Interdependent Financial Decisions

Interdependent Financial Decisions

Each category of our finances is interdependent, not independent of one another. This means that every decision we make in one category really does impact the other categories, whether or not we realize it. Examples of Financial Interdependence How? If I were at fault in a serious automobile accident and did not have adequate insurance, I may be required to liquidate a significant amount of my investments to satisfy a judgment. The court may also decide to garnish my wages for several years, which might require me to wait much longer to retire or prohibit me from ever retiring. It may also reduce my current standard of living or increase my debt. So what does car insurance, which on the surface appears to be only a protection decision, have to do with my assets, liabilities, and cash flow? Everything! Let’s say I’m the employee of a large corporation and I’m asking my HR director whether or not I should sign up for the company’s 401(k) retirement plan. The HR director probably would not even be allowed to ask about my mortgage payment, liquid savings, credit card debt, or taxes. However, would these questions be relevant to my decision whether to invest in a 401(k) and how much to contribute? Absolutely. What if I only have $1,000 in liquid savings and my monthly mortgage payment is 30% of my gross monthly income? I may be better off putting the money in a liquid savings account to cover unexpected emergencies or unemployment, because I may not be able access my 401(k) for these purposes without significant penalties. What if I have...
The Election’s Impact on the Market

The Election’s Impact on the Market

For better or for worse, the suspense is finally over and our next president has been elected. Whether you are shouting for joy or crying your eyes out, what does this all mean for the stock market? Many people are shocked that Donald Trump won. Based on concerns we’ve heard about how this election would affect the market, many people are probably just as shocked that the Dow Jones Industrial Average jumped up 1.4 percent (256 points) the day after the election, and the S&P 500 rose 1.1%. A lot of people were expecting a big drop in the market because that’s exactly what happened after the past two elections. Could it be that after the past two elections the market was reacting negatively to news that our next president would be a Democrat, and that now the market is reacting positively to the election of a Republican? Don’t count on it. The market fell the day after George W. Bush was elected in 2000, and it rose the day after the re-election of Bill Clinton in 1996. Historically, there has been no predictable impact on the market based on whether a Republican or Democrat takes office in the White House. Furthermore, the day after the election gives no indication as to how the market will perform over the next 12 months. In fact, although the S&P 500 dropped 5 percent the day after Barack Obama won the presidency in 2008, over the course of the following 12 months the S&P 500 gained 26%. In 2012, the swing was even more dramatic, losing 3% the day after the election,...
Brexit

Brexit

I’m sure you’ve heard by now that last Thursday the citizens of the United Kingdom voted to leave the European Union (52% voted to leave, 48% voted to stay). The European Union (EU) is a political and economic partnership of 28 countries, mainly in Europe. The EU was formed after World War II to facilitate peace and free trade throughout the region, but many of the countries involved were accepted into the EU much later – even as late as 2013 in the case of Croatia. The popular nickname “Brexit” was derived from a combination of “Britain” and “Exit.” The UK’s withdrawal from the EU will not happen overnight, but could take up to two years to negotiate. No one knows what the economic impact on Britain, Europe, or the rest of the world will be. Some predict this is a recipe for global recession, and others claim it’s the best global economic news we’ve heard in a while. In the meantime, it’s hard to ignore headlines about the impact on the markets, such as the following: CNBC: Dow closes down 600 after Brexit surprise; financials post worst day since 2011 USA Today: US stocks hammered as Brexit shock rocks markets New York Times: Turbulence and uncertainty for the market after Brexit It’s true, that Friday and so far today have been bad days for the stock market, both in the USA and abroad. The Dow Jones and S&P 500 indexes were down over 3%on Friday. So what does this mean for investors? Some reporters, politicians, and economists would have us believe it’s time to run for the hills...
Weathering Stormy Markets

Weathering Stormy Markets

It’s normal to get nervous about your investments when you hear news of stock market dips and slow downs. But it’s important to remember not to panic. During these times, you need to stay in the market, remember your long term plan and weather the storm. Click the link below to watch a short video about the importance of staying in the market:...
Dimensional Origins

Dimensional Origins

Watch this great video introducing the origins and philosophy of Dimensional Fund Advisors, a remarkable company that provides critical support to our investment management services for clients....