August 13th marked the
40th anniversary of BusinessWeek’s famous cover and cover story, “The Death of
Equities: How Inflation is Destroying the Stock Market”.
At the time of that
writing, the S&P 500 closed at 107.42.
Today, as I write, the
S&P 500 is north of 2,900.
The fuel of financial
journalism is negativity. The same tired crap is being written
today. Really, don’t read or listen to it. It can only cause you to
underperform. Read something happy … and factual.
Health Savings Accounts
(HSAs) are powerful savings vehicles.
HSAs are triple tax
- Contributions are tax-deductible
- The account grows tax free
- Withdrawals are tax free if used for medical
One of the best uses of
an HSA is to save up for the enormous medical expenses we will experience in
To be eligible, you have
to have a high-deductible health insurance plan, which many, if not most, of us
This is a powerful addition to your retirement savings. If your health plan is HSA eligible, open one. I use Further at www.hellofurther.com. Low fees, more than enough investment choices.
Heard a great quote from
one of the speakers at The Investment Center’s Educational Conference in New
Orleans that Maria and I attended.
“Gambling odds are less
than 50%. The longer you’re in, the greater your chances of
failure. The market goes up 75% of the time. The longer you’re in,
the greater your chances of success.”
In the world of
investing, the future is unknowable. ‘Uncertain’ is simply the way it
is. How much uncertainty you can handle will determine your ultimate rate
‘Certainty’ and rate of
return are inversely related. If you want ‘certainty’, like a money market
or a Treasury bond, your returns will be scant. Factor in inflation, and
your ‘certain’ return is actually negative.
If you can accept
‘uncertainty’, now you’re in the game. Embrace uncertainly and buckle up
for a wild and rewarding ride!
Retirement has 2, and only 2, possible outcomes:
- Your money outlives you, creating a dignified and independent life.
- You outlive your money, creating a miserable and dependent life.
It’s the choice between equities vs bonds along the way, and how you behave towards that investment decision, that decides the above.
Often mistaken for twins, volatility and risk couldn’t be more different.
Risk can be defined as putting 100% of your money in pork bellies and hoping for the best.
Volatility, correctly defined, simply refers to the regular, sometimes large, sometimes small, unpredictable movements of the equity market both above and below its permanent uptrend line.
Note the phrase ‘permanent uptrend line’.
Risk = Placing a firecracker in your nose and lighting it.
Volatility = Tolerating the ups and downs of the market.
Our current market is volatile, not risky. Let it run its course.
It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment ‘risk’ by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.
-Buffett, annual shareholder letter, page 13, emphasis in the original
Dignity and Independence in Retirement is bought.
Living below your means and diligently saving is the price paid for a dignified and independent retirement.
Aside from inventing Velcro or the Ipod, there is no other route.
‘Certainty’ and ‘Rate of Return’ are inversely related.
You have to give up one for the other, the clearest example being our own US Treasury bonds, the safest, most widely held security in the world.
Taking into account inflation and taxes, the rate of return of a Treasury Bill is at, near or below ZERO, yet the world is willing to accept that non-return for the emotional state of ‘certainty’.
The Equity market, with its wild gyrations, historically has had, depending on who you ask, a near average annual double digit rate of return.
Which would you prefer to fund your Financial Plan – the uncertainty of near double digit returns, or the certainty of zero?
The Cost of Certainty could be the life you truly want, and deserve, to lead. Stop the madness.