Category: Investment Updates

Do you subscribe to or read financial magazines? It's truly entertaining. At the beginning of the year, the hand-picked 'experts' of the publication; mangers and financial advisors who control massive amounts of our money make predictions for the coming year. In July, more often than not (I'm not lying, look it up) their picks have trailed the general market and in the follow-up article they wax on and on about why. Then they make mid-year predictions and the cycle starts again. It's really entertaining, but it's not funny, is it?

What to do?

I pay no attention to their recommendations. I do read the articles to find out about companies I may know nothing about. If I see something interesting, like a company with a new product or in a sector with little or no competition, or some other tidbit that catches my eye, I'll follow-up with more research. But unless you want your returns to match the lagging returns of these experts, stay clear.

Ouch! It had to happen. The experts predicted it. The markets slid during the month. But wait, they recovered somewhat too. What moves should I make? Probably none! Your strategy is long-term. Incremental highs and lows should not shake you or if you like, not even get your attention.

The fund's share price dropped by month-end to 27.91. Take some solace that it is still above the year-end close. Our investors will definitely see a drop in their investment nest eggs.

Willie had a month end balance of $201,749.58. His monthly benefit check (including the COLA) would be $2118.69 if he changed his mind and decided to file for benefits at this time.

Irma deposited the $2011 check and withdrew $2413 from her existing account, so her net total is $220,639.30. Her Social Security deposited account now has $18,889.72. A small solace for her is the benefit check purchased more shares this month than it did last month.

Sam used his benefit check to supply $1583.24 of his monthly expenses. His untouched IRA account sat at $221,332.15.

Happy New Year! Don't you wish you could know how the markets and more importantly, individual stocks will perform this year? I remember the movie, The Final Countdown, where a modern aircraft carrier (USS Nimitz) traveled back in time to the day before the Pearl Harbor attack. The captain of the ship is revealed at movie's end to be a modern day multi-millionaire. Why? Because he knew what investments to make in the intervening years leading up to the time travel. If only we could go back in time …

A 2% Cost of Living Increase for Social Security benefits is applied beginning this month. This increase changes the calculations a little. The checks will be larger and the savings withdrawals needed to match it will also increase.

The Tax Cuts and Jobs Act of 2017 (TCJA) takes effect. Most workers have fewer taxes taken out of their paychecks and even the Democrats grudgingly applaud the extra money for most Americans.

The fund's share price is up yet again, to 29.07 at month end.

Willie had a month end balance of $211,828.56. His monthly benefit check (including the COLA) would be $2104.00 if he changed his mind and decided to file for benefits at this time.

Irma deposited the $2011 check and withdrew $2413 from her existing account, so her net total is $229,341.03. Her Social Security deposited account now has $17,512.47.

Sam used his benefit check to supply $1583.24 of his monthly expenses. His untouched IRA account sat at $230,531.20.

End of year is a time typically when investors scrutinize what their investments have done, where they see their missed opportunities of huge gains (which no one can predict reliably), and what changes they may want to make for the coming year. Not to mention getting their income gains and losses in order to file income tax returns. At this time we know of the changes coming due to the Tax Cuts and Jobs Act of 2017, but these changes do not affect our 2017 tax returns. Some changes are promised to save Americans money and reduce the complexity of filing. We'll see......

The tax reform bill was signed into law mid-month and the market reacted with a yawn and a continued decent run up.

The fund's share price is up again, to 27.66. at month end. Plus, the quarterly dividend bonus of 14.85 cents per share. Willie had a month end balance of $203,850.25. His monthly benefit check would be $2091.00 if he changed his mind and decided to file for benefits at this time.

Irma deposited the $1971 check and withdrew 2365 from her existing account, so her net total is $218,599.84. Her Social Security deposited account now has $14,749.15.

Sam used his benefit check to supply $1552.20 of his monthly expenses. His untouched IRA account sat at $219,349.60.

November 2017

U.S. stocks performed strongly in November. Small- and mid-cap stocks surged in the second half of the month, reversing losses early in November. They closed up +3.52% and +3.68% respectively (S&P 600 and 400 indices). Large caps followed, closing up +3.07% (S&P 500 index) and finishing with positive returns for the 13th month in a row. International stocks also had a positive month, but their returns were more modest than those of U.S. stocks. Year to date, international stocks are still outperforming U.S. Stocks. Developed-market and emerging-market stocks rose by +1.05% and +0.20% (MSCI EAFE and Emerging Markets indices) respectively. Interest rates ended November up for the month. This led bonds to close down, with the Bloomberg Barclays Aggregate index returning -0.13%.

Overall, it was yet another period of low volatility in stock markets, with the S&P 500 not moving more than +/-1% on any day in November. Markets that tend to be more volatile were, true to form, more volatile in November. Small-cap U.S. stocks had four days of +/- 1% moves, and emerging-market stocks had three.

Blah, blah, blah..... Don't get me wrong, this is great news...this time. But, if you follow the news this closely and react to it, your investments are bound to underperform, because you will always be chasing yesterday's news. If you enjoy reading about the markets, that's fine, but my strategy and advice is to generally ignore short term happenings.

The fund's share price is up again, to 27.44 at month end. Willie had a month end balance of $204,622.90. His monthly benefit check would be $2036.91 if he changed his mind and decided to file for benefits at this time.

Irma deposited the $1971 check and withdrew 2365 from her existing account, so her net total is $217,260.17. Her Social Security deposited account now has $12,637.27.

Sam used his benefit check to supply $1552.20 of his monthly expenses. His untouched IRA account sat at $217,604.96.

October 2017

A couple of tragic events marred this month. The horrific shooting in Las Vegas and the uncovering of Harvey Weinstein's predatory sexual behavior. To me, it's inconceivable that people can be this evil.

The market generally continues to edge upward. The fund (VDADX) share price rose from $25.73 to 26.26 at month's end.

Willie had a month end balance of $197,020.80. His monthly benefit check would be $2023.55 if he changed his mind and decided to file for benefits at this time.

Irma deposited the $1971 check and withdrew 2365 from her existing account, so her net total is $207,173.45. Her Social Security deposited account now has $10,152.65.

Sam used his benefit check to supply $1552.20 of his monthly expenses. His untouched IRA account sat at $208,247.31.

SEPTEMBER 2017

The market keeps tracking upward as investor confidence soars. The Dow Jones Industrial average closed at a record 22,405 on the 29^th. This indicator is a good snapshot of what the market in general is doing, but your own personal portfolio will probably not match it exactly. A better 'market-wide' indicator is the S&P 500. But as with the Dow, your investment mix will surely be different in some way.

The fund (Vanguard Dividend Appreciation – VDADX) pays a dividend to shareholders 4 times a year, March, June, September, and December. A dividend is a benefit a shareholder receives for investing in a company. Not all traded companies provide dividends, But as stated before, this fund only invests in those that do. In fact, the companies owned by this fund must pay dividends and further, they must have a record for increasing dividends. If you want to buy individual stocks for income (dividends), the holdings of this fund are a very good place to start. This month, on the 20^th, VDADX paid a dividend of 11.6 cents per share owned. The closing share price at the time was 25.59, so the dividend represented roughly a .45% return, or an annual rate of approx. 1.8%. not great, but steady. It's a bonus of sorts to our retirees. They can reinvest in more shares, take the money out, or leave it in a 'cash' state, perhaps to be used for emergencies or special expenditures. To keep it simple, I will have all of them reinvest it back into more shares of VDADX. Willie had a month end balance of $194,038. His monthly benefit check would be $2010.28 if he changed his mind and decided to file for benefits at this time.

Irma deposited the $1971 check and withdrew 2365 from her existing account, so her net total is $203,378.35.

Sam used his benefit check to supply $1552.20 of his monthly expenses. His untouched IRA account sat at $204,044.29.

Many factors affect the market's performance. Politics is key, but Federal Reserve Policy, foreign events, business reports, and investor sentiment are but a few of the factors which may send the market soaring, crashing, or most often, something in between.

This month saw devastating floods in Houston, North Korean threats and uncertainty, and increased concern regarding Chinese tariffs and trade policies. The market volatility rose in August. None of our investors currently use a financial advisor, but all have in the past. The key to successful investing without one, is to display the same investing discipline an advisor would encourage. In numerous studies, it's been proven that investors in general do a lousy job of managing their investments and underperform virtually all sectors and benchmarks. The main culprit is emotion. Getting scared and making a buy or sell decision based on the news of the day is not an investment strategy! A key to the self-directed investor is to develop a strategy for investing and stick with it.

The fund (Vanguard Dividend Appreciation – VDADX) reversed the July movement and closed the month up 20 cents a share. starting at 25.14 and ending at 25.34. Willie had a month end balance of $196,202. His monthly benefit check would be $1997.10 if he changed his mind and decided to file for benefits at this time.

Irma deposited the $1971 check and withdrew $2365 from her existing account, so her net total is $200,160 ($3958 + $196,202) .

Sam used his benefit check to supply $1552.20 of his monthly expenses. His untouched IRA account sat at $200,951.

It's July 2017. All three retirees had stopped working when they were 60. In 2017, they were in the 28% tax bracket. Sam and Irma filed for Social Security benefits to start as soon as possible. Since their birthday was in June, that meant they would receive the first check in July. Coincidentally, they were both born on the 14th of June (as was Willie), so they will get their checks on the third Wednesday of the month. If they had been born on the 1st through the 10th, it would be cut on the second Wednesday, and if born on the 21st through the end of the month, the fourth. All three retirees had a good handle on living expenses, and wouldn't you know it, they are identical. Let's assume that inflation and COLA increases in SS will cancel each other out. In July, Irma and Sam received checks for $1971. Of that, 85% is taxable ($1675.35) so 28% of $1675.35 is $469.10 in Federal tax owed. Because they live in Iowa, there is no state tax on Social Security benefits (but IRA distributions are treated like ordinary income), so the real beauty here is NO state tax on SS benefits! (Some states don't tax either and some treat differently, so you should know your state's treatment of income for tax purposes. Your mileage may vary).

The result is they both had a net of $1552.20. If they had withdrawn that amount ($1971) from their IRAs, They would have paid $551.88 federal tax (28% of $1971), plus $177 of state tax (8.98%) for a net of $1242.12 which is $310.08 less, or 19.97% less. If they actually really needed a net of $1552.20 , they would need to draw closer to $2365.20 (119.97 x $1971) from their existing retirement accounts.

But the advantage doesn't stop there. By not withdrawing that $2365 from their IRAs, they are able to leave that money invested, and have it keep working for them. In a historically average year (8.5%), that would add roughly $16.75 per month to their accounts (The 100 year average of market returns is 8.5%). Delayed SS monthly benefits increase at the rate of 8% after age 62 up to age 70. They both made the decision that if their investments beat 8 %, they would always be ahead (plus the sum of money they would receive from age 62 - 66 (or 70)). And never in the history of the market has it averaged less than that over any given 20 year period. In a nutshell, that's the gamble they took.

The fund lost some ground during the month, starting at 25.22 a share, it dropped to 25.14 by the time withdrawals were made. Willie had a month end balance of $197,000. His monthly benefit check would be $1984 if he changed his mind and decided to file for benefits at this time. The benefit increases by 8% a year, or .66% for each month of delay.

Irma deposited the $1971 check and withdrew 2365 from her existing account, so her net total is $198,971.

Sam used his benefit check to supply $1552.20 of his monthly expenses. His untouched IRA account sat at $199,365.