Memorial Day is upon us again and for many it will just be a day off and a time to barbecue. Yet, as I stress every year, and it will be again this year, the day should be a grim reminder of those who sacrificed their lives to ensure our freedom.
Unfortunately, as we age, the devastating effects of armed conflict tend to wear off. Few can tell of the untold horrors of the Holocaust. A younger but grizzled generation pushes memories of the sweet, foul smell of napalm and scorched flesh deeper and deeper into the dark recesses of their minds.
Since the beginning of the war in Afghanistan following the attacks of September 11, 2001, more than three quarters of a million Americans have deployed in Afghanistan and more than 2,300 American soldiers have died.
The shocking impact of young soldiers with missing limbs or suffering from PTSD should serve as a never-ending reminder of the endless violence taking place across the world in the name of peace … oh, and yes, religion.
Likewise, the horrors unfolding in schools and synagogues across the country make it clear that violence knows no bounds.
You are probably wondering how these comments relate to investing on Wall Street. They don’t … except to point out that Memorial Day is a great time to think again about the phrase, “Don’t ask what your country can do for you, but what you can do for your country.” “
That would be great advice for Wall Street. Unfortunately, the deaf attitude of the street is only upset by its pure and simple indulgence. Moreover, the financial largesse that now floats freely in the temples of Wall Street is unlikely to ever make it to Main Street.
Which brings us to the more relevant subject of the current investment climate and more specifically to the possible choices for moving some of your holdings from stocks.
Too often the subject is exploited with terms as flawed as “the market goes up, sell” or “the market goes down, sell”. Or worse yet, “Sell in May and go.”
Deciding when and what to sell is the toughest decision for an investor. Since it’s Memorial Day weekend, again let me suggest you contemplate the words written over a century ago by Catherine Lee Bates in “America the Beautiful.” She wrote: “Confirm your soul in self-control.”
A proven analytical approach is to ask yourself this question: Would you buy a stock that you currently own, given the current market structure and prices?
To answer this question, ask yourself if the company has been increasing its dividends for at least 10 years and has intrinsic value using a discounted cash flow methodology that is hopefully always above the market price. . However, you should probably take into account the problems created by COVID-19. If you thought you would, then I should ask you why you would consider selling it.
And what about the bond market? Unusually low interest rates have pushed up bond prices. Consider that when bond interest rates rise, and over time they are likely to do so, bond prices are inversely proportional to interest paid, which means bond prices will fall.
As I have pointed out many times, bondholders or bond fund owners do not participate in the growth of companies and are subjected to the pain of inflation without compensation.
If mutual funds are a potential choice, always consider the issue of fees and expenses. According to the Investment Company Institute, the mutual fund trading group whose data can be found in a number of financial publications, mutual fund fees average 1.44% on equity funds, 1.02% on bond funds and 0.24% on money market funds.
If your funds are professionally managed, you should add these fees. Note that I exempt 401 (k) programs, which can only use mutual funds.
The late John Bogle, who founded Vanguard, has been asked to point out that a mutual fund’s expense ratio understates the total costs that investors pay. You have to add transaction fees, sales charges and the “drag” of a fund manager who holds cash.
In summary, you will likely find that a portfolio of stocks with a low turnover rate is the most effective at standing the test of time.