Published Every Monday Since 2007   | Volume 851 | March 20, 2023

YTD so far these many weeks markets were up (Bull picture shown), down (Bear picture), or draw (Bull/Bear picture) …
Bulls (Markets UP) =06…
Bears (DOWN) = 05… and Draw = 0

Markets recover after banks fiasco – The Nasdaq up 589 points for the week!

• The DOW was up +42 points or +0.1%, S&P500 was up +82 points or +2.1% and the Nasdaq was up +589 points or +5.3% for the week ending March 17th.  Oil was down significantly -$10.3 or -13.5% to $66.34 per barrel driven by slower global economic outlook and warmer winter than most predicted.
• This week was all about financial sector bank's failure risk.  After the two banks, Silicon Valley Bank (SVB) and Signature Bank, failure markets were spooked by Credit Suisse bank and First Republic Bank which needed support to remain open.  Credit Suisse was propped up by the Swiss authorities' back stop and First National bank by a plan by the Treasury Secretary Janet Yellen and Jamie Dimon, the CEO of JP Morgan Chase.  The Credit Suisse problem is its own poor management and its acknowledgement that it has to correct previous years financial reports.  The First Republic Bank ran into trouble due to classic bank run when customers withdrew deposits.
  
• Regardless of the recent bank failures, the US president, the Treasury Secretary, EU Central Bank, Japan authorities, and other key countries reiterated that the banking system is strong and they will step in to shore up the banks as and when needed.  Due to recent bank failures, most investors were expecting that the European Central Bank this week and the US Federal Reserve next week will think twice about raising interest rates.  However, the European Central Bank raised rates by 0.5% as planned, and the US Federal Bank next week may also stay the course to raise interest rates by 0.25%.  This is seen by many as a sign that authorities are not worried about the recent bank failures.
• FDIC insures up to $250K per account, however, if the amounts were higher than the limit customer will have to wait and see how much if any can be recovered.  This is a scary moment which shook many investors.  

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How to be financially strong?

We are starting this section as a running blog to educate you about key and simple things one can do now to become financially stable, and over time become a millionaire! 

These are easy things to learn, such as, managing your costs, saving money, long term investment with power of compounding, and many more topics.  Idea is that by educating yourself about these topics can give you a head start to shape your future – our motto – Today Shapes Tomorrow! 

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Some Key Facts To Consider- 

• Top1% of the US population holds 70% of the US net worth.  Net wroth is all assets a person holds minus all of their liabilities.
• About 150 million Americans own stocks.  This could be via their 401K, IRA, and or direct company stocks in a brokerage accounts.
  
  • Wealthiest 1% of Americans own about 53%, worth $17 trillion of stocks
    
  • The bottom 50% of American adults hold only 0.6% of stocks, worth $19 billion
• White Americans own ~90% of stocks, worth ~$28 trillion

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Value of S&P500

• The S&P 500 index is considered a benchmark. Since 1928 S&P 500 (includes dividends) has had an Arithmetic Average Historical Annual Return of 11.8% (inflation adjusted is 8.5%).  If you invested $100 in 1928 in the S& P500 the value in 2021 would be $761,711

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How can you be a part of the American dream to be considered wealthy or financially stable?

Regardless of how much money you make, your wealth ONLY comes from how much money you SAVE and how wisely you INVEST.  For example, if you make one million a year in salary but spend unwisely in expensive houses, cars, etc. versus if you make $100K a year but spend your money wisely and be smart in investing you can accumulate more wealth than a person making 10X. So, to be financially stable Smartly SAVE, SAVE and SAVE and then wisely INVEST, INVEST and INVEST.

 

For example, say if you buy Starbucks coffee for $6 per cup, Dunkin Donut Coffee for $3, or home brewed gourmet coffee for $0.20 per cup, see below the annual savings that you can have by brewing your own good coffee versus paying coffee companies to get rich of your hard earned money.  You save $2,117 per year!

 

 

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What is Risk and Return argument?

Say you want to buy a toy from a toy store 5 miles away.  Think of being able to buy the toy as a reward or return.  To get to this reward or return you can walk, run or bike.  All three options have certain risks of getting hurt, and getting there faster as a reward or return for your endeavor.  However, walking has the lowest risk of the three but it will take the longest, so the least return.  On the other hand, the bike ride offers the most risk but the fastest time to get there, this highest reward or return.  Running is somewhere between walking and biking. 

 

Investing has the same concept, higher the risk, higher the reward or return. So when you have higher risk in investment you should expect higher return otherwise why would you take higher risk on your investment which gives lower return.  In the order of increasing risks the major investment classes are (for more details see the chart below) – 

 

1) Cash (Least Risky But Lowest Return) – least risky except it does carry risk of someone stealing and or losing unless cash is in the bank savings and or checking accounts which are guaranteed by FDIC upto $250K.  However, cash carries the risk of inflation which reduces its value over time.  

 

2) Fixed income class investments (Medium Risk Medium Return) – like US Treasury-bills, Treasury Bonds(10 year, 30-years) and are guaranteed by the US government, CDs which are FDIC insured (upto $250K), various types of corporate bonds, etc.  These all have varying risks and associated return

 

3) Equity or stocks (Medium to High Risk High Return) – Again this class of investment is riskier as it is not insured and one can lose all of their money, but the return is higher than the cash and fixed income class investments.  There are certain types of stocks, like income stocks, which are considered less risky (or Medium risk) than say penny stocks.  The high risk investments are commodities, crypto, penny stocks, junk bonds, precious metals,…

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When you buy or sell stocks can make a big difference

 

Simply put if you buy the stocks when it is high and sell it when it is low you are bound to suffer losses.  You may have also heard, buy low, sell high.  So what to make of it.  Let us put some numbers to see what is the issue with timing.  

 

For example, if you bought the S&P 500 index in September of 2007, before the market crash, it would have taken you until Feb 2013, over five year to breakeven.  See above chart.  But if you bought the S&P 500 index in February of 2009, after the market crash, today you will have 4.6 times gain in your investment. After the fact we all look geniuses, but the fact is no one, I mean no one can time the market right.  So what to do.  Timing is a fool's errand.  

 

The key is to consider the long term horizon for your investments.  Buy when you see certain market corrections, and see them appreciate over time.  Sell only when you have to but when markets have risen to lock in the gains.  Note that gains are taxable.  Short term, less than a year at a higher rate, than the long term which are more than one year investments at a lower rate.  So, it helps to keep a longer horizon to accumulate wealth. 

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Passive vs. active investing

Investing can be a daunting task. It can be overwhelming too.  But it does not have to be.  Sure you can hire a financial advisor to help you with investment opportunities or even manage your money for a fee.  But is this something you can do by yourself, and save on fees or commission of 1% to 3% annually of your portfolio to a financial advisor?  Simple answer is yes.  Let us look at some facts below to help us decide-

 

1) Active investments – Funds run by investment managers who try to outperform the S&P500 overtime for a fee.  Nothing for free, so there are disclosed fees and embedded costs for you.  Remember there is no free lunch.

 

2) Passive investments – Simply put, these are NOT run by investment managers.  These are intended to match or beat indexes like S&P500. Hence these have very low fees in the range of 0.03% annually.  Over 30 years, if you pay 2.5% vs 0.03% it will add to a lot of money which you could have kept for yourself versus paying for your investment person to own a nice car or even a yacht.

 

3) What is the track record of active vs passive investment?

Burton Malkiel, a famous economist, once suggested that, “…a blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by the experts…”

 

As the saying goes, proof is in the pudding.  Over a longer term active investors have not consistently been able to beat the S&P500 to justify their keeps. In Fact the results are very anemic at best which begs the question it is worth giving your money to these experts?

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Next please tell us what would you like us to cover? 

We thinking to talk about how to get started?

 

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• 2023 the DOW is -3.8%, S&P500 is +2.0% and the NASDAQ is +11.1%
• 2022 the DOW was -8.8%, S&P500 was -19.4% and the NASDAQ was -33.1%
• 2021 the DOW was up +18.7%, S&P500 +26.9% and the NASDAQ +21.4%
• In 2020 the DOW was up +7.2%, S&P500  UP+16.3% and the NASDAQ UP +43.6%
• In 2019 the DOW was up +22.3%, S&P500 up +28.9% and the NASDAQ up +35.2%
• In 2018 the DOW was down -6.7%,  S&P500 down -7.0% and NASDAQ down -4.6%.
• In 2017 the DOW was up 25.1%, S&P500 up 19.4% and the NASDAQ up 28.2%

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