Money Good

It’s 2018 and the stock market has picked up right where it left off with its best week in over 13 months to begin the year! What does the rest of the year have in store for us? We’ll take a peak at 2018 and consider an idea for a very simple 3-fund portfolio…

Predictions

Bloomberg’s average analyst prediction has earnings in the S&P500 increasing from $128.6/share in 2017 to $148.30/share in 2018. That’s a 15% growth rate, and 1 point above the 14% prediction we saw for 2017 (where we ended with a 22% gain in the S&P). Americans haven’t been this bullish on stocks since Ronald Reagan was in office! I’ve even seen GDP predictions topping 4%…

horse race
This is what my portfolio looks like these days…

I’ve seen the big banks posting 2018 predictions ranging from 5% to 19% in terms of gain for the S&P500 this year. Big bulls are again seeing big gains, but even the skeptics predicting modest increases.

We’re Money Good Then, Right?

Does this mean we are guaranteed “money good”? Not a chance! Wall St. predictors can be, and is often wrong. I wouldn’t trust them any further than I could throw them. And surely we all know there is no such thing as a “sure thing”. At least I hope so…

2017 stock picks
Only one “prediction” for hot stocks beat the market in 2017. Some Fools even managed to lose money…

What the market ends up doing this year should have no bearing on your investment plan. In fact, If I was 25 again with money to invest, I’d be hoping for a big market correction soon so I could get some money in the market at a large discount relative to my investing timeline.

Fear

Obviously we still have the fear-mongering and those with 2008 fresh on their minds screaming that the market it too expensive. As usual there will be a lot of noise you’ll have to tune out. Turn on the squawk-box right now and pundits will be talking about the market being “over bought”, too expensive, and perilously high. You’ll hear talks of crashes, bubbles, corrections, and ads for 4-hour erections. It’s noise. Don’t buy the guys looking to get rich quick and don’t buy the guys predicting total systemic destruction.

a perils noise burst
A Perlin Noise Burst – you’ll have to fight to tune out the noise…

I’ll be the first to agree the market IS expensive right now, but my plan for money going into the market today is still 20 years or more. I’m not looking to get in now with a plan to cash out in order to buy fireworks this 4th of July. If that was my plan, I might be a little twitchy. With a timeframe exceeding 2 decades I continue to try to get as much money as I can into the market now, knowing the market has never lost money over a 20-year timespan. Never

As a long-term investor, the worst twenty year time frame of the S&P500 resulted in a return averaging 6.4% per year over the twenty years ending in May 1979. The best twenty years resulted in a return averaging 18% per year over the twenty years ending in March 2000. You have a very good chance of very good long term returns!!!

As you dollar-cost average into the market you buy less shares when they are expensive and you buy more shares when they are cheap. That is the advantage of buying month-in and month-out no matter what the market does within short timeframes. Tune out the noise, get your money in the market, and take the ride. You are money good.

A Portfolio

Your long term savings plan simply MUST have an S&P500 fund at its core. I recommend SWPPX. This fund will track the S&P500 for a mere 0.03% fee. I don’t know of a fund that is cheaper. The minimum investment to get started is $1 and the minimum subsequent investment is (you guessed it…) $1.

A simple 3-fund “Portfolio 1” versus the S&P500 does very well.

In terms of allocation you can keep this very simple. I would recommend 50% in SWPPX, and then I’d dedicate 25% to small caps via SWSSX and 25% to international equity via SFILX. That is a simple, inexpensive, and very effective 3-fund portfolio. It would carry the beginning investor up to $50,000 or so in assets before you might want to start looking at diversifying into some other asset classes or possibly some bonds if you are starting to see a few grey hairs like me.

Another Goal

Another goal for 2018 is more blog posts, but shorter and more quick-hitting blog posts. A singular thought or idea rather than long-winded diatribes on the nature of over-indulgence via debt, the merits of financial freedom, and the ideas of early retirement – see.. there I go getting long-winded again… Cheers! Tune in next time!

 

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