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Is now a good time to buy stocks? Look beyond headlines to learn answer

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Examine The Theories That Forecasters Rely On To Predict Market Swings — And Learn Their Flaws

The universe is constructed in such a way that nothing is certain. You can always come up with perfectly rational reasons why something won’t work. But people find ways to overcome obstacles, and some businesses succeed despite risks.

Is now a good time to buy stocks? Below are a couple of factors to consider. 

Is now a good time to buy stocks? Understand pendulum theory and you will understand the past

You could sum up the investment version of the pendulum theory like this: stock prices alternate between periods of overvaluation and undervaluation; the degree and duration of each period of overvaluation is related to the degree and duration of the subsequent period of undervaluation, and vice versa.

In other words, pendulum theory says that when stocks head downward after a period of overvaluation, they won’t stop at fair value. Instead, they’ll keep dropping until they hit lows that are in some sense as out-of-whack as previous highs, or close to it.

Pendulum theory is a handy way to label the past, and it gives you a sense of how stock prices behave. But it’s useless at predicting the future or timing the market. That’s why pendulum theory generally plays a small part in successful investing. If you qualify as a “successful investor,” you probably recognize that the market never gets so high that it can’t go higher, nor so low that it can’t drop some more. This is a key part of understanding the stock market.

Is now a good time to buy stocks? Consider this valuable concept to gain another perspective

Here’s one of the most valuable things you should recognize as an investor: “A rising market climbs a wall of worry.” In other words, you need to recognize that a stock market’s rise automatically generates negative comments. The higher and/or longer the market rises, the more negative comments it generates. These are the bricks in that wall of worry.

The inevitable building of this wall grows out of human nature. Many people are instinctively cautious or conservative. When they see a stock or the stock market go on a rise, they look for reasons why the rise may falter or reverse. That’s especially true of stock market commentators. When a stock or the market rises beyond their expectations, they dig deep for hidden flaws.

This spurs them to come up with comments that at times seem deliberately slanted to promote a negative view. You might call them “misleading indicators.” Here’s an example:

“The market had the biggest drop in a day (or week, or month),” or “the longest string of falling days, since … [a date chosen to maximize shock value].” When these kinds of comparisons began appearing in the news this year, after a long dry spell, some investors took it as ominous news. They assumed it meant the market was at risk of greater declines. It means nothing of the kind.

Sometimes, of course, the market puts on big one-day declines near the start of a long-term price decline. It has also done so near the end of such declines and at various points in the middle. The same goes for big one-week and one-month declines and for long strings of down days.

Every year, the market will hit a series of “new highs for the year,” or a series of “new lows for the year.” In many years, it will hit some of each.

When you adopt “A rising market climbs a wall of worry” as a mindset, it will help you maintain your perspective. You’ll start to recognize that milestones like these are trivia, passed off as meaningful statistics. The investment news is full of them. You may find they make interesting reading or listening, but they also burn up valuable time. You’ll earn a far greater return on that time if you devote it to learning and comparing facts about the companies you invest in.

Stop worrying too much about the big picture

If you constantly worry about the “big picture,” including trying to pick market tops, you may at times manage to sell at just the right moment to sidestep a serious downturn. But you may only do that after sitting through a series of downturns. The downturn you avoid may turn out to be the last in a series—the “final leg downward,” as short-term traders like to refer to it. Continue Reading…

Pay less and get the most out of your Auto Insurance

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By Gary Bordeaux

Special to the Financial Independence Hub

Auto insurance can be a costly affair. Getting car insurance is important because it is a legal requirement and it can be a financial benefit if you are involved in an accident. Over 203 million Americans spend about US$125 every month to insure their car. So, what can you do to lower your car insurance cost? Read on to find out.

Shop around

Check out several companies for deals and offers, as insurance cost can differ between motor insurance providers. For example, the average annual rate for drivers insured with State Farm and Geico  is US$1327 and US$1667 respectively. Online sites are a perfect place to research insurance price, discounts, welcome bonus, and other requirements. Keep in mind that a cheaper option for one driver may turn out to be costly for another driver.

Don’t add younger drivers to your policy

Drivers aged 15-25 years are 32% more likely to cause an accident than older drivers. Therefore, younger drivers are likely to pay more for their insurance than older drivers. If your kids are ready to drive, get them their own insurance and encourage them to accumulate their no claims bonus. You can convince your co-workers or parents to become co-driver on your insurance policy. Also, add additional drivers to your insurance policy only when they need to use the vehicle.

Protect your car

Some of the details you will divulge to the insurance company when signing up for a car insurance policy include where you park the car at night and the car’s security features. The insurance companies may use insurance document management software to store your details. Drivers who keep their car in a garage and have installed a plethora of security features are likely to enjoy subsidized insurance premiums.

Group Insurance

 It is common for employers to provide health insurance for their employees. However, it is possible to acquire auto insurance through the same means. Group insurance is when many individuals, usually co-workers or family members, jointly apply for an insurance policy. As a result, the group is able to utilize the benefits of collective bargaining to get discounts and lower premiums. The only downside is that you don’t have the liberty to choose your preferred insurer. Large corporations, alumni associations, fellowships, and hobby groups are some of the entities that are eligible for group insurance.

Do away with unnecessary coverage

Legally, you are only obligated to sign up for liability insurance in the United States. This is the type of insurance required to cater for damages and injuries inflicted on third parties. Some drivers choose to add other types of coverage to the liability coverage. For instance, you may get collision coverage to offset the cost of the destruction your vehicle suffers in a motor accident. Continue Reading…

5 years of Findependence: The Hub celebrates its fifth anniversary

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How time flies! Five years ago this Sunday — Nov. 3, 2014 — the Financial Independence Hub [aka “The Hub”] was launched. From the start the idea was to publish a blog every business day, 52 weeks a year. Thanks to a wide variety of guest bloggers and other contributors, that has been achieved: as of this writing, the Hub had published almost 1,700 blogs.

For those curious, this link will take you to the very first Hub blog, which outlined the planned direction. From the get-go we tried to make a distinction between traditional full-stop Retirement and Findependence, which of course is the contraction for Financial Independence. The related book is Findependence Day (available in both Canadian and US editions).

Findependence is different from Retirement

Even some of the republished blogs the past week indicate how much the term Financial Independence has caught on, although sadly, the term Findependence less so. Just a few days ago, regular Hub contributor Mark Seed published a blog on Strive for Financial Independence not Early Retirement.  (We’re working on getting him to use the term Findependence but Rome wasn’t built in a day!)

I wrote much the same thing soon after the Hub was launched in 2014: Why Financial Independence is a better term than Retirement.

I may as well take this opportunity to clarify a few things about how the Hub operates. First though, we’d like to thank our advertisers, some of which (like Vanguard) have been with us since almost the beginning. It’s that kind of support that means the Hub remains free to users, who by now realize that most Hub blogs publish around 9:10 am, with a daily digest going out around 10 am.

Where the Hub’s content comes from

Why daily content? I guess it goes back to my days as a newspaper reporter and columnist, when my personal motto was “A story a day keeps the editor away.” Of course, it wouldn’t be much of a Semi-Retirement if I had to write a blog for the Hub every day all by myself so from the get-go we were open to guest blogs. An early supporter was Robb (and Marie) Engen of Boomer & Echo: skip over to the Hub’s search function and you’ll find dozens of stories by them. And by the way, that search tool can be very useful in accessing any of the 1700 blogs or so that the Hub has published: they’re still there; you just have to retrieve them with the tool.

Also early in giving us permission to republish blogs were Patrick McKeough of The Successful Investor, Adrian Mastracci of KCM Wealth Management, Mike Drak, my co-author on Victory Lap Retirement, Billy and Akaisha Kaderli of RetireEarlyLifestyle.com and many more. Just this year we’ve added a few more excellent bloggers: Mark Seed of MyOwn Advisor, Michael Wiener of Michael James on Money, Dale Roberts of Cut the Crap Investing, Fritz Gilbert, the Plutus award winning blogger behind Retirement Manifesto and a few more I hope I’ve not forgotten.

I can hear critics questioning the rationale of this republishing approach: all I can say is that you can consider it sort of the Greatest Hits of Financial Independence, given that our goal has always been to be — as you can see in our slogan elsewhere on this site — North America’s Portal to Financial Independence. We are chiefly an aggregator, although there is also original content.

Yes, I try to write a blog most weeks, though as regular readers may realize, they tend to be “throws” — summaries of paid columns or blogs I’ve written elsewhere, including MoneySense.ca, the Financial Post, Motley Fool Canada, the Globe & Mail on occasion, and Money.ca. Think of it as a sort of one-stop-shopping for what I personally write, even as I retrench a bit as my Semi-Retirement unfolds. (I’ll be 67 in April). In a way, the outside revenue I get from writing for the mass media helps defray the Hub’s modest costs, and of course helps to promote the site to new readers.

Apart from republished blogs, the Hub also regularly tries to publish at least two pieces a week of fresh content written by a variety of other contributors: financial advisors and other investment professionals, occasionally marketers or  firms representing a cross-section of the financial services industry.

The Hub’s 6 categories for the Human Financial Life Cycle

We try to publish a wide selection of topics corresponding to the human financial life cycle: if you’ve not noticed, take a look at the blue menu near the top of the site and you’ll see that our blogs are categorized in six sections. We start with young people (Millennials) who are just getting started in their financial lives. So we start with Debt and Frugality, followed by Family Formation and Housing: they will be interested in topics like real estate and buying their first home, mortgages, interest rates, credit cards etc. From almost the Hub’s inception, Zoocasa.com’s Penelope Graham has contributed excellent articles monthly on the real estate industry. Continue Reading…

Trick or Treat: How much does the average consumer spend on Halloween?

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By Mike Brown

Special to the Financial Independence Hub

LendEDU’s third annual study also included price comparison research that found consumers can save a good chunk of money by shopping for Halloween on Amazon rather than Walmart.

 

While our level of involvement may differ, most of us will be taking part in Halloween festivities in some capacity.

For the youth, enthusiasm for Halloween begins in September when costume ideas start taking shape. Once it starts, the fun doesn’t end until the candy-induced stomach ache kicks in roughly three hours after that last Twix.

While young adults may bypass the trick-or-treating, Halloween still offers a great excuse to dress up, look silly, and have a night out on the town.

Adults, who are often less excited than children, play an integral role when it comes to Halloween. Without them, who would chaperon the trick-or-treaters, hand out candy, cover houses in spooky decorations, or design the outfits that win the school costume competitions?

Like most holidays, Halloween will always have naysayers, but for the most part, it is seen as an enjoyable night that kicks off the holiday season. And according to LendEDU’s third annual Cost of Halloween survey, it is actually a day that will be forcing many to cough-up a decent-sized chunk of change.

Average American will spend US$162.29 on Halloween in 2019

With Halloween just hours away, LendEDU wanted to figure out how much families are spending on this holiday characterized by candy, costumes, and scary decorations.

​To do this, we asked 1,000 Americans that were planning on celebrating Halloween in 2019 the following question: “How much do you expect to spend celebrating Halloween this year?”

After averaging together all 1,000 responses, we found that in 2019 the average American is expecting to spend US$162.29 on Halloween. (All dollar amounts below, including graphics, are in US$).

It turns out that all of the fun brought on by Halloween comes at a price that may scare a few people away before the haunted houses even have a chance. $162.29 for a few hours of spirited and spooky celebrations is nothing to sneeze at.

>> Read More: How to Save on Halloween

​So, what is making the cost of Halloween so unexpectedly high? Continue Reading…

Avoiding blind spots in financial advice

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By Darren Coleman

Special to the Financial Independence Hub

In my last blog, I took on those Questrade TV commercials where the client schedules a meeting with their financial advisor to tell them they’re fired. While people don’t normally schedule a meeting with an advisor to do such a thing, I think the real story is that the client does not experience value from the relationship. And if that’s the case, not paying the fee and moving on makes perfect sense.

But that doesn’t mean doing it yourself is the best idea. Investment management and financial planning is more complicated and intricate than people realize. Having access to tools doesn’t make you an expert; I can buy everything I need to renovate my house or rewire my kitchen, but that doesn’t mean I should. Better to leave this to Mike Holmes. Here are some key areas when an excellent financial advisor can add great value.

Fire Drills

We all want to plan for a happy future with a comfortable retirement, maybe a new car, or an exotic holiday. People associate these things with creating a financial plan, largely due to multi-million-dollar ad campaigns by mutual fund companies. But life is not a Cialis commercial and bad things happen.

With Christmas coming get ready for media stories about the family whose house burnt down with all their possessions, including presents under the tree, going up in blazes. Then we’re told they didn’t have insurance and donations are being taken for them at the local bank branch.

To prevent misfortune from turning into tragedy, a good Financial Advisor will first have their client pay attention to planning for things going wrong. Indeed, assessing key risks to one’s financial health (i.e., premature death, disability, loss of employment, liability, critical illness) should be the primary component of a financial plan.

We also must look at documents and processes such as a will and Power of Attorney that describe what happens when we can’t speak for ourselves. Unfortunately, these are things most people do not do on their own. And if they do, they usually don’t do them with skill and adequate preparation.

A great, and valuable, Financial Advisor does more than just inquire about insurance and other documents. They run a ‘fire drill’ on the family.

Let’s say someone doesn’t come home one day because of illness or sudden death. What happens next? Who gets the call? What documents are needed and where exactly are they? Along with all this are other important questions.

  • What income is going to come into the household to replace those lost wages?
  • What paperwork needs to be filed?
  • Who’s going to do it?

Your employer is legally bound to run a fire drill at least once a year. Shouldn’t your financial plan do the same?

Budgets don’t balance themselves

Despite Prime Minister Justin Trudeau’s statement, I can assure you that budgets do not do this. We all have multiple and often competing demands on our time, money and energy. And when we combine the wishes, desires and needs of other family members, things may and will get derailed. Continue Reading…