Investing in Stocks Vs Real Estate

The comparison is often made between investing in Real Estate vs investing in the Stock Market.   There are many strong points to both arguments, but as an Investment Advisor, I am going to argue the side of why the stock market is a better long term investment.  Note, I am not inferring you should not buy a home, nor am I inferring that you should exclusively put all of your money in the stock market.  This argument is just in terms of where you should put extra money that you would like to grow for retirement or other purposes.

Here are 5 advantages of investing in stocks over investing in real estate.

1.Effort/Work

Whether you are flipping homes, renting properties, or developing land, there is a whole lot more hands on work and extra time as compared to ownership of stocks.  If you have an investment advisor, you could realistically spend absolutely no time “working” on your stock ownership and still get the growth of the market.   Lucky for you, stocks don’t have furnaces that break, or water pipes that leak.

2. Diversification

Diversification is a very important concept.  The old saying is don’t put all your eggs in one basket.  Diversification in Real Estate would involve buying homes, apartments, commercial property, and farm land etc., all in different areas of the country.   You would have to have quite a bit of money to be fully diversified.  With the stock market, if you are invested in a Matson Money Fund, you can start with one dollar and be invested in about 12,000 stocks throughout the world.

3. Liquidity

Liquidity is how easy it is for you to sell.   Stocks are extremely liquid, with most stocks being sold within seconds of offering them for sale.   With Real Estate, it can take weeks, months, or sometimes years to sell or rent out a property.

4. Costs

The cost of owning property could include all or most of the following; real estate agent fee, property taxes, maintenance, utilities, mortgage interest, and insurance.   The cost of owning stocks usually only includes an investment advisor fee, and mutual fund management fee.

5. Annual Return

From 1975 through 2015, a 40 year period, the S&P 500 (US Large Stocks) returned growth of 8.1% annually.  During the same exact period, the US Residential Real Estate prices returned growth of 4.8% annually.   You can see the difference that makes long term by looking at this basic chart. 1.

If you are looking for a way to get the biggest financial return for retirement, my opinion is that your best option is to put your money in stocks, via a diversified Roth IRA or 401k.

Feel free to comment with your thoughts.

By Jimmy Hancock

 



References

  1. Iskyan, Kim. “What Is the Historical Return of Real Estate vs Stock Investing?” TrueWealth Publishing, 31 Aug. 2016. Web. 12 May 2017.
  2. Kennon, Joshua. “Should You Invest in Real Estate or Stocks?” The Balance. N.p., 17 Oct. 2016. Web. 12 May 2017.

 

How to Become a Millionaire on a $30k Salary

Becoming a Millionaire used to seem like this totally unrealistic goal that would never happen unless I won the lottery or inherited a bunch of money from some distant relative.   As it turns out becoming a millionaire is not all that unrealistic of a goal.  It is achievable on almost any salary if you do it the right way.  There are over 8 million Millionaire households in America.  That’s more than 1 in every 20 households.  1. 

Is it Possible?

This is my 3 step guide to reach the status of millionaire: 1. Saving/investing at least 10% of your income, 2. investing prudently while taking proper risks, and 3. starting young.

1. Saving 10% of Your Income

I will show you an example of how a person making $30,000 a year can be a millionaire by the time they retire.   A 25 year old, let’s say his name is Bayden, just graduated from college and got a job making $30k year.  He decides to put 10% of that into a Roth IRA, which is $250 a month.   As it turns out he stayed at that same job for his entire life and never got a raise, but continued to invest the 10%.   When he retires at age 67, with growth rate of 8%, he will have $1,058,593 in his Roth IRA.  And the best part of that is the money is all tax free!  Obviously with a higher salary and/or frequent raises you could end up with much more than a million if you follow the 10% rule.

2. Investing Prudently While Taking Proper Risk

Time, and growth rate are the two most important factors in that equation.  An 8% growth rate is not anything too crazy, but you have to be invested long term, and have a vast majority of your money in stocks.  You cannot panic and take your money out if there is a crash.  You must trust in the market, and understand that stocks are the greatest wealth creation tool in the world. 

3. Start Young

millionaire

Total contributions     $12,000                $36,000

* assumes an 8% growth rate    2. 

This visual further proves how important time and compounding is to your retirement account.  Starting young is a principle that everyone knows, they just don’t follow it.  The power of compounding interest is amazing, and the younger you start the more powerful it is.  Even if you can’t reach the 10% goal, if you have an income source, you should be contributing to a retirement account.  For those of you who don’t have 40 years till retirement, you will need to save more than 10% to reach a million. 

Do you  really need $1 Million Dollars?

Going back to the example of Bayden, when he retires at age 67, he will literally need every cent (and more) that he saved and earned while investing.   Just to live on the equivalent of today’s $30,000 a year ($103k assuming 3% inflation) for 20 years in retirement, he would need $1.1 million.   And that is assuming a 6% growth rate on the money for those 20 years.   If you don’t have a pension at work, and you want to live on more than $30k a year in retirement, then you better get to saving!

If you can apply discipline in your finances and in your investments, you can become a millionaire by the time you retire.    That is my plan.

By Jimmy Hancock

References

1. Boston Consulting Group. “Millionaire.” Wikipedia. Wikimedia Foundation, 17 June 2015. Web. 9 Feb 2017. <https://en.wikipedia.org/wiki/Millionaire>.

Matson Money. Who Wants to be a Millionaire Powerpoint. Mason, OH: Matson Money, 16 Jul. 2015. PPT.



Seven Questions You Need to Answer Before Investing

idaho falls IRA AdvisorThere are seven questions that one must answer before beginning to have peace of mind with your investments. Making investment decisions isn’t easy, especially if you are just entering the game. There are a lot of details that many people don’t think about until it’s too late. So, if you want to avoid the life long pain of poor investment plans, ask yourself these seven questions.

1. “Why?” It’s a simple question, but it’s often the hardest one to answer. Why are you investing, and what do you hope to gain from it? In other words, you must set specific goals. Maybe you want to save for retirement, maybe you want to send your kids to college, or maybe you just want some breathing room from everyday expenses. Whatever the reason, it’s important that you define why you are investing your money and what goals you wish to accomplish in doing so.  This will help you to decide how much money to put away.

2. “What is my time frame?”  This is like asking, how long will it be until I need the money?  This can depend on your age, and of course your answer to question number one.  If you are putting money away for retirement, your time frame should not end at the day you plan to retire, it should end at the day you plan to die.  You will need portions of that money starting at retirement, but you will keep a majority of it invested throughout retirement if you do it right.

3. “What am I going to get out of it?” What can you realistically expect to earn on your investments? Having an unrealistic idea of playing the stock market and striking it rich could leave you simply striking out.  Investing in stocks is not the problem, it is the expectation of beating the market, rather than expecting to get market returns.  Other investments, such as bonds, have fixed returns that are not as susceptible to market changes but have a lower expected return.  You should not expect to see growth every year or even 2 years.   The short term flat or down periods always seem to bore people out of the market, but that would be a huge mistake.

4. “What kind of earnings will you make?” Very few times when investing does a wad of cash appear in your mailbox if you’re successful. Your earnings will be very inconsistent in the short term, so there is no point in fretting over 1, 3, or 5 year returns.  The annual return that you will get is dependent on the type of investment you are in.  You can reasonably expect between 5 and 10% annual growth per year over the long term depending on your portfolio, but of course that is not guaranteed.   Which leads me to my next point.

5. “What’s my risk?” And here comes the basic balance in investing, risk versus reward. The higher the risk, usually the higher the potential reward, but that is not always the case.   Overall there is no guarantee that you will get your money back or receive the earnings promised to you, unless you have your money in a savings account or a U.S. Treasury security, both of which are backed by the federal government and give you extremely small returns. Make sure that the risk you take is worth the reward that you expect to achieve.  If you have a longer time frame, you can invest in riskier investments.

6. “Is my money diversified?” A great way to lower risk without hurting your return is by diversifying your portfolio.   Certain types of investments do better in certain situations, so by diversifying your investments, you are spreading your eggs across many baskets. That way if a certain industry tanks or sector is struggling, you will have plenty of other baskets holding your money safe and sound.  This doesn’t mean having different accounts or different advisors, but having different holdings in thousands of stocks and bonds.

7. “What is the effect of taxes on my investments?”  Every person who receives any earned income can invest in a tax advantaged plan.  Whether that be a 401k or 403B at work, or an IRA/Roth IRA, or all of the above.  Make sure you understand the implications of how your money is taxed with each type of account.  In many cases, a Roth IRA is the best for your tax situation, especially in retirement.  Also, make sure you plan to have enough money saved to pay for taxes in retirement.

By Jimmy Hancock

Image Reference

Questions and Answers. Digital image. Teensreadandwrite.com. N.p., n.d. Web. 15 Aug. 2016.





Long Term Stock Market Returns

roiLooking at a chart covering the performance of the stock market over the last 30 plus years is a lot like looking at a chart of profitable business earnings at a cartoon enterprise meeting–it’s almost a caricature of itself, a steady upward slope shaped like a ski jump punctuated by regular but far-between drops, always ending higher than it was before.

When an economy and stock market is in the thick of a recession or stagnation, and a potentially scary election is coming up, it’s hard remember the long term potential the stock market has.    In the short term a financial crisis always seems like the end of the world, but, as looking at the data would suggest,  stocks always end up stronger than ever. The following is a look back at the last three decades, and all of the crises and triumphs contained within.

The 2000s: The early 2000s recession and the Global Financial Crisis of 2007-2008.

The 2000s were a tumultuous decade at best, between the big tech bubble that crashed in 2000 and 2001  and the abysmal 2008 crash, the drops were big and hit investors hard. But what most people still might not realize is that markets shot straight up in March of 2009 and have been on a steady mend since.

The 1990s: The Recession of 1990-1992.

The recession of the early 1990s was the largest recession since that of the early 1980s, but stock markets as a whole seemed to disregard any uncertainties as tech stocks especially had a boom period.  An investor invested in a diversified mix of stocks would have more than tripled their money if invested for the 90’s.

The 1980s:  Black Monday.

The most memorable stock market memory from the 80’s is known as black Monday in 1987, where the global markets crashed and the Dow Jones declined by a remarkable 22.61% in one day! 1  Talk about a scary day for investors.  But overall if investors stayed invested in a diversified mix of stocks for the whole decade they would have more then quadrupled their money.

While there has been a lot of doom and gloom over the years, the economy, and the stock market,  has always rebounded, stronger than ever. Much like the gradual upward spiking of stock market over the last 30 plus years, there will always be mountains and valleys and currently a plateau, but it’s important to remind ourselves not to panic when sitting on one of these long plateaus.

By Jimmy Hancock

 

References

  1. Browning, ES. “Exorcising Ghosts of Octobers Past.” WSJ. WSJ, 15 Oct. 2007. Web. 23 May 2016.



The Best Way to Save for Your Child’s Education Costs

college cost“According to the College Board, the average cost of tuition and fees for the 2015–2016 school year was $32,405 at private colleges, $9,410 for state residents at public colleges, and $23,893 for out-of-state residents attending public universities.” 1

If you are looking into opening up an account for your child to help save some money for their college expenses you have come to the right place.  There are 2 main accounts you can use to reach your goal.   I will go over both of them at a basic level and explain some pros and cons of each.

But first I wanted to point out the similarities of both accounts and the advantages of using either one of them to bolster your saving for a college fund.  Either of these accounts would be better than just opening up a savings account at a bank because of the potential growth and the tax advantages.

Both plans offer the same federal tax advantages.  The advantage is similar to a Roth account in that you get the qualified distributions tax free when you take them out.   The money must be used to pay for qualified education expenses; if it is not, then taxes are charged and a 10% penalty takes effect.   If your child decides not to go to college you can roll the money over to another child or another family member.

 

 

Coverdell Education Savings Account (ESA)

A Coverdell Education Savings Account is another way for you to save for education expenses with its main selling point being the opportunity to invest how you like.

Pro’s

  • They are not just offered by the states, but they can be opened up by most investment companies.
  • You can choose how you want your money to be invested and are not limited in this.
  • You can use the money not only for continuing education, but also for K-12 expenses.

Con’s

  • Has a $2000 per child contribution limit per year.
  • You cannot contribute if your income is over $220,000 (married filing jointly) 3.
  • Must contribute only before the child turns 18.

 

529 Plan

A 529 plan is a state specific plan that allows for you and other family members to contribute to a college fund with no contribution limits.

Pro’s

  • You can contribute as much as you would like each year
  • There is no income limits for being able to contribute.
  • The State may also offer specific state tax deductions.  Idaho does.
  • Can be opened for anyone at any age.

Con’s

  • Very few investment company options that are selected by the state
  • Limit to the type of investments you can have
  • Cannot use your money for K-12 education expenses.
  • Must pay a gift tax if you contribute over $28,000 in one year (married filing jointly)

After looking at both types, we can see some advantages to both.   Which one you choose depends on your income, your family, and your investing preferences.  If you are not planning on investing more than $2000 per year per child and your income qualifies, then it would probably be advantageous to open up an Education Savings Account.  With this you will have the freedom to invest in a prudently diversified investment portfolio that you wouldn’t be able to find with a 529 plan.

We offer Education Savings Accounts, or could lead in the right direction at getting set up with a 529 plan.

By Jimmy Hancock



References

1.CollegeData. “Whats the Pricetag for a College Education.” Collegedata.com. N.p., 2016. Web. 12 Apr. 2016.

2. Hurley, Joseph. “Coverdell Esa Versus 529 Plan.” Savingforcollege.com. Saving For College LLC, 12 Mar. 2013. Web. 06 Oct. 2014. <http://www.savingforcollege.com/articles/coverdell-ESA-versus-529-Plan>.

3. “Common 529 Questions.” – College Savings & Prepaid Tuition Plans. CSPN, 2010. Web. 06 Oct. 2014. <http://www.collegesavings.org/commonQuestions.aspx>.

4. IRS. “Publication 970 (2013), Tax Benefits for Education.” Publication 970 (2013), Tax Benefits for Education. IRS, n.d. Web. 06 Oct. 2014. <http://www.irs.gov/publications/p970/ch07.html>.

Do Hedge Funds Beat the Market?

gurusAre you missing out on the supposedly huge amount of profits to be made by investing with a “Guru” in his Hedge Fund?

Hedge funds are like mutual funds, but they are managed by self titled “experts” who charge an enormous fee to try and beat the market.  Hedge funds and Investing Guru’s are built on the premise that a smarter guy with a faster computer can make miracles possible by uncovering inefficiencies in the market or predicting the future.  They are attractive to so called “sophistocated investor” who wouldn’t be caught dead investing in boring index funds.

Do Hedge Funds Beat the Market?

“According to a report by Goldman Sachs released in May, hedge fund performance lagged the Standard & Poor’s 500-stock index by approximately 10 percentage points this year, although most fund managers still charged enormous fees in exchange for access to their brilliance. As of the end of June, hedge funds had gained just 1.4 percent for 2013 and have fallen behind the MSCI All Country World Index for five of the past seven years, according to data compiled by Bloomberg. This comes as the SEC passed a rule that will allow hedge funds to advertise to the public for the first time in 80 years.” 1

Studies continue to come in showing real data of the horrible returns of hedge funds vs. the whole market.

“Harken back to a decade ago. Your broker recommends an investment in a hedge fund. Your registered investment adviser disagrees. She recommends you invest in an index fund composed of 60 percent stocks and 40 percent bonds. You go with the broker’s recommendation. You don’t want “average” returns. You want your money managed by the best minds in finance.

Fast forward to today. According to a Harvard Business Review blog, a composite index of more than 2,000 hedge funds returned 72 percent over the past decade. The index fund, which took significantly less risk, had a return of about 100 percent, while charging much lower fees.

You would think these dismal returns would have dealt a crippling blow to the hedge fund industry. Not so. Hedge funds remain the darling of many pension plans. According to the same blog, hedge funds that go long and short on stocks and invest in equity derivatives managed a mere $865 billion a decade ago. Having demonstrated their lack of investment skill, these fund managers now manage more than $2.4 trillion. Go figure.” 2

Takeaway

Hedge funds are flashy and somehow popular, but if you want long term growth in your retirement accounts you should stay as far away from them as possible.   Instead, invest in a diversified portfolio,  and find an investment coach who will educate you especially in down markets.

by Jimmy Hancock

References

1. Kolhatkar, Sheelah. “Hedge Funds Are for Suckers.” Bloomberg Business Week. Bloomberg, 11 July 2013. Web. 14 July 2014. <http://www.businessweek.com/articles/2013-07-11/why-hedge-funds-glory-days-may-be-gone-for-good>

2. Solin, Dan. “The Fleecing of Investors Continues.” The Huffington Post. TheHuffingtonPost.com, 17 June 2014. Web. 17 July 2014. <http://www.huffingtonpost.com/dan-solin/the-fleecing-of-investors_1_b_5487788.html>.

3 Tips for Young People Looking to Invest

young moneyWhen it comes to Millennials and their money, most Americans ages 18 to 29 would rather sit on a boat load of cash. They have a sinking feeling that investing in the stock market is like boarding the Titanic. According to a recent Bankrate.com study cited by a recent The Street article, 1.  younger people prefer bank accounts over stock investments. Of course, cash is a low-yielding investment that’s better reserved for retirees who just want don’t want any risk. How does a young person get over his or her aversion to the stock market?

  1. Investing instead of trading

One way a young investor can get over their fear of losing money in the stock market is by taking a long-term approach. Trading stocks is not the same as investing in the market. Most of the horror stories of people who lost fortunes occurred because they either “bet” money on a penny stock, or sold out of a crashing market and never got back in for the big run up that always occurs after crashes.  Smart investors contribute a certain amount of money on a regular basis so that they build up shares in diversified mutual funds over time.

  1. Not worrying about an immediate reward

A lot of younger people are used to experience immediate gratification because of our highly technical world and consumer-driven society. But investing in stocks can be frustrating in the short term if the market is not climbing at that particular time.  Focus on the long term not the immediate reward.  If you can be patient, there is a huge reward for investing long term in stocks.

  1. Diversifying from the start

When trying to figure out how to invest their money, some young people are lost. Their default option is a savings account or possibly certificate of deposits at a bank.  These should not be your default option as they give you very low returns long term.  One way to have a diversified portfolio is by choosing a mutual fund that already includes a variety of different stocks in different sectors and countries and also short term bonds. You can hold highly diversified mutual funds within a 401(k), Roth IRA or many other retirement or regular investment accounts.  With our company there is no minimums to start an investment, and we offer extremely diversified mutual funds, which means you can own over 12,000 stocks as a beginning investor with just a little money to start putting away.

Saving money through a bank account is the equivalent of putting cash under the mattress or burying it in your backyard. Millennials are too smart not to find better ways to invest their money.

By Jimmy Hancock

References

  1. O’connel, Brian. “Young Americans Prefer Bank Investments, Not Stock Market.” TheStreet. N.p., 23 July 2014. Web. 07 Mar. 2016.

Don’t Miss this Investing Tax Credit!

tax credit1The Saver’s Credit: almost a well-kept secret?

It’s becoming increasingly difficult for low to middle-income families to save; however, the IRS allows a Saver’s Credit that could mean a $2,000 tax credit per family. Of course, it depends on the tax filer’s status as well as their adjusted gross income, or AGI.  The tax benefit is to increase the incentive for lower income families to put money away for retirement.  Every family that qualifies should be taking advantage of this bonus tax credit.

To be eligible for the Saver’s Credit…

  1. You must be 18 years or older
  2. You must not have been a full time student
  3. You must not be claimed as a dependent on another person’s tax return.
  4. Your Adjusted Gross Income must be below $61,000 (married filing jointly), or $30,500 (individual).

How it works…

In 2015, if your tax status is married filing jointly and your AGI is not more than $36,500, and you meet the other requirments, then you qualify for an additional 50% tax credit.  This number increases annually for inflation.  For 2016 it will be $37,000.  If you are above that income level it goes to a 20% tax credit until you are phased out above the $61,000 threshold.

Let’s say that you earned $36,500 for all of 2015, and your spouse was unemployed for the entire year. If you made a $2,000 contribution to your Qualified Plan (ie IRA, Roth IRA, 401K, 403B) for 2015, then you can receive that 50% tax credit which in this case is $1000 against any taxes owing or to add to your refund.  On top of that you can contribute $2000 to your spouses Qualified Plan and get an addition $1000.   That is $2000 cash money in your pocket for contributing $4000 into a retirement account.  $2000 is the maximum tax credit any family can receive.

This tax credit is in addition to the tax benefit you get within the IRA such as being able to deduct from your income all contributions to a Traditional IRA.

Don’t miss out on this too little known tax credit that can save you big money on your taxes this year.

Also, if you don’t have any investment account currently, and you know you qualify for this credit, why would you forego getting 50 cents cash back for every dollar invested.  And at the same time you are putting money into a growing retirement account. A win win for sure.  You can open up an IRA and contribute to it for tax year 2015 up until April 15th of this year.

By Jimmy Hancock

References

  1. IRS. “Retirement Savings Contributions Credit (Saver’s Credit).” Retirement Savings Contributions Credit (Saver’s Credit). IRS, 23 Oct. 2015. Web. 02 Feb. 2016. <https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credit>.

Are You Dollar Cost Averaging?

dollar costToday we are going to discuss dollar cost averaging (DCA) and how it is most likely helping your retirement portfolio.

Dollar Cost Averaging-  The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.”  1.

Dollar Cost Averaging for Dummies

So to put it more simply, dollar cost averaging is when you are investing in a type of investment that has shares (stocks or mutual funds) and you are putting in new money on a consistent basis.  You are investing the same amount of money each time, but buying a different amount of shares, due to the fluctuation of share price of a stock or mutual fund.

The Benefit of Dollar Cost Averaging

As it works out over time, because you are able to buy more shares in lower prices, the average price you pay is always lower than the average price of the stock/mutual fund.   It is hard to wrap my mind around it, but whether the price is going up, down or both, you will get your stocks at a discount using Dollar Cost Averaging.

Here is a very basic example.  If you put in $100 a month to a mutual fund priced at $10 per share the first month you would buy 10 shares for that price.  Let’s say the price goes up to $20 per share the second month, so your $100 would buy 5 shares.  So with dollar cost averaging you would have 15 shares after 2 months.  At the same average share price of $15, if you invested the same $200 you would only have 13.3 shares.

So most individual investors saving for retirement use DCA as they invest a monthly amount into their retirement account.   This makes sense and is obviously a good way to invest.  Much better than to try and time the market and only put money in when you feel the market is safe or poised to have a big run up.   It is also a way to put investing for retirement on the monthly budget and plan it in instead of having to make room for it.

Is Dollar Cost Averaging ever bad?

There is only one situation in which Dollar Cost Averaging is not the best option.    If you have a lump sum from receiving an inheritance, bonus,  or are just starting to invest, it is almost always best to invest the lump sum rather than putting it in slowly over time.   Let me explain.

Throughout history the market has ALWAYS gone up over the long term, meaning 10, 20 30 years.  There has never been a 20 year period where there has been  a loss in the market.  So the more shares you can buy now, usually the better you are.  If you wait to invest, odds are you are going to be buying at a higher price then you could have earlier.   Going back 88 years, 66 of those years have been up markets.  Going forward there is no way for us to know when the market will be up or down.

So the main reason people would rather use Dollar Cost Averaging over contributing a Lump Sum is FEAR.  They are scared the market will crash or take a big drop, because that is what they say on the news almost every single day.  They have been saying it ever since the market bounced back in 2009.   We should not let fear control our investment decisions.

For the average investor saving for retirement, consistent monthly contributions are the way to go, but if you ever do come across a lump sum of money that you want to invest, don’t wait to invest it.

By Jimmy Hancock

References

1. Investopedia. “Dollar-Cost Averaging (DCA) Definition | Investopedia.” Investopedia. Investopedia US, n.d. Web. 04 Sept. 2014. <http://www.investopedia.com/terms/d/dollarcostaveraging.asp>.

2. Miller, Steve. “Dollar Cost Averaging EP 265 08192014.” Livestream. Matson Money, 19 Aug. 2014. Web. 04 Sept. 2014. <http://www.livestream.com/markmatson/video?clipId=pla_0a3928e4-319d-4575-9297-eac738bffcd7&utm_source=lslibrary&utm_medium=ui-thumb>.

When is it Safe to Get In the Market?

riskPerhaps one of the biggest challenges that investors face is determining if “right now” is a safe time to invest (meaning not just the present, but any time). What makes it difficult for investors is a twofold issue: first, is a lack of historical knowledge and perspective, and second, their own emotions. Actually, if one looks back on an historical basis, it would have appeared that there was no safe period in which to invest. Investors are really funny in this regard (actually most advisors are really no better). In 2009 investors were in shell shock coming out of the 2008 financial debacle. By 2013 it was really too good and couldn’t last. Last year the market had been going up for five years and that was just too good to be true and something had to come crashing down soon. And this year, there has been volatility and fear mongers from day 1.  What investors are looking for is something that does not exist—ever—a “Goldilocks” market!

I’m going to take some historical facts and figures to provide some historical context that may enable my clients to feel more comfortable when faced with the ongoing question of “is it safe.”
The first issue that investors must confront is that there is no such thing as a “safe” investment and this applies whether funds are invested in equities, bonds, government fixed income, gold, real estate, your mattress or in a coffee can in the back yard. Your money is always subject to one form of risk or another. For a more complete discussion on this subject read Main Street Money by Mark Matson. If you don’t have a copy let me know and I will get you one.
In this blog, I’ll confine myself to discussing equities and fixed income contained within a diversified portfolio that is periodically rebalanced, with dividends and capital gains reinvested, because that is what we do with our client’s money. Let’s take a decade by decade look at all the challenges investors have faced.

1920’s
• 1917-23 Russian Civil War
• 1922 Mussolini takes control of Italy (eliminates private ownership, total government control!! Hmm!)
• 1923 Hyperinflation in Germany
• 1926+27 Chinese Civil War
• 1929 Wall Street Crash
• 1929-39 Great Depression
A horrible period to be invested in the market—manic market followed by the 1929 crash. Yet a fully diversified portfolio had $100,000 growing to $135,000 at the end of the decade.

1930’s
• 1932-33 Holodomor Starvation
• 1933 The Nazi Party come into power
• 1933-45 The Jewish Holocaust
• 1935 US Presidential Candidate Assassinated (Huey Long)
• 1935-1936 Italian/Abyssinian War
• 1936-38 Stalin Purges (including Gulag Death Camps)
• 1936-39 Spanish Civil War
• 1937 The Hindenburg Airship Explodes
• 1939-45 World War II
Talk about a horrific period to begin investing? Probably the worst ten year period, economically we have ever experienced. Yet, $100,000 invested at the beginning of the decade grew to $152,000.

1940’s
• 1933-45 The Jewish Holocaust continued
• 1939-45 World War II continued
• 1945 President Roosevelt dies before the war ends
• 1945 Eastern Europe is dominated by Communist USSR
• 1949-1993 The Cold War
What could be a worse time to begin investing as Word War II was starting, followed by the beginning of the Cold War. Let me interject an investment factoid here. The renown international investor, Sir John Templeton made his initial reputation by borrowing $10,000 and buying 100 shares of every stock on the New Your Stock Exchange selling for less than $1 at the start of the war.
If you had controlled your anxiety, like Sir John, and invested $100,000 at the start of the decade, you would have been amply rewarded by seeing that investment grow to $336,000!

1950’s
• 1949-93 The Cold War continues
• 1950-53 The Korean War
• 1951 Mao Zedong takes power in China
• 1956 Suez Canal Crisis
• 1956 Russian quashing of the Hungarian Revolution
• 1959 The Cuban Revolution
• 1959-75 The Vietnam War
This was supposedly the boring decade under President Eisenhower. However, international events didn’t take a holiday and they continued to swirl about us creating many excuses for avoiding the assumption of any investment risk.
Nevertheless, investors who ignored events and invested $100,000 at the start of the decade had $393,000 in their portfolios at the end of the decade.

1960’s
• 1949-93 The Cold War continues
• 1959-75 The Vietnam War continues
• 1961 The Berlin Wall built
• 1962 The Cuban Missile Crisis
• 1963 JFK Assassinated
• 1964 China explodes its first nuclear bomb
• 1967 Six Day Israeli/Egypt War
• 1968 MLK and RFK assassinated—rioting in major cities
• 1969 Libyan Revolution—Khaddafi comes to power
This was the decade where we got to watch both national and international occurrences in almost “real time” thanks to the expansion of television and global communications. An event filled decade both home and abroad. Plenty of excused could be found as to why it was not safe to invest. Yet again, $100,000 invested at the start of the decade produced a portfolio worth $259,000 by the end of the decade.

1970’s
• 1949-93 The Cold War continues
• 1959-75 The Vietnam War continues
• 1970 The beginning of Terrorism in the world
• 1972 Kidnap and murder of Israeli Athletes at Olympics Games
• 1972 President Nixon resigns
• 1975-79 Khmer Rued in Cambodia (Genocide)
• 1979 Saddam Hussein comes to power
• 1979-1981 Iranian kidnapping of U.S. Embassy and diplomats
This decade begins with Vietnam, followed by the Nixon resignation, then the Iranian Embassy kidnapping, and ends with President Carter’s “malaise.” Gas lines, international problems, national embarrassment and a Russian bear looking more ominous.
Yet somehow if one was courageous enough to invest $100,000 at the beginning of the decade, it would have grown to $271,000.

I could go on with the history lesson, but suffice it to say that the 80’s decade rewarded $100,000 by growing to $453,000. In the 90’s it grew to$338,000.
This last decade, which was sort of known as the “lost decade” because of the dot.com/tech bubble, the real estate bubble. This resulted in two severe bear markets. Still investors were rewarded by having their portfolio vastly outperform the underlying cost of living and inflation.
So the lesson for all is that if one pays attention to events, you can always find a reason why it is not a good time to invest—and historically, you would have always been wrong!! I will not say anything about the world we find ourselves in today because we have always found ourselves in difficult times both domestically and globally—there have always been challenges and there always will—it is just the nature of the species.
As to the basic question: Is it safe? I’ll let you draw your own conclusions!

By Jim Hancock

References

Source of returns figures for the various asset classes utilized in the hypothetical portfolio: DFA Returns Software 2.0, Feb. 2011. Past performance is no guarantee of future results. Performance included reinvestment of all dividend and capital gains.

1.Taylor, Fred. “Commentary: Is It Safe?” Message to the author. 6 Aug. 2014. E-mail.

2. Matson Money. But This Time it Really is Different. N.p.: n.p., n.d. PDF. https://www.matsonmoney.com/