The Day of the Locust…and Other Musings
On the day after Thanksgiving, we’re reminded that certain American rituals are sacred. I’m referring, of course, to the locust-like infestations of consumers at shopping malls on Black Friday.
The Founding Fathers wouldn’t know what to make of Black Friday, but it’s now a de facto holiday deeply woven into the national fabric.
As frenzied bargain-hunters scratch and claw for first dibs at cheap consumer goods from China, now’s a good time for yours truly to stay safely indoors and answer emails from readers.
Let’s grab a turkey sandwich, open the mailbag, and take a look.
Should I follow the same investment strategy in an Individual Retirement Account that I once did in my 401k? — Susan D.
Yes. Keep in mind, many investors who roll their 401k into an IRA short-change themselves by being more timid than they were in their 401k.
There’s no investment that beats the returns of stocks over the long term — and an IRA represents long-term money. Why shoot yourself in the foot by playing it too safe?
According to IRS statistics, about three-fourths of self-directed IRA monies are in money-market funds, government bonds or other fixed-income securities. That defies common sense.
A common “risk-averse” mistake is to put rolled-over IRA money into tax-exempt investments, such as annuities and municipal bonds. These investments already are tax-exempt, so there’s no tax advantage to putting them in a tax-favored IRA.
To make an IRA really worth it, you’ve got to stay with stocks.
Are stocks right now overvalued? — James K.
Stocks are currently expensive compared to their 10-year average. While stocks typically have a trailing price-to-earnings ratio (P/E) of 15, they now hover at a trailing P/E of about 25. That means stocks are priced nearly 67% higher than their 10-year average, which should worry any investor.
The average trailing P/E ratio since the 1870s has been about 16. Reasonably priced stocks can still be found today, but make sure you don’t fall for overpriced and dangerous stocks with valuations that don’t justify growth prospects.
The Federal Reserve will probably hike interest rates before the end of 2016. Should I be worried? — Kevin G.
When the Federal Reserve increases interest rates and squeezes credit, it causes money supply growth to fall. Historically, money supply growth has exhibited a close correlation with stock price movements. An increasing money supply boosts stocks; decreasing money supply puts the brakes on stocks.
With the Fed poised to tighten the monetary spigot, should you be worried? Not necessarily.
Analysts have endlessly discussed the inevitability of tightening and the markets seem braced for it. The fallout should be modest.
Donald Trump scares me to death. I’m afraid that his recklessness will cause the global markets to tank. Should I sell my stocks and go completely to cash? — Karen W.
Whether you love or hate Trump, remember one overriding fact: capitalism will continue to thrive, no matter who occupies the White House. Political parties move in and out of power, but the search for investment profits never falters.
Consider this: When President Barack Obama was first elected, many investors viewed him as the anti-Christ and they dumped their stocks in fear. But even in this era of post-truth politics, the math doesn’t lie. From the day Obama took office in January 2009 up through today, the S&P 500 has gained about 165%. The upshot: Stick to your long-term investment plan.
What’s your plan for investing in a Trump presidency? Send me your answer, or any other questions you have: firstname.lastname@example.org
The bargain of a lifetime…
While Black Friday shoppers nearly machine-gun each other for flat screen TVs, you can make a wiser investment: a tiny $9 stock that’s set to soar in price.
Most investors haven’t heard of this company, but it makes a new device that’s on track to overshadow even the Apple (NASDAQ: AAPL) iPhone launch in 2007. Already estimates show this new device spreading five times faster than the iPhone.
Our team at Breakthrough Tech Profits shares the details in this presentation. I’m told they’re taking it offline soon due to some time sensitive content inside. Be sure to give it a look.