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4 Smart Ways To Use Your Tax Refund


The average federal tax refund is $2,895 based on 2016 data.  I could write an entire post about why you should change your tax withholding to ensure you don’t end up getting such a large refund, but we’ll save that for another day. A refund provides a great opportunity to make smart a financial decision.  In this post, I’d like to highlight some different uses that would improve your financial life.  Here they are in no particular order: 1. Shore up your emergency savings You might have experienced unexpected car issues, home repairs or other financial emergencies in 2017.  If you did, you probably leaned on your emergency fund to help pay for those unexpected expenses.  You should generally aim to have 3-6 month’s worth of living expenses in a savings account as an emergency fund at all times.  Using your refund to shore up your emergency fund may be a smart...

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A $1 million bet against the market goes sour


Last year marked the end of a 10-year, $1 million bet between New York hedge fund consultant Tom Seides and Warren Buffett, chairman of Berkshire Hathaway Inc. In 2007 Seides bet that hedge funds – exclusive investment pools for sophisticated investors – could beat the stock market over a ten-year period. Buffett bet that the Standard & Poors 500 Index, which tracks the largest U.S. stocks, would come out ahead. Seides selected five top hedge funds as the proxy for his bet. He had reason to be hopeful: hedge funds are run by some of the smartest and most-highly-paid investment professionals. They are allowed to invest in a broad range of securities and to make changes on a moment’s notice in response to movements in markets, interest rates, and economic conditions. Hedge fund managers believe that by being nimble they can stay one step ahead of other investors. It was a rocky period...

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Investing Is Harder When You’re Older


Imagine I told you that you lost $5,000.  You’d be upset, but probably not devastated.  Now imagine that I told you that you lost $50,000.  You’d feel unsurprisingly worse. But what if this is what happened? You are 30 years old and your $50,000 401k account declined by 10%. There’s your $5,000 loss.  You’d think to yourself, “I’ve got time, I’m young and still saving aggressively for retirement.” OR You are 55 years old and your $500,000 portfolio declined 10% and you lost $50,000. Not only do you feel worse because $50,000 is a lot more than $5,000, but add to that the fact that it took you 20-plus years of saving to accumulate that half a million dollars and you were thinking of retiring in the next 5-10 years.  This situation is much more concerning emotionally. Admittedly, the 55 year old probably has a more conservative portfolio than the 30 year old, so it...

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Tax Cuts Present 401k Savers Rare Opportunity


The vast majority of American taxpayers are about to experience a rare event; their paychecks are most likely getting larger in 2018, even if their salaries haven’t changed.  This is because the Tax Cuts and Job Act (TCJA) passed in December comes with a slew of once-every-few-decades tax law changes, including lower tax rates for most individuals.  The IRS, every accountant in America, and employers, are scrambling to adjust to the new tax law. One adjustment that has to be made and must be in place for all employers by February 15th is utilizing new withholding tables for paychecks.  These tables dictate how much tax your employers or payroll providers must hold back from each paycheck you receive.  Because tax rates under the TCJA are lower, most individuals will experience lower amounts of tax withheld from their paychecks.  This means that you should expect your take home pay to increase when...

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Recent Market Volatility


Perspective From Dimensional Fund Advisors-- After a period of relative calm in the markets, in recent days the increase in volatility in the stock market has resulted in renewed anxiety for many investors. From February 1–5, the US market (as measured by the Russell 3000 Index) fell almost 6%, resulting in many investors wondering what the future holds and if they should make changes to their portfolios.1 While it may be difficult to remain calm during a substantial market decline, it is important to remember that volatility is a normal part of investing. Additionally, for long-term investors, reacting emotionally to volatile markets may be more detrimental to portfolio performance than the drawdown itself. INTRA-YEAR DECLINES Exhibit 1 below shows calendar year returns for the US stock market since 1979, as well as the largest intra-year declines that occurred during a given year. During this period, the average intra-year decline was about 14%. About half of...

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Skynet is controlling the markets!


Fans of the “Terminator” series of movies may have reason to worry that Skynet, the world-wide computer network that waged robotic war on mankind in the dystopic future, currently controls the world’s stock markets. In a way that’s what has been happening since last week, when stocks started a frantic headlong tumble. Within several days all of January’s stock market gains were wiped out as U.S. stocks, measured by the Standard & Poor’s 500 Index, fell at least 8% from their recent highs. It is most likely that the large segment of the market controlled by automated trading algorithms caused the sharp volatility that halted a seemingly relentless 13-month rise in stock values. An algorithm is simply a set of rules that a computer uses to accomplish a specific end. When it comes to the markets, more and more speculative portfolios are traded automatically by algorithms that respond to changes in market...

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The Pullback Has Arrived, Loud and Clear


The stock market started a downturn late last week and has continued that decline today.  The S&P 500 was down 113 points today, or 4.1%, and down 224 points from its closing high of 2,873 on January 26.  This represents a 7.8% decline in a matter of days. While nobody could have predicted this type of decline, or its speed, it isn’t terribly unexpected.  The stock market has been on a phenomenal run since March of 2016 and investment portfolios have benefited from that.  This pullback takes the market back to slightly below the end of 2017. This really means that a diversified portfolio of stocks and bonds is probably back to even for 2018.  The context of “just giving up the last month’s gains” can help you feel a little better than thinking the stock market just went down 8% in a couple of days.  Investors should remember that this is...

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Why doesn’t my portfolio track the market?


Are you feeling frustrated on days when you hear the “market” has risen sharply but the gain in your portfolio doesn’t match popular market averages? You shouldn’t: If you have a well-diversified portfolio, it is probably doing just what it’s supposed to do. Always remember that there is a big difference between a diversified portfolio and “the market.” A diversified portfolio should include a mix of big and small stocks, domestic and international stocks, emerging markets stocks, government, corporate and/or municipal bonds, and commercial real estate investment trusts. “The market” is a measure that should include all of the publicly traded securities in the world. However, there is no easily accessible and long-term measure meeting those criteria. Most market indexes cover just a small portion of the world’s publicly-traded investment assets. For instance, the Standard & Poor’s 500 Stocks Index tracks the 500 largest stocks of U.S. companies. It leaves out thousands of...

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The Market Has To Go Down, Right?


The S&P 500 has been on a hot streak for the last 22 months going back to March of 2017.  Since then, there has been exactly one negative month, October 2017.*   Last year was technically perfect, with zero losing months for the S&P 500.  Because of this hot streak, I keep hearing the same statements: This can’t continue much longer There has to be a correction coming soon The market has to go down The market doesn’t have to do anything! I repeat, the market doesn’t have to do anything at all. It doesn’t have to go up and it doesn’t have to go down. The market will simply be a market.  It’s made up of people who sometimes get over excited and sometimes get overly depressed. Right now, people are very clearly excited. [caption id="attachment_7267" align="alignnone" width="970"] *JP Morgan Guide to the Markets Q4 2017[/caption] Not excited without reason, however!  Corporate earnings are great and expected to...

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One step per month brings you closer to retirement

2018 calendar

Workers in their fifties are headed toward eventual retirement but aren’t there quite yet. However, this is the time to start seriously preparing for an eventual departure from the full-time workforce. Decisions made now will have a positive or negative impact in five or ten years when it is time to retire. Here is a monthly guide for 2018 that will help you take steps now to ensure a comfortable retirement later. January: The holiday hubbub is behind you and now you can spend some time daydreaming about what you want out of retirement. Do you want to stay in your current home and community and travel? Do you want to downsize to a smaller home? Or do you want to move to another part of the country? Picturing your ideal retirement will help you take specific steps over the coming years to help you realize your dream. February: Check up on...

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