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Sound Advice: June 29, 2022

Higher yields are available, but there’s a hitch.   After more than a decade and a half of well below average interest returns from fixed-income securities (most are bonds), the pendulum of interest rates is now swinging toward levels that had been considered “normal” over many decades in the past.   Way back when, interest income from investment portfolios that had a substantial portion in bonds was often sufficient, combined with pension payments and Social Security benefits, to provide a comfortable lifestyle for folks in their later years. Then came the banking crisis of 2007-9 and the Federal Reserve Board, this country’s central bank, plunged interest rates to historically low levels to keep the economy from collapsing.   As rates fell, bond prices rose.   Those who held bonds reaped hefty profits . . . if they sold prior to maturity.   But people who depended on interest income came up short when trying to make ends meet. Where to go now?   There are a number of choices, n
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Sound Advice: June 22, 2022

The Keys To Retirement   Whether you are looking ahead to retirement or are already enjoying what we all hope to be a time to do what we find most enjoyable, it’s essential to ensure that you have sufficient financial resources to maintain your desired lifestyle. But there’s more.   What will you do with your time?   Both of these issues require considerable attention. The question of finances comes down to four critical elements: what you own, what you owe, what you’re earning, and what you’re spending.   It’s usually easy enough to figure out what you own and owe.   And it should be no more difficult to estimate your ongoing income.   The hitch, in more than a few cases, is getting a handle on what your expenses are and making a budget that accurately reflects the outflow. For most people, the key assets are your investments and your residence.   There may also be vehicles, jewelry, collectibles, and the like.   At this stage in life, there may be a remnant of a mortgage and

Sound Advice: June 15, 2022

All High Dividend Strategies Are Not The Same   Comprehensive studies have highlighted the advantages provided by holding stocks with high dividend yields over extended periods, often at least a few years.  High dividend yields go hand in hand with low valuations, so this approach would seem to make a lot of sense.  But there’s a lot more to the strategy than just buying the highest yielders and then waiting for the payoff. A closer look is essential.  One example is companies that don’t have sufficient profits to support their dividends.  Sometimes that suggests the possibility of a dividend cut or elimination, which means the high dividend yield is about to be reduced or disappear.  On a few occasions, when the earnings shortfall is not likely to persist, the dividend may be maintained. Another concern is stocks that always have high yields and low valuations simply because the growth rates of the companies are modest or erratic.  Whether it’s slow growth, erratic progress or u

Sound Advice: June 8, 2022

Rebound?   So far this year, the market averages have headed lower, and by midyear it seems likely that 2022’s first half will have been among the worst starts since 1950.   The causes: high inflation and turmoil in Ukraine, abetted by stock valuations that last year had swelled toward the upper end of the historic range.   Rich valuations alone do not turn markets upside down, but they do set the stage for retreats when there are problematic economic and/or geopolitical developments.   Nevertheless, most sectors of the economy are in relatively good shape and interest rates are still well below the levels that had prevailed for many years.   Where things stand now in Ukraine is another story, but the market appears to have absorbed the initial shock of what is happening there. Over the last 72 years, there have been eight times when the S&P Index dropped more than 10% during the first six months of the year.   The biggest drops took place in 1962 and 1970, when the index fel

Sound Advice: June 1, 2022

Fear and Greed   Fear and greed are the driving forces behind day-to-day market movements.   When one day’s change is a 500-point leap in the Dow Jones Industrial Average and the next day sustains a drop of a similar amount, you have to ask yourself: “What’s wrong with this picture?” What’s wrong with this picture is the reality that short-term price action is almost exclusively driven by ongoing shifts between optimism and pessimism.   One day, the media will point to hopes for more moderate interest rate increases as the basis for improved economic expectations.   Then, a day later, Wall Street oracles will tack in the other direction, maintaining the likelihood that rate hikes will be more aggressive. The impact of media pronouncements becomes even greater when analysts adjust their estimates of corporate profitability, which is the real reason why stock prices move higher over time.   The initial estimates are usually toward the upper end of what’s possible.   They are then r

Sound Advice: May 25, 2022

This Time It’s NOT Different   Whether economic times are good or bad, there always seem to be wizards making weighty pronouncements that suggest dramatic changes have taken place in the fundamentals underlying the economy and the marketplace.   If in fact one of these turns out to be on target, it most assuredly was as probable as winning a lottery.   The reality is that over time the world of business and investment markets moves ahead in cycles, not in a smooth linear pattern. Interest rates rise and fall.   Inflation surges and moderates.   Corporate profits climb, with hiccups along the way.   And there’s always geopolitical trouble under way or in the wings. There have been numerous events that could have earned the label “different”, but none stopped the ongoing rise in the stock market. In the early 1970s, we were mired in the Vietnam war.   Now the conflict is in Ukraine.   During the late 1970s, interest rates soared into the mid-teens.   Now they’re in the low-single

Sound Advice: May 18, ,2022

The Pendulum Swings Both Ways   For many measures, the average or normal values are rarely the most common.   For the stock market, prices tend to spend more time closer to the extreme ends of the traditional spectrum.   What comes along with this tendency is the expectation that the current path is the one that’s most likely to be followed. Not only is there an expectation of more of the same, but optimism grows as prices climb and pessimism increases as prices drop, which from an investment standpoint is counterproductive.   Lower prices mean you’re getting more for your money.   And vice-versa.   Yet, investors are increasingly spooked by the latest reversal in stock prices. We’ve been through this before and we’ll go through it again.   The pullback that’s been under way since the beginning of the year reflects the long-term process of digesting ongoing economic and geopolitical developments. It’s all part of a much broader picture.   Recent pullbacks such as those of early