by Ryan Kurtz
Just in case you haven’t been paying attention the last 3127 calendar days, we are in a bull stock market (as of September 30 measured by the S&P 500). That means stocks have been on a steady climb and have not had a 20% drop from its highest point since 2009. So when will this bull market end?
Before answering that question, let’s start by looking at what has really happened in the last 3127 days.
Over the last 8 years investors around the world were willing to pay more to own companies like Walmart, Apple, and Exxon. Even though the Federal Government shutdown briefly, terrorists attacked different places around the world, and we had two Presidential elections during that time period, investors as a whole have felt confident in owning stocks. The stock market is like an auction, when you have bidders that are willing to pay more for something, you have to bid higher to get it and that is what investors have been willing to do.
So when will this bull market end?
Many economists, financial advisors, and business writers have been more than happy to give their opinions and predictions on when this may occur. The truth be told, nobody knows.
This bull could keep running for another 8 years or the market could begin its descent tomorrow.
To keep things in perspective, let’s look at history and what we can expect to be normal.
Dow Jones Industrial Average from 1900 – 2016 (information based on Capital Group research)
-5% decline about three times a year
-10% decline about once a year
-15% decline about once every two years
-20% decline about once every 3.75 years
What is the lesson in this?
We do not know how long this bull market will last but when it does end, it is not a tragic event. It is normal for investing into the stock market.
So what can you do?
Review your financial plan regularly and make sure you are prepared if your investments in the stock market begin to lose value. Historically, if you were able to hold them long enough, you would have been rewarded by enjoying the next bull market that came along. Although past results are not a guarantee of the future, this can be a comforting fact to a long term investor.
“The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” — Warren Buffett
If you are wondering if you are prepared for this bull market to end, contact us at Bare Wealth Advisors. We would be happy to review your plan with you.
by Ron Bare
I have had the privilege of working with hundreds of people over the years building financial and investment plans based on their goals, values, and the purpose of the wealth given to them. Looking back over 20 years of doing this, a common theme has risen to the top relating to investment decisions and long term success. It relates to how closely we make investment decisions based on a financial plan compared to making investment decisions outside of a well thought out plan.
When we make investment decisions based on a financial plan that aligns with our goals and values, a few things occur. First, we know how much is enough – a critical element in helping us live a life of contentment. Without knowing what enough to meet our goals is, we are left with accumulation without purpose. A second result of knowing our plans and goals prior to making investment decisions is that we can more easily determine what types of investments (from the endless options) are in our best interests. Most investment decisions should be determined by our values and goals, purpose for the money, timeframe, income needs, and liquidity needs. It is also important to have a proper understanding of risk and return (most of us do not understand the definition of risk – perhaps another blog for the future). However, many investment decisions are based on something outside of these items….
When we make investment decisions outside of a financial plan that aligns with our values, purpose, and goals, we are extremely susceptible to our emotions. A previous blog (March 2017) written about fear and greed can certainly be applicable here. You don’t need to look far to find reasons not to invest. Just pick up the paper or go to your favorite news website and there will be a multitude of reasons not to invest. The ironic item is whether the market is doing very well (such as a time as this) or is doing extremely poorly (remember 2008), the reasons not to invest are always there. My theory is that fear sells more than optimism and journalism wants us to read their press. Therefore, they print fear.
On the other side of emotions is greed. Jesus said in Luke 15 “Watch out! Be on your guard against all kinds of greed; life does not consist in an abundance of possessions” (NIV) Notice the emphasis on “Watch Out!“, Jesus clearly knows we need to be on the lookout against greed and He also makes the point that life does not consist of accumulating possessions. When we have no plan and have not defined “enough”, we tend to want to accumulate more and more. This then becomes our focus. If our focus becomes our possessions, then our investment decisions lead to speculation and an over concentration on the news, markets, and timing – which all lead back to fear. The danger of greed is that wealth begins to control our thoughts, feelings, and emotions, thereby consuming us.
True abundant life should be focused on our relationship with God, our family, and how to make the world a better place. By developing a well thought out financial plan that aligns wealth with our God-given purpose, we can make better investment decisions that honor God, impact our family and make the world a better place.
by Ryan Kurtz
Right in middle of the Bible, there is a book called Ecclesiastes written by one of the wisest and wealthiest men that ever lived. His name is Solomon. In Ecclesiastes 11:2 Solomon gives us a very useful verse that is sometimes overlooked. It says;
Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
It is interesting to me that Solomon says that we do not know what misfortune will happen. You mean we can’t predict it or see it coming? Sometimes, we can’t. How many people saw the dot com bubble burst coming in the late 90’s or the financial meltdown coming in 2008? Those and a number of other times of “misfortune” are current examples of why Solomon tells us to divide our portion.
The word that is often used in the financial industry for divide is diversifying.
Let’s take a look at some of the places that people currently diversify their wealth. None of these investments are bad places to invest, but as Solomon warns us, too much of your assets into any of these may be putting you at increased risk when “misfortune” occurs on the earth.
- Money in the Bank – It is good to have some cash available. If your car breaks down or an unexpected expense arises, it is good to have money safe and available.
The risk to having too much cash is that you are constantly losing purchasing power to inflation. We estimate that each year there is around a 3% increase in expenses due to inflation. If you make 0.25% in a bank account, you are losing 2.75% of your money to inflation. Having too much in cash sometimes can be a bad thing.
Most financial advisors recommend having 3 to 6 months of living or operating expenses in cash. It is also advisable to have cash set aside for any purchases you may need to make in the next 3 years.
- Real estate – Real estate has been a great long term investment. Not only can you collect income from owning real estate that someone else is using, you can increase the value of investment by the property growing in value over time.
The risk to owning real estate is the potential of the real estate market contracting or collapsing. This has happened before and could happen sometime again. Another risk to real estate is lack of liquidity. If you need money and it is tied up in real estate, it could take several months or even years before you can sell it depending on the current state of the market.
Owning real estate should be done with resources that you can keep invested for the long term. Avoid excessive amounts of debt when buying real estate and, if possible, don’t buy it all in the same location.
- Stocks – Owning stocks has been a great investment for future growth. The risk to owning too much of one company is the potential to lose a lot of your money quickly. A company could lose ½ of its value or more over short periods of time.
Buying stocks is often best done within mutual funds. This way you can invest into stocks while not owning too much of any one company.
- Mutual Funds – A great and relatively inexpensive way to invest is in a mutual fund. A mutual fund is where a number of investors pool their money together and pay someone to manage it for them. You can use mutual funds to invest in different assets like stocks or bonds with someone else doing the work of looking for good investments for you.
A risk to owning a mutual fund is the potential loss of value of the investments that it is invested in and therefore, a loss to the investor. Most mutual funds are not good short term investments for this reason.
- Business – One of the places people often invest their wealth is into a business that they run or manage. Most people like investing into their business because it is what they understand and they can see firsthand how their money is being used. Sometimes they are forced to invest into their business because investing into the business may be what keeps the business going.
When possible, it is advisable to take money out of the business to invest in other businesses or real estate. Since an income or salary often will come from a business they own or operate, it may make sense to make it a priority not to have all of your assets invested here.
So, what is the best investment to prepare for misfortune? The best investment you can make may be to put some time and resources into putting together your own financial plan. A financial plan will tell you which investment or combination of investments is best for you. All of the investments listed are good ones. A good financial plan will tell you how much you should invest into each so you are prepared when misfortune does occur on the earth.
If you need help putting together a financial plan for yourself, you are welcome to contact the Bare Wealth Advisor office to set up a meeting with one of our advisors. We would be happy to help you.