Sound Advice

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Sound Advice: May 5, 2021

Budgeting: The Key to Planning All of us look to the future and hope for the best, but not everyone makes the effort to collect the data needed to answer the question: "Will I Have Enough?" Indeed, most people just roll the dice and trust that an optimistic attitude will be sufficient. Yet the reality is that in most cases the future may not be the most comfortable of times. A proper budget and financial plan require input on four key categories: what you earn, what you spend, what you own, and what you owe. The information needed for three of the four categories is relatively easy to find. It is the spending that's trickier, sometimes a lot trickier. Plan for Changes The hitch with spending is that it needs to be viewed from four different perspectives. What most of us focus on is current spending. But then we get into the retirement years and the what-ifs. The time of retirement is generally predictable. What is not predictable is the early dem

Sound Advice: April 28, 2021

Why Technology Should Be In Most Portfolios Although it is well known that the odds are against investors trying to do better than the leading market indexes, there remains the temptation to be among the few who have actually succeeded in outperforming. Since stock prices over time reflect changes in underlying earnings, it should be rather obvious that the task of coming out ahead will depend on picking sectors that traditionally have grown more rapidly than industry generally. That eliminates areas such as basic materials, construction, industrial goods, and insurance, which all have cyclical tendencies. It also eliminates consumer staples and utilities, which grow steadily, but slowly. Not only that, but the performance of utility shares directly reflects the comparison of their dividend yields with that of prevailing interest rates since these stocks are usually viewed as income providers. When utilities raise their dividends regularly, their shares will hold their ow

Sound Advice: April 21, 2021

How is the Market Doing? Despite all the noise being trumpeted by the media, the daily prattle about market moves is often wide of the mark and overloaded with information that is misleading or just plain inaccurate. How else to explain a jump of several hundred points one day followed by a plunge the next day? That makes no sense. Over time, the foundation for stock valuations is underlying profitability of the companies involved. As profits increase, stock prices rise, though not necessarily in perfect reflection. The relationship tends to be meaningful over extended periods, but often not in shorter spans of time. That’s all about changes in investor psychology. So let’s begin by defining the “market”. If we are referring to stocks, the most common reference is to the Dow Jones Industrial Average, which consists of 30 major companies whose progress might be considered representative of the U.S. economy as a whole. The majority of the companies included here are r

Sound Advice: April 14, 2021

Up, Down & Sideways In past years, the warmer months brought with them a time to turn one’s thoughts to more blissful endeavors. Although childhood may have been many years ago, what lingers is the apparent freedom from care we felt when at last we were done with school. Much has changed since those halcyon days when time hardly seemed to move. Back then, the days went by slowly and the important decisions were few. Now it’s almost as if you don’t know which direction to turn first. It’s all about communications and the seeming necessity of keeping up to date with what’s going on. Much of the rising flow of developments may have little impact, but even so it’s no longer a time when we can disconnect until September. From an investment perspective, the challenge is to sort through the rapidly growing mountain of information to isolate the data that is critical and take action where it is needed. On a grand scale, it’s a matter of separating the wheat from the cha

Sound Advice: April 7, 2021

The High Dividend Strategy: Pros and Cons Let's start with the bottom line about investing in high dividend stocks: It works, but there are significant wrinkles. A while back, I did a 20-year study of investing in high dividend stocks. The approach was straightforward. I began with the S&P 500 universe and divided it into 10 groups of 50 stocks each. The groups were arranged by dividend yield, highest to lowest, at the beginning of each of the years. I then tracked the total returns (dividends plus capital appreciation) of these groups for the full period. The results were illuminating. The highest total returns were from the group with the highest dividend yields. The returns then descended in perfect order down to the group with the lowest dividend yields. What's more, the aggregate return from the group with the highest returns was greater than that of the Standard & Poor's 500 and its volatility over the period was lower. That did not mean all

Sound Advice: March 31, 2021

The Market Drops Every Year . . . and Ends Up Higher Over Time The market drops I refer to take place over a period of a few months within one year or starting in one year and running into another. These short periods of weakness are not to be confused with 12-month changes from yearend to yearend. Since 1980, the Standard & Poor's 500 Index has had average interim drops of 14.3%. In more than half of those years, the corrections, as they are euphemistically known, were 10% or more. We hit the worst air pocket back in late 2008 to early 2009: 49%. When this happened, more than a few investors started to wonder what was going on. Yet each time, the pullback was followed by a full recovery and annual returns ended up positive in three out of four years. The lesson learned from this pattern is that short-term movements are for the most part reflections of changes in investor psychology. One day, there may be a series of encouraging earnings reports. The next day,