MINUTES FROM the latest Federal Open Market Committee (FOMC) meeting, which were released last Wednesday, roiled financial markets. Stocks fell sharply, with both the Nasdaq Composite and Russell 2000 falling more than 3% that day. On the week, the Nasdaq was down 4.5%, the S&P 500 down 1.9% and the Dow Jones Industrial Average 0.3% lower. What did investors read in the minutes that gave them such pause?
For background, FOMC minutes are released three weeks after the meeting itself.
“WHEN THE FACTS change, I change my mind. What do you do, sir?” Those words are sometimes attributed to Paul Samuelson, one of the the 20th century’s most influential economists. Due to a litany of cognitive biases—especially status quo and confirmation bias—letting go of cherished beliefs is easier said than done.
Which brings me to the topic of bonds and, more specifically, their role in the classic balanced portfolio of 60% stocks and 40% bonds.
I HAVE BUT ONE New Year’s resolution: I’ll be working on a habit that promises to lower my risk of cancer, boost my immune system and decrease the odds that I’ll succumb to Alzheimer’s disease. This activity has a host of other health benefits: lower blood sugar levels, reducing the risk of cardiovascular disease and aiding weight loss. It has also been shown to improve mood, memory and creativity.
What is this wonder drug and how much will it cost me?
AS 2031 WINDS DOWN, it’s time to look back at the major investment stories and themes that characterized the year and to look ahead to 2032.
Stocks had another banner year in 2031. Emerging markets led the way yet again, with the MSCI Emerging Markets index soaring 31%. This is the fourth year in a row that emerging markets were the top performer. Since 2022, emerging markets have returned 25% a year for more than a seven-fold gain.
QUANTITATIVE EASING, or QE, has been the Federal Reserve’s policy of choice since interest rates reached their lower bound of 0%. The brainchild of then-Fed Chair Ben Bernanke, QE was launched in the midst of the 2008 financial crisis. Quantitative easing is simply a euphemism for bond purchases—Treasury bonds and mortgage-backed securities—by the Federal Reserve.
In theory, QE should lead to lower interest rates, as reflected in bond yields. Bond prices are, of course,
TAX-LOSS HARVESTING is a popular strategy at this time of year. It works best with mutual funds and exchange-traded index funds, for which very similar investments exist. By swapping your losing funds for similar investments, you can realize your tax losses and maintain your market exposure without violating the wash-sale rule.
By contrast, tax-loss harvesting is difficult to implement with individual stocks. Is there a “nearly identical” investment for a company such as Tesla or Amazon?
INFLATION CONTINUES to sizzle. November’s Producer Price Index (PPI) rose 9.6% from a year earlier. Even after removing food and energy, PPI was up 7.7%. Both figures are the highest since 2010, when such data were first compiled.
This follows last week’s Consumer Price Index report, which showed inflation climbing 6.8% over the past 12 months. Since consumer prices lag producer prices, we can expect little relief from inflation in 2022.
All this must be foremost on the minds of Federal Reserve members as they meet this week.
TWO MONTHS AGO, I fessed up to my addiction to financial market news. Despite knowing better, I’ve followed the markets closely for years and would update my portfolio almost daily. Based on some comments my article received, it appears I’m not alone.
In the article, I vowed not to check my portfolio until New Year’s Day 2022. How’s my experiment gone thus far—and what have I learned?
My attempt to go cold turkey hasn’t been entirely successful.
I OWN JUST TWO individual stocks. One is Wells Fargo, which I’ve discussed before. The other is Total, recently renamed TotalEnergies, a major oil company headquartered in France.
I was initially attracted to Total by its generous dividend and enormous underperformance in 2020. Yes, great underperformance—not outperformance—often piques my interest. Of course, declining stock prices and generous dividend yields go hand in hand. As the price of oil stocks cratered in 2020, their dividend yields soared.
LIKE A TIRESOME rerun of Friday the 13th, COVID-19 has returned in its newest form, the Omicron variant. Last Friday, financial markets were shaken by the news, especially the potential for greater transmissibility and the fear that current vaccines will prove impotent against the new COVID variant. Yesterday saw a partial market rebound. Still, traders are betting that share prices will remain volatile.
Much is unknown at this point, but many investors have taken a sell-now-and-ask-questions-later approach.
AS 2022 APPROACHES, countless people will begin thinking about New Year’s resolutions—both financial and otherwise. There’s nothing quite like the start of a new year to inspire hope. Many of us will set big dreams and resolve to drop bad habits.
According to Statista, just 9% of those who make New Year’s resolutions manage to keep them all. Meanwhile, by year-end, 28% haven’t kept any of their resolutions.
What differentiates these two groups? Is it willpower or the lack thereof?
MEET AMERICA’S retirement savings vehicle: the 401(k) plan. Perhaps, instead, you know one of its close cousins: the 403(b), 457 or federal government’s Thrift Savings Plan. These are called defined contribution plans because employees must decide how much to contribute. On top of that, employees are responsible for choosing which investments to buy.
This is a daunting challenge—with high stakes. These decisions determine how much folks will have when they retire. How can you make the most of these plans?
IS THE U.S. ECONOMY strong or weak? If you believe it’s strong—and apparently many investors do, judging by the U.S. stock market’s all-time highs—why is the Federal Reserve keeping the federal funds rate at zero? These days, it seems like we take the Fed’s policy of 0% short-term interest rates for granted. Yet such policy measures are truly extraordinary and typically reserved for an economy that’s in the ICU.
On the other hand, if you believe the U.S.
SOCIAL SECURITY benefits are fairly modest—the average retiree receives $1,555 per month or $18,660 a year—but they’re a vital source of retirement income for countless retirees. Today’s burning question: How can we shore up the program’s finances?
It’s estimated that Social Security provides some 30% of the income for the elderly and that nearly nine out of 10 people age 65 and older receive benefits. Social Security is even more important for women, 42% of whom rely on it for half or more of their income.
INFLATION IS IN the news and at the gas pump. We see it in smaller product sizes and empty store shelves. According to Google Trends, a record number of people have searched the term “inflation” this year. Inflation has even made its way into Halloween spoofs.
While some have suggested that investors are overreacting, I’m not so sure. If higher inflation is here to stay, the implications for both Wall Street and Main Street are profound.