Posted on 01/17/2021 12:03:33 PM PST by MrChips
I am not like a lot of my friends and acquaintances who worked for the government in some capacity and retired on big government pensions (with healthcare) on top of their Social Security. No, I worked all my life in the private sector, teaching in private schools and sometimes (to save money) in boarding schools. Other than the equity I have in my home, my entire retirement is in the stock market . . . in one IRA or another. I have worked hard and I have assiduously saved, investing wisely and somewhat conservatively, enjoying President Trump's transformation of the Dow from 17,000 when he was elected to nearly 31,000 today. But I am just now hitting retirement age and I am scared to death what the Biden idiots are going to do to the stock market. What do I do?
Are you paying a higher rate of interest on your house than receiving from the investments?
Look at the money going to interest for the life of your loan and that may help you make a decision.
What that means is have a plan where so much is in various types of stocks (large cap, mid cap, small cap, international), bonds (gov, corp, international), income producing (high dividend, REIT, junk bond), and so much in cash and money market funds. That plan should be based on scenario analysis of say 40 years of stock market economic changes.
Now having said that, the concept of re-balancing is complicated, but it boils down to sell the winners and chase the losers. A more “correct” statement is if last year stock out performed bonds, then at the end of the year you sell some of your stocks and invest the money in bonds so that this year the ratio of stocks to bonds is the same.
Another aspect of re-balancing is to look at what you believe are long term trends. For example, under a new federal administration will inflation likely increase? If yes, then investing in stocks and especially stocks connected to commodities would be wise as would dropping long term bond funds.
Another trend to consider is a lot of the stock market investment and hence price is based on individual 401K funds and pension funds. Will people “give up” working and retire earlier than they had thought. If so, they will likely start drawing down their retirement investments. When that happens if it is a large trend there will be more sellers in the stock market than buyers. Hence the value of stocks and the market will start to fall. At which point the retirees may draw even more shares (at lesser value) from their 401K’s to support their lifestyle. That will further depress stocks.
I don't believe that we will see any of these trends over the next 3 months, but I do think that they could be significant and noticeable in 4 to 8 years is a continuous trend in government policy is established by Biden.
Your mileage may vary, and I am just a non-professional economic observer.
When the democrats announced last week their chinese virus bailout plan, the stocks dropped.
AMD which was at $99 dropped to $88
Tesla which was at $860 dropped to $826. The 30 or so stocks I follow, the majority were in the red.
The executive orders and the tax hikes and the illegals etc etc will tank the economy as happened with obama.
When then Communists took over China, the there was a huge exodus of money to Taiwan. Most of the industrial growth in China and the factories have been financed and owned by those from Taiwan. People of Taiwan have been allowed to travel rather freely in mainland China to visit and manage their investments. Another large source of China's industrialization has been from money in Hong Kong.
When China started to crack down on Hong Kong and the covid shutdown, a number of Hong Kong owned factories, started to be dismantled and shipped to places like Thailand, Vietnam, etc. There is a real fear in parts of China that this will continue and expand with Taiwan owned industries.
China has a middle and lower class that is use to a rapidly increasing standard of living fueled in large part by the industrialization. If that industrialization and rising standard of living stops, there is likely to be incredible political pressure on the CCP and near civil war.
Invading Taiwan would just speed up the process. The CCP wants to do it, but they also need to weigh the internal economic consequences.
Municipal bonds have limited utility. If one is in a state with a high state income tax burden, they can help avoid some tax if you buy munis for that state. Other than that, they tend to have lower returns than bonds with equivalent risk. And while they used to be pitched as lower risk than corporate bonds, I don't think that's a legitimate conclusion these days. See the Jefferson County (Birmingham Alabama) Sewer Bonds....
Bonds of any type are investments for gullible people that are buying the illusion of a guaranteed return. Those people generally have such little financial sense that they don't even realize the resale value of their bond will drop when interest rates rise. Best case for them is their returns manage to be slightly better than the drop in the purchasing power of the eventual return of their principal. The drop in purchasing power is inevitable as inflation continues to degrade it.
When interest rates rise (a safe bet right now considering the relatively low rates nowadays) suddenly they find their guaranteed return looks pretty weak, and the only way out of their investment so they can get into a higher rate bond is to sell the original one at a loss. Either that or continue to hold it and have the buying power of their principal eroded by inflation year after year.
The only reason I wound up owning that bond I had way back when was that I was following the advice of a financial advisor, who as it turned out had a financial incentive in getting people to buy those bonds.
Bonds have been a particularly poor investment this century, as have Treasuries. In the old days, they were useful in having a balanced portfolio - safe bonds, with a moderate return to preserve assets and generate cash flow, balanced by a mix of stocks for income and growth. And, if one was really rich, real estate for the third leg of the table.
With the communists in charge, no bond you could buy today has a chance of keeping up with inflation. And as you noted, selling them as interest rates climb will just lock in capital losses.
TSMC is building a $12 billion chip plant in Arizona.
Nowadays, if you're really rich you buy politicians.
Politicians can’t be bought. They can only be rented.
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