Sound Advice

  “Stop trying to predict the direction of the stock market, the economy or elections.”                                                                 Warren Buffett As we get closer to Election Day, people are increasingly concerned about the impact on the stock market of the possible results.   Although it’s easy enough to waste an extraordinary amount of time substantiating the theses on both sides, the reality is that from any reasonable time perspective, the net result will not be much different.   It’s quite likely that the immediate reaction will be a sharp uptick in volatility, but the longer-term probability is that the market will rise the majority of the time, as it always has.   The chart below tells the story: What is most obvious is that the market has risen as time has passed and there’s every reason to expect that this will continue in the future.   Even if we take a closer look, there is no basis to come to a different conclusion. In the six most recent pres

  Can You Make Money in a Flat Market?   Yes, you can.   Although over many decades annual returns for the Standard & Poor’s 500 stocks have averaged about 10%, that includes gains and losses in some years that were a multiple of that rate.   So a target of about 10% might be reasonably achievable for a long-term investor, but the long term would mean at least three to five years and probably longer.   Given the relatively rich valuations that are currently prevailing, it seems entirely possible that returns in the single digits are more likely in the years just ahead. Since 1926, the inception of the S&P 500, there have been more than a few years with plunges of better than 20% or 30%.   Let’s not forget 2001-2002, 2008-2009, and this past March.   Those were painful pullbacks that rattled all but the most steadfast investors.   That kind of volatility, however, is part of the program.   Standing fast in the face of roller-coaster markets is the price we pay for the potent

“I like the dreams of the future better than the history of the past.”                                                                                                Thomas Jefferson History is a useful, though not infallible, guide to what lies ahead. Invariably, excess in one direction is followed by offsetting movement in the other direction.   Strength is followed by weakness and vice-versa.   Within the universe of investments, there are those that do better than the averages and those that do worse.   When interest rates are low and credit is loose, the stage is set for an acceleration of growth.   When interest rates are climbing and credit gets tighter, the brakes are being applied to economic advances. Stocks tend to rise when investors expect earnings to rise.   They weaken when the view ahead is less rosy.   Bonds rise when interest rates are dropping. Typically, this takes place when monetary policy eases or when investors’ fears prompt a flight to quality.   As busines

Why Dollar-Cost Averaging is a Good Idea   At times such as these when more than a few reasonably experienced Wall Streeters have commented on the richness of current stock valuations, it makes sense to review worthwhile investment approaches that have been tested over time.   One that tends to get a lot of lip service, though certainly less attention in practice, is Dollar-Cost Averaging.   With that strategy, the investor commits to buying a fixed-dollar amount at regular time intervals, which might be monthly, quarterly or some other period. One of the key arguments in favor of Dollar-Cost Averaging is the benefit of gaining an average cost over time, rather than committing all at once and risking the possibility of being on the cusp of a significant market downturn.   For most investors, this benefit may sound more promising than it really is.   Why?   Since the market moves up two-thirds of the time, the probability is that the average prices paid will be higher than they migh