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Ponderings For the Week of July 6 to 12, 2020

Big Week and Big Quarter for Stocks

The holiday-shortened trading week closed out with strong gains. The average U.S. stock advanced almost 4% for the week. The second quarter of 2020 was the strongest quarter since 1998 for the Standard & Poor’s 500 Index. But the first quarter was so awful that only 6 of 30 widely-followed stock indexes reported gains for the first six months of the year. Factoring in stocks of all sizes, as would be present in a diversified portfolio, would have resulted in a loss from January through June of about 15%.

Last week’s reports brought hope that the second half of the year will get off to a good start. Employment statistics, including robust jobs gains, continued to pleasantly surprise. Consumer confidence rose more than expected. But the uncertainty of the depth of the pandemic and the prospects for waning corporate profits are causes of concern. The implications of a possible change in leadership in Washington will begin to weigh on the investment community. Perhaps the investment markets will calm down for a while, which could be a welcome summer respite from the wild ride of the first half of the year.


Big Ticket Items Tell a Lot

In speaking with individuals and families over the years, I've found that how they handle big-ticket items, particularly the home, is a reliable indicator of how well they are preparing for retirement. I've talked with numerous singles and couples up and down the income ladder who by middle age have accumulated a lot of retirement money, both in and outside of their retirement plans and have little or no debt (more on that below). The vast majority of them have one thing in common:  the value of their homes—or the amount of their rent—is way below what they could currently afford. There’s no reason why anyone has to own a home commensurate with his or her income. Warren Buffet and closet millionaires in your community don’t have to own a mansion or drive a designer car. Despite a growing income, the notion of buying trophy homes doesn't even enter these millionaires’ minds. Rather, they’re quite content living well beneath their means. You probably know some people who take the opposite tack – serial homeowners. The upshot is that by the time they start thinking seriously about retirement, they’ve probably built up some equity in their houses over the years, but that equity pales in comparison with the buildup in their mortgages. That’s why last decade’s housing crisis, initially affecting low-income families, also afflicted higher-income homeowners who began the crisis with little equity in their expensive homes and found themselves with negative equity. Some news reports suggest that the same might happen again as a result of the coronavirus.    

Whatever your housing situation, financial decisions you (and your younger generation family members) make will have a big effect on your financial security. Devotees of what I like to call The New Affluence will prefer a more modest lifestyle including owning a perfectly wonderful home that is modest in relation to their financial circumstances.


Smart Money Tips

 A couple of shopping suggestions:

  • Don’t buy something just because you have a coupon. Whatever you’re buying – food, hardware, lawn fertilizer, clothing, it doesn’t matter – you should buy only what you’re going to use. Sometimes you may be tempted to buy something just because you have a coupon – I mean, a bargain is a bargain. But a bargain becomes a waste of money if you really don’t need the item.
  • Don’t bring your spouse or partner food shopping. They’re more likely to impede your shopping by questioning items in the cart or going off on their own selecting unneeded or overpriced products. If your spouse or partner insists on going, tell him or her to sit in the car – a wise recommendation amidst the COVID-19 pandemic. By the way, there is one thing that’s worse than bringing your spouse food shopping and that’s bringing your children.





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