What Should We Expect from Our Stock Investments?

October 01, 2014

Following up on yesterday’s post about what kind of returns we can expect from bond investments, today let’s look at stocks. With the market recently bouncing off all-time highs, it seems like a good time to consider what the future holds.

Are we poised for more of a run-up over the next several years, or is the market likely to disappoint in its returns?

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What Should We Expect from Our Bond Investments?

September 30, 2014

One of the reasons investors fail to achieve their goals is that they have unrealistic expectations. When those expectations aren’t met, for whatever reason, they tend to sell.

Consider the well-known tendency to chase performance—that is, to buy a fund or stock that has been doing well. In doing so, the investor believes, he or she can expect future performance like that of the recent past. This leads to the momentum effect, which can drive prices up further, but ultimately may not be sustainable. When investors realize they won’t be getting the returns they expect, they sell, leading to downward momentum.

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Smaller Companies Underperform: Another Warning Sign?

September 29, 2014

The S&P 500 is a solid benchmark for the stock market. Tracking 500 large companies, diversified by industry and sector, its movements can give you a good feel for what’s going on in the U.S. financial markets and the real economy. These are blue-chip companies with strong balance sheets and market position, and they should continue to grow and make money over time.

Good investments, right?

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Europe’s Crisis Isn’t Over

September 26, 2014

Although I touched on a few specific examples the other day, finding a way to express the failure of economics in the face of politics is difficult. There aren’t many smoking guns out there.

Or so I thought. Fred DeBaets, one of our fixed income experts here at Commonwealth, sent around the following chart yesterday morning. It shows that nine countries—all in Europe—have negative interest rates for two-year government debt.

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Everyone’s Worried About the Boomers, but Are the Kids Alright?

September 25, 2014

A major concern of the baby boomer-dominated media, as well as the economics profession and government agencies (also dominated by boomers), has been the fate of—you guessed it—older workers, mostly boomers. How many of them are out of work and disabled, or able and willing to return to the workforce? Good questions, but hardly the only issues out there.

While I’m certainly worried about the aging boomers, my own position—right in the middle, in Gen X—makes me more concerned about the job prospects of the younger generation, who will be paying for my retirement (hopefully).

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Can Profit Margins Keep Climbing? (And What Does It Mean If They Do?)

September 24, 2014

How much money companies make—their earnings—is a key factor in analyzing how expensive the stock market is. Depending on what you expect earnings to do in the future, you might decide that the market is either:

  1. Very expensive (my own conclusion, based on longer-term valuation measures), or
  2. Quite reasonable, if you assume current earnings trends are stable and likely to accelerate.

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Why Investors Can’t Afford to Ignore Politics

September 23, 2014

As I wrote last week, the ties between politics and economics are only growing stronger. Let’s look at some current examples of how the two are intersecting—and what this means for investors.

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Disclosure

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index.

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