Archives for September 4, 2019

Stocks could be in for a rough time in September if history is any indication.

The Dow Jones Industrial Average has averaged a loss of 0.75% in September over the past 30 years, CNBC analysis using Kensho shows. In fact, the 30-stock average trades positive just 47% of the time in September. The S&P 500 does not fare much better either. In September, the broad index loses an average of 0.47% and trades positive just 52% of the time. The Nasdaq Composite averages a marginal gain in September.

This September could be especially tough for investors as U.S.-China trade tensions remain high while the U.S. and global economies show signs of slowing down.

“The global macroeconomic picture continues to show fragility,” Katie Nixon, CIO at Northern Trust Wealth Management, wrote in a note. “We expect overall growth to trend lower under the weight of growing trade uncertainty.”

A 15% U.S. tariff on about $112 billion in Chinese goods took effect this weekend, in effect adding a tax on about two-thirds of consumer goods coming from China. Additional tariffs were also implemented on U.S. goods entering China. This is the latest escalation in a trade war that has been going on since last year.

Meanwhile, the U.S. manufacturing sector contracted in August for the first time since early 2016, according to a survey from the Institute for Supply Management. Manufacturing activity in Europe also contracted last month, IHS Markit data shows.

September lived up to its tough reputation on Tuesday, the first trading day of the month, as investors digested the new tariffs along with the weak economic data. The Dow and Nasdaq both fell more than 1% while the S&P 500 slid 0.7%.

Investors seeking safety from the volatility should look to gold. The precious metal has averaged a gain of 1.7% in September over the past three decades and trades positive two-thirds of the time, according to Kensho.

September has been a mixed bag for stocks over the past five years. In 2018 and 2017, the S&P 500 has posted returns of 0.4% and 1.9%, respectively. However, the index dropped 2.6% in 2015 and 1.6% in 2014. In 2016, the S&P 500 posted a slight loss. The S&P 500 had a strong September in 2013, rallying nearly 3%.

Telecoms and health care outperform, materials and tech slide

At the stock sector level, telecommunications and health care have outperformed in September over the past 30 years. The sectors average a return of 1.1% and 0.7%, respectively. Telecoms and health care also trade positive nearly 60% of the time in September, Kensho data shows. Energy, consumer staples and utilities also average slight gains for September.

But investors who are heavily exposed to materials and tech stocks should brace themselves. Materials have averaged a loss of 2% in September while tech loses an average of nearly 1%.

Consumer discretionary stocks — which include Amazon and Home Depot — fall 0.8% on average. Financials and industrials average slight losses in September.

Saving for retirement is a lifelong process. One-third of Americans think they’ll need between $1 million and $3 million saved to retire comfortably, according to a report from Charles Schwab, and saving that much cash takes decades of hard work.

But when you’re young and just starting your career, retirement is likely the last thing on your mind. It’s easy to put off saving for another day, especially when you may have a mortgage, children’s expenses, student loans, and a laundry list of other financial responsibilities to think about. Put it off too long, though, and before you know it you’ll be just a few short years away from retirement with little to nothing saved for your golden years.

Although it’s never too late to save at least something for retirement, it’s also never too early. The earlier you begin, the easier it is to build a strong and sturdy nest egg for the future.

The most common age to begin saving

Nearly 4 in 10 workers started saving for retirement in their 20s, a recent survey from Morning Consult found. Roughly one-quarter began in their 30s, and another quarter waited until their 40s or beyond to start saving. Also, 8% of workers stared very young, before age 20.

A separate survey from Nationwide found that among all American workers, the average age to start saving was 31 years old. That’s promising news, because if you start saving in your early 30s, you’ll still have several decades to build your retirement fund. Wait much longer than that, however, and you’ll need to save a lot more each month to reach your retirement goals.

For example, say you want to retire at age 65 with $700,000 in your retirement fund. If you started saving at age 31, you’d need to save around $450 per month, assuming you’re earning a 7% annual rate of return on your investments. But if you waited until age 40 to begin saving, you’d need to save roughly $925 per month to reach your goal. Delay until age 50, and you’d have to save approximately $2,300 per month.

Even if retirement seems far away, it will be here before you know it. And saving for retirement isn’t something you can do overnight — or even with 10 to 15 years of preparation. It takes several decades of saving consistently to create a nest egg worth hundreds of thousands of dollars, and the longer you put off saving, the harder it will be to catch up.

How to catch up if you’re off to a late start

If you’re behind on your savings, all hope is not lost. There are a few things you can do to make sure you can afford to live a comfortable, enjoyable retirement.

First, create a budget to map out all your expenses and see if there are areas where you can make cuts. Depending on how far behind you are on your retirement planning, you may need to make minor cuts or significant sacrifices to save as much as you should.

Sometimes, all it takes is multiple small adjustments to save a lot more each month. Divide your costs into different categories based on how necessary they are, and try to trim your expenses by at least a few dollars in each category. If you’re seriously behind on your saving, you might need to take more drastic measures — like selling your car or downsizing your home. If you’re unable to save anything more now, just remember that you’ll likely need to make major sacrifices in retirement. With little to nothing saved, you may end up depending on Social Security benefits to get by. And when the average check amounts to just $1,471 per month, you could find yourself struggling to make ends meet.

That said, Social Security can help make retirement a little more comfortable financially. Though you won’t be able to depend on it for all your expenses (your benefits are designed to replace only around 40% of your preretirement income), it can help bridge the gap between what you have and what you need. And if you don’t have much in terms of personal savings, you may be able to boost your Social Security benefits to make up for it.

One way to do that is to delay claiming benefits. The only way to receive the full benefit amount you’re entitled to is to claim at your full retirement age (FRA). Claim before that (as early as age 62), and you’ll receive a reduction in benefits of up to 30%. But delay past your FRA (up to age 70), and you’ll receive extra money each month in addition to your full benefit amount. If you’re struggling to save, that boost in benefits can go a long way.

There’s never a perfect time to save for retirement. When you’re young, you may think you have plenty of time. But it takes longer than you may think to prepare for the future, especially as retirement becomes more expensive. No matter your age, the key is to simply get started now.

Nearly one in five Americans don’t contribute enough to their employee-sponsored 401(k) plans to earn the company match, according to a new survey by MagnifyMoney. That means they’re missing out on “free money.”

“That’s your company literally saying: ‘Hey, here’s some free money, do you want to take it?’” financial expert Ramit Sethi tells CNBC Make It. “If you don’t take that, you’re making a huge mistake.”

While it’s fair to think about your employer match as “free money,” it’s better to view it as part of your total compensation package. If you contribute enough to earn the full match, you’ll get all of the money your employer owes you. That can be a significant amount: The average employer 401(k) match reached 4.7% this year, according to retirement plan provider Fidelity.

“A buy-one-get-one-free deal is how I think of it,” Monica Sipes, a certified financial planner and senior wealth advisor at Exencial Wealth Advisors, tells CNBC Make It. “The match is something that’s considered in your overall compensation, so by not taking advantage of it you’re not getting a full freight of what your employer was expecting to pay you.”

If you earn $55,000 a year plus a 4% 401(k) match and contribute at least $2,200 to your account, your employer will also contribute $2,200. If you only put in $1,000, your employer will as well, which means you’re missing out on another $1,200 that could be growing in the market.

It’s a good idea to start investing as soon as possible because it gives you more time to take advantage of compound interest. With compounding, a smaller amount of money invested earlier can grow to exceed a larger amount of money invested later.

Of course, you should run the numbers first to ensure you can afford to contribute to your 401(k), Edward P. Schmitzer, a certified financial planner and president of RCA Wealth, told MagnifyMoney. If doing so lowers your net take-home pay too much, and it would be impossible to cover living costs, you may want to wait or start by contributing less to your retirement savings now and building up over time. But aiming to contribute enough to at least earn the match is a good goal.

If you aren’t sure how your 401(k) contributions will affect your take-home pay, you can consult with your payroll manager, Schmitzer says.

When markets get volatile, people start wondering whether they should sell their stocks or move more of their money into bonds. Before you make your next investment decision, it’s worth looking at how different ratios of stocks to bonds have performed over time—understanding, of course, that oft-repeated investing phrase: “past performance is no guarantee of future results.”

That said, the Financial Samurai has an excellent summary of how different investment breakdowns have historically performed. If you went all-in on bonds, for example, you can expect a portfolio that beats inflation:

A 0% weighting in stocks and a 100% weighting in bonds has provided an average annual return of 5.4% since 1926, beating inflation by roughly 3% a year.

However, if you put 80% of your investments in stocks and 20% in bonds (perhaps in a classic Boglehead three-fund portfolio) you can anticipate a higher annual return and a lot more ups and downs:

A 80% weighting in stocks and a 20% weighting in bonds has provided an average annual return of 9.5%, with the worst year -34.9% and the best year +45.4%.

Use the Financial Samurai’s breakdown to learn more about what you can expect from different types of portfolios. Then ask yourself how much volatility you’re able to handle in exchange for a potentially higher return (with greater risk of loss, assuming you aren’t able to stay in the market until it rebounds again).

Many financial advisers would suggest weighting your portfolio towards stocks when you’re younger, and gradually putting more of your money into bonds as you age. This allows you to take advantage of market growth during a period when there’s still plenty of time to recover from a market loss, and shift your investments towards less-volatile assets when there isn’t as much time to recoup after an unexpected market downturn.

If you sign up for a target-date or lifecycle fund, your portfolio will automatically shift towards a higher bond allocation as the fund approaches its target date—though it’s worth noting that some financial advisers aren’t fans of these types of funds, since they can include high expense ratios.

Ultimately, the best and most terrifying thing about investing is that you get to decide where to put your money—so it’s worth learning as much as possible about what might happen when you divide your investments among stocks and bonds, and how you want to manage and adjust that allocation over time.