Sound Advice

“Hope smiles from the threshold of the year to come, whispering, ‘It will be happier.’”                                                         ALFRED LORD TENNYSON           N. Russell Wayne, CFP ®

How’s The Market?  Which One? The first question is fairly common.   The second question is quite rare.   Why?   Because there are numerous stock market indexes and from the narrowest to the broadest there is a huge difference in the stocks included and their returns. The best-known index is the Dow Jones Industrial Average, which is composed of 30 of the largest U.S. companies.    The Dow, like most other indexes, is a biased reflection of market performance.   The obvious reason is that it is a small sample, albeit that of the largest companies.   Less obvious, but more important, is that the index movements are primarily driven by the higher priced stocks in the group. Professional investors pay more attention to the Standard & Poor’s 500 Index, the movements of which often vary substantially from those of the Dow.   The S&P is weighted by the market value of the companies’ shares, which means that the biggest companies in ...

The U.S. Is Slipping Behind In its early years, the semiconductor industry did not have many customers.   Few businesses in the 1950s could make use of the expensive new devices that allowed computers to function.   But one organization could: the federal government. The first shipment from Fairchild Semiconductor – the company that helped create Silicon Valley – was for the computers inside the Air Force’s B-70 bomber.   The Minuteman missile soon needed semiconductors too, as did other Cold War weapons systems and NASA equipment. Only the federal government tends to have the huge resources to make these investments.   After it does, private companies then use the fruits of these investments to develop innovative and profitable products, spurring economic growth and tax revenues that comfortably cover the cost of the original research. The Defense Department built the original internet – and Google, Microsoft, Amazon, and others expanded it.   The National Inst...

Individual Retirement Accounts Years ago, the go-to choice for saving money for the future was savings accounts.   Back in what now seems like the stone age, you opened your account, got a passbook, and periodically deposited funds for the years ahead.   When you made your deposits, the teller would update the interest you earned and that was that.   The biggest problem was remembering where the passbook was.   Folks who were more adventuresome and risk-tolerant opened brokerage accounts so they could buy stocks and bonds, often on the recommendation of their stockbrokers.   Those were the days of high-cost investing, before mutual funds took center stage. In the mid-1970s, however, two major changes substantially improved the picture for individual investors.   One was the beginning of discounted commissions for buying and selling stocks.   The second was the debut of Individual Retirement Accounts (IRAs).   These accounts made it possible ...

Delta, Mu, Omicron, etc. Only eight months ago, I wrote about the regularity of market drops and what always follows.   Over the last 40 years, the Standard & Poor’s 500 Index has had average annual interim drops of 14.3%.   More than half of those pullbacks were greater than 10%, but a full recovery and even higher prices came after the dips every time. Given the stretched valuations that have prevailed for an extended period, the question was never whether there would be a pullback, but what would set it off.   Stretched valuations alone don’t start selloffs and they often persist far longer than one would expect.   In the past, however, the trigger for market hiccups has typically been unusual geopolitical events. Concern about the pace of economic progress is another trigger, as is what lies ahead for interest rates.   Yet, much of the recent news about business has been encouraging and prospective increases in interest rates will probably be grad...