How did the stock market do last week (August 22-26, 2016)?

Last week, August 22-26, 2016, was a rough week for the stock market and all indexes, including bonds. All stock market indexes ended the week down and the Fed’s speech from Jackson Hole, Wyoming hinted at raising rates sooner than market expectations. Next week the August jobs report will be released, which should impact the Federal Reserve’s looming rate decision.

Last Week’s Stock and Bond Index Performance (August 22-26, 2016)

  • NASDAQ -0.4% (YTD 4.2%)
  • Dow Jones Industrial Average -0.8% (YTD 5.6%)
  • S&P 500 Index -0.7% (YTD 6.1%)
  • U.S. Aggregate Bond Index -0.1% (YTD 5.4%)



How did my retirement portfolio perform last week (August 22-26, 2016)?

Below is a snapshot of my three biggest retirement portfolio movers in terms of percentage lost last week. Everything in my portfolio was down!

The below funds are held within my work 401(k) plan as well as two separate Roth IRA plans. All accounts are held with Vanguard.

  1. Vanguard REIT Index Fund (VGSLX) -0.9%
  2. Vanguard Target Retirement Fund 2040 (VFORX) -0.6%
  3. Vanguard Small-Cap Value Index Fund (VSIAX) -0.3%

Year-to-date my retirement portfolio is up 8.6%. I am my own portfolio manager. I don’t have help from a certified financial planner. I was a liberal arts major and I do all my own research on investing. My philosophy is to use low-cost index funds and its been working for me for a decade.

What is dollar-cost averaging?

Dollar-cost averaging is paramount to perform properly, and understand, when it comes to investing for your retirement. The definition of dollar-cost averaging is rather simple. It’s merely investing a fixed amount of money on a regular basis into the market, regardless of the share price.

The last part of that is vital. Invest into the market despite the share price, e.g. do not try and time the market and predict its ups and downs. Anyone who thinks they can is fooling themselves (and you!). You need to just invest. Invest regularly. If the market goes up, keep investing, because the market should continue to rise over the long term. If the market drops, drastically or mildly, continue to invest because you just bought shares on sale! You have to keep at it and continue to invest for your retirement via dollar-cost averaging.

For example, I have a set percentage of my paycheck that comes out every two weeks and goes into my employer sponsored 401(k) plan. To take dollar-cost averaging one step further, I actually invest into a Vanguard Roth IRA on the weeks I don’t get paid. So I personally buy into the market every single week via dollar-cost averaging.

My wife is independent and has her own business. We max out a Vanguard Roth IRA for her personally by making a set investment each and every month so we meet the contribution limit for a Roth IRA of $5,500.

Find your appropriate asset allocation, and for Millennials I strongly suggest you be aggressive because you have time on your side, and invest at least every month. If you can, invest bi-weekly, if not weekly and continue to invest into the stock market via dollar-cost averaging.

If you have a lump sum to invest into the market, that’s fantastic. Invest it as soon as you can. But don’t consider yourself done once you do that. Your lump sum investment should be done in addition to your dollar-cost averaging investment strategy.



How did the stock market do last week (August 15-19, 2016)?

Last week, August 15-19, 2016, the market set record highs on Monday, but ended the week flat. The Fed also hinted that it is still considering a possible rate hike in September or December.

Last Week’s Stock and Bond Index Performance (August 15-19, 2016)

  • NASDAQ 0.1% (YTD 4.6%)
  • Dow Jones Industrial Average -0.1% (YTD 6.5%)
  • S&P 500 Index 0.0% (YTD 6.8%)
  • U.S. Aggregate Bond Index -0.1% (YTD 5.6%)



How did my retirement portfolio perform last week (August 15-19, 2016)?

Below is a snapshot of my three biggest retirement portfolio movers in terms of percentage gained last week.

The below funds are held within my work 401(k) plan as well as two separate Roth IRA plans. All accounts are held with Vanguard.

  1. Vanguard Small-Cap Value Index Fund (VSIAX) 0.6%
  2. Vanguard Extended Market Index Fund (VEXAX) 0.3%
  3. Vanguard Target Retirement Fund 2040 (VFORX) 0.1%

Year-to-date my retirement portfolio is up 9.1%. I am my own portfolio manager. I don’t have help from a certified financial planner. I was a liberal arts major and I do all my own research on investing. My philosophy is to use low-cost index funds and its been working for me for a decade.

How did the stock market do last week (August 8-12, 2016)?

Last week, August 8-12, 2016, the market set record highs on Thursday due to strong earnings reports from numerous large retailers, as well as higher oil prices. Investors responded well to both of these. On top of that, nearly 70% of the S&P 500 beat earnings estimates.

Last Week’s Stock and Bond Index Performance (August 8-12, 2016)

  • NASDAQ 0.2% (YTD 4.5%)
  • Dow Jones Industrial Average 0.2% (YTD 6.6%)
  • S&P 500 Index 0.1% (YTD 6.9%)
  • U.S. Aggregate Bond Index 0.4% (YTD 5.4%)



How did my retirement portfolio perform last week (August 8-12, 2016)?

Below is a snapshot of my three biggest retirement portfolio movers in terms of percentage gained last week.

The below funds are held within my work 401(k) plan as well as two separate Roth IRA plans. All accounts are held with Vanguard.

  1. Vanguard Target Retirement Fund 2040 (VFORX) 0.8%
  2. Vanguard LifeStrategy Conservative Growth Fund (VSCGX) 0.6%
  3. Vanguard 500 Index Fund (VFIAX) 0.1%

Year-to-date my retirement portfolio is up 9.1%, which means I am beating the market by 2.5% so far this year. I am my own portfolio manager. I don’t have help from a certified financial planner. I was a liberal arts major and I do all my own research on investing. My philosophy is to use low-cost index funds and its been working for me for a decade.

Bonds Aren’t as Wretched an Investment as They Seem

By Jason Zweig / MoneyBeat – Wall Street Journal Blog

Why do so many bond investors feel nostalgic for the days when yields were negative (after inflation)?

With bonds producing near-record-low levels of income worldwide, there’s never been a worse time to invest in government and corporate debt. You earn next to nothing now and, if interest rates finally rise, you will get clobbered later.

That’s the conventional wisdom, and it’s wrong.

With 10-year U.S. Treasury securities yielding just under 1.6%, a $10,000 investment produces a paltry $158 in annual interest income. But, properly measured, the returns on bonds are higher than they have often been in the past. And, for many bond investors, rising rates will turn out to be a blessing, not a curse. Finally, even if yields go lower from here, bonds will still provide valuable insurance against losses in the rest of your portfolio.

With bonds, as with all investments, what counts isn’t how much you earn but how much you keep. That 1.5% return on the 10-year Treasury is nominal — literally, “in name only” — because it doesn’t account for how inflation erodes the purchasing power of your interest income over time. By subtracting any increases in the Consumer Price Index from the nominal yield, you arrive at what’s called the real yield — how much income you keep after inflation.

With the CPI up at a 1% annual rate,  you are earning a real yield of 0.5%.

You shouldn’t jump for joy at that. But don’t let anybody tell you the return on bonds is so much lower than in the past that they aren’t worth owning at all anymore.

Let’s think back to 2011, when nominal 10-year Treasury yields were just under 2.8% — nearly double today’s rate. But inflation ran at 3% in 2011, so the real yield was negative. U.S. bonds have had negative real yields in almost one out of six years since 1800, according to Harvard University economist Carmen Reinhart.

Why, then, do so many bond investors feel nostalgic for the days when yields were negative after inflation, while they feel cheated by today’s marginally positive real income?

Blame the “money illusion.”

The term was coined by Irving Fisher, an economist at Yale University, in his 1928 book of the same name. Fisher defined it as “the failure to perceive that the dollar, or any other unit of money, expands or shrinks in value.”

In the money illusion, nominal figures jump out more vividly than real numbers.

Would you rather receive a 2% yearly raise when inflation is running at 4% annually, or a 2% pay cut when inflation is nonexistent? Either way, you keep only 98 cents on the dollar after adjusting for its purchasing power. But the 2% raise, even though it is less than the increase in the cost of living, makes you feel better; that nominal gain distracts you from the real loss.

A nominal pay cut feels like a direct insult or injury, while calculating the real rate takes an extra mental step.

In a classic experiment, people were asked who would be happier: someone who got a 2% yearly raise when inflation was zero or someone who got a 5% raise when inflation was 4%.

In real terms, the first person is 2% better off, while the second earns only 1% more than before. Nevertheless, two-thirds of those surveyed said the person with the 5% raise would be happier and less likely to accept a job offer from a competing firm.

The 5% is simply a bigger number than the 2%. So it feels like a greater reward, even though inflation eats up more of it.

Bear that in mind when you find yourself pining for the good old days of higher bond yields. Many of those days were worse than today.

And what if interest rates rise?

The Barclays U.S. Aggregate Bond Index, a measure of the fixed-income market, would immediately go down in price by about 5.5% for each one-percentage-point rise in rates.

But when rates rise, you can reinvest your income steadily over time in new bonds with higher yields. So long as inflation remains moderate, the ability to reinvest at newly higher rates will ultimately raise your yield, not lower it.

Still, many long-term bonds would lose 20% or more in only a one-point rate rise. “Investors should be prepared for increased volatility and greater losses than they’re accustomed to,” says Gemma Wright-Casparius, a fixed-income portfolio manager at Vanguard Group. “People think they’re immune from that, but they’re not.”

Fortunately, only about 6% of the $85 billion that has flowed into taxable-bond funds this year has gone into long-term portfolios, estimates the research firm Morningstar. Such risky funds are only for folks who find roller coasters relaxing.

The generation-long bull market in bonds is probably drawing to a close. But high-quality bonds are still the safest way to counteract the risk of holding stocks, as this year’s returns for both assets have shown. Even at today’s emaciated yields, bonds are still worth owning.

By Jason Zweig / MoneyBeat – Wall Street Journal Blog

How did the stock market perform last week (August 1-5, 2016)?

Last week, August 1-5, 2016, the market started off with a dip due to European banks scaring the whole world market. However, a very strong jobs report (much better than expected) released later in the week, moved the S&P 500 and Dow Jones Industrial Average to all-time highs. Stocks had seemed to be petering along all summer until this report. Next Friday there will be a retail sales report released, which will indicate how well U.S. economic growth is.

Last Week’s Stock and Bond Index Performance (August 1-5, 2016)

  • NASDAQ 1.1% (YTD 4.3%)
  • Dow Jones Industrial Average 0.6% (YTD 6.4%)
  • S&P 500 Index 0.4% (YTD 6.8%)
  • U.S. Aggregate Bond Index -0.6% (YTD 5.3%)



How did my retirement portfolio perform last week (August 1-5, 2016)?

Below is a snapshot of my three biggest retirement portfolio movers in terms of percentage gained last week.

The below funds are held within my work 401(k) plan as well as two separate Roth IRA plans. All accounts are held with Vanguard.

  1. Vanguard Small-Cap Value Index Fund (VSIAX) 0.8%
  2. Vanguard Target Retirement Fund 2040 (VFORX) 0.4%
  3. Vanguard REIT Index Fund (VGSLX) -2.5%

 

Top 10 Mutual Funds for Millennials

Update: Read 2018’s 10 Best Mutual Funds for Millennials

Suggested Reading: Best Smart Beta ETFs for 2018

Become a Millennial Millionaire

Millennials, are you looking to become financially independent, and eventually a wealthy ‘Millennial Millionaire‘? We’re extremely lucky to be at an age where compound interest makes all of that way more attainable than most Millennials believe. Regardless of your income.

If you invest in a low-cost mutual fund via dollar-cost averaging, e.g. investing regularly (month, weekly, bi-weekly) then you’re on one of the surest paths to wealth. But you have to start investing now. The best time to plant a tree was 20 years ago…the next best time is today. Same goes for investing. Millennials should begin investing right now and make saving regularly a habit, e.g. pay yourself first, always.

10 Best Mutual Funds for a Millennial

  1. Target Date Retirement Funds (2045, 2050, 2055, 2060)
  2. Total Stock Market Index Fund (VTSAX)
  3. 500 Index Fund (VFIAX)
  4. Small-Cap Value Index Fund (VSIAX)
  5. LifeStrategy Growth (VASGX)
  6. Vanguard Total International Stock Index Fund (VTIAX)
  7. Emerging Markets Stock Index Fund (VEMAX)
  8. Value Index Fund (VVIAX)
  9. Small-Cap Index Fund (VSMAX)
  10. Intermediate-Term Bond Index Fund (VBILX)




My aforementioned list of the top 10 mutual funds for a Millennial is made up of all Vanguard funds. I absolutely love Vanguard and their funds, which are the lowest cost funds out there. Keeping your fund expenses low is extremely importing, and that’s what Vanguard has set up to do.

Index Funds for Millennials

Of the 10 funds listed, 8 are index funds. The Target Retirement funds are not “index” funds, however they are comprised of 3 index funds to create one fund. The LifeStrategy fund is the exact same concept. Its comprised of 4 index funds and stays steady at an 80% stock / 20% bond asset allocation, whereas a Target Date fund adjusts to be more conservative and increase your bond allocation as time goes on and you get closer to retirement.

All of the Vanguard mutual funds are fantastic standalone funds you can use in your retirement portfolio. The only fund listed that I would never invest 100% on my assets in is the Intermediate-Term Bond Index Fund. That is to supplement another fund listed. For example, you could invest 85% in the Total Stock Market Index Fund, and then 15% in the Intermediate-Term Bond. The first fund is really interchangeable.

Millennials, today is the day to begin investing for your future. Invest today so you can become a wealthy, financially independent ‘Millennial Millionaire’ tomorrow. But you have to start investing in mutual funds now. I would recommend opening a brokerage account with Vanguard, Schwab or Fidelity.

Update: Read 2018’s 10 Best Mutual Funds for Millennials

Suggested Reading: Best Smart Beta ETFs for 2018




What do Millennials invest in?

I hear this question a lot, “as a Millennial, what exactly should I invest in for retirement?”

A lot Millennials aren’t sure which mutual funds or ETFs they should be investing in for the greatest success. I am a Millennial and I’m very proud of my personal performance on my retirement portfolio, which I’ve 100% managed myself.

My personal rate of return since I began investing in 2008 is 9.8%. I am my own financial advisor because I don’t want to spend the money on one. And I strongly believe you should be too.

What I invest in for retirement as a Millennial

My work Roth 401(k) retirement account

  • Vanguard 500 Index Fund Admiral Shares (VFIAX)
    • Expense ratio = 0.05%
    • % of my work Roth 401(k) = 55%
  • Vanguard Extended Market Index Fund Admiral Shares (VEXAX)
    • Expense ratio = 0.09%
    • % of my work Roth 401(k) = 25%
  • Vanguard LifeStrategy Conservative Growth Fund (VSCGX)
    • Expense ratio = 0.14%
    • % of my work Roth 401(k) = 20%

My Roth IRA retirement account

  • Vanguard Target Retirement 2040 Fund (VFORX)
    • Expense ratio = 0.16%
    • % of my Roth IRA = 100%

My wife’s Roth IRA retirement account

  • Vanguard Small-Cap Value Index Fund (VSIAX)
    • Expense ratio = 0.08%
    • % of Roth IRA = 42%
  • Vanguard REIT Index Fund (VGSLX)
    • Expense ratio = 0.12%
    • % of Roth IRA = 40%
  • Vanguard Target Retirement 2040 Fund (VFORX)
    • Expense ratio = 0.16%
    • % of Roth IRA = 18%

Overall my asset allocation mix is 90% stocks and 10% bonds. I know I am very aggressive with my investment mix, but I feel strongly about that aggression as a Millennial, considering I have just under 30 years before I will retire (hopefully by the age of 60). I will begin to get more conservative as I hit 40 years old.