Tag: Investments

Questions You Were Afraid to Ask #14

Written by Minich MacGregor Wealth Management on November 6, 2024. Posted in News, Posts.

The only bad question is the one left unasked. That’s the premise behind many of our posts. Each covers a different investment-related question that many people have but are afraid to ask.

To begin this post, we’d like to ask you a question: Have you ever seen an episode of Star Trek? If so, you know the writers often use something called “technobabble.” You’ll hear terms like dilithium core, temporal convergence, tachyon fields, and more. It’s obvious, of course, why the writers would do this. As the show takes place in the future, technobabble is a quick and easy way to make the characters seem smarter and more technologically advanced than we are today.

The media has its own form of technobabble. If you’ve ever watched CNBC, for example, you’ve probably heard many instances of “financial jargon.” Words that sound complicated and intimidating, and that you almost never hear in everyday conversation. Many do have meanings, and some are very important – but they can often be bandied about by professionals in order to sound sophisticated.

Sophistication is all well and good, but not when it comes at the expense of clarity. So, over the next few posts in this series, we want to break down some common bits of financial jargon that you are likely to hear in the media, what they mean, and why they do — or do not — matter.

Questions You Were Afraid to Ask #14:
What do stock ratings mean?

Buy. Sell. Hold. Overweight. Outperform. Strong, weak, reduce, accumulate. These are just some of the ratings you’ll often see attached to specific investments, usually stocks. Financial websites love to list them. Talking heads on TV love to recite them. But what are they?

A rating is an analyst’s recommendation on what to do with a particular stock. Typically, an analyst will research a company by reviewing financial statements, talking with leadership, and surveying customers. Some analysts will also study broader economic trends to try and estimate how the company will be affected by the overall economy. Other analysts may rely heavily on algorithms and mathematical models. Whatever their method, these analysts then prepare a report that discusses how they see the company’s stock performing in the near future.

Inside that report is a rating. Their advice, distilled down to a single word or phrase, on what their clients should do with the stock in question. The three most basic ratings are: buy, sell, and hold.

Buy and sell are fairly obvious. They are recommendations to buy the stock — or buy more of it — or to sell whatever shares you already own. “Hold” essentially means to sit tight. If you already own shares in the stock, don’t buy any more, but don’t sell, either.

So far, so simple. But here’s where things can get a little tricky. Since there is no standardized way to rate stocks, pretty much every financial firm will have its own system. That’s why you’ll often see many variations and degrees of those three basic ratings. For example, think of buy, sell, and hold as umbrella terms. Beneath the buy umbrella, you may sometimes hear terms like moderate buy, overweight, outperform, market perform, add, or accumulate. Under sell, you may see reduce, underweight, underperform, weak hold, moderate sell.

“Moderate” essentially means to buy or sell more shares of the stock, but not too much. Same for add/reduce. Over/underweight and over/underperform means the analyst believes the stock will perform somewhat better or worse than the overall market. Weak hold is basically a push – it’s probably fine to hold onto your shares, but you can sell if you want to.

Sometimes, if an analyst uses all these variations, then a simple buy or sell can then take on a new meaning. That’s why you’ll sometimes see the terms strong buy or strong sell. This indicates the analyst believes you should either buy or sell as much of the stock as you possibly can.

So, now you know what stock ratings mean. But do they matter?

Imagine you’re shopping online for a new coffee maker. What’s the first thing you’d see? Likely, it would be a list of coffee makers with some sort of numerical rating next to each based on all the customer reviews. Now, would you buy the first machine that has a good rating? Probably not. What you would do is look at the first machine with a good rating, and then go from there.

For regular investors, that’s essentially what stock ratings are good for. They provide a handy place to start. A quick reference. A way to weed out the stocks you don’t want to look at immediately versus those you do. But you shouldn’t ever make decisions based solely on those ratings. Because, like the customer ratings online, they don’t tell the whole story.

It’s important to remember that a stock rating is just the opinion of one analyst. Others may have different opinions. Also, because there’s no standardized rating system, one analyst’s “buy” might be another’s “hold.” An “underperform” at one place might be a “strong sell” at another. And while analysts can be very smart and experienced, rating is not an exact science and can be often used more as a marketing pitch than as a truly objective evaluation.

Finally, stock ratings are not specific to you. Consider the coffee maker analogy. One machine might have a rating of 4.3 stars; a second might be 4.0. But when you read the reviews closely, you might see the higher-rated machine is versatile but complicated. The lower-rated machine can’t do as much, but it’s fast and easy – perfect for that quick cup before work. If that’s what you want, the “lower-rated” machine might be better. Stock ratings are similar. They don’t address your goals, your risk tolerance, your timeline. And that’s why they should never be used as a substitute for having your own customized investment plan.

So, that’s the skinny on stock ratings. Next month, we’ll look at another stock term: Big Caps vs Small Caps. Have a great month!

Q2 Market Recap

Written by Minich MacGregor Wealth Management on July 19, 2024. Posted in Posts.

One of our favorite metaphors for investing is that it’s like packing a suitcase.

Let’s say you’re preparing for a summer trip to the beach. What would you put in your suitcase? A swimsuit, probably. Sandals. Sunscreen. Plenty of shorts and t-shirts. Sunglasses and a hat. Then, when you take a step back, you realize you still have space for a few more items. What do you choose? More beach gear? Makes sense – after all, it’s the middle of summer, and your destination is famous for being the perfect place to work on a tan.

Or would you pack a pair of pants and a long-sleeve shirt because you guess it might get cold at night? Would you tuck in an umbrella and fold up a poncho…just in case it rains?

In our experience, some investors are like the tourist who packs for one kind of weather and one type of activity. To illustrate what we mean, let’s recap how the markets performed last quarter.

When 2024 began, inflation was near its lowest point in two years. As a result, many investors figured prices would continue to drop, and the Federal Reserve would lower interest rates sooner rather than later. (And possibly even several times throughout the year.) In other words, they “banked” on warm weather and sunny skies, then packed their suitcase accordingly.

Well, there’s nothing more frustrating than when unexpected rain ruins fun in the sun. Instead of falling, inflation ticked up through Q1, rising from 3.1% in January to 3.5% in March.¹

As a result, when the second quarter began, the mood on Wall Street had shifted substantially. Suddenly, there was no more talk of the Fed cutting rates early and often. Instead, investors began to wonder if the Fed would cut rates at all in 2024. Some economists even speculated that the Fed might raise rates again. So, investors re-opened their suitcases. Out went the swimwear; in went the coats and gloves. It’s no surprise, then, that the S&P 500 dropped 4.2% in April.²

What these investors didn’t realize was that the sun was already starting to peek out from behind the clouds.

Fast-forward to the beginning of July. Looking back, we now know that inflation dropped to 3.4% in April, 3.3% in May, and a surprising 3% in June.¹

A big reason for this slide is due to gas prices, which fell by 3.6% in May and 3.8% in June.³ (Energy prices in general fell by 2% in both months.³) This helped negate the fact that food and housing prices – two of the most stubborn and volatile drivers of inflation actually went up slightly in June.

As you can imagine, the talk has turned once again…to whether the Fed will cut rates sometime in the summer. This renewed optimism, combined with another factor that we’ll get to, helped lift the markets out of the doldrums. For the quarter, the S&P 500 gained 3.9%, while the Nasdaq rose 8.3%.⁴

A 3% inflation rate means that consumer prices are up only 3% compared to this same time last year, not that prices have fallen lower. Inflation is the rate at which prices are increasing. A lower inflation rate means that prices are rising more slowly; deflation is when prices actually drop…and it’s usually the sign of an unhealthy economy.

So, what does this mean going forward? Is it time to repack the suitcase?

The answer is no – because we believe we packed it correctly the first time.

Any savvy traveler knows that when you pack a suitcase, you don’t just factor in what you think will happen. You pack for what could happen. If your goal is to hit the beach, you pack a swimsuit…but since you know it could rain, you also pack a poncho. Your plan is to feel sand between your toes, but if the beach is too crowded, you’ll go for a hike instead…which is why you pack shoes as well as sandals.

The way inflation has gone (up and down) and the way the markets have responded (ditto) shows exactly why investing isn’t about predicting what will happen. It’s about planning for what may happen. You pack a suitcase in a way that ensures your vacation will be fun no matter what. We base our investment strategy in a way that helps you keep working toward your goals, regardless of what short-term market conditions are like.

The fact of the matter is we don’t know whether the Fed will lower interest rates in Q3. Of course, it’s certainly possible that they will. Three straight months of declining consumer prices is certainly a good sign. Even better is that the economy has continued to be solid. (GDP grew by 1.4% in Q1.⁵ As of this writing, many economists are predicting a 2% rise in Q2.⁶) But it’s also possible that a rate cut is still many months away. Trying to guess what will happen in the short-term – and then making moves that could impact you in the long-term – is bad packing.

Then, too, inflation and interest rate expectations are not the only drivers of the markets. Tech stocks – specifically those companies most involved in the development or utilization of AI – helped the markets regain momentum in Q2. Any investor who decided to sit on the sidelines because of pessimism over inflation would have missed out on the optimism surrounding AI. Sure, it’s always a bummer to go to the beach and find it raining…but there are often plenty of other fun things to do on your vacation even when the sun isn’t out

When you think about it, the markets really are like going on a trip. There will always be reasons for enthusiasm and reasons for caution. Everyone who goes to Disneyland can look forward to amazing rides and horrendous crowds. The view from the Grand Canyon is spectacular; the weather can be abysmally hot. The flowers in England are spectacular; the rain can feel oppressive.

And for every factor that can pull the markets down, there will be factors that could push the markets up. Our job is to help you pack a suitcase – and implement an investment strategy with an eye on the long-term forecast – that keeps you prepared for all of it.

So, as we move further into a new quarter, that is just what our team will continue to do. We’ll be keeping an eye on many things this quarter. Inflation, the breadth of the market, the upcoming election – you get the idea. And whenever we feel there’s something on the horizon that could affect the items in your suitcase, we’ll let you know immediately.

In the meantime, if you ever have any questions or concerns, please let us know. And if you have any upcoming summer travel plans, well…be sure to send us pictures!

Have a great week!

¹ “Inflation falls 0.1% in June from prior month,” CNBC, https://www.cnbc.com/2024/07/11/cpi-inflation-report-june-2024.html
² “S&P 500 falls 4.2% in April,” S&P Global, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/s-p-500-falls-4-2-in-april-as-market-momentum-loses-steam-81466397
³ “Consumer Price Index Summary, U.S. Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
⁴ “Stops dip as investors digest inflation data,” Reuters, https://www.reuters.com/markets/global-markets-wrapup-1-2024-06-28/
⁵ “Gross Domestic Product,” U.S. Bureau of Economic Analysis, https://www.bea.gov/data/gdp/gross-domestic-product
⁶ “GDPNow,” Federal Reserve Bank of Atlanta, accessed July 10, 2024. https://www.atlantafed.org/-/media/documents/cqer/researchcq/gdpnow/RealGDPTrackingSlides.pdf

Election Misconceptions

Written by Minich MacGregor Wealth Management on June 18, 2024. Posted in Posts.

The noise can be deafening. It seems to come from everywhere, all the time. It can cause headaches, frustration, even anxiety. Sometimes, you wish you could turn it off altogether.

No, we’re not referring to whatever music the kids are listening to these days. We’re referring to the noise surrounding the upcoming presidential elections.

Election season is one of the most important aspects of our political system, but there’s no doubt that getting through it can be stressful. All of us, at some point, will wonder things like, “What if my preferred candidate doesn’t win?” “Who is my preferred candidate, anyway?” “Does so-and-so really mean this?” “Did so-and-so really say that?” “What’s fact and what’s fiction?”

One thing you shouldn’t have to worry about is how the elections will affect the markets. Every four years, many misconceptions arise about the impact of presidential contests on your portfolio. These often lead to unnecessary anxiety for investors. As financial advisors, our goal is to ensure our clients feel confident about their financial future, not worried. That’s why we send educational messages like this one. Let’s explore three common misconceptions about election season and the markets.

The first misconception is that presidential elections lead to down years in the markets. It’s understandable why we might feel this way. When we look back at past elections, the first things we remember are probably the controversies, uncertainties, and negativity. Election years feel volatile in our minds and memories, usually because there’s so much drama and so much at stake.

But statistics prove this misconception is a myth. Since 1944, there have been twenty presidential elections. In sixteen of those, the S&P 500 experienced a positive return for the year.¹ In fact, the median return for presidential election years is 10.7%.¹ Of the four election years that saw a negativereturn, two did occurin this century – in 2000 and 2008 – but on both occasions, the nation was either entering or in the midst of a significant recession.

Now, we do sometimes see increased volatility in the months leading up to an election. If we just look at how the S&P 500 performed from January through October in a presidential election year, the median return drops to 5.6%.¹ That’s not bad, but it is nearly 50% lower. This suggests the uncertainty over who will triumph in the election – and the debate over what each candidate’s policies will mean for the economy – does tend to have at least some effect. Then, as the victor is announced and the picture becomes a little clearer, volatility tends to subside, and investors move on to other things. So, in that sense, election season does matter, but nowhere near what the media may have you believe. Elections are just one of the many ingredients in the gigantic stew that is the stock market…and they’re far from the most important.

The second misconception is that if one candidate wins, the markets will plummet. This narrative is, frankly, driven by pure partisanship. The fact of the matter is that the markets have soared under both Republican and Democratic presidents. Naturally, they’ve occasionally soured under both parties, too. Since 1944, the median return for the S&P 500 in the year after a presidential election is 9.8%.¹ Since 1984? The median return rises to over 24%.

The reason for this is because of that gigantic stew we mentioned. You see, the markets are driven by the economy more than by elections. By the ebb and flow of trade, the law of supply and demand, by innovation and invention, by international conflict and consumer confidence. And while the president does have an influence on all this, it’s just one of many, many influences. As a result, the markets are far more likely to be affected by inflation and whether the Federal Reserve will cut interest rates than by the election.

When you think about it, the markets are like life. The course our lives take isn’t determined by one gigantic decision, but by the millions of small decisions we make every day. The same is true for the markets. We don’t know about you, but we find this comforting.

The third misconception is that we have no control over any of this, and thus, no control over what happens to our portfolio.

It’s true. We can’t dictate who the president will be. We can’t determine how the markets will react. But what we can control is what we will do. And that, is a mighty power indeed.

There’s a reason we began this email by referencing noise. As investors, one of the keys to long-term success is filtering out the noise and focusing on what reallymatters. You see, the goal of all political campaigns – and the media that covers them – is to create noise. That’s because noise provokes emotions. Fear. Anxiety. Anger. A greater emotional response leads to more clicks, more views, more shares, more engagement…and, yes, more money. It’s understandable why campaigns and the media want these things. But what we must guard against is letting those emotions drive our financial decisions. Emotions promote the urge to do something – buy, sell, get in, get out, take on more risk, less risk, you name it. They prompt us to make short-term decisions to alleviate what is, when you think about it, a short-term concern.

A presidential term lasts four years. But the goals you have saved for, and the time horizon you have planned for, lasts much longer than that. That’s why our investment strategy is built around the long-term. It’s designed to help you not just tomorrow, or next month, but years and years from now. It’s designed so that the president of the United States, as important as he or she may be, is only a passing mile-marker on the much longer road to your goals and dreams.

As we approach another election, keep this in mind: tune out the noise. Be aware of these misconceptions and avoid them. Our team is here to answer your questions and provide any assistance you need. If you’d like help planning for your financial future, give us a call. We’re always here to help.

Have a great summer!

¹ “Election year market patterns,” ETRADE, us.etrade.com/knowledge/library/perspectives/daily-insights/election-stock-patterns

Questions You Were Afraid to Ask #13

Written by Minich MacGregor Wealth Management on May 30, 2024. Posted in Posts.

The only bad question is the one left unasked. That’s the premise behind many of our recent posts. Each covers a different investment-related question that many people have but are afraid to ask. In our last post, we discussed what it means to invest in commodities and how regular investors do so. So, without further ado, let’s break down:

Questions You Were Afraid to Ask #13:
What are the pros and cons of investing in commodities?

As we covered in Question #12, a commodity is a physical product that is either consumed or used to produce something else. For example, corn, sugar, and cotton are all agricultural commodities. Pork, poultry, and cattle are livestock commodities. Oil, gas, and precious metals like gold and silver are commodities, too.

A commodity is generally seen as an alternative investment. Traditionally, large institutions and professional traders are the most likely to invest in commodities, but regular people can, too. Like every type of investment, though, there are both potential benefits and risks that come with commodities. Some of these are very specific to commodities.

First, let’s look at some of the pros of investing in commodities:

Diversification. As you know, all types of investments will rise and fall in value at different times. That’s why it’s important that your portfolio consists of diverse asset classes, each driven by different factors. (Financial advisors like us refer to this as having low correlation, meaning price changes in one asset don’t affect the price of another asset.)

Typically, commodities have a low correlation to stocks and bonds. Every type of commodity is affected by different economic factors. Most of those don’t usually affect, say, stocks. For example, while changing interest rates can have a major impact on stocks, they don’t have a direct effect on cotton prices. And though a hurricane in the Gulf of Mexico can dramatically impact oil prices, it usually doesn’t mean much to the overall stock market.

For these reasons, investing in commodities can add valuable diversification to your portfolio.

Diversification is important because it can help cushion your portfolio from major volatility. If one asset class takes a hit, the others could help compensate. However, it is important to note that diversification doesn’t eliminate risk.

Hedge Against Inflation. During periods of high inflation, the price of most consumer goods and services will go up. While that can make for an unpleasant-looking receipt at the grocery store, it can be a boon to commodity investors. That’s because the price of many commodities tends to go up with inflation. As a result, investing in commodities can help “hedge” – or lessen – the risk of investing in other asset classes that may be negatively affected by inflation.

Potential for Significant Returns. Commodities can also – potentially – produce meaningful returns. Certain types of commodities will occasionally rise drastically in demand, taking their price up with them. As a result, investing in the right commodity at the right time can certainly help investors generate a significant profit!

Of course, that same potential is also behind some of the downsides to investing in commodities:

Volatility. Commodities can be extremely volatile. As you’ve no doubt seen, the price of any commodity (say, oil, or gold) can fall remarkably fast if the demand for those products falls far below their supply. For these reasons, you should only invest in commodities if you can afford to take on the…

Multiple Risks. As we mentioned, all types of investments come with risks. However, the risks associated with commodities are particularly large and varied. For example, some commodities – especially agricultural ones – are vulnerable to weather. Others can be affected by natural disasters, military conflicts, or changing government regulations. While these same factors can certainly drive prices up, they are also just as likely to drag prices down if the wrong conditions arise. Furthermore, investors have no control over these types of risks…and they are notoriously difficult to predict in advance.

No Income. Finally, commodities do not produce any income for investors the way bonds or dividend-paying stocks do. So, investors seekingincome – especially retirees – may find that the pros of commodities are just not worth the risks when it comes to fulfilling their needs.

In the end, there’s simply no “one size fits all” type of investment, and that’s especially true of commodities. While they can be a viable fit for some portfolios, every investor must look carefully at whether commodities are right for their needs, and whether the risks associated with them are more than they can afford.

So, now you know the “how” and the “why” of investing in commodities. In our next few posts, we’re going to demystify common investment–related jargon you may hear bandied about by the media. In the meantime, have a great month!

Questions You Were Afraid to Ask #12

Written by Minich MacGregor Wealth Management on May 6, 2024. Posted in Posts.

The only bad question is the one left unasked. That’s the premise behind many of our recent posts. Each covers a different investment-related question that many people have but are afraid to ask. In this post, let’s cover a specific type of investment that people often wonder about:

Questions You Were Afraid to Ask #12:
What does it mean to invest in commodities?

In an investing context, a commodity is a physical product that is either consumed or used to produce something else. For example, corn, sugar, and cotton are all commodities. We generally refer to products like these as agricultural commodities. Pork, poultry, and cattle are livestock commodities. Energy products, like oil and gas, are commodities, too. So are precious metals like gold, silver, and platinum.

A commodity is generally seen as an alternative investment. Alternative investments are called that because they trade less conventionally than more traditional stocks and bonds. Despite this, many people find the idea of investing in commodities to be an attractive one. For some, it’s because it makes more intuitive sense than owning shares in a company (buying stock) or lending money to an organization (buying bonds). There’s something tangible about the idea of investing in things we see and use daily. By comparison, stocks and bonds can feel a little more abstract. For others, investing in commodities is a way of adding even more diversification to a portfolio.

That said, the question of how to invest in commodities can be an overwhelming one. Most people – including experienced investors – don’t even know how to get started! So, let’s discuss some of the potential ways to invest in commodities. Then, in our next post, we’ll cover some of the pros and cons of this particular asset class.

The oldest and most basic way to invest in commodities is to physically own them. This is what traders have been doing for most of human history. Person A buys a herd of cattle from Person B, and then sells some or all of them to Person C, hopefully for a profit. Person X buys a stack of gold bars from Person Y and then sells them to Person Z. You get the idea.

This, of course, is still done today. But for most retail investors – regular folks like you and me – taking physical ownership just isn’t feasible. When you buy commodities, you must also have a way to store them. Unlike stocks and bonds, commodities take up space… usually a lot of it! You must also have a way to deliver the commodities to and fro. You’d also want to purchase insurance on the product in case something went wrong. And of course, you would need to have a lot of technical expertise to know how to trade those commodities for a fair price.

For these reasons, most investors choose one of two avenues: Buying stock in companies that produce commodities or by investing in commodity-based funds. Let’s start with the first.

Let’s say you wanted to invest in a certain type of precious metal that you feel will rise in value in the future. Obviously, for reasons we’ve already covered, you don’t want to own the metal itself. So, instead, you buy stock in a company that specializes in mining or extracting that particular metal. Should the price of that metal go up, it’s quite possible that the stock price for the company that specializes in that metal will go up, too.

Another way to invest in commodities is through commodity-based funds. You may remember our previous post on the different types of investment funds. Commodity-based funds are very similar, except they are centered around specific commodities. The fund may be comprised of a number of companies that specialize in the commodity. Some funds may even purchase and store the physical product itself if they have the means to do so. Either way, these types of funds – which can be mutual funds or exchange-traded funds – can give you exposure to whatever commodities you’d like to invest in.

There is another way that some investors participate in commodities called future contracts. These are “contracts in which the purchaser agrees to buy or sell a specific quantity of a physical commodity at a specified price on a particular date in the future.”¹ So, let’s say an investor purchases a contract to buy X barrels of oil for $75 per barrel at some later date. By doing so, they anticipate the price of oil will rise above that, so their price affectively becomes a bargain. Then, when the specified date arrives, the investor accepts a cash settlement. This means the investor is credited with the difference between the initial price they paid and the current market price. This is instead of receiving physical ownership of the oil. Of course, if the price of oil goes below $75 per barrel, the investor would have to pay back that difference themselves.

Commodity futures are a complex topic, and to be honest, individual investors rarely turn to them. They are more often used by institutional investors like commodity-based funds.

So, that’s the how of investing in commodities! In our next post, we’ll get more into the why by discussing the pros and cons of commodities. As you know, all types of investments come with risks, and commodities are no exception. They’re certainly not right for everyone!

In the meantime, now you know what it means to “invest in commodities.” We look forward to diving even deeper into this topic in our next post.

¹“Futures and Commodities,” FINRA, https://www.finra.org/investors/investing/investment-products/futures-and-commodities

Q2 2024 Market Outlook

Written by Minich MacGregor Wealth Management on April 19, 2024. Posted in Uncategorized.

Pre-Retirement Spring Cleaning Checklist

Written by Minich MacGregor Wealth Management on April 4, 2024. Posted in Uncategorized.

Spring is in the air, and that means it’s time for spring cleaning. But wait! Before you pick up that dustpan, give a thought to your financial spring cleaning first.

What do finances and spring cleaning have to do with each other? If you’re preparing for retirement, the answer is “A lot!”

These days, the term spring cleaning is often used as a metaphor for getting your affairs in order. As you can imagine, getting your retirement affairs in order is critical if you intend to actually retire when and how you want. There are many things to keep track of, many tasks that need doing, and many decisions to make.

So, how do you begin? Well, when many people do their actual spring cleaning, they make a checklist. What supplies they’ll need, what rooms to organize, what needs to be mopped, vacuumed, dusted…it’s the most efficient way to clean. We suggest doing the same for your finances. So, without further ado, here is a sample Spring Cleaning Checklist to help you better prepare for retirement.

Pre-Retirement Spring Cleaning Checklist

Contribute the maximum amount to your IRA if you have one. Remember, an IRA is a valuable way to save for retirement in a simple, tax-advantaged way. For 2024, the annual IRA contribution limit is $7,000 up to age 49, and $8,000 for those 50 and older.¹
Review your 401(k) and increase your contributions if necessary. How has your 401(k) been performing? Do you understand how your money is being invested and why? Are you contributing enough to take advantage of any employer matching?
Start looking at your existing expenses. Which are likely to continue after retirement? What expenses can you remove right now? This is a good way to find extra ways to save for retirement, and it will make your life a lot simpler once retirement comes.
Make sure you know where all your estate planning documents are. You should have a copy of your will, power of attorney, advance medical directives, letter of instructions, and other documents in a secure but easily accessible place. Make sure your spouse (or other loved ones) knows where these documents are kept.
Review your current insurance policies. Are there any potential gaps you see? (For example, Critical Illness and Long-Term Care insurance are two types of policies many people don’t have but are often extremely valuable for retirees.)

But most of all …

Make a list of your top retirement concerns. Is there anything you are confused or nervous about? If so, start getting the answers you need now instead of waiting till you’re already retired. Remember, you want to enjoy your golden years, not stress over them.
Similarly, make a list of any new goals or dreams you have for retirement. What will it take to achieve or afford them? Are you on track? If you’re not sure, it’s time to start planning.

Spring cleaning is never the most fun thing in the world, but it’s often one of the most beneficial. Just as you probably enjoy living in a clean, organized home, you’ll enjoy the peace of mind that comes with getting your finances in order. Trust us: if there’s one thing we’ve learned in all our years of helping people plan for retirement, it’s that a little organization today can make for a much happier retirement tomorrow.

Of course, if you need help with any of the items on this checklist, please let us know. For example, if you aren’t sure how your 401(k) is doing, we’d be happy to help you analyze it. If there’s a valuable estate planning document you don’t have, we can point you in the right direction. And if you have any questions or concerns about retirement, the chances are good that we have the answers.

In the meantime, we wish you a happy spring—and a happy spring cleaning!

¹ “401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000” Internal Revenue Service, accessed November 9, 2023. https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000

Questions You Were Afraid to Ask #10

Written by Minich MacGregor Wealth Management on November 29, 2023. Posted in Featured, News, Posts, Uncategorized.

The only bad question is the one left unasked. That’s the premise behind many of our recent posts. Each covers a different investment-related question that many people have but are afraid to ask. So far, we’ve discussed the essentials of how the markets work, the differences between various types of investment funds, and the ins and outs of stocks and bonds.

A few months ago, however, an acquaintance of ours asked us a question not about investments but investing. Specifically, she wanted to know our thoughts on the modern trend of using mobile investing platforms — aka “investing apps.”

It’s a terrific question, because the use of such apps — and the number of apps available — has exploded in the past few years. So, in this message, we’d like to continue our series by answering:

Questions You Were Afraid to Ask #10:
What are the pros and cons of investing apps?

Mobile investing apps enable people to buy and sell certain types of securities right from their phone. They have provided investors with a quick and easy way to access the markets. For new investors who are just getting started, these apps have made the act of investing more accessible than ever before.

That’s a good thing! Even today, many people only invest through an employer-sponsored retirement account, like a 401(k). That’s because they may lack the resources, confidence, or ability to invest in any other way. But not everyone has access to a 401(k). And while 401(k)s are a great way to save for retirement, many people have other financial goals they want to invest for, too. Mobile apps provide a handy, ready-made way to do just that.

Continuing with the accessibility theme, many apps enable you to invest right from your phone, anytime, anywhere. In addition, many apps don’t require a minimum deposit, so you can start investing with just a few dollars. Finally, the most popular apps often charge extremely low fees – or even no fees at all – to buy or sell stocks and ETFs.

Many apps also come with features beyond just trading. Some apps will help you invest any spare change or extra money, rather than let it simply lie around in a bank account. Others enable you to invest automatically – daily, weekly, bi-weekly, monthly, etc. That’s neat because investing regularly is a key part of building a nest egg.

It’s no surprise, then, that these apps have skyrocketed in popularity. In fact, app usage increased from 28.9 million in 2016 to more than 137 million in 2021.¹ Part of this surge was undoubtedly due to the pandemic. With social distancing, many used the time to try new activities and learn new skills from the safety of their own home…investing included.

But before you whip out your phone and start trading, there are some important things to know, first. Investment apps come with definite advantages…but also some unquestionable downsides. When you think about it, an app is essentially a tool. Like any tool, there are things it does well…and things it can’t do at all. And, like any tool, it can even be dangerous if misused.

The first issue: the very accessibility that makes these apps so popular is also what makes them so risky. When you have a tool that provides easy, no-cost trading, it can be extremely tempting to overuse it. Researchers have found that this temptation can lead to overly risky and emotional decision-making, as investors try to chase the latest hot stock or constantly guess what tomorrow will bring.² The result: Pennies saved on fees; fortunes potentially lost on speculation.

The second and biggest issue is that while these apps make it easy to invest, they provide no help with reaching your financial goals. No app, no matter how sophisticated, can answer your questions. Especially when you don’t even know the questions to ask. No app can hold your hand and help you judge between emotion-driving headlines and events that necessitate changes to a portfolio. No app can help you determine which investments are right for your situation. Just as you can’t hammer nails with a saw, or tighten a bolt with a screwdriver, no app can help you plan for where you want to go and what you need to get there.

Take a moment to think about the goals you have in your life. They could be anything. For instance, here are a few our clients have expressed to me over the years: Start a new business. Visit the country of their ancestors. Support local charities and causes. Design and build their own house. Play as much golf as possible. Volunteer. Visit every MLB stadium. Send their kids to college. Read more books on the beach. Tour national parks in a motorhome. Spend time with family.

Achieving these goals often requires investing. But there is more to investing than just buying and selling stocks. More to investing than simply trading. Investing, when you get down to it, is the process of determining what you want, what kind of return you need to get it, and where to place your money for the long term to maximize your chance of earning that return. It’s a process. A process that should start now, and last for the rest of your life. A process that an app alone cannot handle – just as you can’t build a house with only a saw.

So, our thoughts on mobile investing apps? They are a tool, and for some people, a very useful one. But they should never be the only one in your toolbox.

In our next post, we’ll look at two other modern investing trends.

¹ “Investing App Usage Statistics,” Business of Apps, January 9, 2023. https://www.businessofapps.com/data/stock-trading-app-market/

² “Gamified apps push traders to make riskier investments,” The Star, January 18, 2022. https://www.thestar.com/business/2022/01/18/gamified-apps-push-diy-traders-to-make-riskier-investments-study.html

Understanding the Market Correction – 2023

Written by Minich MacGregor Wealth Management on November 2, 2023. Posted in Featured, News, Posts.

You probably saw the news: On October 27, the S&P 500 officially slid into a market correction.

A correction is when the markets decline 10% or more from a recent peak. In the S&P’s case, the “recent peak” was on July 31, when the index topped out at 4,588.¹ On Friday, the index closed at 4,117 – a drop of 10.2%.¹

Market corrections are never fun, and there’s no way to know for sure how long one will last. Historically, the average correction lasts for around four months, with the S&P 500 dipping around 13% before recovering.² Of course, this is just the average. Some corrections worsen and turn into bear markets. Others last barely longer than the time it took for us to write this message. (On Monday, October 30, for example, the S&P actually rose 1.2% and exited correction territory.³) Either way, corrections are not something to fear, but to understand – so that we can come through it stronger and healthier than before.

To do that, we must understand why the markets have been sliding since July 31. We use the word “slide” because that’s exactly what this correction has been. Not a sharp, sudden drop, but a gradual slide, like the bumpy ones you see on a playground that rise and fall on the way to the ground. While the S&P 500 dropped “at least 2% in a day on more than 20 occasions” in 2022, that’s only happened once in 2023, all the way back in February.⁴

At first glance, it may seem a little puzzling that the markets have been sliding at all. Do you remember how the markets surged during the first seven months of the year? When 2023 kicked off, we were still coming to terms with stubborn inflation and rising interest rates. Many economists predicted higher rates would lead to a recession. But that didn’t happen. The economy continued to grow. The labor market added jobs. Inflation cooled off. As a result, many investors got excited, thinking maybe the Federal Reserve would stop hiking rates…or even start bringing rates down.

Fast forward to today. The economy continues to be healthy, having grown an impressive 4.9% in the third quarter.⁵ Inflation is significantly lower than where it was a year ago. (In October of 2022, the inflation rate was 7.7%; as of this writing, that number is 3.7%.⁶) And the unemployment rate is holding steady at 3.8%.⁷ But the markets move based either on excitement for the future, or fear of it – and these cheery numbers no longer generate the level of excitement they did earlier in the year.

The reason is there are simply too many storm clouds obscuring the sunshine. While inflation is much lower than last year, prices have ticked up slightly in recent months. (We mentioned the inflation rate was 3.7% in September; it was 3.0% in June.⁶) As a result, investors are now expecting the Federal Reserve to keep interest rates higher for longer. Seeking to take advantage of this, many investors have moved over to U.S. Treasury bonds, driving the yield on 10-year bonds to its highest level in 16 years. Since bonds are often seen as less volatile than stocks, when investors feel they can get a decent return with less volatility, they tend to move money out of the stock market and into the bond market.

As impressive as Q3 was for the economy, there are cloudy skies here, too. This growth was largely driven by consumer spending – but how long consumers can continue to spend is an open question. Some economists have noted that Americans’ after-tax income decreased by 1% over the summer, and the savings rate fell from 5.2% to 3.8%, too.⁵ Mortgage rates are near 8%, a 23-year high.⁸ Meanwhile, home sales are at a 13-year low.⁹ All this suggests that the Fed’s rate hikes, while cooling off inflation, have been cooling parts of the economy, too.

Couple all this with violence in the Middle East, political turmoil in Congress, and a potential government shutdown later in November, and you can see the problem. Despite the strong economy, investors just aren’t seeing a good reason to put more money into the stock market…but lots of reasons to think that taking money out might be the prudent thing to do. It’s not a market panic; it’s a market malaise.

So, what does this all mean for us?

We mentioned how the markets operate based on excitement for the future, or fear of it. But that’s not how we operate. We know that, while corrections are common and often temporary, they can worsen into bear markets. Furthermore, any decline can have a significant impact on your portfolio, and by extension, your financial goals. So, while our team doesn’t believe in panicking whenever a correction hits, neither do we believe in simply standing still. Instead, we’ll continue to analyze how both the overall market – and the various sectors within the market – are trending. We have put in place a series of rules that determine at what point in a trend we decide to buy, and when we decide to sell. This enables us to switch between offense and defense at any time. This, we feel, is the best way to keep you moving forward to your financial goals when the roads are good…and the best way to prevent you from backsliding when they’re bad.

In the meantime, our advice is to enjoy the holiday season! Our team will continue to focus on investments, so our clients can focus on why they invest: To create happy memories and live life to the fullest with their loved ones. Happy Holidays!

SOURCES:

¹ “S&P 500,” St. Louis Fed, https://fred.stlouisfed.org/series/SP500

² “Correction,” Investopedia, https://www.investopedia.com/terms/c/correction.asp

³ “Stocks rebound to start week,” CNBC, https://www.cnbc.com/2023/10/29/stock-market-today-live-updates.html

⁴ “S&P falls into correction,” Financial Times, https://www.ft.com/content/839d42e1-53ce-4f24-8b22-342ab761c0e4

⁵ “U.S. Economy Grew a Strong 4.9%,” The Wall Street Journal, https://www.wsj.com/economy/us-gdp-economy-third-quarter-f247fa45

⁶ “United States Inflation Rate,” Trading Economics, https://tradingeconomics.com/united-states/inflation-cpi

⁷ “The Employment Situation – September 2023,” U.S. Bureau of Labor Statistics, https://www.bls.gov/news.release/pdf/empsit.pdf

⁸ “30-Year Fixed Rate Mortgage Average,” St. Louis Fed, https://fred.stlouisfed.org/series/MORTGAGE30US

⁹ “America’s frozen housing market,” CNN Business, https://www.cnn.com/2023/10/19/homes/existing-home-sales-september/index.html