Practice Common Sense Investing
Well, 2016 is off to an interesting start. Peyton is a Super Bowl champion, Tennessee beat Kentucky in basketball, and the stock market dropped 10 percent.
TV’s talking heads are talking about panic in the streets. I do not see much panic. Folks more than 10 years away from retirement are calling to see if they should increase their stock market exposure. A few retirees want to make sure they have enough cash for 2016.
Everyone seems perfectly comfortable with their investment plan. They know the stock market goes up and down. Talk of panic sells TV ads, but most people I interact with are calm.
Calendar year 2015 was the first year since 1937 in which no major asset class was up by at least 10 percent. In fact, none of the major asset classes managed to turn in a 2 percent return. The Top 10 performing stocks in the S&P 500 accounted for 40 percent of its returns. Unless you owned these 10 big stocks, you were out of luck.
Louis Rukeyser, the former host of Wall Street Week, was famous for trying to get investors to think long term and ignore short-term gyrations. He once quipped, “When the going gets tough, go to a movie.”
Sometimes this is easier said than done. Markets rise and fall, hit a bottom, and then rebound. No one can predict the specifics. When the market drops, it happens fast and it hurts a lot. The rebound always seems to be slow and uncertain.
I am getting tired of reading about oil and China. Back when gas was $3.75 per gallon, the experts told us that this was going to ruin the economy. People would have to use all their disposable income to fill their tanks. Restaurants were going bankrupt. Small business would buckle under the burden of high fuel costs.
Last week, I paid $1.38 per gallon at the Pilot in Lebanon, Tenn. Now the economists are saying that low gas prices are ruining the economy because the oil companies are making so much less, and this has a huge ripple effect on the economy. All the businesses that conduct commerce with the oil companies are suffering and will close. Well, cry me a river. Common sense says that low oil prices are better than high oil prices.
The positive correlation between oil and stock prices is a recent phenomenon. Over the past four decades, falling oil prices have meant higher stock prices about as often as not. You might say that rising oil prices are good for stocks — until they aren’t. Consumers are saving some of the money they used to spend on gas, and spending the rest. How can this harm the economy?
Your investment portfolio should provide you with income, and grow over time at a comfortable rate for you. Everyone has different comfort zones. You want a mix of assets that meets these goals no matter what the news says or what the stock market does. That’s common-sense investing!
This column was featured in the February 7 Knoxville News-Sentinel. You can read it here: Practice Common Sense Investing
Meet the Author
Tom Coulter, CPA
Tom is the President and a founder of Meridian Trust. Tom graduated from The University of Tennessee, Knoxville, in accounting with honors, in 1978. Tom previously worked for the international accounting firm, Deloitte. He later joined the financial medical advising firm, FIS Associates, before founding Meridian Trust in 1997. Tom has worked extensively in retirement planning, taxation, estate and financial planning and investment management. He is a Certified Public Accountant, a member of the American Institute of CPAs (AICPA), and the Tennessee Society of CPAs (TSCPA).
Tom is also credentialed as a Personal Financial Specialist (PFS) by the AICPA.