Spending some time reading Howard Marks’ comments on the markets. I read his report every quarter. This report, like a few others of late, casts a very cautious tone. But if you are not closely monitoring the markets, you are likely best off simply investing in index funds. While Marks’ investments might beat the market, few among us have his investing acumen.
Yesterday, Neil, one of our readers, wrote asking about retirement planning and taxation. I am so happy to hear that people are planning for their future. You know the old adage: if you fail to plan, you plan to fail…
Anyway, Neil was reading one of my books and asked about the tax implications when planning to retire. He wanted to know if we should take into account taxes and it is best to look at expenses and current investment levels as pre-tax or post-tax. This is a very complicated question with many moving parts. Ideally, you will have money in a traditional retirement account, a ROTH account, perhaps a retain account and other sources of income. Maybe you will have alimony payments coming in, you will likely have Social Security benefits, you might have rental income from properties that you own, etc. Essentially, the answer is complicated. I suggested to Neil that he consult a tax advisor.
That said, many financial experts suggest that having 25 times your annual expense in assets should be adequate. For example, if you are spending $50,000 a year today and want to retire, you could probably do so if you have $1.25 million on hand. Some will suggest that this is enough money, others might feel that capital gains taxes will hurt your ability to retire comfortably. As mentioned above, check with a tax expert. Thanks again to Neil for his question. We receive many questions. If you have a question, please feel free to ask. I make a point of answering them all myself.
If you don’t have $1.25 million, or even if you do, you need to think about how you are investing your money. I believe that most people are best off in index funds. You could do it yourself or use one of the many robo investors. If you are looking for a robo investor, two of the most popular ones are Betterment and Wealthfront. Our friends at Business Insider contrast and compare these two money advisory sites.
If you are looking to invest on your own. Kiplinger’s just published 7 All-Weather Stocks to Buy for the Next 30 Years. In my opinion, it is a reasonable list of companies. As always, I am hesitant to suggest that anyone buy stocks as you don’t know what tomorrow will bring. I would believe that six of the companies on the list will almost certainly be here and be thriving three decades from now. You have probably heard of some of these companies, names like Disney, ExxonMobil. One company on the list which might not be doing as well as we approach 2050 would be AutoZone. As the article correctly points out:
AutoZone, Inc. (NYSE:AZO) is a phenomenal choice right now, and might be one of the most misunderstood bargains on the market.
AZO has plunged nearly 35% this year, in part on the heels of a disappointing fiscal third-quarter earnings report that saw comps decline. That has analysts panicking and lumping it in with the rest of the retail space, but AutoZone is suffering from other macro issues, as well as a hit thanks to the timing of tax refunds this year.
It’s hard not to believe that things will be changing in years to come. Amazon has taken steps infiltrate many different industries. They could easily create issues for the auto parts industry. Buying goods and services on the internet is not just for Millenials, aging Baby Boomers turn to Amazon as well… even for auto parts. A friend mentioned anecdotally, that his 73-year-old father has been buying parts from Amazon recently. Apparently, his dad contacted the local auto parts store looking an axel, while they had the part in stock, the part was cheaper on Amazon; a whopping $300 cheaper! Needless to say, my friend’s dad has continued checking with Amazon before buying any other auto parts. On two additional occasions, he found the parts he needed for hundreds of dollars less on Amazon.
Granted, this is just one data point; too small of a sample to be meaningful. Still, I find it telling. Thirty years from now, how many people will own their own cars? How many people will be fixing their own cars?
Thirty years ago, companies like Sears and Eastman Kodak were part of the Dow Industrials. One of these companies is gone, the other is hanging on by a thread. It’s hard to predict what the future holds. Even some of the safest, most trustest names on the list may not be thought of the same way in the future.
In the latest report from Howard Marks, he mentions a passage from a 1997 Amazon letter to its shareholders:
We established long-term relationships with many important strategic partners, including America Online, Yahoo!, Excite, Netscape, GeoCities, AltaVista, @Home, and Prodigy.
At the time, some twenty years ago, many of these companies were tech leaders. Where are they now? Few, still exist. Several have been swallowed up by other companies.
It’s difficult to predict the future. It’s hard to find a “set it and forget” investing plan which involves buying individual stocks. Warren Buffett suggests that most of us are simply better off putting our money in a low-cost index fund. I couldn’t agree more. Sure there will be times when prices and your portfolio values will fall, but over the long haul, you will likely do just fine investing in index funds.
Speaking of money advisors, one of the wealthiest men, Warren Buffett, and his close friend Bill Gates have been the two wealthiest men in America. Well, step aside you two, there’s a new sheriff in town. Amazon’s stock price has been on a tear of late (although it’s down over 0.5% as I write this) and the company’s CEO Jeff Bezos has leapfrogged Buffett and Gates and Bezos now sits atop the heap as the wealthiest man.
Facebook handily beat earnings estimates and it’s now worth more than $500 billion.
Cannabis, not can of beer
While I suggest that most people are better off investing in index funds, some will choose to buy individual stocks. If you are weeding through the new offering, you might find a green-ish offering. In a highly anticipated move, High Times, the marijuana publication, has elected to go public. Business for this cannabis-based magazine must be booming. Revenue from pot sales in Colorado has now exceeded half a billion dollars since pot was legalized in the Centennial State. But as marijuana sales are lofty, beer sales are in the drink. According to CNBC, Goldman Sachs downgraded both Boston Beer Company and Constellation Brand on the data that younger consumers aren’t drinking as much alcohol as older generations, and the ones who do prefer wine and spirits.
Some folks are glass half-full sorts, others are more pessimistic. Few would think of Elon Musk as pessimistic, but when compared to Mark Zuckerberg and discussions of AI, count the Telsa head man as less-than positive on artificial intelligence.
It’s summertime, and many of us take our vacations at this time of the year. Many Millenials value experiences over worldly goods. If you like to travel, here are 7 Countries Where You Can Travel on $30 a Day or Less. While I am a huge proponent of world travel, I would not suggest going into debt in order to visit other lands and learn about their cultures. Debt should be avoided at all costs. Invest as much as you can for your future. But if you have debt, what should you do: Should I pay off debt or save?
Debt, especially credit card is soaring. According to 720 Global, total government debt plus total personal debt in the United States was just over 3 trillion dollars in 1980. That broke down to $38,552 per household, and that figure represented 79 percent of median household income at the time.
Today, total government debt plus total personal debt in the United States has blown past the 41 trillion dollar mark. When you break that down, it comes to $329,961.34 per household, and that figure represents 584 percent of median household income.
Some are trying to kick the habit cold turkey. The folks at Michigan State University Extension offer some help in how to get rid of credit card debt. If you have debt, you owe it to yourself to make eliminating your debt a top priority.