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We'll show you how to get a better understanding of the markets and become a confident, competent investor. And we lay it all out for you in plain English (well, a Southern variety of English, anyway). Hey, you work hard for your money - learn how to make your money work hard for you!
The Calming Effect of Using Charts
Most of the financial articles we’ve read in the past couple of weeks seem to be trying to put the fear of 2008 back into investors. On the other hand, quite a few articles are painting a rosy picture of the markets and telling investors to buy, buy, buy! As usual, the truth lies somewhere in the middle.
Here are the facts:
Two weeks into the new year, the S&P 500 is down 8%.
Since last May’s all-time high, the S&P is down 12%.
> If you believe the ‘doom-and-gloom’ investment gurus, this drop is horrible! (“Worst start ever to a new year!” they like to scream.) They’d have you burying your money in the back yard…or starting a chinchilla ranch…or some such crazy thing.
> If you believe the ‘all-is-well’ investment gurus, this drop means nothing. (“It’s an opportunity to buy more shares at a cheaper price!” they like to shout.) Of course they neglect to tell us cash-strapped working folks where we’ll find the money to buy those cheaper shares!
One of the great things about using charts to help us understand the markets is the reference points they provide. If we’re not aware of where the market currently stands, a 12% move means very little to us: there’s no context.
EXAMPLE: your buddy tells you he has 3 beers left in his cooler. Now, if he started out with a six pack, that’s one thing. But if he started out with a case, that’s something entirely different! Knowing how many he started with gives his ‘number’ some context (and maybe a reason to take his truck keys…).
This has been a bad start for stocks, but a quick glance at the charts tells us we’re only down to levels we were at back in September of last year. That reference point gives this 2-week drop some context. It’s still not great, but it’s not 2008 all over again, as some of those scary headlines proclaim.
Now, don’t get us wrong - we’re not bullish on stocks right now by any means. If you follow us on Facebook, you know that we’ve already sold off 2/3rds of our stock funds and put that money into the cash account in our 401(k). And if the market keeps dropping, we’ll sell off that last third pretty soon, too (read more about moving money in ‘thirds’ here). But we’ve made those decisions based on what the charts have told us - not based on what a bunch of screaming market ‘gurus’ think.
The stock market is constantly changing, from bull cycles to bear cycles and back again, over and over like the ocean tides. Being aware of where the markets currently stand can calm your nerves when things get a little crazy. And there’s no quicker or easier way to do that than by using the charts.
NEWS YOU CAN USE
"Vanguard Reports Lower
Expense Ratios/$75 million in Savings for Clients"
from PR Newswire
"How the ETF Industry is Handling Rough Market Run"
"This is How Much the Average American
Investor Made Last Year"
"New Vanguard Index Funds Seek Dividends Abroad"
"Where Millennials Go for Financial Advice"
from The Wall Street Journal
VIEWS YOU CAN USE
"Why Mutual Funds Have Lost Their Mojo"
from US News & World Report
"How Trend Following Can Help Avoid Large Drawdowns" from MarketWatch
"My Millennials Index Fund Portfolio for 2016"
from Seeking Alpha
"Warren Buffett's 15-minute Retirement Plan"
from The Motley Fool
"The Other S&P 500 Index You've Never Heard Of"
from Motley Fool
Winter Reading List
We think the long, cold winter is the perfect time to get started on learning how to become a smarter investor. If we're going to be cooped up in the house, we might as well take advantage of it!
Here are 4 excellent books to get you going!!
>>>>> And just so you know:
Clicking on these book images takes you to Amazon.com via our affiliate link. You won't pay a penny more for what you buy, but we do get a few coins for sending you there - and that helps us cover the costs of keeping our website running free!
Here are a couple of very simple retirement calculators courtesy of our friends over at Calculator Pro.
Here are the figures we used:
> Required Annual Income: we put in what we're making now (we don't buy into that "plan to spend 70% of your working income in retirement" idea!)
> Years until Retirement: we shot for age 65, but who really knows, right?
> Years after Retirement: we sure hope to have 20 good years of doing what we want to do!
> Annual Inflation: we used 3.5% (maybe go a tad higher to be safe?)
> Annual Return on Balance: we used 7% (maybe go a tad lower to be safe?)