Advertising Disclosure


Popular Posts

Thoughts on the Stock Market - Investment Strategies for Savers


There has been a massive amount of media coverage this week of stocks like GameStock that have surged to unbelievable price levels as small traders organized via Reddit attempt to profit from short selling done by hedge funds. Early in the week, it appeared the small traders were winning, but then on Wednesday, brokerage firms like Robinhood restricted access to these stocks. Almost everyone seems to be alleging that these brokerage firms have colluded with the hedge funds so that the hedge funds continue to win at the expense of the small traders.

How does this relate to deposits?

First, it doesn’t help the image of the stock market. Day traders who push stock prices to extremely overvalued prices give an impression that the stock market is just a casino. Hedge funds appearing to collude with brokerage firms give an impression that the casino is rigged against the average traders.

If you think the stock market is a rigged casino, you might think it’s safer to depend on just deposit accounts for your investments. Unfortunately, this has risks which I describe below.

Instead of thinking that the stock market is a rigged casino, people may think that the average trader has a chance to win big. The publicity of small traders making a fortune from these stocks may be encouraging more stock buying. Perhaps more of those government stimulus checks will end up in the stock market than in deposit accounts. A rising stock market helps deposit rates since it entices people to move money from their bank accounts into the stock market.

On the other hand, a falling stock market puts downward pressure on deposit rates. That’s especially the case when the market crashes and people start moving money from stocks to cash. Also, when the stock market crashes, the financial system and the economy will often take a hit. Bond yields fall and the Fed will pledge zero rates for even a longer period of time.

One worry from this week’s stock market news is that it could be an early sign of market troubles ahead. As this CNBC opinion piece warned, “GameStop is like past bubbles and investors should exit before it bursts like the others.”

A more worrisome bubble is the one that the Fed and other central banks may be creating. This article from market strategist Sven Henrich describes this bubble and the disturbing risks it poses to the markets and the economy. This bubble could have more of an effect on long-term investors.

Long-term Investing

Long-term investors don’t day trade stocks. Instead, long-term investors build a well-diversified portfolio of stocks and bonds. One strategy that is favored by many experts is a simple index fund strategy in which the investor buys a small number of well-diversified and low-cost index funds that are held for the long term (see this Bogleheads investment philosophy document for the foundation of this strategy.) Typically, financial advisors will recommend a balanced portfolio that includes bonds. So in addition to stock mutual funds or ETFs, an investor would include well-diversified and low-cost bond index funds as part of one’s portfolio. The generally accepted strategy would be to regularly rebalance your portfolio to maintain a certain percentage of stocks and a certain percentage of bonds. As you age, you slowly grow your percentage of bonds and reduce your percentage of stocks.

Where CDs may fit in a long-term investor portfolio

A small percentage of financial advisors suggest including CDs with your bond mutual funds and ETFs for that fixed-income part of your portfolio. Direct CDs that you get directly from banks and credit unions don’t have interest rate risks since their value won’t fall when interest rates rise. Allan Roth described his portfolio in this AARP article. In addition to index funds, a sizable amount of Allan Roth’s portfolio is in CDs:

I’ve written for over a decade about going directly to banks and credit unions to buy FDIC- and NCUA-insured certificates of deposits that pay more than high-quality U.S. government bonds and offer minimal early withdrawal penalties.

The risk with stocks

Unfortunately, the economy and the Fed are making it harder to include CDs and bonds as a large percentage of one’s portfolio. The zero interest rate environment has caused bond yields and CD rates to plummet, and the signs point to this lasting for many years to come. This is pressuring people to increase the percentage of stocks in their portfolios and it could be adding to the asset bubble that Sven Henrich described.

What if stocks crash with the S&P Index falling to disturbingly low levels? Will we see something like what happened in Japan when the Nikkei crashed in 1989, and after more than 30 years, the Nikkei Index has still not reached its 1989 high?

One thing that can reduce this risk is global diversification. Including mutual funds and ETFs with foreign stocks can reduce risks that are specific to one nation. However, the US is such a large part of the world economy that global diversification may not significantly reduce this risk. Also, the Fed isn’t the only central bank that has been pushing low rates and asset purchases.

The risk with deposit accounts

If you stay within FDIC-insured and NCUA-insured levels, at least you can maintain a high level of confidence of not losing your money. Of course, there will always be the risk of losing out to inflation. That’s the main risk of deposit accounts.

This MarketWatch article provides a short review of investments that can provide a hedge against inflation. These include gold, bitcoin, stocks, TIPS and I Bonds. Maxing out on I Bonds each year is a simple way to provide a little hedge against inflation. In addition to choosing investments to hedge against inflation, you can take other steps if high inflation hits. Several good tips are in this AARP article from Allan Roth, “8 Steps to Make Sure You Don't Go Broke in Retirement.”

Investing when there are risks of high inflation and asset bubbles?

In his press conference last Wednesday, Fed Chair Powell talked in depth about why the Fed isn’t worried about high inflation. According to the Fed Chair, “We know what to do with higher inflation. Should the need arise, we would have those tools, and we don’t expect to see that at all.”

Fed Chair Powell also tried to dispel worries that the Fed is creating asset bubbles:

The connection between low interest rates and asset values is probably something not as tight as people think because a lot of different factors are driving asset prices at any given time.

Many don’t have that much confidence in the Fed. As Sven Henrich warned in his article, “the Fed hasn’t been able to control anything in recent years.”

When you factor in inflation, no investments are without risks. The best you can do is to minimize risk with diversification and by sticking to investments that you understand and that allow you to sleep at night. Including some bank and credit union CDs, savings accounts and reward checking accounts in your portfolio can help.

Comments
jimdog
  |     |   Comment #1
I don't have any credibility in the FED at all, so I invest accordingly.
blazer9
  |     |   Comment #2
I'll let that sleeping dog lie.
Infinityy
  |     |   Comment #3
Burton Malkiel has written that high quality dividend paying stocks might replace a portion of the fixed income allocation in a world with very low interest rates.

I like the fund SCHD -- it's a very low cost portfolio of high quality US companies with a dividend yield of 3.58% and a record of increasing its payouts since 2011
P_D
  |     |   Comment #4
I achieved my lifetime financial goal and I attribute that success to a few factors.

The Wharton School where I learned the one takeaway lesson that made the onerous tuition worth it: that diversification was the key to risk mitigation.

My own revelation early on in my adult life that if the US Stock market was not a good investment over the long run that your money would not be safe invested in anything else.

Setting a long term goal. And mine was that I wanted to amass enough money by the time I was 65 so that if it earned nothing for the rest of my life, barring a major collapse of the economy, I could still live a comfortable lifestyle by spending the principle alone for the rest of my life.

A trip to Las Vegas in the 70s. I heard nothing but stories of big wins from everyone who ever went to Las Vegas. Everyone boasted about how they paid for their vacation there by gambling and it seemed like no one ever lost. It made no sense to me but I decided to take my vacation there one year and see what that was all about. I set a limit of $50 for gambling which for me was a lot of money in those days. I lost the whole thing within about 1/2 hour at the slot machines with one loss after another. By the time I had only half the money left I was so depressed that I almost stopped, but kept going anyway. Soon it was all gone and I had no feeling of "fun" no feeling of exhilaration, nothing but a sick feeling in my stomach like I had just done something really stupid. In fact later when the pain wore off I realized that I had just learned the best $50 lesson of my lifetime.

Having the right parents. It's not so much about inheriting money as it is the luck of the genes. My mother was about as conservative an investor as it gets, a "money in the mattress" kind of investor. My father was a gambling man and never saw an investment risk he didn't want to take. I had the good fortune of inheriting both traits and happily fell somewhere in the middle. I think that has served me well.

So where am I at? After a lifetime of commitment to the lessons I learned, a lot of hard work and a lot of doing without what I might have been able to have, I recently turned 65 and counted my beans. I'm there. I achieved my lifetime financial goal. And the backbone of my investment strategy, the one that derived from all of the above lessons I learned, was a to buy high quality US stocks and hold them to the bitter end. I rarely sold anything and I never tried to guess what stocks would make me a quick fortune. I just added quality stocks (almost entirely large US companies) to my portfolio every payday and kept them for decades. I didn't even bother keeping track of how the market was doing and try to time the purchases. Didn't do any "rebalancing" or fiddle with the proportions. Just put the money in big company quality stocks. Didn't care if the markets were up or down, because I believed in my philosophy that if the US stock market was not safe over the long run, your money was not safe anywhere. And I still believe it.

But there was one caveat in the goal I set: "barring a major collapse of the economy." I never dreamed that this would be a real concern until now. And the fact that it is happening just in the very year that I have been saving for and seemingly attained my goal makes it all the more disturbing. I am no longer focused on investment returns but on economic factors as these are the things that could now derail my financial future in spite of all my past efforts. And my principal concern in that regard is the reckless, out of control government spending. They seem bound and determined to drive up the debt and bankrupt taxpayers. This is an unsustainable course. It's my principal worry. Runaway US inflation or a collapsed US dollar means the destruction of your investments no matter what they are invested in. And I've never had more concern about these possibilities than I do now.

And so my latest lesson learned. No matter how hard won, there is no attainment of personal financial goals that the government cannot derail.
milty
  |     |   Comment #5
Interesting and thank you for taking the time to share. I didn't go to Wharton, but pretty much lived frugally and adopted a similar investment strategy, believing in dollar-cost averaging per pay period to mitigate risk. (Of course, it meant returning to college to get my MS compSci degree to get a better job that gave me the bucks and benefits to access those investment opportunities.) What I learned is that you need time and that timing is everything. For example, for many of those who lost their jobs in the great recession and were not able to go back to work, time had run out, along with much of their investments. Fortunately, I was able to go back to work and got out mostly when I reached a goal I had set where fixed investments would generate sufficient income. Although I share your concern as to how this new monetary policy (i.e., debts don't matter) will play out, my other concern is that fixed-income investments have been under attack for over a decade with no end in sight, and I believe that we deserve an alternative, a safe haven in order to secure our futures, while we still have time. Recessions can be due to government and/or corporate malfeasance, but at least the former gives most a vote, an alternative.
Kaight
  |     |   Comment #6
Hmmm. The concept of spending principles is a new one for me. How one spends a principle I'm unable to say. However, regarding the stock market I can contribute the following observation:

I think you are right to be concerned. If you want to forecast where the stock market is headed now, study where it languished during the years from 2009 to 2016. Past is prologue. I am significantly older than yourself. And frankly I'm quite comfortable with the CD portfolio, including a number of add-on CDs, acquired in recent years with Ken's help. I would not want now to be in the stock market given current circumstances.
Choice
  |     |   Comment #8
PD, very nice
I retired from corporate world over 20 years ago with no debt and sufficient CDs and IRAs but the establishment and growth of my self-employment was a key. Started the latter part time before “first retirement”. to see if demand, etc. was there. Worked out well now for over 25 years with speaking and writing gigs around world...nothing in last year, which I like!
P_D
  |     |   Comment #9
The only way I could have done better is working for the government. A friend of mine is exactly the same age as me, retired from NYFD the day before 9/11 at about age 45 and got a pension, free healthcare and other perks for life, got a second government job for the local government here after he left NYFD and now retired from that with a second pension. Nice six figure salary for life and doesn't have to manage no stinkin' investments.

My only regret is that I have no pension. It's all on me and my investments.

You could argue about who is more secure since a city can declare bankruptcy and cut pensions. But with the way the taxpayers' money is being frittered away, I'd give him a lot better odds than mine.

If my parents gave me any bum steers, it was not to be a cop or a fireman because they don't make out so well financially. Maybe they just wanted me to earn it the hard way! Talk about tough love.
Sherlock
  |     |   Comment #19
Life decisions-be a firefighter, a physically challenging, dangerous job where you risk your life on a daily basis, making a middle class salary that may prevent you from living close to work in a very expensive city and then get a pension or get a cushy desk job that affords you many more luxuries over your work life with income to spare to save and invest.
My father joined the NYFD during the Depression, and after World War ll, often worked a second job to supplement his firefighter salary. He retired after 20 years, working various jobs until he was 83. In other words, his NYFD pension did not provide him the life of Riley. But boy, were we relieved when he came home safely every time from his firefighter job, while some of his co-workers didn't.
111
  |     |   Comment #25
Sherlock - Couldn't agree more about the risk-of-life issues you mention - and you didn't even mention 911. However, PD is correct as well. Some of us recall reading decades ago about the NYC near-bankruptcy financial crisis during the 1970's, mostly under mayor John Lindsay. This was caused largely by the budget-busting promises politicians had made to NYC public sector unions, which for a variety of reasons came to a head at that time. The perks - especially pensions and retiree health care - have been much better for NYC firemen during the era of PD's friend, than earlier during your father's era.
Sherlock
  |     |   Comment #26
The general U.S. economic stagnation in the 1970's was increased in NYC by a large movement of middle-class residents to the suburbs, which drained the city of tax revenue, the decline of textile manufacturing and other traditional industries in New York, underfunded pensions, to name just a few. I believe to characterize New York's financial crisis in the 1970's as "caused largely.......to NYC public sector unions" does not accurately present this complex economic time.
We should all support pensions as a cornerstone of the safety network for workers. A recommended read to all about the disappearance of private pensions : Retirement Heist: How Companies Plunder and Profit From the Nest Eggs of American Workers by Ellen Schultz., a former investigative reporter for the Wall Street Journal.
111
  |     |   Comment #27
Sherlock - One wonders what a book which, by your own description, has to do with "... the disappearance of PRIVATE pensions ..." (bolding mine), has in fact to do with the topic discussed in comments 9, 19, and 25 in this DA thread, which has to do only with PUBLIC sector unions, and in fact even more specifically public sector unions particularly in NYC.

Just sayin'.

And yes, I have the Schultz book (published back in 2011) as an ebook, and have read it. It is somewhat one-sided.
P_D
  |     |   Comment #31
Being a firefighter or police officer is a noble profession and I commend anyone who chooses it. And I believe that they should be well compensated for their hard work. But the problem is that someone else has to pay for their compensation and often the people who do were also in noble professions and are only making a fraction of what the retired firefighters and police officers are in their own retirement.

I also want to acknowledge the point that 111 alluded to that the nature of compensation for firefighters and police in places like New York has changed drastically over these last decades. When I was a kid, the understanding was that if you went into one of those professions, your pay would be less than you could make in the private sector, but your benefits (including pension) were better helping close the gap in overall compensation. But somehow, the pay kept getting higher and higher while the benefits not only remained rich, but also got even more out of line with the private sector. I know how that happened (as I'm sure many do), but that's beyond the scope of this comment.

The average pension for a New York City firefighter who retired in 2018 was $129,259. And that does not include the cost of benefits or cost of living increases (which I believe they get but I am not certain).

In order to earn even the pension itself, $129,259, in a bank at a 0.50% you would have to have almost $26 million dollars in your account. Yes, $26 million. And even if you had that much, there is no guarantee that you will get that amount for life. And you won't get any benefits or cost of living increases to go with it.  You also won't get the tax benefits as the firefighter and police pensions are at least partially tax free.  So you would have to have significantly more than $26 million if you want to have the equivalent value.

There are a lot of people who also had noble and essential careers that served the public, many of whom worked twice as long or nearly that before they were able to retire who don't have pensions, are making a fraction of what the retired firefighters and police are in their own retirement and yet are paying the taxes that pay for their pensions. And almost none of them have $26 million that would allow them to have the same kind of safe income in retirement (plus they would need enough extra on top of that to pay their taxes).

There have been studies over the past decade or more concluding that government workers are paid more for equivalent work than private sector workers, the people who pay their salaries. I think that is a problem that needs to be addressed. I am all for firefighters and police being paid as much compensation as possible. But the question is how much is that and what is also fair to the taxpayers who have to pay that compensation to them.
Buckeyes
  |     |   Comment #37
a teacher in my very rural area just retired to an 82K pension with the best medical money can buy. In NYS government salaries and pensions are public knowledge so when you hear them say "poor teacher" they better not be talking about NY. In NY state government salaries and pensions are crippling the state, and this was happening well before the pandemic. And someone really needs to explain to me what "fair share" means when it comes to taxes.
111
  |     |   Comment #16
There's lots of both real-world and academic data out there saying it's difficult, mid- to long-term, to beat a diversified portfolio of 80/20 to 60/40 "volatiles” (often stocks), vs. "non-volatiles" (traditionally bonds). By “beat” I mean that this level of diversification comes fairly close to that of 100% stocks, with much less year-to-year volatility.) That's what I've done, more or less, although with age I've gone from about 80/20 to about 55/45. I've pretty much kept the same general mix of stock categories (small-cap, large-cap, foreign, etc.) throughout.

In the last few years I've made more changes in the non-volatiles. Since a 30-year secular bull market in bonds is now well over, it's hard for me to see how bonds or bond funds will have nearly as much success in the next 10-20 years as in the last 10-20. I see CDs, especially add-on CDs bought in brief periods of somewhat higher rates, as a proxy in some cases for bond funds in the non-volatile part of the portfolio.

Not to wander into political comment, but whatever else one might think of the last administration, it did seem to engender a sharp, though brief, period of somewhat higher rates. During that period I and many others used this website to stock up on add-on CDs at much higher rates than today's. (Unfortunately, I think the current lower rate environment might outlast the longest of these, which in my case mature in 2024.)
Mak
  |     |   Comment #10
I also hit 65 this year and am very concerned about the debt but that fear for me didn't just start now. We're a debt driven economy, just look at how much the debt has increased in % terms for each of these Presidents, now people are waking up because the numbers are huge but look at % increases instead, really no surprise. The federal reserve is the enabler with their low rates because the low rates makes it easier to take on the debt so the enemy grows but so does the debt. Raise the rates and the stock market will drop, companies will lay off workers so the cycle continues.....decrease the debt and the economy will contract imo so they keep piling it on. Look at the % increases by President and take into consideration how long they were in office.

4 years...Donald Trump: As of the end of FY 2020, the debt was $26.9 trillion. Trump added $6.7 trillion to the debt since Obama's last budget, a 33.1% increase
8 years...Barack Obama: Added $8.588 trillion, a 73.6% increase from the $11.657 trillion debt at the end of Bush’s last budget in 2009.
8 years..George W. Bush: Added $5.849 trillion, a 101% increase from the $5.8 trillion debt at the end of Clinton's last budget, FY 2001.
4 years....George H.W. Bush: Added $1.554 trillion, a 54% increase from the $2.857 trillion debt at the end of Reagan's last budget
8 years....Ronald Reagan: Added $1.86 trillion, a 186% increase from the $997.8 billion debt at the end of Carter's last budget
4 years...Jimmy Carter: Added $299 billion, a 42.7% increase from the $698.8 billion debt at the end of Ford's last budget.
3 years...Gerald Ford: Added $223.7 billion, a 47.1% increase from the $475 billion debt at the end of Nixon's last budget.
8 years....Bill Clinton: Added $1.396 trillion, a 31.6% increase from the $4.4 trillion debt at the end of George H.W. Bush's last budget.
Clinton was the lowest..4 years...Donald Trump: As of the end of FY 2020, the debt was $26.9 trillion. Trump added $6.7 trillion to the debt since Obama's last budget, a 33.1% increase
8 years...Barack Obama: Added $8.588 trillion, a 73.6% increase from the $11.657 trillion debt at the end of Bush’s last budget in 2009.
8 years..George W. Bush: Added $5.849 trillion, a 101% increase from the $5.8 trillion debt at the end of Clinton's last budget, FY 2001.
4 years....George H.W. Bush: Added $1.554 trillion, a 54% increase from the $2.857 trillion debt at the end of Reagan's last budget
8 years....Ronald Reagan: Added $1.86 trillion, a 186% increase from the $997.8 billion debt at the end of Carter's last budget
4 years...Jimmy Carter: Added $299 billion, a 42.7% increase from the $698.8 billion debt at the end of Ford's last budget.
3 years...Gerald Ford: Added $223.7 billion, a 47.1% increase from the $475 billion debt at the end of Nixon's last budget.
8 years....Bill Clinton: Added $1.396 trillion, a 31.6% increase from the $4.4 trillion debt at the end of George H.W. Bush's last budget.
Bill Clinton: Added $1.396 trillion, a 31.6% increase from the $4.4 trillion debt at the end of George H.W. Bush's last budget.
Bill Clinton did the best job as far as the debt.
In very tough times the debt explodes... FDR was the worst with World War 2
Mak
  |     |   Comment #11
Oops...sorry about that...)
I also hit 65 this year and am very concerned about the debt but that fear for me didn't just start now. We're a debt driven economy, just look at how much the debt has increased in % terms for each of these Presidents, now people are waking up because the numbers are huge but look at % increases instead, really no surprise. The federal reserve is the enabler with their low rates because the low rates makes it easier to take on the debt so the enemy grows but so does the debt. Raise the rates and the stock market will drop, companies will lay off workers so the cycle continues.....decrease the debt and the economy will contract imo so they keep piling it on. Look at the % increases by President and take into consideration how long they were in office.

4 years...Donald Trump: As of the end of FY 2020, the debt was $26.9 trillion. Trump added $6.7 trillion to the debt since Obama's last budget, a 33.1% increase
8 years...Barack Obama: Added $8.588 trillion, a 73.6% increase from the $11.657 trillion debt at the end of Bush’s last budget in 2009.
8 years..George W. Bush: Added $5.849 trillion, a 101% increase from the $5.8 trillion debt at the end of Clinton's last budget, FY 2001.
4 years....George H.W. Bush: Added $1.554 trillion, a 54% increase from the $2.857 trillion debt at the end of Reagan's last budget
8 years....Ronald Reagan: Added $1.86 trillion, a 186% increase from the $997.8 billion debt at the end of Carter's last budget
4 years...Jimmy Carter: Added $299 billion, a 42.7% increase from the $698.8 billion debt at the end of Ford's last budget.
3 years...Gerald Ford: Added $223.7 billion, a 47.1% increase from the $475 billion debt at the end of Nixon's last budget.
8 years....Bill Clinton: Added $1.396 trillion, a 31.6% increase from the $4.4 trillion debt at the end of George H.W. Bush's last budget.
Bill Clinton did the best job as far as the debt.
In very tough times the debt explodes... FDR was the worst with World War 2
P_D
  |     |   Comment #15
The debt numbers are hard to analyze since they involve both taxes and spending. Most of the focus seems to be on the tax side, and lord knows we don't already pay enough taxes.

I'm more concerned about government spending than debt, the part of the equation politicians don't want to talk about. Adjusted for inflation and population, the US government spent about $2,200 per capita in 1948. In 2021 they are projected to spend about $14,500 per capita, or almost 7 times as much. And that does not include the $6 TRILLION+ of new spending proposals that have been introduced by the new administration in just its first 10 days or any of the trillions more that are likely to be proposed in the near future.

And I don't see how paying people not to work, importing poverty, raising the minimum wage or banning industries that is already leading to mass layoffs, right in the middle of a pandemic, is going to decrease per capita spending. Spending is out of control. The government cannot tax and spend the country into prosperity. That is my most pressing concern.
blazer9
  |     |   Comment #17
Cr ap! thread almost survived IT.
Mak
  |     |   Comment #20
My opinion is a different than your's on some of those points but not going to go into it with you..there's a pandemic going on so I'm not surprised spending is up. You tell me if I'm wrong but this is what I found. From 2008 to 2016 the Obama years spending Per Capita went from $11,458 in 2008 to $11.928 in 2016 less than 5% over his entire term. During the Trump term spending Per Capita went from $11,928 in 2016 to $19,817 in 2020 that is an increase of about 70% over his entire term so why the all of a sudden worry, to me $14,500 projection looks pretty good compared to $19,817...:)
Since there is nothing I can do about it I will give the new administration the same chance I gave the last one and see what happens.
P_D
  |     |   Comment #22
"there's a pandemic going on so I'm not surprised spending is up."

That doesn't explain the nearly 7 times increase in federal government inflation adjusted per capita spending between 1948 and now. If you look at the historical chart you will see that it steadily increased throughout the entire period. The current period is not an outlier.

I don't know if your numbers are right or not but if I have time I will check them.

Bottom line, when you look at a normalized measure of government spending, spending per capita, the government keeps spending more and more and more every year. Reagan was right. The problem isn't that people are taxed too little, it's that the government spends too much. And by the way he did all he could to control the spending but the other party blocked all his attempts. Thank God he was able to cut taxes though or I'm not sure we would be having this same conversation today. If he had had his way with the spending cuts the deficits would have been much lower if not surpluses because his policies created the highest GDP growth in at least modern US history.

What I do know is that there has only been one president since WWII under whose administration per capita government spending actually decreased. And that president was President George H. W. Bush.
Mak
  |     |   Comment #23
I know the spending goes up almost every year but the big jump was in 2020 that was the outlier imo. I agree spending needs to be cut or raising taxes won't do any good so maybe a tweak of both but good luck with that.
Mak
  |     |   Comment #12
Ronald Reagan (1981-1989): President Reagan increased the debt by $1.85 trillion, or by 186%. Reagan's brand of supply-side economics didn't grow the economy enough to offset the lost revenue from its tax cuts. Reagan also increased the defense budget by 35%.
Mak
  |     |   Comment #13
When the economy is good and the unemployment rate is low like it was under Trump you are supposed to pay down some of the debt but instead Trump was still piling on the debt, begging for zero rates and even negative rates, had to keep the market propped up so he could brag about it...the same market he called a bubble in 2016 before he was elected and what did he blame for the bubble, low rates by the federal reserve. He cut taxes and some of you were very happy, why..because the market was going up, remember? Then the pandemic hit and obviously the debt was going to increase even faster so here we are in a mess.
Mak
  |     |   Comment #14
Btw a 4% savings rate would be nice if we weren't this far in debt but if we did get 4% right now I would be even more worried...:)
racecar
  |     |   Comment #18
Invest in... Radio Shack!!!
Just kidding. But oh, would it be nice to go back to those TRS-80 days (or Archer Walkie-Talkies)..

One should invest with logic and data, NOT the emotion of the moment. But at the same time, you have to realize that even for the best prepared, well-informed investor, while the matter of degrees may change based on how informed you are, in the end it's STILL a crapshoot. I don't know how many times over the last year I've read articles complaining that stocks, bonds, etc should historically be going THIS way... but they're going THAT way instead.

So my outlook:
(1) Don't waste money, live beyond your means, or buy a bunch of stuff you don't really need.
(2) Set aside amounts (if able to) for enjoyment, but do it consciously, don't just buy on impulse whatever you want at the moment.
(3) It's fine to gamble on the stock market, but look at your age (ie, how many years you can afford to be in the market before you need the $ for retirement) and for me, I;ve never ever put more than half of what I have into stocks. I'm not in my 20s so I don't have a lifetime to wait for stocks to correct themselves if an extended bear market comes.
(4) Where I currently am: Approx 35% in stocks, the rest in CDs (paying 3%).

I know some seasoned investors who sold their entire portfolio even before the pandemic, because stocks were so inflated even back then. I'm at the point in my life where I'll keep about 1/3rd in stocks (index & sectors but not individual stocks) but want the safety of a guaranteed return (even if lower, and even w/higher taxes on CD interest vs stock gains). 1/3rd is "too much" for those investors who think (with some good reason) that the market is way overpriced, and "too little" for those crazy bulls that would invest in a a shop selling sand in the Saraha. 1/3rd is the sweet spot for me. Even as CDs mature and I'm forced to find lower rates (though some are Add-Ons at 3% for a few more years) I'll still take the safety for 2/3rds. I'm willing to gamble with 1/3, but not more than that.

And dang it, that's just what my TRS-80 tells me to do!
mix
  |     |   Comment #21
The first sentence of this post has a typo...
JeffinEasternFL
  |     |   Comment #28
It's not hard to accumulate wealth: at age 22 with a $1K net worth (in savings at a bank earning 9%!) and two paid for cars (12 and 14 years old respectively :), a college degree I managed to get without student loans (work study, jobs, grants and the like paid it off at State U), I started investing with 10% into my Tandy/RadioShack employee stock plan 60 days after hire, getting a 40% and later a 60% match. I made $9K my first partial year, then $17K, $21K and finally all of $25K in my 3ish years managing their stores in the early/mid 80's. (My "base" pay started at $3.35 HR and NEVER exceed $4.89 an hour at the Shack). I aIso increased the stock plan to 15% of my pay 2 years after I started. In addition, I "saved" about 10%-15% (or more) of my income in he bank for "cash purchases". I avoided credit though used a credit card everyday, paid no interest. I lived fine, but, frugally, I even had a new sporty car (cost me $10K) at age 23 (paid it off in 18 months though). $10 taken from an ATM on a Friday nite was a lot of money for me to spend on leisure! I also did side work when I could besides working 60 hours a week at "the Shack". (Banked it). I had fun, friends, dates but, never overspent. In mid 1985 I enlisted into the USAF and was commissioned 93 days later. I bought a $200 savings bond every month (cost $100) as a new 2Lt and later was introduced to mutual funds as a 2nd Lt. I started investing $266.66 a month investing as a 2LT and increased with every pay raise up to $833 a month (plus the $200 bond) as a young Captain - and kept adding to my bank account as well. I lived fine! My income in USAF peaked at about $45K a year. I invested saved about $15K of it! I hit $100K~ net worth at age 28. I separated the USAF into the reserves in 1992 and opened my own business as a financial planner with the small private firm that started me at age 33. I made $4K~ my first year and for the first time ever, didn't save any money. (My pay was straight commission and bonuses, no guarantee and I paid my own expenses!) My wife helped in the business. My net worth was about $225K~. Had to buy health care or pay cash for doctors too. I kept investing once profits showed and living a nice (though still modest $40K- $50K~ annually at most) lifestyle. My only other debt other than the 18 month car loan in 1983 was a lease for my first computer system for the business of $5k in 1993. I paid it off in less than a year. I rented modest homes and invested the rest in common, boring, diversified mutual funds. For 14 years I worked 45, 55, 65 hours a week and at one time managed $180M+ of client dollars. I also divorced at age 39 and paid $400K~ to my ex. I was a millionaire and lost it. But, I kept it up and was a millionaire again by age 41, multi millionaire by 45, all by DOLLAR COST AVERAGING - and investing the bonuses into well diversified mutual funds and savings too. My modest whole life polices were paid up enough by age 47 and kept paying 5% interest on the cash value and the valuable coverage was there but, the premium was gone. (Buy Life insurance young and have some of it permanent insurance!). At age 47, I sold myself a VARIABLE ANNUITY with a guaranteed rider of a 7% lifetime annual account payout and put ALL my IRA and SEP-IRA dollars into it. I sleep at night knowing market fluctuations meant my $60K annual check beginning age 591/2 will NEVER end! I purchased I bonds in the late 90's, early 2000's -sometimes the max amount allowed by law! Still hold 'em, tax deferred. "Managed accounts" in ETF's and mutual funds are invested at a modest .55% cost (annually), they effectively manage my taxable dollars now. I RETIRED at age 47 with a $2.85M portfolio. I was FIRE before FIRE was popular. I saw the portfolio drop to $2.4~ during the great recession and today it's about $3.75~M. I paid a lot of taxes during my earning years but, also I sold a lot of mutual funds (tax loss harvest) during 2009 and again a few years ago. I am tax efficient paying just $4-8K a year now in Federal Income Tax. I have a modest USAF retirement and disability income but, I also have valuable VA health care as I'm a 90% disabled compensated veteran. I had built two nice new homes (over $500K costs) and twice "sold everything" moved, rebought and "started over" (over $100K costs). Paid cash! I live in a modest but, nice country club with veterans like myself. I've been retired now 14 years (I'll be 61). I'll start social security at age 70 if I stay healthy to defer the larger payout it gives. Moral of the story: start young, defer "spending money" and invest as much as possible. Don't keep up with the Jones, instead accelerate saving and investing more than the Jones. 15% minimum! More is better. Time and compounding are magic. I overshot my goals and now plan my eventual demise with charitable contributions, a family education trust, etc., I still live a nice but, modest (maybe $60K~$70K spent a year) lifestyle and purchase cash for everything. Cars, golf carts, nice meals out, small trips, all deferred to a point, now, I have the options and the time and the MONEY. Don't follow fads. Don't read magazines for advice (it's to sell magazines not help you). Don't discount financial products (remember that VA I sold myself) because the masses say " they are bad". Pay for professional advice for investing and things in life (dr's, et all) that you aren't expert in. It's NOT hard but, it takes DISCIPLINE and deferring pleasure today for tomorrow. Forget noise, think LONG term goals. Diversify. The stock market IS your friend. 25 years is reasonable for those goals. 30 years if you start young!  'm not the smartest, luckiest or always made the best decisions, however, I never lost sight of the goals and I'm NOT stupid!. You shouldn't be either! And even 45 isn't too old to start! But, age 22 is better! Educate the generations behind you; my greatest satisfaction as a financial planner was doing do with young families who had vision and time (but, little money) like I did. The American dream is still alive, don't let the media convince you otherwise!
Choice
  |     |   Comment #29
Jeff, very nice. Suggestion: take a look at your numbers and taxes when you plan to start SS. I had a lot in IRAs and could see impact of taxes and required IRA disbursements at 70 1/2 (then) with taxable SS on horizon. In my 60s I managed my self-employment activities and took “a lot” of IRA distributions in my 60s coupled with looking at tax rate targeting and using (now) bank of mattress into 70+
I pay less in taxes now than when I was in my 60s...good luck!
JeffinEasternFL
  |     |   Comment #30
I will pay more taxes w RMD's and SS, for now I "rollover" the 60K annual IRA check..till age 72 anyway.
P_D
  |     |   Comment #32
I attribute my head start in investing to the high interest rates when I was cutting my personal investing teeth: some of the highest rates in US history in the 70s and 80s. It gave me a nice boost in the early years of my life when the compounding effect is most powerful.

I feel sorry for the current generations who have to deal with these abysmal savings yields on the relatively safe investments. They will have no such head start.  And with the government's profligate out of control spending, which seems to have now stepped on a rocket, I don't see any relief on the horizon. Rates might go up, but I doubt real rates will.  The Covid generation has been robbed of a decent education and a decent start to their financial life. I don't know how you can ever make that deficit up. And it's not just them.  The Social Security and Medicare systems are Ponzi schemes that rely on the younger generations to pay for the older. It looks like an entire generation at least is being lost to this massive over-spending pandemic environment. I don't know if we are looking at generational warfare or outright economic pandemonium, but this scenario doesn't bode well for anyone... either younger or older.
JeffinEasternFL
  |     |   Comment #33
Then again, with double digit and high single digit inflation, the 70's and 80's weren't great for those savers either! (That 9% Key Bank "bonus passbook" I referred to in 1982 (above) came with some ghastly price increases the few years prior!)
w00d00w
  |     |   Comment #34
other than rewards checking, what are the short term, (<= 5 years) very conservative, no-gimmick investments available now that can beat the current 1.68% yield on I Bonds?
NYCDoug
  |     |   Comment #35
Would you consider Bond ETFs? If so, see Comment #3 above . . .
Buckeyes
  |     |   Comment #36
The Reddit movement is nothing more than gambling. And America loves to gamble.

The financial institution, product, and APY (Annual Percentage Yield) data displayed on this website is gathered from various sources and may not reflect all of the offers available in your region. Although we strive to provide the most accurate data possible, we cannot guarantee its accuracy. The content displayed is for general information purposes only; always verify account details and availability with the financial institution before opening an account. Contact [email protected] to report inaccurate info or to request offers be included in this website. We are not affiliated with the financial institutions included in this website.