In his TED Talk, David Steindl-Rast makes the case for happiness being directly tied to gratitude. The monk and interfaith scholar says people who are more grateful tend to also be happier people. I’m referring to Steindl-Rast not only because he gave a great talk (to be fair, I’m a fan of TED Talks in general), but because today is Thanksgiving. (Happy Thanksgiving!)
Thanksgiving is supposed to be a day for being thankful. With this in mind, I’m going to list things we individual investors should be grateful for but may overlook. It’s intended to be an evolving list, with changes potentially made to it on future Thanksgivings.
Having a Portfolio—If you’re worried about valuations, monetary policy, economic growth, Washington, trade policy, this fall’s volatility or anything else potentially affecting the value of your portfolio in an adverse manner, be grateful. I realize this seems counterintuitive but consider the bigger picture: You have wealth to worry about. No matter how large or small your portfolio is, it’s money you have the luxury of not needing today. Not everyone is so fortunate.
Never Having to Report Performance—Quite possibly the biggest advantage that we individual investors have over professional money managers is never having to report our performance. I cannot stress enough how significant this is. It gives us the ability to stick to strategies proven to work over the long term—even when they are out of favor on a short-term basis—without ever having to worry about keeping clients happy.
Being Able to Invest in All Exchange-Listed Stocks—In addition to not having to report performance, we individual investors are not restricted in what we can invest in. This gives us the ability to invest in stocks whose market capitalizations are too small for institutional investors to even consider because of investment objectives and/or the sheer amount of money they have to invest. The flexibility also allows us to take full advantage of the size, value and momentum premiums (and other return anomalies) identified by academic research. Our ability to invest in smaller companies is a big advantage.
Decreasing Costs—It’s never been cheaper to invest. Commissions have dropped with the major discount brokers now charging between $4.95 and $6.95 to trade stocks, exchange-traded funds (ETFs) and closed-end funds. Many mutual funds and ETFs can also be bought and sold on a commission-free basis. (Check with your broker for terms and the list of eligible funds.) Fund fees continue to decline, being driven by a price war in the ETF industry and the growing popularity of index funds. (A few days ago, Vanguard lowered the minimum admiral share class investment for 38 of its index funds from $10,000 to $3,000.) All of this means more money in your portfolio.
Compounding—There is no greater friend to investors than compounding. As many of you know, compounding takes a dollar’s worth of assets today and turns it into far more than a dollar’s worth of assets tomorrow. This is why lower costs are beneficial: Every dollar you save is a dollar you get to keep investing. Compounding grows your portfolio and then takes the increased value and grows it even more.
The Bull Market—Speaking of compounding, those of us who have maintained a constant allocation since the end of the financial crisis have profited handsomely. Yes, the recent downward volatility has cut into our long-term gains, but we’re still up by a considerable amount. The S&P is trading at a level that is nearly quadruple where it was in early March 2009. With the intraday updates and day-to-day swings, it’s easy to lose sight of how much your portfolio has grown over the past several years.
Being a Proactive Manager of Your Wealth—If you’re reading this, then you are a person who has chosen to be in control of your finances. Regardless of if you do everything yourself, work with an adviser, use index funds or actively pick stocks, you have made the decision to both be engaged and to continue learning. Be proud of yourself and be grateful that you have the ability to do so.
- My Investment Letter: Words of Advice for My Grandchildren – Charles Ellis shared the guidance he gave to his grandchildren, including his 12 guidelines for becoming a successful long-term investor.
- Family and Finances: Start the Dialogue – Spending the holiday with your family? It’s a good time to discuss your long-term financial plans.
- Beyond the Index Card: Implementing the Advice of the Financial Experts – Harold Pollack, the opening keynote speaker at this year’s AAII Investor Conference, shares the lessons he’s learned and the story behind his now famous index card.
- Revisiting the Risks of Retirement Spending Rules – In this new update to a 1998 AAII Journal article, we discuss the risks of spending only portfolio income, spending returns or making inflation-adjusted withdrawals.
Third-quarter earnings season will wrap up with seven S&P 500 index members reporting. They are Salesforce.com Inc. (CRM) on Tuesday; J.M. Smucker Co. (SJM), Rockwell Collins Inc. (COL) and Tiffany & Co. (TIF) on Wednesday; and Dollar Tree Inc. (DLTR), HP Inc. (HPQ) and PVH Corp. (PVH) on Thursday.
The first economic reports of note will be the September Case-Shiller home price index and the Conference Board’s November consumer confidence survey, released on Tuesday. Wednesday will feature the minutes from the November Federal Open Market Committee meeting, October new home sales, October international trade and revised third-quarter GDP. October personal income and spending and October pending home sales will be released on Thursday. Friday will feature the November Chicago Purchasing Managers’ Index (PMI).
Federal Reserve chairman Jerome Powell will speak publicly on Wednesday. Other Federal Reserve officials scheduled to speak are Atlanta president Raphael Bostic and Kansas City president Esther George on Tuesday, Chicago president Charles Evans on Tuesday and Thursday, Cleveland Federal president Loretta Mester on Thursday and New York president John Williams on Friday.
The Treasury Department will auction $39 billion of two-year notes on Monday, $40 billion of five-year notes on Tuesday and $18 billion of two-year floating rate notes and $32 billion of seven-year notes on Wednesday.
- Observations From Decades of Tracking Investment Newsletters
- Diverging Opinions on Active Management
- A Closer Look at the Level3 Passive Portfolio's ETFs
The latest survey results are shown below. Due to the timing of today’s holiday, I wrote this week’s commentary in advance and before the latest numbers were known. The current results were automatically updated by our content management software.
This week’s special question asked AAII members what their favorite thing to eat on Thanksgiving is. Turkey topped the list, favored by more than a quarter of all respondents (28%). Pie (including pecan, pumpkin, cherry and apple) was second, picked by almost 13% of respondents. Close behind were potatoes (both mashed and sweet) at 11% and stuffing at 9%.
Here is a sampling of the responses:
- “Turkey and the works … dressing, gravy, sweet potatoes, mashed potatoes and pumpkin pie.”
- “Grandma’s plum pudding.”
- “Life is short, eat dessert first!”
- “A fine India pale ale goes with any bird.”
- “I guess my favorite part of the holiday is the chance to visit with the family and friends who join us.”
Bullish: 35.1%, down 6.2 points
Neutral: 28.9%, up 1.4 points
Bearish: 36%, up 4.8 points
Bullish: 38.5%
Neutral: 31.0%
Bearish: 30.5%
Local Chapter Meetings
November 15, 2018 How Many Accounts Should You Have?
November 8, 2018 How Much Can You Withdraw From a Portfolio and Not Outlive It?
November 1, 2018 How We Define Risk
October 25, 2018 Credit Spreads Aren’t a Reason to Alter Bond Allocations
