Personal Finance Financial Planning & Investing

[4Q Basket Case]

On a day when the stock market is getting hammered, a word from one bearing scars of mistakes in earlier years -- me.

Don't just do something -- stand there!

Yeah, it's scary to watch the Dow down 1,000 points and the S&P down 150 in a day. As I'm writing this, it's not quite noon, so we don't know where the day will end.

If you've got a time horizon longer than 5-7 years, the answer today or any other single day doesn't matter. What matters is that you keep on keeping on.

The market was too much bought into AI hype. It's one thing to have the technological capability. It's another thing to make it profitable. AI will get there, but losing money in early stages of a new technology isn't unusual, and a correction (or even more) in the sector isn't a disaster.

Now, the market is too bought into world threats, a tick up in unemployment and softening of the labor market.

Well, there are always world threats. And honestly the unemployment rate was so low and the labor market so tight that it was unsustainable. Viewed against history, the numbers are still much lower than normal.

The stock markets are a sawtooth up, and sometimes the down times really, really hurt. But you can't truly call yourself an investor until you come out the other end of a downturn. As Warren Buffett says, "Buy when there is blood in the streets, even if some of the blood is yours."

IOW, even though some people are running around like headless chickens, if you haven't crossed the line between investing and gambling, the sky is not falling.

Keep on investing as much as you can, each and every paycheck, in a diversified portfolio of low-cost mutual funds. When you're at the end of your working life, you'll look back on times like this as when you really made a killing buying cheap and reaping the rewards later.

Keep calm and keep on keeping on!

 

[DzynKingRTR]

On a day when the stock market is getting hammered, a word from one bearing scars of mistakes in earlier years -- me.

Don't just do something -- stand there!

Yeah, it's scary to watch the Dow down 1,000 points and the S&P down 150 in a day. As I'm writing this, it's not quite noon, so we don't know where the day will end.

If you've got a time horizon longer than 5-7 years, the answer today or any other single day doesn't matter. What matters is that you keep on keeping on.

The market was too much bought into AI hype. It's one thing to have the technological capability. It's another thing to make it profitable. AI will get there, but losing money in early stages of a new technology isn't unusual, and a correction (or even more) in the sector isn't a disaster.

Now, the market is too bought into world threats, a tick up in unemployment and softening of the labor market.

Well, there are always world threats. And honestly the unemployment rate was so low and the labor market so tight that it was unsustainable. Viewed against history, the numbers are still much lower than normal.

The stock markets are a sawtooth up, and sometimes the down times really, really hurt. But you can't truly call yourself an investor until you come out the other end of a downturn. As Warren Buffett says, "Buy when there is blood in the streets, even if some of the blood is yours."

IOW, even though some people are running around like headless chickens, if you haven't crossed the line between investing and gambling, the sky is not falling.

Keep on investing as much as you can, each and every paycheck, in a diversified portfolio of low-cost mutual funds. When you're at the end of your working life, you'll look back on times like this as when you really made a killing buying cheap and reaping the rewards later.

Keep calm and keep on keeping on!

I should not have looked to see how much I have lost today. Yikes!

 

[Bamaro]

On a day when the stock market is getting hammered, a word from one bearing scars of mistakes in earlier years -- me.

Don't just do something -- stand there!

Yeah, it's scary to watch the Dow down 1,000 points and the S&P down 150 in a day. As I'm writing this, it's not quite noon, so we don't know where the day will end.

If you've got a time horizon longer than 5-7 years, the answer today or any other single day doesn't matter. What matters is that you keep on keeping on.

The market was too much bought into AI hype. It's one thing to have the technological capability. It's another thing to make it profitable. AI will get there, but losing money in early stages of a new technology isn't unusual, and a correction (or even more) in the sector isn't a disaster.

Now, the market is too bought into world threats, a tick up in unemployment and softening of the labor market.

Well, there are always world threats. And honestly the unemployment rate was so low and the labor market so tight that it was unsustainable. Viewed against history, the numbers are still much lower than normal.

The stock markets are a sawtooth up, and sometimes the down times really, really hurt. But you can't truly call yourself an investor until you come out the other end of a downturn. As Warren Buffett says, "Buy when there is blood in the streets, even if some of the blood is yours."

IOW, even though some people are running around like headless chickens, if you haven't crossed the line between investing and gambling, the sky is not falling.

Keep on investing as much as you can, each and every paycheck, in a diversified portfolio of low-cost mutual funds. When you're at the end of your working life, you'll look back on times like this as when you really made a killing buying cheap and reaping the rewards later.

Keep calm and keep on keeping on!

Probably a buying opportunity to move money from money market funds into s&p 500 indexed funds.

Edit: just checked and S&P is at currently 5206, down 2.62%. Not really a big deal yet.

 

[UAH]

Probably a buying opportunity to move money from money market funds into s&p 500 indexed funds.

Edit: just checked and S&P is at currently 5206, down 2.62%. Not really a big deal yet.

I know this goes against index investing but I have been putting small amounts into areas that offer positive opportunities such as pharmaceuticals a couple of years ago. Today I dipped my toe into the chip sector. There have been precious few entry points during this bull run but one has to start down the road in order to stay focused.

 

[BamaNation]

I know this goes against index investing but I have been putting small amounts into areas that offer positive opportunities such as pharmaceuticals a couple of years ago. Today I dipped my toe into the chip sector. There have been precious few entry points during this bull run but one has to start down the road in order to stay focused.

Not a criticism, but if you've read my thoughts on this over the years, you know my suggestion would be to limit "alternate plays / individual stocks" to 5% of NW or less. My wife and I are totally violating this right now due to her company's stock going up about 30% in last few weeks and part of her total comp is from restricted shares. She's also prevented in her role from selling at the moment. SO, we basically count this line as a value of zero when looking at our overall NW.

Also, I sent the following bogleheads post to a family member who was about to do some panic selling. It's a post by a guy on Oct 9, 2008 who was on the proverbial ledge about to sell at the crash and follows the thought processes of him and other posters who talked him off that ledge and how that helped him and others even as late as 2022. Today is a good day to look at this again.

I can't believe I am thinking this [Panic and Survival 2008-09] - Bogleheads.org

One other thing to think about is if one has a 50/50 asset allocation, that's only down 1.5% today. 75/25 is down 2.25%. Bonds barely moved today and larger than "normal" equity down days are a big reason to hold them.

Don't just do something -- stand there!

 

[UAH]

Not a criticism, but if you've read my thoughts on this over the years, you know my suggestion would be to limit "alternate plays / individual stocks" to 5% of NW or less. My wife and I are totally violating this right now due to her company's stock going up about 30% in last few weeks and part of her total comp is from restricted shares. She's also prevented in her role from selling at the moment. SO, we basically count this line as a value of zero when looking at our overall NW.

Also, I sent the following bogleheads post to a family member who was about to do some panic selling. It's a post by a guy on Oct 9, 2008 who was on the proverbial ledge about to sell at the crash and follows the thought processes of him and other posters who talked him off that ledge and how that helped him and others even as late as 2022. Today is a good day to look at this again.

I can't believe I am thinking this [Panic and Survival 2008-09] - Bogleheads.org

One other thing to think about is if one has a 50/50 asset allocation, that's only down 1.5% today. 75/25 is down 2.25%. Bonds barely moved today and larger than "normal" equity down days are a big reason to hold them.

We were investors in 1987, the 2000 .com crash, the days after 9/11, 2005 and in 2008. Lot of room for mistakes and I made many of them. We do understand diversification and lowering our Beta versus chasing Alpha. Everyday is another opportunity.

 

[BamaNation]

I should not have looked to see how much I have lost today. Yikes!

To quote one US senator back in the day in a different context … “a billion here and a billion there and soon you’ve got real money!”

 

[4Q Basket Case]

An article from Morningstar.

Toward the end, under the topic heading of, "What's an Investor To Do Today," the first words are "Steady as she goes."

IOW, Don't just do something, stand there. Also some good fundamental analysis on why this isn't 2022.

Don’t Panic: It’s Not 2022 All Over Again | Morningstar

 

[4Q Basket Case]

We were investors in 1987, the 2000 .com crash, the days after 9/11, 2005 and in 2008. Lot of room for mistakes and I made many of them. We do understand diversification and lowering our Beta versus chasing Alpha. Everyday is another opportunity.

Every mistake I've made has been a function of getting scared. When it comes to investing, fear is the devil. Did it twice. Will not do it a third time.

 

[UAH]

July Market Commentary and "Quote of the month"

July Market Commentary


On the surface, equity indices had a relatively mild month with the S&P500 +1.2% in July and Nasdaq -1.6%. However, beneath the headline returns, there were undercurrents that provided a challenging environment for some fundamental hedge fund strategies and opportunities for others.

In the month, a few specific dynamics emerged:

Spurred by the increased expectations of a rate cut in September, there was a large rotation from large cap technology stocks to small/mid-cap equities, as evidenced by the 11.7% outperformance of the Russell 2000 (up +10.1% in July) vs. the Nasdaq-100 index; the largest relative outperformance since April 2002 and the 6th largest going back to 1985.

Second, we witnessed the largest “de-grossing” from hedge funds since the "meme craze" in January 2021 (according to both Goldman Sachs and JP Morgan).

These forces caused indiscriminate buying and selling from investors in certain corners of the market that presented a challenge to relative value, fundamental strategies but also fertile trading opportunities for more tactical trading strategies.

Given the August fireworks, we will summarize the last few weeks quickly – markets have been volatile to say the least – on August 5th, the VIX Index had its largest intraday spike in history going back to 1992, which was greater than March 2020. While impossible to summarize all market behavior in a few bullets, some drivers of the volatility have been:

A weaker July ISM manufacturing report, and then an increase of 114,000 jobs versus expectations of 175,000 and the U.S. unemployment rate rising to 4.3% in July (highest level since October 2021).

The BOJ’s second rate hike in 17 years, led to an 11% appreciation of the yen since its low vs. the USD in mid-July; the recovery in the yen has been exacerbated by the unwinding of popular carry trades, when investors borrow in yen to fund purchases of higher-yielding currencies or risk assets. As market participants mitigate losses from this carry trade, there is evidence of forced selling, particularly in global tech and AI equities, which have also released mixed earnings.

All eyes are on the Fed and the outcome of their September 17-18 meeting; the markets have, again, moved aggressively in pricing in up to four Fed rate cuts over the final three meetings in 2024, beginning with expectations of a 25 to 50 basis point cut in September.

We continue to believe that market volatility is here to stay as we approach the Fed meeting next month, the U.S. election in November and a tremendous amount of geopolitical uncertainty around the globe (see our favorite quote below). With market volatility and human emotion elevated, we believe every data point will be exaggerated in how it affects the Fed’s path forward and the election. Fortunately, many of our strategies here can take advantage of this volatility and potential dislocation.

Quote of the Month
“The next three months could be one of the wildest and most volatile market periods in memory. Keep in mind, France still has a hung parliament, the UK’s new Labour government isn’t exactly off to a great start, missiles are flying in the Middle East and Ukraine is attacking inside Russia. The exhausting news flow seems certain to continue, one way or another.”

 

[BamaNation]

If there was ever a "case in point" of "don't just do something, stand there" it would be this past 10 trading days. Doesn't mean market(s) will keep shooting to the moon, but it does mean don't make rash/emotional decisions in the middle of the storm. Have an investment plan, execute the plan, and stick with the plan. Come what may. Had to talk a family member out of doing crazy things to their portfolio last Monday. Their portfolio is moderately conservative. Maybe their "sleep number" is even more conservative, but the time to modify the allocation was not last Monday.

I always find time provides perspective. Here's some charts of VTI... the further you get from these down/up spikes the smaller they become. Two lessons: (1) Keep investing even during the downs and that will superpower the ups and (2) Things are never as good or bad as they seem at the moment of inflexion!

Here's the VTI (Total Stock Market Index EFT) chart for August (Month-to-date)


VTI chart for the last 5 weeks.



VTI chart for the last 5 years.


VTI chart for the last 16 years

 

[BamaNation]

Some more details on funding Roth IRAs with leftover 529 College savings

A law that took effect this year allows unused 529 funds to be transferred to Roth IRAs tax-free, up to certain limits. Often this move will cost less than simply withdrawing extra funds, which could bring taxes and a penalty.

Roth IRA sponsors, including Fidelity Investments, Vanguard Group, and Charles Schwab, are ready for these rollovers and have posted forms for them on their websites. While the Internal Revenue Service still needs to clarify some issues, many 529 owners aren’t affected and can proceed.

https://www.wsj.com/personal-finance/taxes/529-roth-ira-rollover-3e4850aa?st=58LnGU&reflink=desktopwebshare_permalink

 

[UAH]

Some interesting points from a Quarterly Investment Review this morning.

Apparently Goldman Sachs is projecting a 3% return on the Stock Market. Comment was that for next 20 years market return will be approximate the total S&P 500 Dividend.

Warren Buffett is setting on cash of $260 Billion.

We are now seeing a correction in Muni and Corporate Bonds as Long Term Treasuries climb as necessary to fund US Debt. Bonds are going to be a difficult investment in terms of total return due to that pressure on long term rates as the US enters the market to fund $6.75 Trillion in debt with a cost of servicing it put at $2.4 Billion a day. Lot of implications to that particularly mortgage rates.

A chart of national debt by country was discussed in terms of percentage of GDP. The only time the US has exceeded 100% of GDP before now was following WW ll. Japan sits at 250% of GDP. Much of Europe is similar to the US except Germany who carries relatively small debt after their experience following WW l.

It was interesting to find that the Fed is now buying Gold which is likely an effort to support dollar value and maintain the Dollar as the reserve currency which is under pressure with Iran and Russia selling crude with other currencies.

It is difficult to absorb all of that from proprietary charts but I hope it provides food for thought.

 

[BamaNation]

Some interesting points from a Quarterly Investment Review this morning.

Apparently Goldman Sachs is projecting a 3% return on the Stock Market. Comment was that for next 20 years market return will be approximate the total S&P 500 Dividend.

Thanks for the summary!

My wife and I use a 4% return on our portfolio in our planning. Makes us save more and spend less. Of course I've been hearing the 3/4/5% return number for quite a while from a doomsday folks. Certainly, could happen if debt isn't controlled, over-regulation blocks innovation, AI takes a nasty turn, war, equities continue to be "overpriced" at least according to Sharpe ratio, etc., etc.

Here's some flavor from a blog this week about the Goldman 3% number:

3% Stock Market Returns For the Next Decade? - A Wealth of Common Sense

The U.S. stock market has been on fire of late. But it doesn’t feel like we’ve entered the euphoric phase of investor psychology just yet. In fact, many prognosticators have been lowering expectations. Goldman Sachs put out a research piece that posits the S&P 500 could return just 3% annualized...

awealthofcommonsense.com

 

[Bamaro]

Some interesting points from a Quarterly Investment Review this morning.

Apparently Goldman Sachs is projecting a 3% return on the Stock Market. Comment was that for next 20 years market return will be approximate the total S&P 500 Dividend.

A chart of national debt by country was discussed in terms of percentage of GDP. The only time the US has exceeded 100% of GDP before now was following WW ll. Japan sits at 250% of GDP. Much of Europe is similar to the US except Germany who carries relatively small debt after their experience following WW l.

It was interesting to find that the Fed is now buying Gold which is likely an effort to support dollar value and maintain the Dollar as the reserve currency which is under pressure with Iran and Russia selling crude with other currencies.

I wont get into details because this is NSNP but I'm afraid that the deficit/debt is going to accelerate. That's unsustainable.

 

[BamaNation]

IRS has released tax changes for 2025
Announced on 11/1/24

Main points:

• WSJ.com: Starting next year, workers between 60 and 63 can make a super catch-up contribution of up to $11,250, the IRS said Friday. People who turn those ages sometime during the year will be able to put up to $34,750 into their workplace retirement plans. That is about 14% more than in 2024 and marks the biggest change to 401(k) contribution rules in two decades.
• For everybody else, the change is $500 increase (max of $23,500 for under 50, catchup 50-59 and 64+ is $31,000)
• Bigger "all-in" limits up to $70,000
• Roth & traditional IRA limit increases (and phase-out ranges increased)
• Tax bracket, deduction changes

401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000

The IRS Revealed 2025 Changes To Retirement 401(k) and IRA Contribution Limits

Retirement savers can stash more money in their 401(k)s next year. Friday, the IRS announced cost-of-living adjustments for retirement plans and IRAs.

www.investopedia.com

Tax Bracket, Deductions & Marginal Rate changes:

2025 Tax Brackets

Explore the IRS inflation-adjusted 2025 tax brackets, for which taxpayers will file tax returns in early 2026.

taxfoundation.org

Starting in 2025, people aged 60, 61, 62, or 63 who participate in workplace retirement plans can make even greater catch-up contributions of up to $11,250 instead of $7,500. [$$$}

https://www.wsj.com/personal-finance/retirement/401k-retirement-account-catch-up-limit-2025-5ed60a7b

401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000 | Internal Revenue Service

IR-2024-285, Nov. 1, 2024 — The Internal Revenue Service announced today that the amount individuals can contribute to their 401(k) plans in 2025 has increased to $23,500, up from $23,000 for 2024.

www.irs.gov

 

[Bamaro]

Weaalth by age:

 

[4Q Basket Case]

An article from Morningstar on what's been driving nice returns in the 2024 stock market.

5 Reasons Stocks Keep Hitting Record Highs | Morningstar

For 2025, Morningstar recommends overweighting small cap stocks and value stocks. But to me that smacks of trying to predict the market. I personally say create a diversified portfolio and stick with it, rebalancing as needed.

Rebalancing would naturally eliminate being overweight in sectors that have had a nice runup, and underweight in sectors that haven't. But the shift is a function of the rebalancing process, not of trying to predict what the markets will do -- which is a fool's errand.

 

[AlistarWills]

I’ve skimmed through and don’t see any info on 403b’s. My wife’s business just got bought out and the new employer is a non-profit and offers a 403b instead of the 401k the previous ownership offered. Is there any need-to-knows? She has options on what to do with the money in her existing 401k.

 

[4Q Basket Case]

Your wife has the option of rolling over the existing 401(k) into an IRA. Depending on the terms of the sale, she might or might not be able to keep her existing 401(k) investment allocation.

If she can keep existing money in the 401(k), I would suggest evaluating the 403(b)'s investment options vs. those in the 401(k), and make the decision to (1) go with the new choices, or (2) roll the existing money into a self-managed IRA accordingly.

Going forward, for new money contributed, she will need to make investment choices from what the new 403(b) offers. Those choices and associated fees might be better than the former plan, or they might not be as good.

Either way, unless you're stuck with options consisting of only annuities or funds with nasty high fees, I'd suggest putting as much as you can into the 403(b) to take advantage of the pre-tax treatment of new contributions.

For reasons discussed earlier in this thread, I'd suggest contributing as much as you possibly can. You're not "maxed out" at the point at which the new employer ceases to match contributions. You're maxed out at $23,500 annual contributions if your wife is under 50, or $31,000 if she's 50 or older.

She can also make annual contributions into a regular IRA of up to $7,000 if under 50, or $8,000 if 50 or older. Depending on income, the contributions to an IRA could be pre-tax dollars or post-tax dollars.

The second most important thing, behind only keeping on investing, is this: If you do decide to roll over the 401(k) balance into a self-managed IRA, be sure neither you nor your wife touch the money in the process of the transition. It should go straight from the existing 401(k) into the IRA.

If the money is in your personal name at any point in the transition, you haven't rolled over the balance....you've taken a distribution. And if you take a distribution, you trigger all sorts of tax consequences and penalties. So I'd strongly suggest doing that with a knowledgeable broker who does it all the time. I personally use Schwab, but any number of nationally-recognized names can do it as well.