Skip to content

Holding Equities for the Long Term: Time Versus Timing

December 30, 2018

Legendary investor Warren Buffett is famous for his long-term perspective. He has said that he likes to make investments he would be comfortable holding even if the market shut down for 10 years. Investing with an eye to the long term is particularly important with stocks. Historically, equities have typically outperformed bonds, cash, and inflation, though past performance is no guarantee of future results and those returns also have involved higher volatility. It can be challenging to have Buffett-like patience during periods such as 2000-2002, when the stock market fell for 3 years in a row, or 2008, which was the worst year for the Standard & Poor’s 500* since the Depression era. Times like those can frazzle the nerves of any investor, even the pros. With stocks, having an investing strategy is only half the battle; the other half is being able to stick to it.

Just what is long term?

Your own definition of “long term” is most important, and will depend in part on your individual financial goals and when you want to achieve them. A 70-year-old retiree may have a shorter “long term” than a 30 year old who’s saving for retirement.

Your strategy should take into account that the market will not go in one direction forever–either up or down. However, it’s instructive to look at various holding periods for equities over the years. Historically, the shorter your holding period, the greater the chance of experiencing a loss. It’s true that the S&P 500 showed negative returns for the two 10-year periods ending in 2008 and 2009, which encompassed both the tech crash and the credit crisis. However, the last negative-return 10-year period before then ended in 1939, and each of the trailing 10-year periods since 2010 have also been positive.*

The benefits of patience

Trying to second-guess the market can be challenging at best; even professionals often have trouble. According to “Behavioral Patterns and Pitfalls of U.S. Investors,” a 2010 Library of Congress report prepared for the Securities and Exchange Commission, excessive trading often causes investors to underperform the market.

The Power of Time

Note: Though past performance is no guarantee of future results, the odds of achieving a positive return in the stock market have been much higher over a 5or 10-year period than for a single year. Another study, “Stock Market Extremes and Portfolio Performance 1926-2004,” initially done by the University of Michigan in 1994 and updated in 2005, showed that a handful of months or days account for most market gains and losses. The return dropped dramatically on a portfolio that was out of the stock market entirely on the 90 best trading days in history. Returns also improved just as dramatically by avoiding the market’s 90 worst days; the problem, of course, is being able to forecast which days those will be. Even if you’re able to avoid losses by being out of the market, will you know when to get back in?

Keeping yourself on track

It’s useful to have strategies in place that can help improve your financial and psychological readiness to take a long-term approach to investing in equities. Even if you’re not a buy-and-hold investor, a trading discipline can help you stick to a long-term plan.

Have a game plan against panic

Having predetermined guidelines that anticipate turbulent times can help prevent emotion from dictating your decisions. For example, you might determine in advance that you will take profits when the market rises by a certain percentage, and buy when the market has fallen by a set percentage. Or you might take a core-and-satellite approach, using buy-and-hold principles for most of your portfolio and tactical investing based on a shorter-term outlook for the rest.

Remember that everything’s relative

Most of the variance in the returns of different portfolios is based on their respective asset allocations. If you’ve got a well-diversified portfolio, it might be useful to compare its overall performance to the S&P 500. If you discover you’ve done better than, say, the stock market as a whole, you might feel better about your long-term prospects.

Current performance may not reflect past results

Don’t forget to look at how far you’ve come since you started investing. When you’re focused on day-to-day market movements, it’s easy to forget the progress you’ve already made. Keeping track of where you stand relative to not only last year but to 3, 5, and 10 years ago may help you remember that the current situation is unlikely to last forever.

Consider playing defense

Some investors try to prepare for volatile periods by reexamining their allocation to such defensive sectors as consumer staples or utilities (though like all stocks, those sectors involve their own risks). Dividends also can help cushion the impact of price swings. If you’re retired and worried about a market downturn’s impact on your income, think before reacting. If you sell stock during a period of falling prices simply because that was your original game plan, you might not get the best price. Moreover, that sale might also reduce your ability to generate income in later years. What might it cost you in future returns by selling stocks at a low point if you don’t need to? Perhaps you could adjust your lifestyle temporarily.

Use cash to help manage your mindset

Having some cash holdings can be the financial equivalent of taking deep breaths to relax. It can enhance your ability to act thoughtfully instead of impulsively. An appropriate asset allocation can help you have enough resources on hand to prevent having to sell stocks at an inopportune time to meet ordinary expenses or, if you’ve used leverage, a margin call.

A cash cushion coupled with a disciplined investing strategy can change your perspective on market downturns. Knowing that you’re positioned to take advantage of a market swoon by picking up bargains may increase your ability to be patient.

Know what you own and why you own it

When the market goes off the tracks, knowing why you made a specific investment can help you evaluate whether those reasons still hold. If you don’t understand why a security is in your portfolio, find out. A stock may still be a good long-term opportunity even when its price has dropped.

Tell yourself that tomorrow is another day

The market is nothing if not cyclical. Even if you wish you had sold at what turned out to be a market peak, or regret having sat out a buying opportunity, you may get another chance. If you’re considering changes, a volatile market is probably the worst time to turn your portfolio inside out. Solid asset allocation is still the basis of good investment planning.

Be willing to learn from your mistakes

Anyone can look good during bull markets; smart investors are produced by the inevitable rough patches. Even the best aren’t right all the time. If an earlier choice now seems rash, sometimes the best strategy is to take a tax loss, learn from the experience, and apply the lesson to future decisions.

*Data source: Calculations by Broadridge based on total returns on the S&P 500 Index over rolling 1-, 5-, and 10-year periods between 1926 and 2014.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

Weekly Conference Call

April 23, 2019

Odessa Client Appreciation Dinner

April 22, 2019

Hawthorne Seminar

April 22, 2019

Sacramento Seminar

April 22, 2019

Houston Seminar for *AT&T Employees

April 19, 2019

Peoria Seminar for *CAT Employees

April 19, 2019

Dallas Seminar for *AT&T Employees

April 4, 2019

*AT&T Fri Conference Call

April 1, 2019

Teaching Your Teen about Money

March 5, 2019

Your teen is becoming more independent, but still needs plenty of advice from you. With more money to spend and more opportunities to spend it, your teen can easily get into financial trouble. So before money burns a hole in your child’s pocket, teach him or her a few financial lessons. With your help, your teen will soon develop the self-confidence and skills he or she needs to successfully manage money in the real world.

Lesson 1: Handling earnings from a job

Teens often have more expenses than younger children, and your child may be coming to you for money more often. But with you holding the purse strings, your teen may have difficulty making independent financial decisions.

 

One solution? Encourage your teen to get a part-time job that will enable him or her to earn money for expenses. Here are some things you might want to discuss with your teen when he or she begins working:

 

  • Agree on what your child’s pay should be used for. Now that your teen is working, will he or she need to help out with car insurance or clothing expenses, or do you want your teen to earmark a portion of each paycheck for college?

  • Talk to your teen about taxes. Show your child how FICA taxes and regular income taxes can take a bite out of his or her take-home pay.

  • Introduce your teen to the concept of paying yourself first. Encourage your teen to deposit a portion of every paycheck in a savings account before spending any of it.

A teen who is too young to get a job outside the home can make extra cash by babysitting or doing odd jobs for you, neighbors, or relatives. This money can supplement any allowance you choose to hand out, enabling your young teen to get a taste of financial independence.

 

Lesson 2: Developing a budget

Developing a written spending plan or budget can help your teen learn to be accountable for his or her finances. Your ultimate goal is to teach your teen how to achieve a balance between money coming in and money going out. To develop a spending plan, have your teen start by listing out all sources of regular income (e.g., an allowance or earnings from a part-time job). Next, have your teen brainstorm a list of regular expenses (don’t include anything you normally pay for). Finally, subtract your teen’s expenses from his or her income. If the result shows that your teen won’t have enough income to meet his or her expenses, you’ll need to help your teen come up with a plan for making up the shortfall.

 

Here are some ways you can help your teen learn about budgeting:

 

  • Consider giving out a monthly, rather than weekly, allowance. Tell your teen that the money must last for the whole month, and encourage him or her to keep track of what’s been spent.

  • Encourage your teen to think spending decisions through rather than buying items right away. Show your teen how comparing prices or waiting for an item to go on sale can save him or her money.

  • Suggest ways your teen can earn more money or cut back on expenses (e.g., rent a DVD to watch with friends rather than go to the movies) to resolve a budget shortfall.

  • Show your teen how to modify a budget by categorizing expenses as needs (expenses that are unavoidable) and wants (expenses that could be cut if necessary).

  • Resist the temptation to bail your teen out. If your teen can depend on you to come up with extra cash, he or she will never learn to manage money wisely. But don’t be judgmental–your teen will inevitably make some spending mistakes along the way. Your child should know that he or she can always come to you for information, support, and advice.

Lesson 3: Saving for the future

As a youngster, your child saved up for a short-term goal such as buying a favorite toy. But now that your child is a teen, he or she is ready to focus on saving for larger goals such as a new computer or a car and longer-term goals such as college. Here are some ways you can encourage your teen to save for the future:

 

  • Have your teen put savings goals in writing to make them more concrete.

  • Encourage your child to set goals that are based on his or her values, not on keeping up with what other teens have or want.

  • Motivate your child by offering to match what he or she saves towards a long-term goal. For instance, for every dollar your child sets aside for college, you might contribute 50 cents or 1 dollar.

  • Consider increasing your teen’s allowance if he or she is too young to get a part-time job.

  • Praise your teen for showing responsibility when he or she reaches a financial goal. Teens still look for, and count on, their parent’s approval.

  • Open up a savings account for your child if you haven’t already done so.

  • Introduce your teen to the basics of investing by opening an investment account for your teen (if your teen is a minor, this will be a custodial account). Look for an account that can be opened with only a low initial contribution at an institution that supplies educational materials introducing teens to basic investment terms and concepts.

Lesson 4: Using credit wisely

You can take some comfort in the fact that credit card companies require an adult to cosign a credit card agreement before they will issue a card to someone under the age of 21 (unless that person can prove that he or she has the financial resources to repay the credit card debt), but you can’t ignore the credit card issue altogether. Many teens today use credit cards, and it probably won’t be long until your teen asks for one too.

 

If you decide to cosign a credit card application for your teen, ask the credit card company to assign a low credit limit (e.g., $300). This can help your child learn to manage credit without getting into serious debt.

 

Here are some things to discuss with your teen before he or she uses a credit card:

 

  • Set limits on what the card can be used for (e.g., emergencies, clothing).

  • Review the credit card agreement, and make sure your child understands how much interest will accrue on the unpaid balance, what grace period applies, and what fees will be charged.

  • Agree on how the bill will be paid, and what will happen if your child can’t pay the bill.

  • Make sure your child understands how long it will take to pay off a credit card balance if he or she only makes minimum payments. You can demonstrate this using an online calculator or by reviewing the estimate provided on each month’s credit card statement.

If putting a credit card in your teen’s hands is a scary thought, you may want to start off with a prepaid spending card. A prepaid spending card looks like a credit card, but works more like a prepaid phone card. You load the card with the dollar amount you choose and your teen can generally use it anywhere a credit card is accepted. Your teen’s purchases are deducted from the card balance, and you can transfer more money to the card if necessary. Although there may be some fees associated with the card, no interest or debt accrues.

 

One thing you may especially like about prepaid spending cards is that they allow your teen to gradually get the hang of using credit responsibly. Because you can access account information online or over the phone, you can monitor your teen’s spending habits, then sit down and talk with your teen about money management issues.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax

or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

paid advertisement

Teaching Your College-Age Child about Money

March 5, 2019

When your child first started school, you doled out the change for milk and a snack on a daily basis. But now that your kindergartner has grown up, it’s time for you to make sure that your child has enough financial knowledge to manage money at college.

Lesson 1: Budgeting 101

Perhaps your child already understands the basics of budgeting from having to handle an allowance or wages from a part-time job during high school. But now that your child is in college, he or she may need to draft a “real world” budget, especially if he or she lives off-campus and is responsible for paying for rent and utilities. Here are some ways you can help your child plan and stick to a realistic budget:

 

  • Help your child figure out what income there will be (money from home, financial aid, a part-time job) and when it will be coming in (at the beginning of each semester, once a month, or every week).

  • Make sure your child understands the difference between needs and wants. For instance, when considering expenses, point out that buying groceries is a need and eating out is a want. Your child should understand how important it is to cover the needs first.

  • Determine together how you and your child will split responsibility for expenses. For instance, you may decide that you’ll pay for your child’s trips home, but that your child will need to pay for art supplies or other miscellaneous expenses.

  • Warn your child not to spend too much too soon, particularly when money that has to last all semester arrives at the beginning of a term. Too many evenings out in September eating surf and turf could lead to a December of too many evenings in eating cold cereal.

  • Acknowledge that college isn’t all about studying, but explain that splurging this week will mean scrimping next week. While you should include entertainment expenses in the budget, encourage your child to stick closely to the limit you agree upon.

  • Show your child how to track expenses by saving receipts and keeping an expense log. Knowing where the money is going will help your child stay on track. Reallocation of resources may sometimes be necessary, but help your child understand that spending more in one area means spending less in another.

  • Encourage your child to plan ahead for big expenses (the annual auto insurance bill or the trip over spring break) by instead setting aside money for them on a regular basis.

  • Caution your child to monitor spending patterns to avoid excessive spending, and ask him or her to come to you for advice at the first sign of financial trouble.

You should also help your child understand that a budget should remain flexible; as financial goals change, a budget must change to accommodate them. Still, your child’s ultimate goal is to make sure that what goes out is always less than what comes in.

 

Lesson 2: Opening a bank account

For the sake of convenience, your child may want to open a checking account near the college; doing so may also reduce transaction fees (e.g. automated teller machine (ATM) fees). Ideally, a checking account should require no minimum balance and allow unlimited free checking; short of that, look for an account with these features:

 

  • A simple fee structure

  • ATM or debit card access to the account

  • Online or telephone access to account information

  • Overdraft protection

To avoid bouncing checks, it’s essential to keep accurate records, especially of ATM or debit card usage. Show your child how to balance a checkbook on a regular (monthly) basis. Most checking account statements provide instructions on how to do this.

 

Encourage your child to open a savings account too, especially if he or she has a part-time job during the school year or summer. Your child should save any income that doesn’t have to be put towards college expenses. After all, there is life after college, and while it may seem inconceivable to a college freshman, he or she may one day want to buy a new car or a home.

 

Lesson 3: Getting credit

If your child is age 21 or older, he or she may be able to independently obtain a credit card. But if your child is younger, the credit card company will require you, or another adult, to cosign the credit card application, unless your child can prove that he or she has the financial resources to repay the credit card debt. A credit card can provide security in a financial emergency and, if used properly, can help your child build a good credit history. But the temptation to use a credit card can be seductive, and it’s not uncommon for students to find themselves over their heads in debt before they’ve declared their majors. Unfortunately, a poor credit history can make it difficult for your child to rent an apartment, get a car loan, or even find a job for years after earning a degree. And if you’ve cosigned your child’s credit card application, you’ll be on the hook for your child’s unpaid credit card debt, and your own credit history could suffer.

 

Here are some tips to help your child learn to use credit responsibly:

 

  • Advise your child to get a credit card with a low credit limit to keep credit card balances down.

  • Explain to your child that a credit card isn’t an income supplement; what gets charged is what’s owed (and then some, given the high interest rates). If your child continually has trouble meeting expenses, he or she should review and revise the budget instead of pulling out the plastic.

  • Teach your child to review each credit card bill and make the payment by the due date. Otherwise, late fees may be charged, the interest rate may go up if the account falls 60 days past due, and your child’s credit history (or yours, if you’ve cosigned) may be damaged.

  • If your child can’t pay the bill in full each month, encourage him or her to pay as much as possible. An undergraduate student making only the minimum payments due each month on a credit card could finish a post-doctorate program before paying off the balance.

  • Make sure your child notifies the card issuer of any address changes so that he or she will continue to receive statements.

  • Tell your child that when it comes to creditors, students don’t get summers off! Your child will need to continue to make payments every month, and if there’s a credit card balance carried over from the school year, your child may want to use summer earnings to pay it off in order to start the next school year with a clean slate.

Finally, remind your child that life after college often involves student loan payments and maybe even car or mortgage payments. The less debt your child graduates with, the better off he or she will be. When it comes to the plastic variety, extra credit is the last thing a college student wants to accumulate!

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax

or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

paid advertisement