Börsenkurse als Grafik und Tabelle mit Lupe und Taschenrechner im Panoramaformat

Is the Stock Market Undervalued? Data Says Yes

Read the full article here:

After a few weeks riding the stock market roller-coaster, financial journalists are trying to explain what is causing this extreme volatility.

There seems to be a new “fear of the day” knocking down the stock market. Chinese trade talks, Brexit, government shutdowns, Fed rate hikes, inverted yield curves or Trump’s tweets all seem to be culprits in this conspiracy to drive down the stock market.

Since none of these issues have any significant impact on the underlying U.S. economy, why do they cause so many declines in the stock market?

To answer that question, investors have to go back to Economics 101—in the long-term, the U.S. stock market always reflects the trend and direction of the underlying U.S. economy. Right now, the U.S. economy is currently on pace for its fastest growth since 2015. Historically, stock market corrections, fueled by political, foreign policy or governmental issues, usually last only a month or two, and, when it dawns on investors these issues do not impact the underlying economy, the market recovers quickly. These correction recoveries are usually V-shaped—fast and high.

Now for some good news. Investors can take comfort in the fact that the current correction in the equities has left the stock market undervalued. According to FactSet, the current 12-month forward price to earnings ratio for the S&P 500 Index is currently at 15.4 times annual earnings. This P/E ratio is now well below the 5-year long-term average of 16.4. At the sector level, the Consumer Discretionary sector has the highest forward P/E ratio of 19.8, while the Financials sector has the lowest forward P/E ratio of 11.1, per FactSet.

For the time being, investors can only consider forward P/E ratios, because the traditional backward looking, trailing P/E doesn’t include the effects of several months of tax cut legislation that didn’t go into effect until earlier this year.

With the S&P 500 index so undervalued, investors need to adhere to the advice their grandmother gave them as a child: buy low and sell high. The reason to invest now is the consensus forecast for the S&P 500 Index will increase in price 17.1% over the next 12-months, according to consensus estimates compiled by FactSet of 11,125 analyst’s ratings for S&P 500 companies.

Paul Dietrich is the CEO and Chief Investment Officer of Fairfax Global Markets LLC, a Registered Investment Advisory firm. He is also an international corporate attorney and has been an advisor on privatization and economic development issues to the World Bank, as well as several governments in Asia, Eastern Europe and the former Soviet Union.

Double exposure of Business people are stressed with the stock market.

Avoid a go-for-broke investing mentality . . . . . . . .

Re-posted from CNBC.COM

  • We tend to second-guess decisions when the market is up more than our portfolios. Don’t make the mistake of comparing your portfolio’s performance to just one market index.
  • The only accurate way to track performance is based on a basket of indexes comparable to your overall portfolio.
  • Educate yourself about investment, maintain portfolio diversification, invest only after careful analysis, consider your overall goals and focus on investment value going forward.

The simple answer to the question “Should I go all in?” is “Don’t do it.”

It is very difficult to stay focused on your long-term goals when the market has gone up for an extended period of time. Most people recognize the feeling they get when they watch the financial markets rally or they review their investments after a really positive couple of months and realize they aren’t keeping up with the Dow Jones Industrial Average.

We all seem to second-guess our decisions when the market has gone up more than our portfolios, and have those moments when we start thinking maybe we are doing something wrong.

The reality is that you may not actually be doing anything wrong in your investment portfolio. To that point, tracking your portfolio based on one index is definitely not the way to measure performance.

Remember the Dow is 30 stocks of 30 different companies. It is not a good benchmark for determining if your portfolio is performing well, for two reasons.

First, it includes only 30 stocks out of the thousands traded on other exchanges. Second, because of the way the index is calculated, higher-priced stocks exert a greater influence over the index than lesser-priced ones. If your portfolio is invested in many different asset classes, comparing your overall performance to an index like the Dow isn’t very helpful or accurate.

More from FA Playbook:
These fees could devour more than $369,000
Use this charitable contribution to get a tax benefit
How to maximize medical tax benefits this year

The only accurate way to track your performance is based upon a basket of indexes comparable to your overall portfolio. For example, if you own mutual funds that invest in U.S. small cap stocks, the best index for comparison may be the Russell 2000. If you are looking at U.S. large cap stocks, the S&P 500 is a better measure than the Dow since it is a broader-based index with 500 companies, compared to 30 for the Dow.

I have had many questions from investors about whether they should increase their equity exposure, and consequently the risk in their portfolio.

For many the answer is no, but for some it is a matter of reviewing whether the potential increased return outweighs the increased risk that has to be taken. The best way to view this risk-reward relationship is by looking back at periods of time where we had either a really good market or a really bad one.

Regarding the latter, the two years that come to mind are 2008 and 2009. So if your portfolio lost 20 percent in 2008 but would have lost 30 percent with an increase in equity exposure, this is a start for determining the extent to which that extra risk impacts a specific portfolio.

The next step is to translate that percentage to real dollars. When we look at a percentage loss of 20 percent or more, we can rationally or intellectually say “Sure, I can deal with that.” But once we translate it to real dollars, it has a different feel. So a 20 percent loss may seem OK but, if it represents a $10,000 or more loss in real dollars, it may not be so easy to accept.

Maybe there are things you could do to more effectively manage your portfolio but it is not an all-or-nothing decision. Given the uncertainty surrounding the financial markets these days, now is a great time to take a good look at your portfolio. As you review your overall portfolio and the investments in it keep the following in mind:

  • Think about your overall goals and objectives. What are you trying to achieve with these dollars? Can you target a higher return and accept higher risk and still reach your objectives? If not, take it slow increasing the risk of your portfolio.
  • If you don’t have a financial plan, this review is a great reason to develop one starting right now. Planning now means a lot less stress and regrets later. Think about what a financial plan could mean to you and your family. A major benefit is that it keeps you focused and on track for the longer term and not just the short term.
  • Make sure you understand the basics of investing, even if you hire a professional to help you manage your money. You need to understand the reasoning behind how your dollars are managed.
  • Review your overall asset allocation to make sure it makes sense for you. The overall asset allocation and the asset classes you select are the most important part of building a solid investment portfolio for the long term, and the primary determinant of your portfolio’s overall performance over the long term. Make sure you rebalance periodically to bring it back in line with your original asset allocation if there has been no change in your financial situation or investment objectives. If there has been, you need to revisit your original asset allocation. If you originally targeted 30 percent in bonds and 70 percent in stocks, is this what you currently have?
  • Review each individual investment. If you own a stock, is it still a good company? If you own a mutual fund, is it performing like comparable funds? If not, why not? Would you buy it today? Slow down and really think about the investments you currently have. Even if an investment has lost money, it is not necessarily a bad long-term investment. Don’t just react to what is going on in the markets today.
  • Maintain that diversification. Don’t let any stock or fund take over your portfolio. Even if an investment has done really well, make sure you take profits and don’t let it take over too much of the value of your portfolio. Diversification doesn’t mean having many different advisors or many different U.S. large cap stock funds. It means having investments in U.S. large cap stocks, U.S. small cap stocks, fixed income, international, emerging markets and various other asset classes. Investing in asset classes that can help diversify your risk is critical.
  • Purchase new investments only after extensive analysis. That means don’t buy the latest hot investment or buy something on a friend’s or neighbor’s hot tip, or the one that has gone up the most this week.
  • Focus on the investment value going forward and not just on past performance. Past performance is only one indicator and not necessarily a predictor of future performance. If you are investing in a mutual fund, all else being equal, stick with the fund with low expenses. Funds with lower expenses have to take less risk for the return.
  • Think about the basics of investing. You want to buy low and sell high, not the other way around. Don’t get caught selling something after it may be close to a bottom, especially if you believe it is still a good company or a good mutual fund. The flip side is, don’t fall in love with an investment and hold onto it in spite of continuing poor performance.
  • If you aren’t sure what to do, or you find yourself unable to make a decision, hire someone to help you. There are many very good financial professionals out there that are capable of helping you work through some of these tough decisions. Don’t be afraid to ask for assistance in a difficult market.

The bottom line

The bottom line: Don’t make the mistake of moving in and out of investments trying to find the “right answer” in a volatile market. Unless you have a crystal ball, a diversified portfolio is still the right answer to most investment questions.

Remember that many investors lose money not because of bad investments but because of really poor timing of buying and selling investments. This happens because by the time they are convinced that the market is going down forever and actually sell may be right before the market does go up. It is also true of rising markets. You cannot time markets no matter how smart you are so invest in a diversified portfolio and keep rebalancing.

“Sooner or later the market will back up. … Until then, keep that go-for-broke mentality under wraps and don’t let emotions control your investment decisions.”

This time is not different and the market will not go up forever. The key is to plan your investment program, select individual investments carefully and don’t make changes without extensive analysis. And remember that mantra: “I am a long-term investor, I am a long-term investor, I am a long-term investor.” You get the idea.

Like any other bull market, this one will not last forever. Sooner or later the market will back up and we will once again experience the fear that is the other part of the equation. Until then keep that go-for-broke mentality under wraps and don’t let emotions control your investment decisions.

Bull market, Financial and business concept

Larry Fink: ‘The market will be higher in 10 years’

Re-Posted from

BlackRock (BLK) CEO Larry Fink is bullish about the long run.

“The market will be higher in 10 years,” Fink said at Yahoo Finance’s All Market Summit event in New York.

 He reflected on the darkest days of the financial crisis, which happened ten years ago, to illustrate that markets tend to recover even after things go horribly wrong.“If you bought equities two days before Lehman Brothers collapsed, your portfolio is up…I think it’s up 130%,” he said.

The CEO of the world’s largest asset manager, famous for his belief in long-termism, gave his prediction not without concerns, chiefly that the U.S. could potentially lose its position of owning and controlling the world’s choice reserve currency should China benefit from the U.S.’s current unilateral agenda.

As for the short term, Fink said that despite trade concerns and political instability around the world, markets would likely continue going strong.

“I’m not really concerned about whether we’ll see a setback. The markets have rallied since 2009,” he said. “If you look at the markets today we see a huge increase in corporate earnings on the back of tax cuts and a rising economy.”

Larry Fink, Chief Executive Officer of BlackRock, takes part in the Yahoo Finance All Markets Summit in New York, U.S., February 8, 2017. REUTERS/Lucas Jackson
Larry Fink, Chief Executive Officer of BlackRock, takes part in the Yahoo Finance All Markets Summit in New York, U.S., February 8, 2017. REUTERS/Lucas Jackson

Fink also observed that even as stock prices have gone up, valuations have become more attractive for investors.

“[The price/earnings multiple] is lower today than it was a year ago so the market place is now discounting some of those worries,” he said. “Some people may think they’re discounting enough, but with P/E down you could say the market is less expensive.”

Fink also pointed to a “decoupling between our markets and the rest of the world,” which has not experienced forces that have driven up U.S. markets, such as tax cuts and deregulation, and a decoupling between U.S. stocks.

“If you strip out some of the high flying tech stocks, many companies’ stocks are down.” he said. “The marketplace is uneven and not as strong as it feels.”

Ethan Wolff-Mann is a senior writer at Yahoo Finance.

Open Wallet

More people are saving $1M in their 401(k)s

Re-posted from

NEW YORK (CNN Money) — Saving $1 million for retirement may sound like an impossible task that not many people have achieved.

But about 157,000 people have saved at least $1 million in their 401(k)s with Fidelity, according to the company.

Another 148,000 had saved that much in an IRA.

Of those, 2,400 people had saved $1 million in both types of accounts.

So what’s the secret to becoming one of them? Time.

Most of these people are Baby Boomers who have saved for at least 30 years.

“I think the most important behavior is to start saving early,” said Katie Taylor, vice president of thought leadership at Fidelity.

That’s good news for Millennials. If you’re still in your 20s or 30s, you can set yourself up now to meet that goal with much less effort than an older person getting a later start.

People who’ve reached the $1 million mark also are saving a bigger percentage of their salary. Those with $1 million in their 401(k) are saving 24 percent of their salary each year — including both employer and employee contributions. Overall, the average 401(k) participant is saving 13 percent, according to Fidelity, the biggest plan provider by assets.

“The beauty of the 401(k) is that it takes the emotion out of investing,” said Chuck Cumello, president and CEO of Essex Financial.

Since money is taken out of your paycheck automatically, you’re less likely to try to time the market.

How do you stack up?

Less than 3 percent of Baby Boomers with a 401(k) at Fidelity have reached $1 million.

In 2016, working households aged 55 to 64 with retirement accounts had saved a median of $120,000, according to the Investment Company Institute.

It’s no surprise that those with higher salaries have saved more. Those older households who earned more than $171,000 a year had saved a median of $600,000 while those who earned less than $35,000 a year had saved a median of $18,000. (The report considered assets in all defined contribution accounts, including both 401(k) and IRAs.)

How can you get to $1 million?

Not everyone will need $1 million for retirement, Taylor said. One rule of thumb is to save 10 times your ending salary. If you’re far away from retirement age, use an online calculator like this one to get an idea of how much you might need.

There are three common traits shared by those who have saved a lot of money in their 401(k)s, said Cumello.

1. Start saving early.

If you start at age 25, you’ll need to save $650 a month to have $1 million by age 65. But you’d need to save $1,200 a month if you wait to start saving until age 35 (assuming a 5 percent average return).

2. Work toward saving the maximum allowed.

First, save at least as much to get the full company match, Cumello said.

Then increase your savings rate until you hit the federal limit. This year it’s $18,500.

3. Pay attention to your investments.

Most 401(k)s have low-cost fund investment options. Cumello suggests investing in those to create a diversified portfolio. Avoid being too heavily invested in one stock.

™ & © 2018 Cable News Network, Inc., a Time Warner Company. All rights reserved.

Interest rates

Why the Stock Market Is Crashing Now, and What You Should Do About It

Re-posted from


February 5, 2018

After being on cruise control for months, the stock market hit a giant speed bump on Monday, when the Dow Jones industrial average plunged — tumbling more than 1,500 points at one point after sinking 665 points on Friday.

By the close, the Dow had lost around 2,200 points since Jan. 26, closing in on a 10% decline — which would mark the start of an official “correction.”

So why is the stock market suddenly starting to plunge?

Chalk this up to a case of “be careful what you wish for.”

On paper, Wall Street should be rejoicing right now — not racing to cash out as investors have been doing lately.

Investors, after all, recently got the corporate and income tax cuts they’ve been clamoring for. The economy is accelerating for real, with U.S. gross domestic product now expanding at a annual pace of more than 3% (after inflation) for three straight quarters.

And for the first time in a long while, it appears that worker wages are finally beginning to lift, with average hourly earnings rising to $26.74 in January — a 2.9% increase over the past year.

This represents the fastest rate of wage growth in nearly nine years, since the end of the Great Recession. And it effectively marks the end of the global economy’s war against deflation, which had been the biggest economic threat since the financial crisis began more than a decade ago.

In theory, these are all bullish developments. Yet stocks are going in the opposite direction.

That’s largely because the natural outgrowth of an expanding economy and rising wages is inflation, which hasn’t been a real threat to the economy in nearly three decades.

Investors now believe it is.

Is inflation really heating up?

Yes. Even though it seems tame right now — the consumer price index is up a modest 2.1% over the past 12 months — there’s a good chance inflation could start to pick up steam.

Why? For starters, “signs indicate that wage growth is headed even higher later this year,” says Brad McMillan, chief investment officer for Commonwealth Financial Network

For example, the labor force participation rate — which measures the percentage of the working-age population that is employed or looking for work — “seems to have hit an upper bound at around 63% and has been bouncing around somewhat below that,” McMillan notes. Even with wages and job creation accelerating, January’s labor participation rate was 62.7%, which is about where it’s been for four straight months.

 “This could be a sign that all of the workers available, or close to it, are now working,” he says. And if that’s the case, companies seeking to employ new workers may have to shell out even higher wages to attract talent, potentially pushing inflation up even higher.

That, in turn, could mean that corporate profit margins are about to be pinched.

There’s one other reason why investors should brace themselves for higher inflation.

Jim Paulsen, chief investment strategist for The Leuthold Group, notes that for the first time in this economic recovery, nomimal GDP growth (that is, economic growth before the effects of inflation are stripped out) exceeds the national unemployment rate.

When the that happens, “history suggests wage pressures are finally likely to intensify more than most anticipate this year,” Paulsen says.

Are there other reasons to worry?

Yes. It’s not just the threat of rising inflation that investors fear. Wall Street is also worried about what the Federal Reserve might do in response.

“The catalyst isn’t fear of a growth slowdown; it is fear of too much growth and surging bond yields,” says Jeffrey Kleintop, chief global investment strategist for Charles Schwab. “An overheating global economy could mean a more rapid shift by central banks to rein in stimulus” — typically by raising interest rates rapidly.

And rapid rate hikes in an overheating economy is “often a precursor to a recession and a bear market,” he notes.

Already, in anticipation of higher short-term rates, investors have driven longer-term interest rates higher. Yields on 10-year Treasury notes, for instance, reached as high as 2.86% on Monday, up from 2.40% at the start of the year and 2.03% in September.

Does the new Fed chief have anything to do with the sell-off?

It’s hard to blame any of this on new Federal Reserve chair Jerome Powell. After all, he was just sworn in as chairman of the U.S. central bank on Monday afternoon. And the sell-off began well in advance.

However, the markets have historically had a knack for testing new Fed chairman at critical junctures of the economy.

Investors will recall that Alan Greenspan became Fed chairman in August 1987, as the central bank was already hiking rates toward the end of a long economic expansion. That transition took place just weeks before the October 1987 market crash, in which stocks lost nearly a quarter of their value on a single day.

Ben Bernanke similarly assumed the Fed chairmanship in 2006, at the end of another cycle in which housing and stock prices were greatly inflated. About a year later, the stock market entered into a bear market in which equities lost more than half their value.

BitCoin Tech

A Warning About Bitcoin’s Wild Price Swings

Re-posted from

NEW YORK (CNNMoney) — The person atop one of cryptocurrency’s most popular exchanges pleaded with people to invest responsibly.

In a blog post on his site, Coinbase CEO Brian Armstrong sought to “remind customers of some of the risks associated with trading digital currency” — which include wild price swings.

The price of a single bitcoin soared this week from under $10,000 to more than $17,000 before slumping back down to around $15,000, according to data from CoinDesk, which values bitcoin based on data from four exchanges, including Coinbase.

On Coinbase’s exchange the price soared past $18,000 at one point.

Armstrong warned in his post on Thursday that the increased interest in cryptocurrencies, which was punctuated by a stunning bitcoin rally earlier this week, has led to “extreme volatility and stress on our systems.”

During the frenzy, Coinbase’s valuation was consistently higher than the CoinDesk index — at one point by a $2,000 margin. Even Saturday afternoon, Coinbase listed the price of a bitcoin around $15,000, while the CoinDesk hovered around $14,700.

Bitcoin’s rise is mind-boggling considering just one year ago it traded for less than $800. At one point in 2011, it traded for about three bucks, according to CoinDesk.

Its stunning ascent was driven in large part by increasing attention from mainstream investors. And bitcoin’s valuation has continued to balloon — with a few sharp dips — despite a smattering of warnings from top economists and business leaders.

Beginning Sunday, investors will be able to trade bitcoin futures via the Chicago Board Options Exchange. And they’ll debut on the Chicago Mercantile Exchange a week later.

— CNNMoney’s Jethro Mullen contributed to this report.

Copyright 2017 Cable News Network. Turner Broadcasting System, Inc. All Rights Reserved.

Social Security Couple

Save Soc. Sec. for Later, When You Need It Most

Tim Maurer, Director of Personal Finance

I think we’ve been looking at Social Security retirement benefits all wrong. In the long-running debate about when to take Social Security — as early as age 62 or as late as age 70 — the focus has been on timing your claim to get the most money, in total, out of the social safety net.

This is a circular argument that will never be fully decided until the Social Security recipient in question dies. So let’s shift the focus from the question “How do we get the most out of Social Security?” to “How do we get Social Security when we need it most?”

Simply put, you’re more likely to run out of money at the end of retirement than at the beginning.

Behavioral science explains why we are all so prone to preferring money today over tomorrow. It’s called “hyperbolic discounting,” and behavioral economists plead that we meaningfully overvalue money now, unfairly discounting money later.

But the risk of making less money in your early retirement years is dwarfed in comparison to the risks of longevity and inflation in the latter stages of retirement. And the probability you will outlive your money meaningfully decreases if you wait to take Social Security.

Prove it!

Let me show you through an example that, while hypothetical, is no doubt close to reality for many.

We’ll consider three couples, the Earlies, the Fullers and the Laters. Each couple:

  • Retires with $1 million in tax-deferred retirement savings.
  • Has an identical 50 percent equity, 50 percent fixed-income portfolio.
  • Has a pretax retirement income need of $90,000 per year.
  • Will supplement their Social Security income with the retirement savings necessary to fulfill their income needs.
  • Includes one household member who will receive the maximum in Social Security benefits and one who will receive 50 percent of the maximum.

The only difference is that the Earlies retire and begin taking Social Security retirement benefits at 62, the Fullers at 67 and the Laters at 70.

This hypothetical case study is designed to result in an academic probability that each couple will not run out of money, and applies more than 3,000 iterations of randomized historical market returns for the respective retirees’ portfolio allocations.

Then, we show the likelihood that each couple will have at least one dollar left in retirement savings at the end of four different time periods — 20, 25, 30 and 35 years into retirement.

Therefore, if you see a result of 47 percent in the 25-year column of the table below, it means the couple represented still had at least one dollar left in their retirement savings at the end of that period in nearly half of the thousands of iterations run. In other words, that couple had a 47 percent chance of not running out of money 25 years into retirement. Statistically, a probability of 85 percent or better is favorable.

The findings

What did we find? If you die early enough — within 20 years of your retirement date — you have a reasonably good chance to outlive your money regardless of when you take Social Security. The Earlies hit the golf course fully five years before the Fullers, but it’s not clear that they’ve suffered for it at the 20-year mark.

At 25 years, however, there’s a greater than 50 percent chance the Earlies have run out of money and now must ask their kids to pay their greens fees. At 30 years their probability of solvency has dropped to 30 percent, and at 35 years they’re likely relying on their reduced Social Security benefit for all of their income.

Why do the Earlies fail? Because in order to meet their income needs with a reduced Social Security benefit, they put too much pressure on their portfolio to pick up the tab. They were forced to take an effective withdrawal rate of 5.62 percent in their first year of retirement.

How do the Fullers look? Pretty good. Buoyed by a Full Retirement Age (FRA) Social Security benefit and beginning with a reasonable 4 percent effective rate of withdrawal from their portfolio, at 20 and 25 years into retirement, they’re in the 90 percent-plus range. But if they plan on seeing their faces on a Smucker’s jar, their probability of success declines to 67 percent when they’re 35 years into retirement.

As you’d guess, the Laters are solid. Because of their increased Social Security benefit, they require only a 3.26 percent portfolio withdrawal rate in year one. Statistically, they ride off into the sunset and should have the funds to test the boundaries of science in their pursuit of longevity.

If you suspect you’ll die early — and have lineal or medical justification for that belief — you might justify taking Social Security as early as you can (although a lesser-earning spouse could still benefit from your higher benefit when you’re gone). And please forgive the inherent insensitivity in this analysis, which presumes the Earlies, Fullers and Laters all have a choice in taking their benefits at various points in time. Many retirees don’t, and if you need to retire and take early Social Security for any number of valid reasons, of course you should do just that.

But if you hope to have a longer retirement — 30 or 35 years, especially — your chances of not outliving your retirement savings improve greatly if you delay Social Security. Waiting is like purchasing longevity and inflation insurance for what will hopefully be a long and prosperous retirement.

This commentary originally appeared January 1 on

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.

The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2017, The BAM ALLIANCE

Can you pick the next winner

Building an Evidence-Based Plan

InFocus April 2017


“Control what you can control.” —David Butler, co-CEO, Dimensional Fund Advisors

By following the above five words from Butler, investors can help simplify their complex financial lives. Out of thousands of pages of scientific research, a cornerstone of evidence-based investing emerges: Control what you can control. Control the fees you pay and your trading costs. Control your tax efficiency and your asset allocation. Control how closely your emotions are tied to an up-and-down market. Bigger picture, you can take better control of your entire financial experience.

This month’s InFocus looks at foundational tenets of evidence-based investing to give you confidence when you think of where you are and where you want to go.


“Diversifying your wealth across a variety of market risks helps you remain on course and in the driver’s seat, even when the road ahead is uncertain.” —Manisha Thakor, director of wealth strategies for women, the BAM ALLIANCE

For an example of why we stress the importance of having an internationally diversified portfolio, just go back a few weeks. The first quarter of 2017 closed strongly for developed international and emerging markets (up 7.4 percent and 11.5 percent, respectively). This came when many investors had cooled on international stocks after they significantly underperformed U.S. markets from 2008-2016. But not so long ago (2002-2007), the MSCI World ex USA Index returned 128.7 percent compared with 42.5 percent for the S&P 500 Index. Diversifying your portfolio so it has exposure to both U.S. and global equity markets allows you to capture market upswings and withstand its downswings over the long haul.
Can you pick the next winner

All of this underscores the importance of being diversified and — the topic we’ll address next — being disciplined.


“Inactivity strikes us as intelligent behavior.” Warren Buffett

Buffett is really smart and really good at making money. But he makes an important point when it comes to someone having the ability to outsmart the market. “Success in investing doesn’t correlate with IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people in trouble investing.”

Too many investors buy stocks during upswings when all feels good and sell during downward spirals when uneasiness seeps in. This lack of discipline can cause investors to be on the sidelines when markets rebound, causing missed opportunities.

Cost of Mistiming the Market

The cost to investors when they miss the best one, five, 15 and 25 days of market performance during a 45-year period.

Patience and prudence are central to an evidence-based strategy. Stay true to your well-devised plan while rebalancing periodically. Doing so will keep your portfolio in line with your target allocations and will enable you to capitalize on buy-low/sell-high opportunities.


 “The makeup of your portfolio depends entirely on your unique ability and willingness and need to take risk.” Larry Swedroe

 Swedroe, a prolific author and the director of research for the BAM ALLIANCE, says the ability to take risk is largely defined by the investment horizon, the stability of an investor’s income and the need for liquidity. Swedroe says the willingness to take risk can be succinctly summed up through the “stomach acid” test. Can you stick to your plan even when the market goes down for an extended period? This includes rebalancing — selling what has done relatively well or held its value and buying what has done worse. The need to take risk is determined by the rate of return that is needed for you to reach your financial goals.

Part 1 The Ability to Take Risk

Of course, the word unique is critical as well. The ability, willingness and need to take risk are highly personal decisions. They vary for each investor’s specific circumstances. However, you can view general guidelines for prudent asset allocation decisions by clicking here or the image.


“It’s just fun to do research, learn new stuff, and potentially have an impact on the way other people are thinking about the world.” Kenneth French, professor, Dartmouth College

No room for speculation, prognostication or hunches, the evidence-based world is rooted in decades of objective research on the long-term behavior of financial markets. We use that evidence to tilt portfolios toward the asset classes that have delivered the highest returns over the long haul and should continue to do so. Click here or the image to see the return profiles of distinct asset classes during the period of 1931-2016.

This research leads to plans that keep costs low, minimize risk and implement tax-efficient strategies. The evidence results in portfolios that are diversified domestically and internationally. Those same portfolios use fixed income to dampen volatility and address the risk tolerance of each investor.

Asset Class Returns 1992–2016


Retirement Plan with glasses

UIT Managers Exhibit Poor Stock Selections Skill

Written by Larry Swedroe, Director of Research

Much—too much—has been said and written about the relative superiority of Roth IRAs versus Traditional IRAs. The debate over which is better too often involves the technical numerical merits. In truth, the Roth wins in almost every situation because of its massive behavioral advantage: a dollar in a Roth IRA is (almost) always worth more than a dollar in a Traditional IRA. This is true regardless of one’s age, but the Roth IRA is even more advantageous for Millennials.

I must first disclaim that you can disregard any discussion of Roth or Traditional IRA if you’re not taking full advantage of a corporate match in your employer’s 401(k)—free money is still better than tax-free money. But after you’ve “maxed out” the match in your corporate retirement account, here are the top three reasons Millennials should consider putting their next dollar of savings in a Roth IRA:

1) Life is liquid, but most retirement savings isn’t.

Yes, of course, in a perfect, linear world, every dollar we put in a retirement account would forevermore remain earmarked for our financial futures. But hyperbolic discounting—and the penalties and tax punishments associated with early withdrawal from most retirement savings vehicles—can scare us away from saving today for the distant future. The further the future, the more we fear.

The Roth IRA, however, allows you to remove whatever contributions you’ve made—your principal—without any taxes or penalties at any time for any reason. Therefore, even though I’d prefer you to generally employ a set-it-and-forget-it rule with your Roth and not touch it, if the privilege of liquidity in a Roth helps you save for retirement, I’m all for it.

2) There are too many competing priorities.

Millennials are dropped into the middle of a financial should-fest. You should pay down school loans, save up for a home down-payment, drive a cheap ride, purchase the proper level of insurance, enhance your credit and save three months’ worth of cash in emergency reserves. All while having a life? No chance.

Most personal finance instruction tells you what your priorities should be, and if you’re looking for that kind of direction, I’m happy to help in that regard as well. But it’s also not a mortal money sin to employ some Solomonic wisdom and compromise between, say, two worthy savings initiatives—like short-term emergency reserves and long-term retirement savings. Therefore, while I can’t go so far as to suggest that you bag the idea of building up cash savings in lieu of a Roth, I’m comfortable with you splitting your forces and dipping into your Roth IRA in the case of a true emergency. The challenge we all face is to define “true emergency” without self-deception.  (And no, splurging on concert tickets or a last minute vacation with friends don’t qualify.)

3) Roth contributions cost you less today than they will in the future.

Despite my sincerest attempt, I couldn’t avoid the more technical topic of taxes—and nor should I, in this case. That’s because it only stands to reason that you’re making less money—and therefore paying less in taxes—at the front end of your career than you will be in the future.

Therefore, in addition to beginning tax-free compounding sooner, Roth IRA contributions—which are not tax-deductible—will likely “cost you” less as a career newbie than they will as a seasoned executive. At SpaceX. On the first Mars colony. Furthermore, you can also make too much to contribute to a Roth IRA, progressively phasing out of eligibility at income of $118,000 for an individual and $186,000 for a household.

Like Coachella tickets, the opportunity to invest in a Roth IRA may not be around forever. Tax laws and retirement regulations are constantly evolving, and who knows what the future may hold. This increases their value for everyone, but especially for those who could benefit from them the most—Millennials.

This commentary originally appeared February 22 on

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.

The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2017, The BAM ALLIANCE

photos courtesy of InvestmentZen

Open Wallet

What 2017 May Mean For Your Personal Finances

Re-posted from

By Sarah Skidmore Sell, Associated Press   |  Posted Dec 26th, 2016 @ 8:26am

It’s been a tumultuous 2016 — both financially and politically. The year may have left some people wondering, what’s next? And, how will it affect me?

Lacking a crystal ball, we asked a few economic experts what they think 2017 may hold in store for Americans’ personal finances. Here’s their take on what to expect in the year ahead:

Q. What’s the job market going to look like?

job search

A. “The job market in 2017 will be about as good as it gets,” said Mark Zandi, chief economist at Moody’s Analytics. “There are currently a record number of job openings and layoffs are at record lows.”

Job growth should be strong next year, with more jobs across all pay scales, Zandi said. With the economy at full-employment, pay increases should also be as large as they’ve been in a decade, and well above the rate of inflation.

The only soft spots Zandi sees will be in energy and other commodity-related industries, manufacturing that is sensitive to global trade, and industries being disrupted by technology, such as print media or brick-and-mortar retailing.

“2017 will be a great year if you’re looking for a new job or a better one,” he said.

However, while the job market is good, it’s taking longer than ever to get hired, said Andrew Chamberlain, chief economist at Glassdoor. The interview process now takes 22.9 days on average to complete in the U.S. as employers conduct additional screenings to find the right candidate, Chamberlain noted in a recent report.

Don’t expect jobs to look the same once you land them, either. Chamberlain predicts that automation will change every job. There may also be a shift away from flashy benefits packages in some industries in 2017. In the tech industry particularly, where fun perks are the norm, employers may be looking at which benefits give them the most bang for their buck. He also predicts employers may finally take action to level the gender pay gap, thanks to greater awareness, data availability and pay transparency.

Q. Will gas prices go up?

Gas pump

A. 2017 will likely be another cheap year to fuel your car, but not quite as good as 2016, several energy experts said.

A huge global glut in the oil supply has driven down prices in recent years, meaning consumers pay less at the pump. As of mid-December, gasoline is averaging $2.115 a gallon in the U.S., said Tom Kloza, global head of energy analysis at the Oil Price Information Service. He expects 2016 will be the cheapest year for American motorists since 2004, when the average price was $2.265 a gallon.

But recently OPEC — short for the Organization of the Petroleum Exporting Countries — recently agreed to cut production beginning in January to restore some stability to the market. If the cartel’s members follow through, global oil production will slow, but not by much.

And while there is a likelihood that supply and demand will rebalance in 2017 under the OPEC agreement, Kloza said it’s also possible that various countries will cheat on production pledges. That could mess with oil and gasoline prices. He expects prices will range from $2.10-$2.75 a gallon nationwide over the course of 2017, with seasonal and regional fluctuations.

Patrick DeHaan at said he expects the national yearly average will be 20 to 30 cents a gallon higher than this year. With Americans driving an average of 15,000 miles a year each, using about 600 gallons of gasoline, that means someone driving a normal passenger vehicle will pay about $120 more on gas in 2017 than this year, DeHaan said.

Q. What should I expect from interest rates?

Interest rates

A. The Federal Reserve slightly raised its key interest rate this month and said it may raise rates up to three more times in 2017. But that doesn’t spell disaster for borrowing in the year ahead.

The Fed move will likely lead to higher rates for credit cards, home equity loans and adjustable-rate mortgages first. That means this is the time to pay down high interest rate debt and insulate yourself from variable rate debts, said Greg McBride, chief financial analyst at

Don’t lose sleep over auto loans if you are in need of a new set of wheels, as a rate hike of this size has an inconsequential effect on affordability. And most student loans are federal and charge fixed rates. But if you have private loans, you may want to look at your financing options as these often charge variable rates and may be impacted.

House shopping? That’s a mixed bag — mortgage rates were already volatile before the rate hike and that’s likely to continue. McBride said that even with hikes, mortgage rates will likely stay closer to 4 percent than 5 percent in 2017. That’s still low by historical standards.

Savers may finally begin see some improvement in rates for savings and CDs. But it may take a while for that to play out, McBride warned.

And keep in mind that three potential hikes are just a prediction. This time last year the Fed said it would raise interest rates four times in 2016, but it has done so only once.

“I’ll believe it when I see it,” McBride said.

Q. And what about my taxes, will they really change?

A. There’s potential for some major changes to the tax system next year under president-elect Donald Trump’s proposals.

According to his action plan, Trump will simplify the tax system and lower the tax burden on Americans, primarily the middle class. He aims to reduce the number of tax brackets from seven to three. And he says Americans will be able to deduct their childcare and eldercare expenses from their taxes, among other changes.

The average family could see a 3 to 5 percent reduction in their tax bill under Trump’s proposals, said David Prokupek, CEO of Jackson Hewitt. While these are just proposals, Prokupek suspects they will move forward given their priority in Trump’s agenda and for the Republican-led Congress in place. Even if it takes time, tax law changes such as these are almost always retroactive. So even if it’s passed later in the year, it will apply to all of 2017.

The proposal is not without some controversy, however. An analysis by the nonpartisan Tax Policy Center found that about 8 million families, including a majority of single-parent households, would actually see higher tax bills under Trump’s proposals. But Trump’s advisers deny that he will raise taxes on middle-income Americans and say the president-elect would instruct Congress to avoid such hikes.

As for the taxes you owe or the refund you’re due come April — that falls under existing law.


AP Writer Christopher S. Rugaber contributed to this report

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.