Money Monday

MONEY MONDAY 11/26/18

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Topic #1: Investing

It's been a crazy few weeks in the stock market, hasn't it? So, how are you feeling? Is it painful for you to see the stock market dropping so frequently like it's been doing? Or are you keeping calm?

Let's back up and explain WHY stocks are on a downward swing: things are still pretty rocky with China (no trade deal yet)… the Federal Reserve got a little too aggressive with some of their recent communications… the "Brexit" drama is back… and slowing earnings and economic growth.

The good news: the most recent corporate earnings season was strong. 93% of large companies have reported earnings. Compared to the same time last year, sales, on average, have grown about 8% and earnings have increased 26%.

But looking into next year, earnings growth could end up closer to 5% than the expected 10%. As long as recession risk remains low though, earnings should still climb.

Why are earnings expected to be lower? Stronger dollar (57% of revenue from S&P500 companies comes from outside the US), tariffs (especially hard on retailers), and lower oil prices (good for you, bad for energy companies)

And that's the REALLY good news: at Simply Money Advisors, we still see a very low risk of recession over the next 6 to 9 months. And as a stock investor, THAT'S what you should be focused on… because RECESSIONS ARE WHAT KILL BULL MARKETS.

The important lesson during times like these is to not make emotionally-based decisions. Because we get it. It's not fun to see your account balances fall. But if you "panic sell," then you're "locking in" your losses! (Another piece of advice: stop looking at your accounts so often!)

And if you ARE freaking out, that's a sign that your investment mix of stocks and bonds might not be right for your needs or goals. Work with a credentialed financial advisor (such as a Certified Financial Planner or Chartered Financial Consultant) to pinpoint your true risk tolerance. A financial advisor can also be your "emotional buffer."

One more reminder: if you have any money you need within the next 3 to 5 years, it should not be in the market AT ALL!

HERE'S THE SIMPLY MONEY POINT

When there's market turbulence, don't make any rash decisions. Remember that you're in this for the long term.

#2: Enquirer

Every Sunday, you can find the Simply Money column in The Cincinnati Enquirer and on cincinnati.com

Judy: I have some charities listed as my beneficiaries on my 401(k) and IRAs. Is this a good idea for when I pass away?

#3: Retirement

Prioritizing what you need to get done before retirement can be difficult. But one thing you should DEFINITELY focus on is trying to go into retirement debt free.

Why? Because debt in retirement is a growing problem: 1) In 2007, 31% of families age 75 and older had debt. Today, about half do. 2) In 1995, 22% of homeowners age 65 and older carried a mortgage. Today, 41% do. 3) 2.8 million Americans over 60 have student loan debt.

Primary reasons to pay off debt before retirement: 1) We've met with many retirees who work longer than they wanted to because they carry debt. 2) You can't borrow for your retirement. 3) It's difficult to cover more fixed costs with fixed income.

Here's what to do if you have debt and near retirement: 1) Separate "bad debt" and "better debt": Bad debt is high interest and more avoidable: think credit cards and car payments. If you have a little bit of a mortgage to pay off in retirement, that's better-- not great, though.

Remember, credit card debt is expensive and NOT tax deductible.

This helps you prioritize which debt to pay off. You want to tackle your variable, high interest debt first; usually your credit card debt. Start with small, actionable steps.

2) Consider reaching out: 1) Because of rising interest rates, the window to refinance your mortgage is closing. Sorry, you missed out on historically low interest rates. 2) Sometimes debts, like medical debt, can be renegotiated to more favorable terms.

3) Co-sign at your peril: You could have worked hard and saved well, but co-signing a child or grandchild's student loan puts your future at risk.

4) Change your lifestyle: Taking care of your debt before retirement requires a budget and maybe some lifestyle changes. We've seen people take care of huge amounts of debt, or make up for lost savings, but it takes discipline and practice.

In most cases, you do not want to dig into your retirement savings to pay off a current debt.

The only exception may be if you have a MASSIVE amount of savings, a small mortgage, and your at an age where you will not be penalized.

HERE'S THE SIMPLY MONEY POINT

Get rid of your debt before retirement. If that is not possible, try to restructure your monthly payments so they are as low as possible.