Dan Solin's Newsletter, April 27, 2017
Frank (not his real name) is a millennial with an excellent job in the tech industry. He contacted me with a very legitimate (and common) concern.
He works hard for his money. He believes the stock market is rigged against “ordinary” investors like him. He’s worried about the policies of the Trump administration and the uncertainty surrounding those policies. He’s also “terrified” about the geopolitical situation, and is especially worried about North Korea and Syria.
He says he would “sleep better” keeping his money in cash and wants to know why he should invest.
While I understand his concern, here are two compelling reasons:
1. Time: He has 30 years or so before retirement. Current events should be of little concern to him. He is a long-term investor, with time on his side. Here’s what we know about the history of the stock market. Over time, it has increased in value. In 1987, the S&P 500 was 264.50. It closed on April 14, 2017 at 2,328. While past performance isn’t predictive, it’s the best data we have.
2. Inflation: We have enjoyed a long period of low inflation, but don’t be fooled. When inflation is running at only 3% a year, the value (buying power) of $100 will fall to $76 is just ten years and to only $56 in two decades.
Here’s the bottom line. You need to have exposure to stocks in order to (at the very least) keep up with inflation. For guidance on how to allocate your portfolio between stocks and bonds and what investments you should select, please see this blog.
Question from Peter:
How do I know when I’m able to start investing?
You should have 6-12 months income in an insured savings account or Certificate of Deposit. If you have dependents, you should have adequate life and disability insurance in place. You’re now ready to invest.
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This week's video: Great Companies. There are a lot of "great" companies out there. Companies that seem rock solid. But should you invest in them?
Each week I’ll recommend a resource that provides sound investing advice.
This week’s pick is: https://www.behaviorgap.com/blog/
Carl Richards is a certified financial planner, the creator of the weekly Sketch Guy column in the New York Times and a columnist for Morningstar Advisor. He is a reliable source of sound investing advice.
I’m under no illusions about the lack of ethics in the securities industry. Almost every week, there are revelations of conduct so blatant you have to wonder how they get away with it.
Here are some prime examples...