What’s Up (or Down) with the Stock Market

As I write this on, Wednesday, August 26^th, the stock market is up following six consecutive days of declines.  This hasn’t happened since 2009, and August looks like it might become the worst month for the stock market since October of 2008. 

So, is it time to panic?  NO. 

The stock market gets jumpy sometimes.  Financial pundits need to find reasons to explain why.  The most recent causes are: 1) China, a strange and powerful economic entity; 2) falling oil prices (but isn’t this beneficial to most companies?); and 3) fear of rising interest rates, the perpetual excuse for the last few years.  One excuse not suggested is that the economy is in bad shape. 

These may be the reasons the market has dropped 10% recently, but this is normal stock market behavior.  It just seems odd because the market has done so well since the near-economic collapse of 2007/08.  The Standard and Poor’s 500 Stock Index was at 683 in March of 2009.  At the market close on Tuesday (August 25) it was at 1868, a remarkable 177% increase in six and a half years (Yahoo! Finance, August 25, 2015). 

The stock market is not an isolated creature that reacts to certain stimuli; it is composed of thousands of companies, large and small, foreign and domestic.  Individual investors and enormous financial institutions decide whether to buy overpriced Stock A or sell discounted Stock B. 

This morning while ordering coffee at The Weatherstone, one of the baristas asked if I was getting lots of panicky calls from clients.  I said, “No, not one.”  I’m pleased to have an amazing collection of clients who either have listened to what I have said over the years or they scrupulously avoid listening to financial news. 

Thank goodness this is not 2007 when the economy was fragile and things were about to get worse.  “Corrections” are normal. 

Happy Birthday Social Security

Social Security is about to celebrate its 80^th birthday.  Born in the heart of the Great Depression, it has survived wars, economic crises, social upheaval and Republican Presidential candidates.  What would be the financial state of retired Americans if this program do not exist?

As workers transition from paying into Social Security to receiving monthly checks, it is a time for making crucial financial decisions.  There probably is no more important time in an individual’s life to do financial planning than in their sixties.

This is a complicated system, but the most common Social Security decision concerns when to start benefits.  Retirees can start receiving income benefits at age 62.  At 66 (for those born before 1955), you can receive your “full” benefit without reduction or you continue to work.  You can wait until age 70 and receive the maximum benefit.  For each year you delay receiving benefits, your future monthly benefits would increase by 8% per year. 

I’m about to turn 67.  Yikes!!  I thought I’d be collecting SS benefits by now but decided to wait.  If I start at age 70, my monthly benefit will be 32% higher for life.  Naturally, I could have received benefits now and invested them, but I thought a guaranteed 8% return was too good to compete with.  If I live past 83 or so, I should be ahead. 

Generally, it makes sense to wait if: 1) you don’t really need the additional money currently, 2) you are in good health, and 3) you have a family history of longevity.

If you are entering this transitional phase of your life, it might be worthwhile to schedule a consultation with your neighborhood financial consultant visit your local Social Security office, or check out http://www.ssa.gov/

Tax Surprises Coming?

It's good news when the stock market goes up steadily for over five years*, but there is a downside—income taxes eventually need to be paid on those gains.

Massive market losses from 2007 to 2009 were carried forward by mutual funds and in individual portfolios. These neutralized the gains from the first few years of the recovery. For 2014, many mutual funds had large capital gains that were passed along to the fund investors.

The losses that have been carried over on personal tax returns may also be gone by now. Don’t be surprised if you pay more in taxes this year. However, know that it is better to pay more in taxes and have more money than to pay no taxes and have less money.

* At its last lowest point in May of 2009, the Standard and Poor’s 500 Index was at 700, down 55% from its high of 1,550 in October of 2007. As of the end of 2014, it was up 194% to 2,060. (Source: Yahoo Finance). It should be noted that if something decreases by half, it must double in value to get back to its starting point.

 SIDE NOTES 

Art + Photos: In December, the Sacramento Art Complex (2110 K Street Gallery) closed and was converted to co-op office space. This is the space I had been showing my photos for the last year. It is a shame to lose another Midtown art gallery. As of today, I have no photos on display on Second Saturdays. I'm hoping to have a larger Internet presence within the next month or two.

Writing: A story I wrote about my son, Ross, is included in the recently published Chicken Soup for the Soul book about Hope and Miracles.