Sound Advice

Perspective on Inflation   Inflation doesn’t affect everyone in the same way.   It does its worst damage when household income is derived in large part from sources that are not adjusted for it.   For example, if one has a pension or annuity that does not provide cost-of-living adjustments, long-term inflation will eat into purchasing power significantly. Social Security, however, which is an important income source for many people, is adjusted annually for inflation.   Benefits went up 5.9% this year, roughly in line with recent inflation trends.   That adjustment followed a lengthy period when inflation was unusually low and annual increases in benefits were modest. Along with Social Security, many retirees depend on withdrawals from investment accounts.   Although some may worry that because of rising inflation retirees will need to reduce spending and take less from their investment portfolios, such a quick reaction may be premature.   Histor...

Is It Time For Value Stocks?   Although there are many different types of stocks, whether they are U.S. or international, most tend to fall into one of two main groups: growth and value.   Growth stocks are those of companies with profits increasing at above average rates and they typically sell at higher valuations.   Value stocks are those of companies growing more slowly, often not consistently, and their shares tend to have lower valuations. Some examples of growth stocks: Amazon, Netflix, Google, and Apple.   Some examples of value stocks: Procter & Gamble, Johnson & Johnson, and Berkshire Hathaway. Valuations demonstrate the confidence that investors have in companies.   The traditional yardstick is a multiple of a company’s net profits.   For the stock market as a whole, historical valuations have typically been in the range of 15 to 18 times, though there have been periods such as the mid-1970s when valuations fell to the high single d...

Economics: The Great Guessing Game   Among the most interesting (and controversial) developments affecting the investment markets are the periodic reports on what’s taking place in the economy.   The ongoing flow of information includes the weekly level of new unemployment claims, the monthly reports on the consumer price index, and the monthly reports on new jobs.   Although many esteemed economists provide regular weighty pronouncements on what the new numbers will be, the accuracy of same is on a par with a blindfolded person throwing at a dartboard. Indeed, prior to the announcement of the job numbers for January, economists put forth estimates that averaged 150,000 new jobs, suggesting that the situation was significantly constrained by the dramatic jump in Omicron variant Covid cases.   Several even forecast a substantial drop in the jobs total. The actual result was quite different: 467,000 new jobs. It gets much worse because the numbers reported each...

Should I sell my stocks before the upcoming bear market? Yes, that may be sensible. If this idea works for you, make sure to sell them about a week before the market crashes. Then all you need to do is buy back in about a day after the market hits the bottom. If you can manage this extraordinary feat, you will make history. Seriously, however, unless you can perform the above magic, you will have to consider your investment time horizon. Following temporary downturns, markets always recover.   Sometimes the upturn is slow, but in the aftermath of the pandemic plunge, the rebound was unusually rapid.   Market drops tend to be unnerving. The more useful view of these events is that stocks are on sale at lower prices.   There is, of course, the temptation to think that this time everything’s going to zero, though if that’s the case it really doesn’t matter what you do. To be successful in this ill-advised approach, two correct decisions are required: When to sell? Wh...