On Thursday, I hosted the latest session in my “Ask Me Anything” webinar series: “5+ Potential Traps to Avoid When Planning for Social Security” Please click this link Passcode: LDk77s$1 if you would like to view the recording.
It was a big week in the Weiss household. After we took him on one of his few college visits, our third son decided where he will go to college. Congratulations to Michael. Next year he will join his brother Daniel at the University of Maryland. He plans to study Mechanical Engineering. Please join me in wishing him great success in the future.
Our lives have many stages. Those stages tie closely to our age. But they don’t stop when we stop working. This week’s first article discusses the six phases of retirement. A comprehensive, holistic financial plan should calculate more than how much money you need for retirement.
Your financial plan should address the emotional aspects of retirement, too. That’s why our financial planning process starts with a life planning conversation. It helps us understand what matters to you. Your plan should address your goals as well as your challenges.
Investment Commentary
When it comes to investing, we should try to buy low and sell high. When prices hover near all-time highs, selling gets a lot harder. Your emotions encourage you to buy high, not to sell. We suffer from FOMO, fear of missing out. We don’t want to sell a winner too soon and watch it continue to move higher while we sit on the sidelines. The most we can ever lose if we hold on is 100% of our original investment. Selling too soon can cause us to miss unlimited gains.
Even the world’s greatest investors admit some of their greatest mistakes involve selling at the wrong time. As Peter Lynch, former manager of the Fidelity Magellan fund has said, “One of the oldest sayings on Wall Street is ‘Let your winners run and cut your losers.’ It’s easy to make a mistake and do the opposite, pulling out the flowers and watering the weeds.”
What makes it so hard? We don’t know the price at which a stock is overvalued or undervalued. If, for example, we knew a stock was overvalued at $50 per share and undervalued at $30 per share, it would be easy. Most of the time stocks trade between these two extremes. That makes it much harder to know when to buy or sell. The range between overvalued and undervalued can be wider than this example, too. The better you know the company or its industry the narrower this range can be.
You also must consider the overall market. As the market rises, you may hear about even more expensive stocks. While yours may look overvalued, it may still look cheap in comparison to others. That helps keep it in that gray area.
Process matters. It can help limit the role your emotions play when you invest. Over the long run, keeping hot assets only because they are hot, not because you think they are undervalued, will likely lead to getting burned.
The market has delivered strong gains over the last week. On Thursday, we learned the U.S. economy grew at a 6.4% rate in the first quarter. Weekly jobless claims also fell to their lowest level since the pandemic began last year. The economy is approaching its pre-pandemic size. Stocks also benefited from a batch of strong corporate earnings reports. The prospect of as much as $1.8 trillion in new government spending encouraged investors as well.
The S&P 500 Index continues to deliver strong April returns. As of Thursday’s close, the S&P is up 6.0% month-to-date and 12.1% year-to-date.
We are often asked our thoughts about the market and its valuation. The truth is we don’t know if the market is over-, under-, or fairly valued. When adding meaningful amounts of new money to the market at current levels, we often suggest taking a dollar-cost averaging approach. Add some money now. Set a plan to invest more at regular intervals and stick to it.
Against the current backdrop, we continue to stick to our process and remain focused on the long term. Our long-term market view remains positive.
Here are the links to this week’s articles as well as a brief description of each:
1. Phases of Retirement. While we may not think of it that way, our lives include a series of transitions. We can find many times in our lives where we must adapt and change. In the 1970s, sociologist Robert Atchley developed the concept of six stages of retirement. They outline different stages most people transition through when they leave the workforce permanently. These stages may not apply to everyone, but they provide a model for what you might encounter in the future.
2. The Rise of the Dreaded “Workcation.” The pandemic has more of us working from home. That can lead to an unfortunate side effect – “workcations.” Do you go on vacation but work while away? Collectively, Americans always underuse their vacation days. We’re also working longer during the pandemic. If you plan to get away with your family this summer, try to distance yourself from work as well.
3. A Tax-Preparation Checklist for the Self-Employed. Tax season can be even more stressful for those who are self-employed. You must worry about both personal and business taxes. This article shares seven strategies that can help keep you on track for this tax season as well as those to come. They can help you maximize tax savings while minimizing stress.
4. Before You Answer, Consider the Opposite Possibility. When evaluating potential investments, I try to understand the bull and bear arguments. In other words, I try to avoid confirmation bias. You can make better judgments by pushing yourself to listen to (and understand) contrary opinions. Many of us are also familiar with the logic of the wisdom of crowds – the crowd’s collective view is often more accurate than that of any individual within the crowd. This article says the wisdom of crowds applies to individuals, too. Can you improve the quality of your estimates by thinking of someone in your life with whom you often disagree and imagining what that person would guess? This article suggests the answer is “yes.”
5. What Happens After the Stock Market Is up Big? The S&P 500 declined almost 34% in a mere 22 trading sessions as the pandemic started last spring. It bottomed on March 23, 2020. It jumped more than 9% higher the next day. It’s hardly looked back since. The one-year return from the low was nearly 75%. The market continues to move higher. It’s now up more than 88% from the low. The one-year gain was the largest since 1950. The big question, “What’s next?” We can’t know for sure, but we can use history as a guide. This article takes a look at the market’s performance after the market rises 50% or more over a one-year period. As expected, the longer your time horizon, the more likely it is the market will increase over time.
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For firm disclosures, see here: https://apprisewealth.com/disclosures/
Phil Weiss founded Apprise Wealth Management. He started his financial services career in 1987 working as a tax professional for Deloitte & Touche. For the past 25+ years, he has worked extensively in the areas of financial planning and investment management. Phil is both a CFA charterholder and a CPA.
Located just north of Baltimore, Apprise works with clients face-to-face locally and can also work virtually regardless of location.
