finance

HOW TO MAXIMIZE INVESTMENT RETURNS EVEN WHEN EXPERIENCING SEVERE LOSSES

Posted on by Joseph M. Brennan Jr.

It’s always a good idea to adjust your investment strategies over time. Those of you who have been following me closely know that I’ve had a real “knack” over the past couple of months for picking losing stocks. However, I refused to let them go. And I continued buying into them because the buy signals kept getting stronger and stronger with every drop, and they became more and more attractive, with respect to all of the indicators I use to make investment decisions. And, as is usual, I refuse to sell on “buy” signals and frequently do the opposite.

As a result of all the buying I did, I moved from being a low risk investor to a higher risk investor. That can happen from time-to-time and as long as I don’t remain a higher risk investor for a lengthy period of time, then that’s probably okay. I haven’t been too concerned because I’ve liked the patient approach I’d been using. And, frequently, losing stocks become leading stocks over time and stocks that continually get clobbered usually experience a very strong reversal. So, I kept buying into them.

A couple of years ago, I would have been “all in” several weeks ago and have been deeply negative for the year using the strategies I had detailed in my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books (https://brighterdayslifecoaching.com/published-books…/). And these might still be very good strategies to use for higher risk investors. But for low risk investors, they may not be. So, I’m very thankful that I modified my approaches quite a bit since then and ended the year strongly positive.

The approach I’m presently using to buy into falling stocks is the following:

  1. If the initial position of a stock I bought drops 10%, and the stock still looks attractive based on the indicators I use to make investment decisions, then I buy 10% more shares than I did the first time (e.g., if I bought 100 shares the first time, then the second time I buy 110 shares: 1.10 x 100 = 110).
  2. If the stock drops another 10%, and the stock still looks attractive based on the indicators I use to make investment decisions, then I buy 10% more shares than I did the second time (e.g., 121 shares: 1.10 x 110 = 121).
  3. I continue this process with every drop.

The approach I am presently using to sell the gains is the following:

  1. I determine what a reasonable gain might be for the stock from the current depressed levels it is trading at (20%? 25%?). If the stock gains that amount from the lowest price I paid, then I sell that set of shares (e.g., if the stock rebounds strongly after the second buy of 121 shares in the above example, then I will go ahead and sell the 121 shares if the gain is substantial enough).
  2. I determine what a reasonable gain might be for the stock from the current level it is trading at after selling the first lot of shares (10%? 15%?). If the stock gains that amount from the most recent sell price, then I sell that next set of shares (e.g., if the stock gains the amount I’m targeting beyond the price I sold the 121 shares for in the above example, then I will go ahead and sell the 100 shares I bought the first time).

So, I am currently using the above process throughout the rises and falls in the stock price no matter what the cycles might turn out to be. If the stock is dropping, I’m buying more. And if it is rising, I’m selling more. I continue the process until I get to the point where I am either “all in” or exit the position completely.

The above strategy really worked out well during the slump I experienced towards the end of 2021. Using my previous strategy, I would have been a much more aggressive buyer on the drops which would have led to deep losses and a much longer recovery time. Back in early October, I had a 13% gain in the stock market which is an excellent gain for a low risk investor seeking to beat inflation (inflation was about 5% at that point in time). By early-to-mid December my gains had dropped to 1.5% for the year which was a pretty substantial drop – especially since it was only over a period of a few weeks. Fortunately, I was able to recover much of these losses by the end of the year with an 8.7% gain which still substantially beat inflation (inflation was 6.8% for the year). Much of the losses were probably due to investors selling losing stocks for tax loss harvesting purposes. As such, many of the stocks I’m presently holding are likely to start rising again in the new year. So, I should be positioned pretty well for at least the early weeks or months of 2022. You can read more about the above and all of my stock market activities here: https://brighterdayslifecoaching.com/stock-market-activities/

I’m happy that I modified my investment strategy back in September/October. And this something you always want to get into the practice of doing. Observe what happens and make adjustments to your investment strategies so that you can work towards improving your investment performance over time in accordance with your risk profile. I happen to presently be a low risk investor but many of you will probably be higher risk investors. So, your investment strategies will probably be a bit more aggressive than mine.

Another thing I did in 2021 to maximize my investment returns was to perform tax loss harvesting strategies to minimize my tax burden. This essentially, involves selling some of your losses to offset your gains. This really helped me because about $7000 of my investment gains in 2021 put me into the 32% tax bracket. So, offsetting this effectively represented a 32% gain on those assets. You can read all about my tax loss harvesting strategies here: https://brighterdayslifecoaching.com/maximize-stock-market-returns-by-performing-tax-loss-harvesting-to-minimize-tax-burden/

The last thing I did in 2021 to maximize my investment returns was to avoid selling any additional gains once I came to the realization that I was in the 32% income tax bracket. So, I decided to delay any selling decisions on gains until 2022 so that I could avoid paying 32% taxes on these gains. It’s always a good idea to track all of your income and stock market gains for the year so that you’ll know whether you are entering a higher tax bracket than usual. Because, if you do, you might be able to make some adjustments prior to the end of the year to minimize your tax burden and maximize your investment returns.

What I plan to do in 2022 to maximize my investment returns will be to hold off on selling until the individual lots of the stocks I purchased passes the one year mark. I rarely do this because I tend to take substantial gains as they happen (and I might continue this practice if the gains are compelling enough). However, if I am successful in waiting a year before selling gains, then I’ll only have to pay 15% taxes on those gains instead of my typical 24% (or in the case of 2021 32%). So, the tax incentive is huge for waiting on selling your gains if you have that kind of patience. Often, I don’t. But we’ll see what happens. I know I’ll have to do some selling towards the beginning of the year since I’m presently 85% invested which is a bit too high for a low risk investor.

AN INTERESTING TWIST ON EXECUTION:

I wrote the above post over the past week and decided to leave it as such since it potentially offered an educational benefit to my readers. In actuality, however, things did not happen as expected so I am going to write about that now to provide additional educational benefit to my readers.

I had planned to execute as stated above, but always make a point to check my math prior to executing. And just as I was about to sell some of my losses, I realized that I had forgotten to subtract my standard deduction of $12,550. Once I factored that in I realized I was actually several thousand dollars below the 32% income tax bracket threshold. So, to take advantage of that new realization, instead of selling some of my losses, I elected to sell more of my gains.

I can’t tell you how many times I have executed plans by mistake due to calculation errors, faulty data, and misinformation. So, always get into the practice of checking your math, confirming your data, and checking your facts before executing your plans. Otherwise, you may not realize the benefits you are anticipating and, in fact, might make things worse.

You can be a very successful investor if you effectively use all of the tools and techniques available to maximize your investment returns. And tax loss harvesting can be an effective strategy to use.

You can learn about all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing and gain key investing insights and skills (https://brighterdayslifecoaching.com/published-books…/)

Also, you can read all about my stock market activities here: https://brighterdayslifecoaching.com/stock-market-activities/

I wish you much success in creating a brighter financial future for yourself, your loved ones, and those who follow.

Happy investing everyone!

#finance #stocks #investing #stockmarket #success#taxes

MAXIMIZE STOCK MARKET RETURNS BY PERFORMING TAX LOSS HARVESTING TO MINIMIZE TAX BURDEN

Posted on by Joseph M. Brennan Jr.

One way to maximize your returns in the stock market is to perform tax loss harvesting strategies to minimize your tax burden. Essentially, this involves selling some of your losses to offset your gains.

Typically, I fall into the 24% income tax rate category. However, due to my capital gains to date in 2021, about $6000 of my income would fall into the 32% income tax rate category. As such, it makes sense for me to look for stocks that I haven’t sold yet to see if there are any losses I can use to offset this. If I can successfully do this, then this would effectively represent a 32% gain on those assets which would be advantageous for me.

If you are the type of investor who, like me, typically adds to positions over time when they drop in price, then you will want to ensure your standard taxable investment accounts are set up to track your cost basis using “First In First Out” (this is usually the default setting). If you are more of a momentum type investor who typically adds to positions over time when they increase in price, then you will want to ensure your taxable investment accounts are set up to track your cost basis using “Last In First Out.” Note: The tax loss harvesting strategy does not apply to taxable accounts such as traditional IRAs, 401Ks, and such since they are always taxed based on your income bracket at the time any funds are withdrawn. So, this strategy can only be used for taxable investment accounts outside of traditional IRAs, 401Ks, etc.

To effectively use the tax loss harvesting strategy, you must be sure not to invoke the “wash sale” rule which occurs when a security is sold for a loss and, within 30 days before or after this sale, a “substantially identical” stock or security is bought. The reason you want to steer clear of this is because a “wash sale” will provide no tax benefit until after the point in which you exit your position entirely.

Many investment brokers track each of the lots you buy and sell for each of the stock positions you hold. This can be a very handy tool for considering which financial assets to sell to gain the benefits of tax loss harvesting. For example, Fidelity (which is the online broker I use) tracks each of the lots I buy and sell (see Figure 1 below for an example).

Figure 1: Stock Lots Bought and Sold

The first thing to check to ensure you don’t invoke the “wash sale” rule is the most recent date you purchased shares. As you can see in Figure 1, 11/22/2021 was the last time I purchased shares of stock XYZ (and if you have multiple accounts you need to check them all since the “wash sale” rule applies across investment accounts whether taxable accounts or not including Roth accounts). So, to ensure that I don’t invoke the “wash sale” rule I need to wait until 30 days have passed before selling the stock. So, to be safe, I will need to wait until 12/23/2021 before selling this stock.

Since I am trying to offset about $6000 of the gains I’ve had over the past year which would fall into the 32% income tax bracket, I would sell about 400 shares of stock XYZ if Figure 1 represents my losses at that time. Because, my taxable investment account is set up to track my cost basis using the default of “First In First Out” I would start from the bottom of Figure 1 and work my way up from there to reflect what losses I could use to offset my gains. So, starting from the bottom and going up if I sold 400 shares (160+140+100) at that time, then I would have $6092.45 ($5020.74+$625.21+$446.50) of capital losses I could use to offset my capital gains. And if I wanted to be much more precise about the $6000 figure, I could sell a couple of shares less. The other nice thing I can do with this strategy is wait to sell those lots in Figure 1 that I have gains on until after a year has passed. Because then instead of paying 24% tax on those gains, I’ll only have to pay 15%. So, this strategy can allow you to both earn a substantial “return” on your losses and and minimize the taxes on your actual gains.

Now, if you accidentally had your investment account set-up to track cost basis using “Last In First Out” then you would probably have to sell all of your shares to realize the tax benefit you’re seeking. However, the tax loss offset would be much less since you would first be selling all of the shares that had gains or were less negative in nature. So, it’s important to make sure you set up your taxable investment accounts to track cost basis using “First In First Out” unless you tend to be more of a momentum type investor.

For people who do tend to be momentum type investors who typically add to positions over time when they increase in price and have their taxable investment accounts set up to track cost basis using “Last In First Out,” then you would start from the top and move down since the newest shares would be sold first. And you would try to hold your gains until after a year has passed so that you’ll only have to pay long term capital gains taxes (typically 15% or 20% depending on your income tax bracket) instead of the short term capital gains taxes associated with your income tax bracket.

So, the above pretty much sums up how to maximize your investment returns by using tax loss harvesting strategies to minimize your tax burden. The last thing you will want to do, however, is to ensure the “wash sale” rule is not invoked going forward by refraining from buying the same stock(s) within 30 days after selling it for a loss. If you do, then the “wash sale” will be invoked again and you will have realized no tax benefit from selling your losses. So, always be mindful of this.

By using the above strategy, I will avoid having to pay about $1920 on my tax return for 2021 (0.32*$6000 =$1920). So, using this strategy can really help.

You can be a very successful investor if you effectively use all of the tools and techniques available to maximize your investment returns. And tax loss harvesting can be an effective strategy to use.

You can learn about all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing and gain key investing insights and skills (https://brighterdayslifecoaching.com/published-books…/)

Also, you can read all about my stock market activities here: https://brighterdayslifecoaching.com/stock-market-activities/

I wish you much success in creating a brighter financial future for yourself, your loved ones, and those who follow.

Happy investing everyone!

#finance #stocks #investing #stockmarket #success#taxes

EARN ABOVE AVERAGE GAINS EVEN AS A LOW RISK INVESTOR

Posted on by Joseph M. Brennan Jr.

Some people have been asking why I’ve been doing so much selling in the stock market lately when there is a strong potential for more gains to come. The reason is I’m taking a lower risk approach this year so as to build on, but not jeopardize, the record gains I had last year (a 164% gain!).

Right now my overall portfolio has earned a little over 9% in only 5 months. And although this lags some of the other major market indexes right now, my goal for the entire year was primarily my end-of-2021 projection for inflation (2.5%). My stretch goal for the entire year was two times that projection (5%). So, I have exceeded both of these by a large margin in just 5 months. So, I certainly don’t want to risk those gains.

As a low risk investor, I am primarily targeting earning at least the realized headline inflation by the end of the year (the Federal Reserve targets core inflation which strips out food and energy but I don’t think that is very realistic – so, I use the headline inflation number as my end-of-year target). Thus, the realized headline inflation would have to end the year above 9% for me to miss my expected target based on the 9%+ I’ve earned to date. And I don’t see that happening.

A secondary target I like to use as a low risk investor is the end-of-year gain of the S&P 500 (SPX) divided by 5. So, if the SPX earns 30% for the year, I would expect to earn about 6%. Likewise, if the SPX loses 30% for the year, I would expect to lose about 6%. Thus, the SPX would have to end the year above 45% for me to miss my expected target based on the 9%+ I’ve earned to date. And I also don’t see that happening.

As of yesterday:

1) the realized headline inflation was 3.5%.

2) the S&P 500 has gained 10.6% this year so far. So, at this point in the year, I would expect a gain of about 2.1%.

So, I have far exceeded both my primary and secondary targets above which means looking for stocks to sell probably makes a lot of sense for me right now.

Since I have far exceeded my annual targets for this year, I am employing a new strategy which involves selling every gain – even if that involves selling partial shares of stocks I own (i.e ., just those shares which have earned gains – those which haven’t I generally continue holding). The only exceptions to this are stocks I think still have potential over the long term given the increased probability of inflation, overheating of the economy, and interest rate increases (e.g., energy, utilities, gold, shorting of bond market, etc.). The reason for this is that investors are not going to wait for the Fed to decide whether or not they want to start addressing these issues (they’ve called much of this transitory meaning they believe these effects will fade over time). Investors are likely to start aggressively positioning themselves as soon as the economic data and other indicators signal these kinds of pressures.   

Hopefully the above helps to give you some insight into how I am performing my investments this year. Most people need to take much higher risk than me so you probably wouldn’t want to use the approach I’m using. But some might.

You’ll be a very successful investor if you observe and learn from what happens and make adjustments to your investing strategies accordingly over time. So, investing strategies can change from time to time. And they should. Especially, when your risk category changes.

You can learn about all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing and gain key investing insights and skills (https://brighterdayslifecoaching.com/published-books…/).

Also, you can read all about my stock market activities here: https://brighterdayslifecoaching.com/stock-market-activities/

I wish you much success in creating a brighter financial future for yourself, your loved ones, and those who follow.

Happy investing everyone!

#finance #stocks #investing #stockmarket #success

TWO BIG INVESTMENT CONCERNS RIGHT NOW: RISING BOND RATES AND RISING INFLATION

Posted on by Joseph M. Brennan Jr.

One of my two biggest concerns in the stock market over the near-term (and beyond) involve the rapidly rising yields in the bond market (and declining bond prices since bond prices move opposite yields) resulting in substantial losses in what are traditionally “safe haven” low-risk investments. The days of using bonds and bond ETFs as “save havens” might be over. I wrote about all of that here: https://brighterdayslifecoaching.com/storm-clouds-on-the-horizon-the-bond-markets-and-the-low-risk-safe-haven-facade/

The second big concern for me is the risk of a policy mistake by the Fed regarding inflation. The Fed might be using an outdated “play book” in that they plan to allow inflation to run “hot” and consider any near-term inflation to be temporary and transitory in nature (https://finance.yahoo.com/news/fed-attempts-to-get-ahead-of-inflation-by-talking-down-transitory-effects-172650392.html). In fact, two inflationary components which are typically ignored by the Fed when assessing inflationary pressure (food and fuel costs) are rising substantially (https://finance.yahoo.com/news/high-food-prices-struggling-americans-211552448.html and https://finance.yahoo.com/news/gas-prices-spike-us-inflation-142654810.html)

What the Fed seems to be underappreciating is that this monetary policy body has historically been late in addressing inflation which can result in runaway inflation. Because, historically, once inflation takes hold, it becomes very difficult to get under control. So, my primary concerns on the inflationary front are the Fed’s underappreciation and downplaying of inflationary indicators and overconfidence in their tools and abilities to fight this once it takes hold.

You can learn about all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing and gain key investing insights and skills (https://brighterdayslifecoaching.com/published-books…/).

Also, you can read all about my stock market activities here: https://brighterdayslifecoaching.com/stock-market-activities/

I wish you much success in creating a brighter financial future for yourself, your loved ones, and those who follow.

Stay safe out there.

#finance #stocks #investing #stockmarket #success

DON’T LISTEN TO INVESTMENT EXPERTS… BE A MONKEY INSTEAD

Posted on by Joseph M. Brennan Jr.

Always be a bit cautious when “experts” tout their past successes in making stock picks. I find it a bit humorous when individuals and companies advertise their winning stock picks in retrospect saying “we recommended these” (with the implication, of course, that we know how to pick winning stocks so you should listen to us for future stock picks). In this particular post, 3 highly successful stocks are highlighted in hindsight (https://www.fool.com/ext-content/3-stocks-for-the-economy-of-the-future/?utm_source=facebook&utm_medium=contentmarketing&utm_campaign=ecomsa-dig-boom&aid=9502&paid=9502&waid=9502&source=esafbwdg0217760&psource=esafbwdg0217760&wsource=esafbwdg0217760&utm_content=%7B%7Bad.name%7D%7D&exitpop=false&autoplay=false&fbclid=IwAR3ghhPYiarn5bN-yo1Yhi5FrzJXQJ7e44-qeRc_wS2gsiJUH2xTzQVcjG8&testId=a-sa-dig-econ&cellId=0&campaign=sa-digital-economy).

What they don’t tell you is that they’ve recommended thousands of companies over that time frame – many of which have gone bankrupt or have substantially underperformed. And, just by chance alone, when you have recommended thousands of company stocks over the years, being able to find 3 which have highly outperformed in that set, in hindsight, is no big accomplishment and takes no talent at all. Monkeys tossing darts at a dartboard of various stock names are likely to do as well by chance alone (or perhaps even better since they have no preconceived notions).

You can learn about all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing and gain key investing insights and skills (https://brighterdayslifecoaching.com/published-books…/).

Also, you can read all about my stock market activities here: https://brighterdayslifecoaching.com/stock-market-activities/

I wish you much success in creating a brighter financial future for yourself, your loved ones, and those who follow!

#finance #stocks #investing #stockmarket #success

MY BLUNDER AS AN INVESTMENT “EXPERT”

Posted on by Joseph M. Brennan Jr.

I was such an excellent “expert” investor in the 1990s, earned so much money in the stock market during that decade, and was so confident in my investing “skills” that in 1999-2000 I came up with a great idea. I took out a loan against my 401k, took a cash advance against one of my credit cards, and put all of that into the stock market because, well, “everything was going up,” you know. And what could possibly go wrong? Well, I earned about a -50% gain by the end of the dot com bubble.

Yeah. I was so good that I got back about half and still had to pay back the loans and cash advances. Thank goodness I didn’t have a margin account back then.

So, when you see me making jokes about “expert” investors these days – well, just know that I was one of those myself back in the 1990s during my early days as an investor. And my “retire in my 30s buy everything because everything is going up” plan didn’t quite work out the way I expected back then. A favorite movie line by a mangled survivor from a horror movie (one of the Saw movies I believe) comes to mind who willingly submitted to being tied up: “Well, it seemed like a good idea at the time…”

In hindsight, though, all of this was a valuable lesson. Don’t be overconfident. Don’t be an emotional investor. Curb your enthusiasm. And always come up with investment rules and plans “up front,” make adjustments to them over time, and remember to stick with them – especially during periods of chaos and volatility.

You’re welcome! 🙂

You can learn about all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing and gain key investing insights and skills (https://brighterdayslifecoaching.com/published-books…/).

Also, you can read all about my stock market activities here: https://brighterdayslifecoaching.com/stock-market-activities/

I wish you much success in creating a brighter financial future for yourself, your loved ones, and those who follow!

#finance #stocks #investing #stockmarket #success

ALWAYS DEFINE INVESTMENT RULES UP FRONT, ADJUST THEM OVER TIME, AND STICK TO THEM

Posted on by Joseph M. Brennan Jr.

It’s always difficult predicting market tops. And you can’t necessarily assume things will happen similar and have the same effects as in the past with respect to the Fed, fiscal stimulus, and such.

I mean, in the previous recession, the housing market got crushed. This time the housing market sales and prices jumped. A lot. And throughout the entire recession. I mean who could have predicted that?

However, it’s a well established fact that people often lose more money anticipating market drops than from the actual market drops themselves. And most of the gains you’ll ever receive often happens right before major market tops. So, you kind of don’t want to miss out on those.

So, overall, I think people probably should keep investing but tighten their rules a bit, make less risky trades, and have a good cushion on of cash on hand to take advantage of significant drops.

Discipline, discipline, discipline. That is what’s key. Define your rules up front, adjust (tighten, loosen, etc.) them as needed, and stick with them. I frequently create rules for myself as an investor to guide and curb risk taking. For example, here are one of my current more macro market rules:

“BUY NEW STOCKS UP TO 15% OF INVESTMENT ACCOUNT. THEN STICK TO ONLY BUYING MORE OF THE EXISTING STOCKS UNTIL THE S&P 500 INDEX (SPX) DROPS SIGNIFICANTLY AND I ASSIGN IT A ‘STRONG BUY’ RATING. AT THAT POINT, I WILL START SCREENING AND PERHAPS CONSIDERING TO BUY NEW STOCKS.”

One of my more micro, individual stock rules are:

“AFTER BUYING INITIAL SHARES OF A STOCK, WAIT FOR AT LEAST A 10% DROP BEFORE CONSIDERING BUYING MORE.”

The above rules work pretty well for me as a lower risk investor. However, they are different today than they were years ago when I was a higher risk investor. And I adjust my rules based on whatever happens.

For example, when the markets started dropping back in February-March 2020, I had a pre-planned rule of:

“BUY 10% OF MY INVESTMENT ACCOUNT WHEN THE SPX DROPS 10%, BUY 2% MORE FOR EVERY SPX DROP OF 1% BEYOND THAT UNTIL SPX DROPS 15%, BUY 3% MORE FOR EVERY SPX DROP OF 1% BEYOND THAT UNTIL SPX DROPS 20%, AND BUY 4% MORE FOR EVERY SPX DROP OF 1% BEYOND THAT.”And that worked like a charm!I also have rules for selling.

So, do yourself a favor and come up with your investment rules beforehand, make adjustments as needed, and stick with them – especially during periods of chaos and volatility. Regarding what most concerns me going forward, well, I wrote a post recently about that: https://brighterdayslifecoaching.com/storm-clouds-on-the-horizon-the-bond-markets-and-the-low-risk-safe-haven-facade/

You can learn about all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing and gain key investing insights and skills (https://brighterdayslifecoaching.com/published-books…/).

Also, you can read all about my stock market activities here: https://brighterdayslifecoaching.com/stock-market-activities/

#finance #stocks #investing #stockmarket #success

STORM CLOUDS ON THE HORIZON: THE BOND MARKETS AND THE “LOW-RISK SAFE HAVEN” FACADE

Posted on by Joseph M. Brennan Jr.

I’ve recently been thinking about the implications of “low-risk safe haven” bond market and bond fund investors losing a lot of money in those investments in the years to come and the bond market (bonds and bond funds/ETFs) losing its “low-risk safe haven” status resulting in substantial increases in interest rates, low confidence in abilities of the U.S. federal government being able to service its debts (perhaps even getting to the point similar to Greece or Italy), high inflation, future hesitancy of investors to buy bonds (government, municipal, and corporate) and bond funds/ETFs after years of losses resulting in still higher interest rates to entice new buyers, and a deteriorating economy and government/corporate finances due to the combination of these factors.

These are some of the dark clouds I’m seeing on the horizon. Lots of things to ponder and position for – especially since the perceived, historical, low-risk investments might actually become high-risk investments in the years to come. Perhaps the best longer term investment strategy will be investments which track longer term interest rates (e.g., shorting the longer-term bond market).

For perspective, take a look at the 10-year treasury rates (prices move in the opposite direction of yields) which have been falling for 40 years. The last time they went up consistently was during the 1960s and 1970s.

The bottom line is that bond prices (and bond funds for that matter) are extremely high right now (and yields extremely low) which means significant losses could be experienced by bond market and bond fund investors in the years to come.

For your reference, here’s an interesting article on debts and deficits: https://finance.yahoo.com/news/national-debt-affects-investments-212804085.html

Here’s another interesting article on bond market risk: https://finance.yahoo.com/news/why-financial-advisors-watch-bond-184731799.html

And here’s another interesting article on inflation: https://www.ally.com/do-it-right/trends/weekly-viewpoint-january-22-2021-inflation-affect-on-portfolio/

You can learn about all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing and gain key investing insights and skills (https://brighterdayslifecoaching.com/published-books…/).

Also, you can read all about my stock market activities here: https://brighterdayslifecoaching.com/stock-market-activities/

I wish you much success in creating a brighter financial future for yourself, your loved ones, and those who follow!

#finance #stocks #investing #stockmarket #success

CREATE A BRIGHTER FINANCIAL FUTURE FOR YEARS AND DECADES TO COME

Posted on by Joseph M. Brennan Jr.

Even though this is a bit of a lengthy post, please set aside some time to read through it in detail at your earliest convenience. It’s a worthwhile read because it can make a huge difference in how your financial future plays out – both for you, and others, in your life. And some of you might want to participate in this challenge or offer a similar kind of challenge for people in your life or use aspects of this to help yourself (or others).

As many of you already know, anytime something great happens for me – financially speaking (or otherwise) – I’m a big believer in using at least part of the proceeds to offer unique opportunities to others. I create a “Beneficiaries Reserve Fund” for this purpose which I add to over time.

Essentially, the way my Beneficiaries Reserve Fund works is this: I have a financial target to meet and if I exceed the target, then half of the excess amount goes to me for personal use and the other half goes to the Beneficiaries Reserve Fund. It’s just a promise I’ve made to myself and kept over my years of investing since I started back in 1994.

Due to experiencing my record year in the stock market this year, I’ve accumulated quite a sum in my Beneficiaries Reserve Fund. Back in March, I used my previous balance to get a friend of mine, who has struggled with debt for most of his life, completely out of debt. And to date he has kept his credit rating high and kept his promise and stayed away from using his credit cards. So, this appears to have been a worthwhile investment.

I’ve decided I want to contribute this time by addressing the wealth inequality gap by incentivizing and challenging people to invest in creating a brighter future for themselves and their loved ones. One of my favorite kinds of contributions to make in life is giving people gifts of opportunity. So, I think this will be a good way to do this. Here’s the process I’m using:

1) I am providing a small amount of seed money (enough to buy a share or two of certain stocks) to select individuals – particularly younger people who might serve to benefit most – and am making myself available to offer guidance of what stocks to consider buying (or investigate stocks they might have interest in) to motivate their interest in investing. Initiating this challenge by giving a few dollars to allow people to “play” in the stock market without actually losing their own money is my Christmas gift to everyone on my Christmas list this year. I came up with this idea after reading an article that talked about people not learning how to truly invest unless actual money is involved – they had to have actual stakes. Paper trading apparently doesn’t work well. Because people don’t trade or invest the way they would or pay as close attention unless actual money is involved. I am encouraging a Roth IRA be primarily used so that all gains over the years will be tax free (for those who think they can avoid withdrawing money before age 59.5). However, a standard investing/trading account can also be used to augment the Roth IRA even though taxes will have to be paid on all gains. Also, a 529 plan might be of interest if you want to save for your children’s education. It works like a Roth IRA but you can withdraw at any time to support various educational expenses (k-12, college, etc.). There are a lot of sources about this. Here’s one: https://www.savingforcollege.com/…/name-the-top-7…

2) I am challenging these individuals to get in the practice of automatically saving 20%+ of all future earnings (income, bonuses, tips, cash gifts, etc.) and am making myself available to offer guidance on how they might achieve that. It needs to be at least 20% (or perhaps even more due to the fact that employee pensions no longer exist much and Social Security might not be around at some point in the future – I actually saved 40% for many of my working years). And this savings can never be touched until they achieve their financial goals. Because ideally they’ll want to take advantage of compound interest in growing their financial investments to a critical mass over the years so that it can then be invested in such a way as to provide a lifetime of income (this source explains compound interest and the value of starting early: https://www.moneyunder30.com/power-of-compound-interest). Incidentally, the compound interest issue is why debt is so problematic. It does the opposite in that people instead end up creating the critical mass in financial assets for lenders while depleting their own. So, people must get in the practice of saving 20%+ of everything they earn – even if they don’t know what their financial goals are or what they might use the money for. Because doing this gives people options in life. And having options is much better than the alternative. Now, before doing anything, everyone needs to check with their employers to see if they offer matches on any contributions for retirement accounts (some employers will match 5% or more). If they do, then max this out first. Because it’s free money.

3) In 5 years (starting Jan 2026), I will follow-up with each of those I provide the seed money to and see if they’ve successfully executed this challenge. If they have then I will add a sizable lump sum to their investment account and will probably repeat this process every 5 years until my Beneficiaries Reserve Fund is fully depleted.

In the first few years of investing, the amount saved matters much more than the actual gains or losses experienced in the stock market. People can even just save and wait for a stock market drop to invest if they want and will probably do pretty well. Once savings have been accumulated for a few years or so then the gains and losses matter increasingly more over time.

For those who don’t have one already, please go ahead and open an investment account at an online broker. I presently use fidelity.com but have also used Ally and Robinhood in the past. All of these have $0 fees for trading/investing but Fidelity has, in addition, more options for fixed income – something some people might have interest in later in life once they’ve accumulated a considerable sum. It’s helpful having just one online broker for all of your accounts so that you don’t have to go back and forth across brokers and keep track of multiple statements and tax documents. So, take some time and choose wisely. Two types of investment accounts need to be opened:

1) Roth IRA Investment Account: Max out what is put into this account every year because all gains earned are tax free. The downside is that funds cannot be withdrawn until age 59.5 without a huge penalty. So, this account needs to be used solely for the long term future. Here’s one source outlining the Roth IRA rules:https://www.investopedia.com/…/basics-roth-ira…. The max contribution and income limits tend to adjust upwards every year so check every year to see what they are before making annual contributions. Also, a 529 plan might be of interest if you want to save for your children’s education. It works like a Roth IRA but you can withdraw at any time to support various educational expenses (k-12, college, etc.). There are a lot of sources about this. Here’s one: https://www.savingforcollege.com/…/name-the-top-7…. Fidelity has this option available. Probably some of the other online brokers have this available also.

2) Standard Trading/Investment Account: Any additional funds can be placed into a standard trading/investing account. These funds can be withdrawn at any time – even though it serves people best to leave it there until they reach their financial goals – but taxes have to be paid on all gains earned (a 15% tax for gains on everything held longer than a year – or a tax based on income tax bracket for gains on everything held less than a year before selling: https://www.nerdwallet.com/…/taxes/capital-gains-tax-rates).

I recommend maxing out the Roth IRA every year first and then placing any excess funds available in the standard account.

I believe the above challenge might help address the wealth inequality gap for those who save and invest in their future. It would really mean a lot to me if I could make a difference and have a positive influence towards creating a brighter future for everyone who participates in this challenge.

Consider also, at some point, offering a similar kind of challenge to others in your life who might benefit. As a minimum, young people would especially benefit from the practice of automatically saving 20%+ of everything they earn because this financial discipline would be deeply ingrained from an early age – resulting in accumulating financial wealth and achieving financial freedom at a much younger age than most people do. And this would serve to not only benefit them, but you as well since you won’t have to worry so much about their finances and they won’t have to rely on you as much in the years and decades to come. So, living with a sense of financial discipline is key to living a happy, stress-free life – both for you and for others in your life. Also, a lot of people who become highly disciplined in one area of their life tend to become highly disciplined in other areas of their life as well including work, health and fitness, education, and goals. So, a whole host of future benefits can be realized just from starting the practice of financial discipline. All of which will benefit not only themselves but also everyone who surrounds them – including you! So, get started today!

Those who complete this challenge will be amazed at how wonderful and confident they’ll feel about their finances in 5 years. And if they keep this going beyond that point they’ll see huge increases at the 10-year, 15-year, and 20-year marks because that’s the power of compound interest.

I came up with this idea because I came to the realization that simply giving people money doesn’t really help much (aside from recovering from immediate emergencies) or offer permanent solutions. But if you help them strengthen financial discipline first, then giving people money does help. So, this is why I’m waiting 5 years to do the lump sum payouts.

Also, those that develop this financial discipline will not only greatly improve their own lives but of those who surround them. I mean, imagine a child who grows up with the mentality that “20% of everything I earn automatically goes to savings (or perhaps even more), stay clear of debt (aside from a mortgage or car payment), and never touch savings until financial goals are reached.” What a wonderful life full of opportunities will that create for that child!

Lastly, in case it might be helpful, you can learn about all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing and gain key investing insights and skills (https://brighterdayslifecoaching.com/published-books…/).

I wish you much success in creating a brighter financial future for yourself, your loved ones, and those who follow! Have a wonderful holiday season!

#finance #stocks #investing #stockmarket #success

THE TWO MOST IMPORTANT INVESTMENT QUESTIONS THAT WHEN LEFT UNANSWERED ARE GUARANTEED TO LEAD TO FAILURE

Posted on by Joseph M. Brennan Jr.

What are the two most important investment questions everyone must answer regardless of age or where they are in terms of progressing towards their financial goal(s) (in order of importance)?

1. What is my financial goal(s) [e.g. Jan 2026: $50,000 Down Payment for a Home]? This must be clearly defined and periodically revisited to ensure the goal(s) remains sufficient for meeting your future needs in the year you will start needing it (so escalation is important based on inflation and potential cost changes)? For example, if you are saving for a down payment for a home and you decide you later would prefer a larger house in a nicer and more expensive area and house prices increase substantially, then you’ll need to account for all of this in your financial goal for the year you plan to achieve it. Otherwise, you may fall short and have to extend this goal for several more years than originally planned. So, always keep this in mind when periodically revisiting and reviewing your financial goals.

2. What is the MINIMUM risk I can take, based on progress to date, and still meet my financial goal(s) identified above? This will drive your investment decisions and strategies.

Most investors fail to achieve their financial goals because they do not maintain awareness or dynamically make adjustments to item 1 and don’t dynamically adjust their investment strategies to account for item 2 based on progress to date. Don’t do that to yourself. Because these must be not only defined and factored in when first establishing your financial goals but also periodically revisited and re-assessed in a dynamic fashion. So, this is not a static process.

A whole lot can go into the above two questions and the investment strategies you employ. And you can learn all about these as well as all of my investing techniques via my “Invest Like a Pro in 10 Minutes a Day!” series of 4 books where you can learn the “end to end” process to investing. So, use this period of social distancing to your advantage by gaining this knowledge and learning these skills and techniques (https://brighterdayslifecoaching.com/published-books…/).

#finance #stocks #investing #stockmarket #success