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

Stocks versus real estate

A lot of people contact us asking about buying real estate. “It’s a hard asset and they’re not making any more of it,” they say. When we’re asked this question, we try to explain the advantages of owning stocks instead of or in addition to real estate. One way we do this is explaining how our portfolio managers pick stocks, and then comparing the costs of stocks to real estate. Picking stocks isn’t that different from looking for a good piece of real estate. First, you look at the quality (who built it, where it is, etc.). Then you figure out its worth, or valuation. Next up, you figure out your best- and worst-case scenarios for rent and taxes. (For stocks, you look at things called price-to-earnings ratios and cash flow return on investment). When the real estate is priced below your worst-case scenario, you buy it. That’s how it works with most stocks, too. There are, however, a couple of differences between real estate and publicly traded stocks, namely liquidity and low transaction costs. This ought to make real estate investors sit up and take notice. Let’s look at liquidity first. If you need cash, selling real estate may

April 8, 2019 No Comments

Why stocks still look cheaper than bonds

Recent U.S. equity market weakness and volatility likely has some investors wondering if they should cut their exposure to stocks in favor of fixed income/bonds. But by at least one metric, such a move could be premature. Stocks remain inexpensive relative to bonds, and while the premium they offer has been steadily dropping for years, the argument in favor of equities doesn’t look likely to reverse soon. Equities are cheaper than bonds when stocks yield more, and that continues to be the case. When you compare the S&P 500’s earnings yield against the yield offered by fixed income investments (i.e., investment-grade corporate bonds), stocks look cheaper than bonds. And if you’re an investor, you want to buy when things are cheap in order to take advantage of more potential upside performance. According to WSJ Market Data Group, the S&P’s current earnings yield is more than 4%. Investment-grade corporate bonds, as measured by the iShares iBoxx $ Investment Grade Corporate Bond ETF yield 3.4%. The view comes after a whirlwind six months for the U.S. stock market, a period that has seen equities hit repeated records before logging the longest correction for major indexes in a decade. The past six months

July 10, 2018 No Comments