Skip to main content

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 chaff.  Hardly a part-time job.         

Short term, it seems as if everything has an impact on market prices.  It is not at all surprising that as news breaks, the major market averages move sharply in both directions.  So far this year, it has been largely a matter of big ups, big downs, and a modest net gain.  Far better to take a breath and try to get a handle on where things stand.  That’s essentially a return to the basics of investing.       

A meaningful period of time in the world of investing is a market cycle of three to five years.  However much effort is spent trying to analyze the broad range of available opportunities, it is critical to remember that the value of efforts to understand and make worthwhile portfolio decisions increases as time extends.  What happens over weeks, months or even a few years may end up far from what may have been expected.  Price movements in the short term are driven primarily by changes in investor psychology.          

Geopolitical issues, though troublesome, usually have little to do with the ability of the corporate community to move ahead.  Global business issues may be more meaningful, but for the most part they do not move the needle much either.  Far more important is the rate of progress from year to year. 

Thanks to substantial gains in the number of vaccinations across the country, many people are finally going back to work and companies are beginning to get back on an upward track.  Even so, there is still a long way to go.

At the moment, the economy is getting a significant boost from the $1.9 trillion Rescue Plan and it may get further energy from legislation being considered to rebuild the nation’s infrastructure.  Still, that is anything but assured. 

Where things go from here is another question.  There is little doubt that the latest government actions will help continue the recovery in business.  In the absence of hefty follow-up funding, however, we could be headed for an extended period of stagnation, much like the span from 2000-2010 in which the investment markets made little progress

That was no surprise.  Fast is typically followed by slow and vice-versa.  But here we are now in the wake of the decade from 2010-2020, when the Dow Jones Average nearly tripled.  As a result of that huge gain, stock valuations are again running toward the upper end of historic levels.  That’s an increasing concern.

Those who are comfortable with rich valuations point toward the continuation of unusually low interest rates as well as massive ongoing government stimulus.  Those who are more cautious focus on the possibility of leaner valuations if the pace of earnings advances slows and interest rates rise.

Much will be determined by the extent of continuing government stimulus as well as fulfillment of the Fed’s plans to keep interest rates near their current levels.  These are the keys to the path for the investment markets over the next few years.

N. Russell Wayne, CFP®  

Any questions? Please contact me at nrwayne@soundasset.com

203-222-9370 

www.soundasset.com

www.soundasset.blogspot.com

Comments

Popular posts from this blog

Sound Advice: July 16, 2025

Fixed annuities are poor investments Fixed annuities are often criticized as poor investments for several reasons, despite their reputation for providing stable, predictable income.  Here are the key drawbacks and concerns:   High Fees and Commissions Internal Fees:  Fixed annuities can carry a range of fees, including administrative charges, mortality expense risk fees, and rider fees. These can add up to 2%–4% per year, significantly eroding returns over time. Commissions:  Sales agents and financial advisors often receive high commissions for selling annuities—sometimes as much as 5%–8% of the invested amount. This creates a financial incentive for advisers to recommend them, even when they may not be the best fit for the client. Comparison to Other Investments:  Mutual funds and ETFs typically have much lower fees and commissions, making them more cost-effective for long-term growth. Limited Growth a...

Sound Advice: October 8, 2025

How many investors have outperformed the stock market over the last 20 years? Very few investors have outperformed the stock market over the past 20 years.   Data shows that only about 6% to 8% of actively managed equity funds in the U.S. beat the market over this period, with the vast majority—over 90%—underperforming the S&P 500 or equivalent broad indexes. Percentage of Investors Beating the Market Only 8% of equity funds investing in large companies managed to outperform the market over a recent 20-year span. About 94% of all domestic funds underperformed the S&P 1500 Composite Index from 2005-2024. Over shorter timeframes (5-10 years), typically fewer than 15-20% of fund managers beat the S&P 500, and performance persistence is rare. Why It Is Rare The S&P 500’s high returns have proven immensely difficult to beat, especially as indexing has become popular and markets have ...

Sound Advice: January 15, 2025

Why investors shouldn't pay attention to Wall Street forecasts   Investors shouldn't pay attention to Wall Street forecasts for several compelling reasons: Poor accuracy Wall Street forecasts have a terrible track record of accuracy. Studies show that their predictions are often no better than random chance, with accuracy rates as low as 47%   Some prominent analysts even perform worse, with accuracy ratings as low as 35% Consistent overestimation Analysts consistently overestimate earnings growth, predicting 10-12%                 annual growth when the reality is closer to 6%.   This overoptimism can                 lead investors to make overly aggressive bets in the market. Inability to predict unpredictable events The stock market is influenced by numerous unpredictable factors, including geopolitical events, technological changes, and company-specific news.   Anal...