With the elections in Greece going the way investors had hoped, many were expecting a big spike in today’s open. However, with the rally fizzling in Europe, we saw some carryover to the U.S. indices for much of the day. The higher beta names on the Nasdaq did fare well during the session.
Looking at the financials, weakness in shares of Deutsche Bank (DB), Citigroup (C), and Morgan Stanley (MS) put a damper on what was supposed to be a positive result to the Greek elections. Steelmakers closed mostly lower ollowing some lowered guidance from the likes of Steel Dynamics (STLD) and AK Steel (AKS). U.S. Steel (X) caught some tepid commentary following the earnings warnings. A couple of the early highlights to the upside included shares of Phillip Morris International (PM) on an analyst upgrade and also PetSmart (PETM) which announced a dividend hike and expanded share buyback program.
This weekend’s Barron’s magazine had a piece that focused on Social Security. Some of the interesting notes centered around recipients who qualify for the highest payouts. At age 66, the monthly benefit is $2513 a month, a third higher than if you started receiving benefits at age 62. Assuming there were no cuts and you waited till age 70, your monthly benefit would be $3350 a month. Again, you see how drastically higher the payouts are the longer you wait. If you can afford to delay the payments, you’ll be maximizing the system as best you can.
Most retirement worries center around a few key issues. Near-retirees fear whether their employers will be able to meet pension obligations. Another common fear is whether Social Security benefits will eventually run out, as concerns mount around the potential insolvency of the system. Finally, most retirees worry they are behind in their retirement savings objectives and if they can really afford to call it a career.
If you are already retired, you need to use a smart strategy regarding the money you withdraw from your accounts to cover everyday living expenses. Many financial advisors tend to use a 4% annual withdrawal rate when discussing retirement savings withdrawals. With this approach, investors withdraw 4% of their retirement balance in the first year of retirement, or let’s say $20,000 from a $500K portfolio. The dollar amount of the withdrawal could be adjusted each year to keep up with inflation. So whether you are deriving income from dividend-paying stocks, bonds, bank CDs, or other sources, you can at least have a starting point (4% withdrawal rate) to factor from.
Doing the bare minimum (for example, saving a set amount each month to invest, but never pushing harder to raise the amount you invest over time) will likely leave many short of an enjoyable period later in life. Some may think that their current financial obligations will eventually wind down, and then they’ll really begin to stockpile away money for their golden years. Unfortunately that is almost never the case. Too many unforeseen events can happen (divorce, a family death, getting laid off, illness, etc.), and you can’t afford to lollygag when you could be doing more — all the while still enjoying life’s finer moments as well.
Building wealth requires you to set aside funds and invest them in income-producing assets (we focus on dividend-paying stocks, but you can also invest in a business or buy a property that’s cash-flow positive). If you are already retired, you may need to rejoin the work force part-time to ease the amount of money you are withdrawing from your savings. If you are unable to work because of a disability, it’s possible you could figure out some kind of work to do from home. You also need to stay active as an investor. Regardless, taking charge of your financial profile is paramount to getting the most out of your later years.Why Trading is Irrational
As traders watched stock futures jump all around this past weekend, we saw clear evidence of investors being more confused than anything else. Several weeks ago, we saw the markets pulling back relentlessly, not on fundamentals, but on European economic concerns. The recent snapback was once again not based on fundamentals, but instead on hope the announced Greece bailout package and pending election results would quickly fix the problems plaguing the region.
Over on The Big Picture finance blog this past weekend, Barry Ritholtz shared some recent trader data done by Paul Farrell. Mr. Farrell found that 95% of traders fail and give up on trading, while 80% of all day traders lose money. Also, active investors are found to turn over their portfolios excessively (258% annually), while generating less than 12% on their money. Meanwhile, passive buy-and-hold investors with only 2% portfolio turnover had significantly better returns.
If you are determined to not miss every nugget of business news and headlines, you will almost certainly get drawn into the trading game. As the facts above show, the trading game is a losing game for nearly everyone who plays is. The plethora of sensationalist headlines can easily inspire you to trade your portfolio more. You’ll begin to think that timing the market is the only way you can outperform, and you’ll probably lose money.
Slow and steady wins the race that is the road to building wealth. Be irrational at your own risk!Our Beat The Markets with Dividend Stocks eBook Has Arrived!
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I hope everyone had a chance to check out our Dividend.com Premium members-only weekend articles , including new features that highlight some of the biggest winners and losers from the week that was, such as analyst upgrades/downgrades and earnings/story stocks. These articles are a great way to catch up on the week that was in the markets. We also have a rundown of how various Dividend ETFs performed on the week.
Thanks for reading everybody. I’ll see you tomorrow!