This week's post covers two different topics. First, a quick update on the stock market and its recent "clusters" of higher highs. Second, there's a tax update with important dates and other facts to remember.
With numerous reports lately about the Dow Jones Industrial Average making new highs and knocking on the door of 21,000, it's natural to wonder about the inevitable pullback. After all, the index was below 17,000 only a year ago following the nasty start to 2016. That's a sizeable gain in a short period of time. Other stock indexes are up as well, but the Dow garners the most media attention.
Do you ever scratch your head and wonder at how the stock market can continue to go up while many around you seem so pessimistic about investing? I've previously written about how individual investor sentiment has lagged that of institutional investors, even as the economy grows and the bull market continues. But this phenomenon has been playing out for awhile and there are many reasons why.
Along these lines, check out an excellent piece on the subject from one of my research partners, Bespoke Investment Group:
You may have heard how individual investors tend to underperform the "professionals" over the long run. While this might seem like a self-serving statement coming from one of those professionals, it's actually true.
While there are many reasons for this, something simple causes a big part of the outperformance: staying invested during difficult times. By not trying to trade in and out of investments, or trying to "beat the market", the diversified long-term investor has an automatic upper-hand over the reluctant trader. Why? Because history shows that if an investor misses the best days while trying to avoid the worst, they quickly find themselves behind, even though they're trying to do what seems like the right thing.
Risk is an interesting concept. If you looked it up online you'd find millions of references to risk taking. There are quotes, books, and papers from famous artists, writers, past presidents, and yes, financial gurus. They all pretty much agree on one thing: risk taking is the stuff of life. And this is absolutely true in the world of investing.
Quite simply, without taking risk you'll never really get anywhere with your investments. Yes, it might feel good to avoid risk but eventually you'll wind up losing due to hidden risks that are insidious and extremely damaging. It's not a question of whether to take risk or avoid it, but how much risk to take.
It's not very often that national breaking news happens in the financial planning business. But last Friday, as I was attending an industry conference, we did get some breaking news about the long-embattled "fiduciary rule". And it caused quite a stir.
I've previously written about how brokerage firms, insurance companies, and other commission-based salespeople in the industry had been fighting the government's efforts to enhance investor protections. The so-called fiduciary rule had been in the works for nearly seven years within the Department of Labor (DOL) and was specifically talked about by President Obama on several occasions as something important for investors.
As a financial planner, I tend to look at most things through a financial lens. Dollars and cents, time value of money, expected investment returns, and the like. While this is necessary to address the nuts and bolts of your retirement plan, it's important to remember all that lies beyond the numbers.
Ironically, some of the most difficult questions about whether one is ready to retire have little to do with finances. It's not just can you afford to retire, but can you actually retire? I mean, have you thought about some of the fundamental questions, such as:
