of kids. The basic insurance provided by your employer is never enough. On the other hand, if you’re retired or nearing retirement, your life insurance needs may decrease if family members who were previously dependent on you have managed to become self-sustaining.
  • Never underestimate the value of a debt-free retirement. While accumulating a sufficient stash of investments for retirement is the number one focus of retirement planning, eliminating debt is a close second. In my experience working with individuals and couples, those who retire with considerable debt almost inevitably remain financially challenged until the debt is paid off which may take many years. On the other hand, those who retire debt free can almost certainly look forward to a good financial future.



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