FINANCIaL
FIELd NOTES
Is Buying the Biggest Stocks In the S&P 500 a Bad Idea?
The S&P 500 is at some of its highest concentration levels ever. The top 3 stocks make up over 20% of the entire index’s value. That means it’s quite difficult for the market to do well without these companies performing well. Thankfully, they have delivered. Starting in 2016, they even got their own acronym (FAANG—standing for Facebook (META), Apple, Amazon, Netflix, and Google—since then, Microsoft and others have been added).
Many called it a top in these companies back then, but big tech has continued to carry the market higher. This is one of the rare instances in which investing with the consensus actually worked. They just kept going higher. Despite some hiccups along the way, they all have outperformed the index…
Why The Federal Debt Isn’t Something to Panic Over (Yet)
The high US debt levels have been a popular topic of media attention, especially since the COVID crisis, when rapid stimulus led to rising inflation and a faster-growing debt load for the nation.
While I strongly encourage excessive borrowing in personal finances, I don’t think the nation’s debt load is out of control. For one, the debt relative to the nation’s output (GDP) is relatively stable. Despite an increase over the past few years, the amount the US spends on interest payments is still below the levels of 1980-1990…
How to Invest With Patience
With the stock market reaching all-time highs, some investors may be tempted to wonder when the next meltdown is coming. While the media will print scary headlines, the truth is that nobody knows. While you may have heard investment mantras like “be patient,” it’s an entirely different thing to actually be patient once volatility strikes.
So how can we be more patient? James Clear in Atomic Habits says “disciplines people are better at structuring their lives in a way that does not require heroic willpower and self-control.” Put more simply, they remove temptations…
Why I’m Cashing Out My I-Bonds
In January 2022 and January 2023, I purchased I-bonds to replace part of our family’s cash savings. In 2022, when I-bond rates were over 7%, I wrote about how if you had cash that you could afford to tie up for a year, I-bonds were a good option. Rates then peaked in the middle of 2022 at nearly 10% before starting to come back down. Last year around this time, I wrote about how I still thought I-bonds offered a reasonable rate over alternatives.
In 2023, inflation came down and I-bond rates linked to inflation continued to decline. However, late last year and early in 2024, inflation stopped its downward trend and I-bond rates stayed elevated – over 5%. For this reason, I opted not to cash out my I-bonds. However, the Treasury just announced the new I-bond rate of 4.28%…
How to Save Your Retirement Investments in a Recession
Last week I discussed how the 4% rule is a good starting place for retirees. But to get the most out of your retirement, it’s important to go beyond this. The answer for many is to use Dynamic Withdrawal Rules where spending is slightly adjusted based on the market environment.
By being flexible, you can on average spend significantly more throughout your retirement. When your withdrawal rate gets too high because of increased spending or lower returns, you cut spending modestly. When your withdrawal rate gets too low because of lower spending or higher returns, you can increase spending.
Historical Results of a 4% Withdrawal Rate (1928-2023)
One often-quoted rule of thumb in retirement planning is the 4% withdrawal rate. It suggests that retirees can withdraw 4% of their initial investment portfolio balance annually, adjusted for inflation, without significantly depleting their savings over a 30-year retirement period. But how does this rule hold up under the scrutiny of historical data, particularly for a balanced investment portfolio?