Think Twice Before Speculating on a COVID-19 Cure
As hundreds of companies race to develop vaccines and drug therapies that could help end the COVID-19 pandemic, news reports on successful or failed trials affect individual stock prices and can trigger swings in the broader market.(1) Understandably, this highly contagious virus — and its severe economic repercussions — has a knack for stirring up investors’ emotions.
By May 27, 2020, COVID-19 was responsible for more than 100,000 deaths in the United States and about 355,000 worldwide. (2) Investors are human beings first, and most of us are waiting anxiously for a cure that would stop the suffering and allow normal life to resume.
Governments and nonprofits have provided billions of dollars in support, and some red tape has been loosened, all to help speed a costly, complex, and time-consuming drug development process.(3) Even so, this influx of public funding — along with a concerted humanitarian effort — suggests that some of the most important discoveries may not generate profits for investors.
High hopes for a vaccine
A vaccine prepares the body’s immune system to recognize and resist a specific disease, preventing it from causing sickness and spreading to others. As of May 27, the World Health Organization (WHO) was tracking 125 experimental vaccine candidates globally, 10 of which had advanced to clinical evaluation. Another 115 candidates are still in the pre-clinical stage, which involves testing in cells and/or animals and waiting for regulators to review results and grant permission for human trials. (4)
Clinical studies are conducted in three phases. During Phase I, a small study of healthy people tests the safety and immune response of the vaccine at different doses. Phase II is a randomized, double-blind, controlled study of hundreds of people that further assesses safety, efficacy, and optimal dosing. If all goes well, clinical studies expand to include thousands of people in Phase III. (5) These larger studies can be challenging because they test how well the vaccine works in an environment where the virus is spreading. (6)
Despite the urgency, COVID-19 vaccine candidates can’t skip any of these crucial steps, but timelines have been accelerated. (7) Health officials have said it could take 12 to 18 months before a vaccine may be available. (8)
The U.S. government has struck supply deals with several pharmaceutical companies to support research into leading vaccine candidates and boost the manufacturing capacity needed to produce 300 million doses by fall of 2020, should a candidate prove effective. (9)
Other nations and well-funded nonprofits have made similar deals. Massive public investment allows drug makers to get a head start on manufacturing doses while waiting for human trials to conclude and approval to be granted. In return, at least one drug maker has promised to sell an approved vaccine without making a profit during the pandemic. (10)
A COVID-19 vaccine is not imminent — a point made by the fact that there is no vaccine to prevent HIV after several decades of research. Still, early progress on several fronts offers reasons to be cautiously optimistic. (11)
Testing old and new therapies
The development and approval process for experimental drugs is similar to the one for vaccines. Companies that develop successful treatments are likely to face the same manufacturing challenges and pricing pressures. In the meantime, doctors are testing existing therapies that might help COVID-19 patients. (12)
One existing antiviral drug was approved for emergency use by the U.S. Food and Drug Administration after it was determined to help hospitalized patients with severe COVID-19 recover faster. The pharmaceutical giant that makes the drug has ramped up production and is donating about 1.5 million doses as a public good. (13)
Scientists are also working on targeted antibody therapies, which depend on the identification of specific antibodies that bind with and neutralize the novel coronavirus. At high doses the right antibodies might prevent the disease from worsening in hospitalized patients, and at lower doses the same antibodies could provide short-term immunity for front-line workers.
Effective antibody drugs are easier to develop but more complex to manufacture. Thus, there is limited global capacity to produce the large amounts needed. Governments, nonprofits, and companies that are normally competitors are reportedly discussing ways to share manufacturing plants if one company’s antibody proves to work better than the others. (14)
Antibody treatments could help save lives as long as COVID-19 is a threat, but widespread vaccination could make them obsolete. If a successful vaccine materializes, many valiant efforts to develop beneficial therapies may never make much money.
More implications for investors
As of May 21, 2020, the U.S. government had invested at least $2 billion for the development of coronavirus vaccines and $300 million for antiviral and antibody therapies. (15) New biotechnologies, generous financial support, and unprecedented cooperation between governments and industry leaders could shave several years off typical development timelines. (16)
It’s rarely easy to predict which new products will perform well enough in multiple rounds of studies to earn regulatory approval. Moreover, the stock market’s mid-May rally and high valuations for biotech and pharmaceutical shares imply that success in developing COVID-19 treatments might already be priced in — especially for newsmakers. (17)
Headline-induced price swings suggest that investors are making decisions driven by hopes and fears, and possibly based on limited information, instead of a realistic assessment of an investment’s longer-term earnings potential. Now more than ever, it’s important to have a well-researched investment strategy based on your own goals, time horizon, and risk tolerance.
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
(1), (17) The Wall Street Journal, May 18, 2020
(2) Johns Hopkins University, May 27, 2020
(3), (5), (7), (8), (16) World Economic Forum, 2020
(4) World Health Organization, May 27, 2020
(6) Bloomberg News, May 7, 2020
(9), (10) The Wall Street Journal, May 21, 2020
(11) NPR.com, May 12, 2020
(12), (14), (15) Bloomberg Businessweek, April 20, 2020
(13) STAT, April 29, 2020
Coping with Market Volatility: Be Sure to Use Appropriate Benchmarks
Do you find yourself glued to the daily news reports on market movements wondering about your own savings and investments? Before you make any hasty decisions, be sure you understand how these reports relate — or don’t relate — to your individual portfolio.
The variance in the returns of different portfolios is largely attributable to their asset allocations. If you have a well-diversified portfolio that includes multiple asset classes (stocks, bonds, cash alternatives), be sure to compare its overall performance to relevant benchmarks, rather than the gains and losses reported throughout daily news cycles. For example, just because a particular stock market index, such as the S&P 500, may have dropped by a double-digit percentage doesn’t necessarily mean your entire portfolio is down by the same amount. If you find that your investments are at least matching relevant benchmarks, you might feel better about your overall strategy.
Asset allocation and diversification do not guarantee that you won’t suffer losses, of course, and they also can’t guarantee a profit. But they can help spread your risk. When the overall market declines, some asset classes and individual investments may be affected more than others.
Before letting daily headlines drive your investment decisions, consider whether your asset allocation is appropriate for your immediate and long-term needs and the risk you’re comfortable taking.
For help in determining appropriate benchmarks for your portfolio, give me a call. I am here to help.
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
Although there is no assurance that working with a financial professional will improve investment results, a professional can evaluate your objectives and available resources and help you consider appropriate long-term financial strategies.
Coping with Market Volatility: Be Willing to Take Advantage of Market Downturns
Anyone can look good during a bull market. Smart investors are prepared to weather the inevitable rough patches, and even the best aren’t successful all the time. When the market goes off the tracks, knowing why you originally made a specific investment can help you evaluate whether those reasons still hold, regardless of what the overall market is doing.
If you no longer want to hold an investment, you could take a tax loss, if that’s a possibility. Selling locks in any losses on an investment, but it also generates cash that can be used to purchase other investments that may be available at an appealing discount. Sound research might turn up buying opportunities on stocks that have dropped for reasons that have nothing to do with the company’s fundamentals. In a down market, most stocks are available at lower prices, but some are better bargains than others.
There also are other ways to reap some benefit from a down market. If the value of your IRA or 401(k) has dropped dramatically, you likely won’t be able to harvest a tax benefit from those losses, because taxes generally aren’t owed on those accounts until the money is withdrawn. However, if you’ve considered converting a tax-deferred plan to a Roth IRA, a lower account balance might make a conversion more attractive. Though the conversion would trigger income taxes in the year of the conversion, the tax would be calculated on the reduced value of your account. With some expert help, you can determine whether and when such a conversion might be advantageous.
A volatile market is never easy to endure, but learning from it can better prepare you and your portfolio to weather and take advantage of the market’s ups and downs.
For more information on these strategies, contact us. We’re here to help.
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
Although there is no assurance that working with a financial professional will improve investment results, a professional can evaluate your objectives and available resources and help you consider appropriate long-term financial strategies.
To qualify for the tax-free and penalty-free withdrawal of earnings (and assets converted to a Roth), Roth IRA distributions must meet a five-year holding requirement, and the distribution must take place after age 59½ (with some exceptions). Under current tax law, if all conditions are met, the account will incur no further income tax liability for the rest of the owner’s lifetime or for the lifetime of the owner’s heirs, regardless of how much growth the account experiences.
Coping with Market Volatility: Cash Can Help Manage Your Mindset
Holding an appropriate amount of cash in a portfolio can be the financial equivalent of taking deep breaths to relax. It could enhance your ability to make thoughtful investment decisions instead of impulsive ones. Having a cash position coupled with a disciplined investing strategy can change your perspective on market volatility. Knowing that you’re positioned to take advantage of a downturn by picking up bargains may increase your ability to be patient.
That doesn’t mean you should convert your portfolio to cash. Selling during a down market locks in any investment losses, and a period of extreme market volatility can make it even more difficult to choose the right time to make a large-scale move. Watching the market move up after you’ve abandoned it can be almost as painful as watching the market go down. Finally, be mindful that cash may not keep pace with inflation over time; if you have long-term goals, you need to consider the impact of a major change on your ability to achieve them.
Having a cash cushion in your portfolio isn’t necessarily the same as having a financial cushion to help cover emergencies such as medical problems or a job loss. An appropriate asset allocation that takes into account your time horizon and risk tolerance may help you avoid having to sell stocks at an inopportune time to meet ordinary expenses.
Remember that we’re here to help and to answer any questions you may have.
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
Asset allocation is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss.
Although there is no assurance that working with a financial professional will improve investment results, a professional can evaluate your objectives and available resources and help you consider appropriate long-term financial strategies.
Coping with Market Volatility: Could This Be a Chance to Rebalance at a Discount?
In a volatile market, it’s easy to allow your emotions to influence your investment decisions. But if you can keep your cool while those around you are losing theirs, you may be able to take advantage of potential opportunities.
One way to do that is by reviewing your portfolio to determine if it’s time to rebalance your asset allocation or modify your level of diversification.
Rebalancing means adjusting your portfolio to get it back to your original target allocation. In today’s market, it often makes sense to first determine whether that original target is still appropriate for your needs. If it makes sense to return to your original allocation or establish a new one, there are two ways to proceed. You can sell securities in some asset classes and invest the proceeds in others, and/or redirect new investment dollars into selected asset classes until the target allocation is reached.
If your current allocation is appropriate, but there are concerns with your overall level of diversification, it’s possible to shift some investments within a given asset class. Keep in mind that selling securities can have tax consequences, depending on account type.
Asset allocation and diversification can help manage investment risk and might better position your portfolio for the future. The silver lining to broad-based market turmoil is that you may be able to acquire some investments at a discount relative to what you would have paid when the market was up.
The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Asset allocation and diversification are methods used to help manage investment risk; they do not guarantee a profit or protect against investment loss.
Although there is no assurance that working with a financial professional will improve investment results, a professional can evaluate your objectives and available resources and help you consider appropriate long-term financial strategies.
Coping with Market Volatility: Continuing to Invest May Help You Stay on Course
In the current market environment, the value of your holdings may be fluctuating widely — and it’s natural to feel tentative about further investment. But regularly adding to an account that’s designed for a long-term goal may cushion the emotional impact of market swings. If losses are offset even in part by new savings, the bottom-line number on your statement might not be quite so discouraging. And a basic principle of investing is that buying during a down market may help your portfolio grow when the market turns upward again.
If you are investing a specific amount regularly regardless of fluctuating price levels (as in a typical workplace retirement plan), you are practicing dollar-cost averaging. Using this approach, you may be getting a bargain by continuing to buy when prices are down. However, you should consider your financial and psychological ability to continue purchases through periods of fluctuating price levels or economic distress; dollar-cost averaging loses much of its benefit if you stop just when prices are reduced. And it can’t guarantee a profit or protect against a loss.
If you can’t bring yourself to invest during this period of uncertainty, try not to let the volatility derail your savings program completely. If necessary, to help address your concerns, you could continue to save, but direct new savings into a cash-alternative investment until your comfort level rises. Though you might not be buying at a discount, you could be accumulating cash reserves that could be invested when you’re ready. The key is not to let short-term anxiety make you forget your long-term plan. I am here to help and to answer any questions you may have.
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
Stay Safe,
Joseph A. Smith, CPA/PFS, J.D., AEP®
Member
Bear Markets Come and Go
The longest bull market in history lasted almost 11 years before coronavirus fears and the realities of a seriously disrupted U.S. economy brought it to an end.
If you are losing sleep over volatility driven by a cascade of disheartening news, it may help to remember that the stock market is historically cyclical. There have been 10 bear markets (prior to this one) since 1950, and the market has recovered eventually every time.
Bear markets are typically defined as declines of 20% or more from the most recent high, and bull markets are increases of 20% or more from the bear market low. But there is no official declaration, so in some cases there are different interpretations regarding when these cycles begin and end.
On average, bull markets lasted longer (1,955 days) than bear markets (431 days) over this period, and the average bull market advance (172.0%) was greater than the average bear market decline (-34.2%).
| Bear Markets Since 1950 | Calendar Days to Bottom | U.S. Stock Market Decline (S&P 500 Index) |
| August 1956 to October 1957 | 446 | -21.5% |
| December 1961 to June 1962 | 196 | -28.0% |
| February 1966 to October 1966 | 240 | -22.2% |
| November 1968 to May 1970 | 543 | -36.1% |
| January 1973 to October 1974 | 630 | -48.2% |
| November 1980 to August 1982 | 622 | -27.1% |
| August 1987 to December 1987 | 101 | -33.5% |
| July 1990 to October 1990 | 87 | -19.9%* |
| March 2000 to October 2002 | 929 | -49.1% |
| October 2007 to March 2009 | 517 | -56.8% |
*The intraday low marked a decline of -20.2%, so this cycle is often considered a bear market.
The bottom line is that neither the ups nor the downs last forever, even if they feel as though they will. During the worst downturns, there were short-term rallies and buying opportunities. And in some cases, people have profited over time by investing carefully just when things seemed bleakest.
If you’re reconsidering your current investment strategy, a volatile market is probably the worst time to turn your portfolio inside out. Dramatic price swings can magnify the impact of a wholesale restructuring if the timing of that move is a little off. A well-thought-out asset allocation and diversification strategy is still the fundamental basis of good investment planning. Changes in your portfolio don’t necessarily need to happen all at once. Try not to let fear derail your long-term goals.
The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Asset allocation and diversification are methods used to help manage investment risk; they do not guarantee a profit or protect against investment loss.
The S&P 500 is an unmanaged group of securities that is considered to be representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is not a guarantee of future results. Actual results will vary.
Source: Yahoo! Finance, 2020 (data for the period 6/13/1949 to 3/12/2020)
If you are losing sleep over volatility driven by a cascade of disheartening news, it may help to remember that the stock market is historically cyclical.
The Coronavirus and the Global Economy
As of February 26, 2020, the death toll from COVID-19 — the official name of the coronavirus first reported in Wuhan, China — passed 2,700, while the number of confirmed cases exceeded 80,000. Almost all were in China, most of them in Wuhan and the surrounding Hubei province. But more than 2,500 cases, including 46 deaths, had been reported in almost 40 other countries. A surge of cases and deaths in South Korea, Italy, and Iran caused new concern that the virus may be difficult to contain.1
Cities under lockdown
By mid-February, at least 150 million people in China were under restrictions affecting when they could leave their homes, and more than 760 million — about 10% of the world’s population — lived in communities under some form of travel restriction.2 Most global airlines cancelled service to and from China, disrupting tourism and business travel.3
The Chinese government enacted restrictions around the time of the Lunar New Year celebration, during which many businesses were closed, lessening the immediate impact. However, as factories and other businesses remained closed after the holiday, the loss of Chinese production and consumer spending began to take a toll on global businesses.4
Lost supply and demand
Many U.S. technology companies have manufacturing operations in China while also selling to Chinese businesses and/or consumers. Companies with substantial exposure to the slowdown in China include big tech brands such as Apple, Dell, Hewlett Packard, Intel, and Qualcomm, as well as many smaller tech businesses.5-6
Vehicle manufacturers throughout the world rely on Chinese-made parts, and many have plants in China. General Motors (which sells more cars in China than in the United States), Ford, Toyota, BMW, Honda, Nissan, Tesla, and Volkswagen all suspended operations in China, while Hyundai and Renault closed plants in South Korea, and Fiat Chrysler closed a plant in Serbia, all due to parts issues.7-9
Global retailers including Apple, Ikea, Levi Strauss, McDonald’s, KFC, and Starbucks temporarily closed stores in China.10-11
In addition to disruptions in the global supply chain and Chinese consumer market, the tourism industry in the United States, Europe, and other Asian countries may be hard hit by the absence of Chinese tourists. One estimate suggests a loss of almost $6 billion in U.S. airfares and tourist spending.12
Although it is too early to measure the full effect on global business, a private report released on February 21 indicated that U.S. business activity had slowed in February to the lowest level in six years, with the biggest hit to the service sector, where travel and tourism are major components. The report also indicated a sharp drop in Japanese business due to lost tourism and export orders. Exports were down in Germany, but the initial impact on the eurozone was minimal.13
Oil pressure
China is the world’s largest importer of crude oil, and Wuhan is a key center of its oil and gas industry. The prospect of lower demand drove oil prices into bear-market territory — defined as a drop of 20% from a recent high — in early February. Prices rose later in the month but dropped again with news that the virus may be spreading. Natural gas prices have also been hit by the prospect of lower growth in Asia. While lower prices may be good for U.S. consumers, oil-exporting nations, including the United States, will face lower revenues, and energy companies that are already on rocky ground may struggle.14-17
Market reaction
In late January, the Dow Jones Industrial Average lost 3.7%, due in large part to concerns about the virus, wiping out gains for the year.18 The market bounced back quickly and set new records in February, but weak business news and a rash of cases outside of China sent it plunging, with a loss of almost 8% from February 19 to 25.19-20 This suggests that the market may be volatile for some time and that future direction might depend on the progress of disease control and emerging information on the impact of the virus on U.S. and global businesses.
Global growth outlook
Anything that affects China, the world’s second-largest economy, can have a powerful ripple effect around the globe. An early February report by Moody’s Analytics estimated that every 1 percentage point reduction in China’s real gross domestic product (GDP) will reduce global GDP outside China by 0.4%. The report projected that disruption caused by the virus would cut more than 2 percentage points off China’s GDP growth in the first quarter of 2020 and result in a loss of 0.8% growth for the year. This in turn would cause a loss of about 0.3% in annual global GDP growth outside China and about 0.15% in the United States. Moody’s lowered its projection for 2020 global growth from around 2.8% to 2.5%.21
In a February 16 forum, Kristalina Georgieva, managing director of the International Monetary Fund, was more optimistic, suggesting that the virus might shave 0.1% to 0.2% off the IMF’s 2020 global growth projection of 3.3%. Georgieva cautioned that there was still a “great deal of uncertainty” and emphasized that the economic damage depends on the length of the disruption. If the disease “is contained rapidly,” she said, “there can be a sharp drop and a very rapid rebound.”22
The immediate concerns are to combat the virus on a human level and normalize business activity, but the outbreak could accelerate the shift of U.S. and European manufacturing away from China, creating a more diversified global supply chain.23-24 The situation remains in flux, so you may want to keep an eye on further developments.
All investments are subject to market volatility and loss of principal. Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to the specific country. This may result in greater share price volatility. Shares, when sold, may be worth more or less than their original cost.
1) South China Morning Post, February 26, 2020
2) The New York Times, February 18, 2020
3-4, 21) Moody’s Analytics, February 2020
5, 23) The Wall Street Journal, February 18, 2020
6, 10) Los Angeles Times, February 4, 2020
7) Forbes, February 12, 2020
8) Car and Driver, February 4, 2020
9) The Wall Street Journal, February 14, 2020
11-12, 14-15, 18) The Wall Street Journal, February 3, 2020
13) The Wall Street Journal, February 21, 2020
16, 20) The Wall Street Journal, February 25, 2020
17) The Wall Street Journal, February 7, 2020
19) The New York Times, February 20, 2020
22) Bangkok Post, February 17, 2020
24) South China Morning Post, February 18, 2020
Upside Down: What Does the Yield Curve Suggest About Growth?
On August 14, 2019, the Dow Jones Industrial Avenue plunged 800 points, losing 3% of its value in its biggest drop of the year. The Nasdaq Composite also lost 3%, while the S&P 500 lost 2.9%.1
The slide started with bad economic news from Germany and China, which triggered a flight to the relative safety of U.S. Treasury securities. High demand briefly pushed the yield on the benchmark 10-year Treasury note below the two-year note for the first time since 2007.2 This is referred to as a yield curve inversion, which has been a reliable predictor of past recessions. The short-lived inversion spooked the stock market, which recovered only to see the curve begin a series of inversions a week later.3
From short to long
Yield relates to the return on capital invested in a bond. When prices rise due to increased demand, yields fall and vice versa. The yield curve is a graph with the daily yields of U.S. Treasury securities plotted by maturity. The slope of the curve represents the difference between yields on short-dated bonds and long-dated bonds. Normally, it curves upward as investors demand higher yields to compensate for the risk of lending money over a longer period. This suggests that investors expect stronger growth in the future, with the prospect of rising inflation and higher interest rates.
The curve flattens when the rates converge because investors are willing to accept lower rates to keep their money invested in Treasuries for longer terms. A flat yield curve suggests that inflation and interest rates are expected to stay low for an extended period of time, signaling economic weakness.
Parts of the curve started inverting in late 2018, so the recent inversions were not completely unexpected. However, investors tend to focus on the spread between the broadly traded two-year and 10-year notes.4
Inversion as an indicator
An inversion of the two-year and 10-year notes has occurred before each recession over the past 50 years, with only one “false positive” in that time. It does not indicate timing or severity but has reliably predicted a recession within the next one to two years. A recent Federal Reserve study suggested that an inversion of the three-month and 10-year Treasuries — which occurred in March and May 2019 — is an even more reliable indicator, predicting a recession in about 12 months.5
Is it different this time?
Some analysts believe that the yield curve may no longer be a reliable indicator due to the Federal Reserve’s unprecedented balance sheet of Treasury securities — originally built to increase the money supply as an antidote to the Great Recession. Although the Fed has trimmed the balance sheet, it continues to buy bonds in large quantities to replace maturing securities. This reduces the supply of Treasuries and increases pressure on yields when demand rises, as it has in recent months.6
At the same time, the Fed has consistently raised its benchmark federal funds rate over the last three years in response to a stronger U.S. economy, while other central banks have kept their policy rates near or below zero in an effort to stimulate their sluggish economies. This has raised yields on short-term Treasuries, which are more directly affected by the funds rate, while increasing global demand for longer-term Treasuries. Even at lower rates, U.S. Treasuries offer relatively safe yields that cannot be obtained elsewhere.7
The Fed lowered the federal funds rate by 0.25% in late July, the first drop in more than a decade. While this slightly reduced short-term Treasury yields, it contributed to the demand for long-term bonds as investors anticipated declining interest rates. When interest rates fall, prices on existing bonds rise and yields decline. So the potential for further action by the Fed led investors to lock in long-term yields at current prices.8
Economic headwinds
Even if these technical factors are distorting the yield curve, the high demand for longer-term Treasuries represents a flight to safety — a shift of investment dollars into low-risk government securities — and a pessimistic economic outlook. One day after the initial two-year/10-year inversion, the yield on the 30-year Treasury bond fell below 2% for the first time. This suggests that investors see decades of low inflation and tepid growth.9
The flight to safety is being driven by many factors, including the U.S.-China trade war and a global economic slowdown. Five of the world’s largest economies — Germany, Britain, Italy, Brazil, and Mexico — are at risk of a recession and others are struggling.10
Although the United States remains strong by comparison, there are concerns about weak business investment and a manufacturing slowdown, both weighed down by the uncertainty of the trade war and costs of the tariffs.11 Inflation has been persistently low since the last recession, generally staying below the 2% rate that the Fed considers optimal for economic growth. On the positive side, unemployment remains low and consumer spending continues to drive the economy, but it remains to be seen how long consumers can carry the economic weight.12
Market bounceback
Regardless of further movement of the yield curve, there are likely to be market ups and downs for many other reasons in the coming months. Historically, the stock market has rallied in the period between an inversion and the beginning of a recession, so investors who overreacted lost out on potential gains.13 Of course, past performance does not guarantee future results. While economic indicators can be helpful, it’s important to make investment decisions based on your own risk tolerance, financial goals, and time horizon.
U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities fluctuates with market conditions. If not held to maturity, they could be worth more or less than the original amount paid. The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. The performance of an unmanaged index is not indicative of the performance of any specific security. Individuals cannot invest directly in any index.
1-2, 13) The Wall Street Journal, August 14, 2019
3) CNBC.com, August 23, 2019
4-5) Reuters, August 13, 2019
6) Forbes.com, August 16, 2019
7-9) The Wall Street Journal, August 16, 2019
10, 12) CNN, August 14 and 18, 2019
11) Reuters, July 1, 2019
Prioritizing Savings for College and/or Retirement
The November 2018 AAII Journal, American Association of Individual Investors, included an interview with Harold Pollack. The discussion was about “The Index Card: Why Personal Finance Doesn’t Have to Be Complicated” (Portfolio, 2016). He wrote it with Helaine Olen.
The following passage is from a response to a question about prioritizing where to direct money.
“There are different ways that people can do this. You should match your method with what gives you the mojo to actually do it.” … “Suppose I’m a young parent and I’m choosing between prioritizing my retirement and savings for my kid’s college. Mathematically, retirement tends to be the answer for most people, but your kid’s college gives you mojo in a different way. If you’re walking with your seven-year-old daughter in a store and you see a sweet $500 camera lens, you can point to it, and tell your daughter: “I really want that lens, I’m going to put that $500 toward paying for your college. Maybe some day you’ll do that for your daughter.’ That’s powerful and motivating.”
2018 Nov.Beyond-the-Index-Card-Implement
