Just a reminder that the stock market does not always go up in a straight, linear fashion. Or, as the Wall Street Journal recently put it: "Your long-term returns won't be determined by this month's market swings."
A few people mentioned to me recently that they thought index funds were a safe investment. Index funds can be a good investment option. But many index funds can experience varying degrees of volatility and all are subject to losses at one level or another. Safety is not inherently a characteristic of index funds.
In general, an index fund is one that invests in a basket of securities to mirror the underlying returns of a specific index. Stock market index funds offer an incredible variety of investment approaches -- from broad-based funds that seek to capture exposure to a wide swath of the market to those with a narrow focus on a particular niche within the investment universe. The most well-known index fund is based on the S&P 500.
Your adult children likely know the "facts of life" by now. As time goes on, it becomes just as important to have "the other talk" -- a discussion of how you plan to live out your later years. Waiting until a crisis occurs is not the optimal time to deal with often delicate financial issues. Watch the video to hear some advice on this topic based upon a recent interview in the Journal of Financial Planning with Tim Prosch, who wrote The Other Talk: A Guide to Talking with Your Adult Children about the rest of Your Life.
A major impediment to discussing these financial matters is the fear of losing control. Retaining control is a deeply ingrained human emotion. Maybe that's why George and Ira Gershwin's "You Can't Take That Away from Me" has such an appeal. I've included versions from Lisa Stanfield as well as Fred Astaire, which features him singing to Ginger Rogers (about 1:30 into the video).
When a prediction about the stock market fails to come to fruition, a timeless excuse is that the prognosticator was "not wrong, just early;" the implication being that the predicted event will eventually occur. But, as Michael Aronstein of Marketfield Asset Management contends, being early is just another way of being wrong.
Aronstein eloquently explains: "Popular media presents an endless stream of heroic commentators who 'called'...every great market dislocation since the 1929 crash. What is never mentioned is that these calls were generally three or four years before the actual event and thus useless in application. By the time such a long-touted event unfolds (if ever), the narrative behind the opinion has been so fully discredited by poor performance that clients have moved their assets elsewhere and the manager has become emotionally impaired."
Most people focus on how much money they need for retirement. But just as much attention should be paid to eliminating debt by the time you retire. With zero debt, you need less savings to cover your basic needs. It also allows the savings you have accumulated to be used for discretionary spending.
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