Welcome to another edition of Finance Friday.
I hope everyone has had a great week so far!
Here is a quick look at some of the topics I have been researching this week. I hope you enjoy.
Quote I am pondering:
“When given the choice between being right and being kind, choose kind.” – R. J. Palacio
This quote comes from the book – and now motion picture – Wonder.
If you haven’t watched the movie, or read the book, I would highly recommend it.
The story is about a boy who has a facial deformity and up until he is 10 years-old was home-schooled.
As he tries to integrate into his new school, he has a hard time to say the least. The kids are ruthlessly mean.
This quote hit me again when my wife and I watched it with our kids this past week.
I am not necessarily sure that being kind and right are mutually exclusive, but I think there is a good point to this quote.
We see this clearly in our society today – perhaps more than ever.
I think we would all benefit from a reminder that if you indeed have to choose between being right and being kind, it would benefit us all to error on the side of being kind.
Adhering to this seemingly simple principle would solve a great deal of the division we see in the world today.
Stock Market Update:
On January 16th the world lost perhaps the greatest investors it has ever seen.
You may be thinking, “I didn’t hear that Warren Buffet had passed away,” and you would be correct.
The individual I am referring to is John C. Bogle.
You may not even realize it, but Mr. Bogle left an impact on every-day investors that cannot be overstated.
He made it simple for even beginners to start investing in the stock market, and at a very low cost.
He was the pioneer in creating the first index fund. This is a fund you can put your money into and it will move directly with one of the indexes – the Dow Jones, S&P 500, Nasdaq, etc.
He felt strongly that most fund managers would seldom beat the index so why should individuals pay so much of their returns to these managers.
To combat this, he created these funds and at a very low cost – Fidelity even has a zero-cost index fund.
Considering many mutual funds have fees in excess of 1%, this is a big deal.
Another selling point of these funds is that it makes investing simple. You don’t have to do the endless research you would on other types of investing.
You can simply put your money monthly into one of these funds, and likely beat other funds that are managed by top-tier money managers.
He has been called the investor who never managed money.
We all owe a lot to Mr. Bogle. When you look at the impact of fees alone it is staggering.
If you have a 25-year-old who contributes $500 per month to an index fund averaging an 8% return, at the age of 65 they would be retiring with approximately $1.75 million.
If that same 25-year-old went with a high-cost mutual fund and paid 1% in fees – brining their return down to 7% – they would retire with approximately $1.32 million.
This puts into perspective the value of these low-cost index funds that Bogle created.
The world no doubt lost a legendary investor and champion for every-day investors.
If you want to read more about John C. Bogle, here is a great resource to do so.
Let’s tie this week’s finance tip in with the above section on Bogle.
Last week we talked about reviewing your 401(k)’s, especially ones that may still be held with prior employers.
Now is a great time to review the fees on these accounts.
I am not a licensed financial planner so I cannot direct you towards any particular fund, but what I will say is that fees matter.
Log in to your account and you will find a prospectus. A prospectus will show you the funds that are available, fees on each fund, and past returns.
Look closely at what is being offered and especially the fees you are paying. You will likely see index funds that have very low costs. These are the ones we talked about in the prior section.
The fees are extremely low compared to other mutual funds, and should be weighed against past performance.
Keep in mind the true cost of these fees long-term when you are making your investment elections.
Book I am Reading:
Still reading through Essentialism.
A thought I really liked from this past week was about how choice is an action. It is not something we have as much as something we do.
We cannot control what options come our way, but we can control the decision we make.
The better we get at making decisions, the simpler we can make our lives – which is the foundation of essentialism.
In stock market lingo you often hear the terms “bull market” and “bear market.”
A bull market is considered a period of optimism, expansion, stock growth, etc.
While there is no exact definition of a bull market, it is usually characterized by a 20% increase in the market and will typically end after a 20% decline.
They call it a bull market because of the characteristic of a bull and the way it attacks its opponent. Bulls will charge forward while lifting their heads in the air.
This signifies the market charging forward or rising.
Conversely, bears swipe down when they attack – signifying a downward trend in the market
We are in the midst of the longest bull market in history. It started in March of 2009 – when the market bottomed out after the Great Recession.
A bear market on the other hand is that of pessimism, retraction, stock declines, etc.
As with a bull market, there is no set definition, but is usually brought about by a 20% market decline.
Although we recently saw declines that neared 20% at the tail-end of 2018, most experts are not calling it a bear market, yet.
The most recent one we saw was the Great Recession. During that time the S&P 500 lost nearly 50% of its value.
With the way the economic cycle goes, there are few disagreements that a bear market is in our near future.
The only real question is when.
I hope you found this edition insightful. As always, if there are any topics you would like me to cover, please do not hesitate to drop me an email or send me a message on social media.
Thank you for reading, and I hope you have a great weekend!