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...

Medicare: A few more issues   Many people look forward to Medicare as the primary source of funding for health problems they will be facing as they get older.   No doubt, Medicare can be a big help, but there are several caveats. For one thing, physicians who accept Medicare patients may be doing so at costs that exceed the reimbursements they get from Medicare.   Those who do accept Medicare have to assume that the shortfall will be made up by other patients.   You may still be able to see a physician of your choice, but you will be responsible for payment.   Of the various medical specialties, psychiatry has the largest share of practitioners who have opted out of Medicare: 42%.   If you are enrolled in original Medicare and your doctor opts out of the Medicare program, you can find and compare health care providers near you at http://www.medicare.gov Medicare reimbursement rates have spiraled downward over the years and are typically even lower t...

FAANGs?   No, that’s not a typo.   It’s about the ongoing disparity between overall market returns and the price action of a few large tech companies for nearly a decade.   Until recently, FAANG stood for Facebook, Amazon, Apple, Netflix, and Google. Although Google renamed itself Alphabet and Facebook morphed into Metaverse, current conversations continue to speak of them as before. A distant cousin of the FAANGs emerged almost a half century ago.   That cousin was known as the Nifty Fifty, which included such names as General Electric, Coca-Cola, and IBM.   The Nifty Fifty group also included Xerox, Polaroid, and Eastman Kodak.   What the FAANGs have in common with their ancestors is extraordinarily high price-earnings ratios (i.e., valuations).   These were referred to as one-decision stocks. Wharton professor Jeremy Siegel suggested that investors could buy them and hold forever, but that suggestion didn’t turn out well.   The extreme be...