Financial

To set the stage, a rising market is often called a bull market. This comes from the idea that an attacking bull starts low and moves upward. A bear market is declining, reflecting a bear attacking downward. These vicious characters often battle it out in the financial media as the bulls versus the bears.

We are beginning to enter familiar territory where the media will soon comment on taxi drivers offering stock tips, I read somewhere that this cliché actually began with elevator operators or shoe shine boys back in the day.

As the excitement of the bull market becomes inescapable in the media the lay person begins buying stocks. These retail investors are average Americans who get caught up in the buzz and decide to “play” the market.

The great recession of ’08 is disappearing into the foggy rear-view mirror of memory, and besides, wasn’t that about mortgages anyway? A recent Bloomberg article notes: “retail investors in the U.S. are showing the most enthusiasm for stocks since the nine-year bull market began, another signal of growing optimism as financial markets hit new highs.”

The trouble is, these investors are arriving very late in the game, the brokerages are more than happy to sell them stocks, and the brokerage is happy to provide free research reports that say things like “company ABC is a strong buy.” It can be quite convincing in the moment.

Bear & bull cycle after bear & bull cycle there are always individuals who are late to the party, and when the party is over they are left with losses. Large institutions spend tons of money studying market cycles, and can read the tea leaves early. When they leave the party, they move the markets by selling tremendous amounts of stock in droves. The $300 billion-dollar pension fund just called Uber, and didn’t say goodbye! These institutions will return to the protections noted earlier, and will buy things that profit from the very drop itself.

The individual who arrived late is enjoying their first glass of punch only to notice everyone has left and the DJ is packing up. They hadn’t been thinking about selling, are left wondering what happened, and begin making comments about how it’s a sham and just like gambling.

This is not a forecast that the bull market is over right this minute, and that everyone should run to the exits. The stock market is not something a retail investor should use to make a quick buck, or try to time. Speculation is best left to the professionals who do that for a living and typically have the bottles of antacid to prove it.

Investing in stocks for most people is best done with a very long view and as part of a diversified portfolio that holds things like bonds and cash as well. The long-term investor knows there will be ups and downs, expects them, and is prepared to weather those storms. The long-term investor owns stocks for decades, investing, and reinvesting, regardless of market prices. The savvy long term investor will want to buy stocks when the market is low, and the headlines begin to comment on the death of stocks. This is when our burned party guest is swearing off stocks, “forever this time.”

A famous Warren Buffet quote summarizes this mentality perfectly: “I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep.”

If you own a diversified portfolio and rebalance on a regular basis, you are engaging in this very practice, you will be selling stocks as they rise and buying stocks as they fall. Yes, there will be short term losses on paper from time to time, but history speaks for itself, and the disciplined long-term investor typically succeeds with the right tools.

With this kind of approach, you’ll never be late to the party. You’ll enjoy the punch, take a spin on the dance floor, make it home safely, and not spend any time worrying about the stock market.

We believe your investments are more than a slew of numbers and graphs; they are an extension of you. They are part of a broader portfolio: a life portfolio.

If you’ve talked with other financial planners or advisors, you’ll see quite a few differences at Buoyant. We offer personal, customized solutions to help prepare you for your financial needs now and in the future. Our approach allows for the creation of a healthy, dynamic, flexible plan for your financial management and retirement plans based on your individual situation.

Interest rates remain stubbornly low, which has been great news for borrowers, and bad news for savers. Many of us fall into both categories; we love the low rates for mortgages and car loans, and loath them because of the drag on savings and investments. This all started during the Great Recession, but the persistence has some confused and frustrated.

Typically, when lots of newly “printed” money comes into the economy and the economy recovers, which it did some time ago, inflation begins to surge. This leads the Fed to begin selling the bonds it had purchased, which soaks up the printed money by replacing the cash with the bonds, undoing what it did essentially. When the Fed sells a bond, the cash it receives from the buyer is effectively destroyed.

Now we are in a period of low unemployment, the stock market has recovered (and then some), but inflation remains low. This stubborn and unexpectedly low inflation is where we are today. And so, the Fed has not been able to sell those bonds and soak up all of the money “printed” during the crisis.

At this point the continued low rates are confusing many people, and the subject of much debate. Some feel it reflects poor expectations of long-term growth, while some blame it on Europe, as they buy U.S. bonds because rates there are even lower, and some blame it on the Fed itself. What will happen and what does this mean for most people?

“This time it’s different” is attributed to John Templeton as the four most dangerous or expensive words in the English language. However long it takes, markets tend to return to long term averages.

When this occurs, it will affect different markets in different ways. As rates rise, mortgage and loan rates will increase, the price of bonds will decrease, and stock prices will experience downward pressure. Home prices will not rise as quickly because it costs more to borrow money, but rates on savings accounts and CDs will go up. However, it doesn’t have to be all bad news.

If you have recently refinanced your home, then you should be locked in for a long time. The rates on bank accounts will improve. And with a disciplined, consistent approach to long-term investing, portfolios should weather the storm.

After all, if interest rates are increasing they keep inflation under control, and nobody likes inflation! That also means the U.S. economy is gaining strength, which is always good news.

The bitcoin is getting a lot of attention these days, mainly due to its surging value. It has attracted many speculators as a way to make a fast buck, but few people understand what this “crypto currency” represents and how it functions. Let’s take a quick look at crypto currencies overall, the technology, the bitcoin, and how similar technology may be used in a very different way.

How bitcoins are created and how these ledgers are managed is highly technical, but the important thing is that it does work. The more interesting aspect, and what will be more useful in the future is this concept of the blockchain and distributed ledger.

The technology can be used for a variety of purposes outside of creating currencies. One example is validating ownership and provenance of digital texts, art, and images. Another example is the Smart Contract where a blockchain is used to release funds as terms of a contract are met, eliminating certain trust issues when two parties don’t know each other – the new escrow of the digital age. This will be a game changer as we plow forward into an evolving shared economy. Uber, Airbnb, and eBay are just the tip of the iceberg. In practice, this technology will happen behind the scenes, but it opens up many new possibilities with an answer that is less complex than what would be needed today.

The bitcoin itself may ultimately not be as important as the doors the technology is opening, but what about the bitcoin? People are buying them because the price has been increasing, and the price has been increasing because people are buying them. At the moment, we are looking at a huge speculative surge. What is the basis for the value of the bitcoin? I was hoping you’d know, and if you do, please let me know.

If we are buying anything for speculative purposes the underlying assumption is that the current price is wrong, and we think that thing is worth some higher price. The problem is we don’t know enough to know how the bitcoin should be priced, and to make matters worse, people aren’t just trading in their dollars for bitcoins, they are also trading yen, euros, pounds, francs, etc. This means you would also be engaging in complex foreign currency trading at the same time (even if it doesn’t seem like it) when simply “investing” in bitcoin.

If you want to buy something, and the only payment accepted is bitcoin, then you would have to buy bitcoins, but hopefully you would only own the bitcoin itself for a short time, which isn’t very risky. Then again, if you are buying things only sold in bitcoin, you lead a much more interesting life than most of us.

While the bitcoin is fascinating, and is made out to be very sexy and sophisticated in the media, it is just about as risky as it gets in the world of investing. That said, as we have seen here, the technology making it possible could lead to very cool things in the future.