The single best move to make money in stocks

Stocks closed out 2019 in stellar fashion. That should be cause for celebration. But there’s one group that has missed out on much of the market’s gains–millennials. Just 49% of millennials in the United States (those ages 23 to 39) held stock at any given time in the last two years. Because a much larger percentage of Americans in the same age range held stocks before the Great Recession, observers say that stock performance in 2008 is the main reason that many millennials steer clear of equities. Who can blame them for being a little gun shy? In 2008, the S&P 500 plunged more than 38%. But holding on to that kind of trauma can be dangerous. The turmoil that shaped the economy during millennials’ formative years has kept them away from recent market successes. The timing of the Great Recession meant that a group of millennials started their careers in a tough job market, and those who found jobs faced wage stagnation in the early years of their careers, making it less likely that they would have extra money to save and invest and therefore harder for them to accumulate wealth. According to a report by the Federal Reserve

January 7, 2020 No Comments

Don’t fear stock market all-time highs

As we reach the end of autumn, let’s look back on a momentous event that occurred 70 years ago this fall — the 1929 stock market crash that ushered in the Great Depression. After that crash, stocks in the Dow Jones Industrial Average did not return to their earlier 1929 levels until 1954; that’s more than 25 years from peak to peak. Of course, the numbers don’t include dividends, which were much higher back then, but the point remains that there can be long droughts when stocks meander and don’t post higher highs. These days, we’re looking at a stock market that has hit more than 20 new highs in 2019 alone. Should we be worried? One of the hardest parts of investing in the stock market is that there is always something to worry about. This is true even when things are going well, as they are now with markets at or near all-time highs depending on the day. A worry that we hear among some of our clients is that markets are “due” for a return to normalcy and that it doesn’t make sense to get in the market near all-time highs. Here’s a quick history lesson to

December 10, 2019 No Comments

Would stocks crash with a Trump impeachment?

President Donald Trump warned in a tweet last month amid the Ukraine whistleblower inquiry that his impeachment would cause “the markets crash.” Trump’s tweet came a day after the release of a rough summary of a July 25 phone call with Ukrainian President Volodymyr Zelensky. The summary showed Trump asked Zelensky to investigate former Vice President Joe Biden and his son Hunter Biden. It was preceded by a whistleblower complaint that alleges Trump used the powers of the president’s office to solicit interference from a foreign country ahead of next year’s election. The complaint, along with the call, prompted an impeachment inquiry by the House of Representatives. This is not the first time Trump has warned of a market shock if Congress impeaches him. Last year amid the investigation into Russia meddling in the 2016 election, he told Fox News, “If I ever got impeached, I think the market would crash. I think everybody would be very poor.” Is Trump right? Probably not. First, the risk to markets and the economy is not really that Trump might actually get forced out of office. Barring a truly devastating revelation, the Republican-controlled Senate will not vote to remove Trump, a president with

October 3, 2019 No Comments

Steps to take in a jittery market

It’s difficult (if not impossible) to say what stocks will do in the near term. And well-meaning investors who are trying to do the right thing by not being too hands-on with their portfolios (see this market timing article) can end up, inadvertently, with an investment mix that’s too risky, simply because they’ve been letting their winners ride. So, here are five steps to conduct a quick portfolio stress test to see if it’s time to talk with your Azzad advisor about making a change. 1. Check up on your baseline stock/fixed income mix In strong markets like the bull market that has prevailed since early 2009, most investors tend to leave well enough alone. But if you haven’t reviewed your portfolio’s allocations recently, use the market volatility as an impetus to do so. A hands-off portfolio that was 60% equity/40% fixed income in early 2009, for example, could be more than 80% equity today. And meanwhile you’re older, which means you should likely be in more conservative investments. Rebalancing is in order in many situations. As discussed here, rebalancing can help align your portfolio’s allocations with your risk tolerance, which is your ability to withstand losses without having to

September 4, 2019 No Comments

Market timing can cost you money

Over the past year and for periods of five, 10, 20 and 30 years, the average mutual fund investor has underperformed the markets for both stocks and bonds, according to research firm Dalbar. The Dalbar data leads to the inescapable conclusion that most investors are really terrible at investing. They panic and sell at the wrong moments, hurting their chances of success. The shocking reality is that investors actually made themselves poorer by giving in to their whims. Just look at the Dalbar results for 2018. The inflation rate was 1.93 percent, which means that investors would have had to earn that just amount to tread water. Instead, the average stock fund investor lost 9.42 percent, for a gap of more than 11 percentage points! Consider a few more dismal data points for stock mutual fund investors. Compared with the S&P 500, through Dec. 31, 2018, those investors underperformed by: — 5.88 percentage points, annualized, over 30 years; — 3.46 percentage points, annualized, over 10 years; — 4.35 percentage points, annualized over 5 years. The lesson investors can learn from this research is the value of staying the course and not making any sudden moves. According to Dalbar president Louis

September 4, 2019 No Comments

Are you a risk taker? If you invest, the answer is yes.

For each individual, the word “risk” evokes a different image or experience. A person’s perception of risk can be shaped by past experiences, recent stories in the media, the latest investment-related study, and incidents recounted by friends and associates. Too often, it’s these factors and not actual probabilities that shape an individual’s expectations for the future. “Recency” is the tendency to place more weight or significance on recent and current events than on past events. From a recency perspective, when the market is going up, investors project that it’s going to keep going up, and therefore invest more money. When the market is declining, investors don’t invest — or they sell — because they project that the market is going to keep declining. In the excitement of sustained bull markets, such as the exceptionally strong bull market of the late 1990s, investors become overly optimistic and underestimate or ignore risk altogether. Ironically, at times like those, many investors view the level of risk as being very low. Actually, it’s the opposite. It’s only when things go badly that investors realize they should be thinking about risk. Sometimes, they discover they are not as willing to take on as much risk

February 12, 2019 No Comments

Pop quiz: When did the Dow last drop as much as it did today?

Short answer: Who cares? You’re not selling today, so don’t fret. Longer answer: The last time was eight months ago, but let’s put things in context. The Dow dropped by more than 800 points today — an amount that definitely catches attention. But in the grand scheme of things, it’s just a blip on the radar. So, what happened today? Basically, interest rates. Treasury yields have surged lately, specifically the yield on the 10-year U.S. Treasury note. It spiked last month and has continued its rise into October. A rise in yields means higher borrowing costs for corporations and investors. It also makes stocks look less attractive compared to bonds (For the pros out there, higher yields also make stocks look more expensive because of a higher “discount rate.”) On top of that, richer rates of so-called risk-free bonds can attract investors away from equities, which are perceived as comparatively riskier. MARKET CONTEXT Over the past two years, U.S. markets have soared. The Dow Jones Industrial Average gained more than 7,800 points in 2016 and 2017, and has continued rising this year. Dramatic numbers reported during the volatility of the first days of February kicked off a rockier 2018 than

October 10, 2018 No Comments