Best 43 Quotes On This Independence Day

Best 43 Quotes On This Independence Day

Originally published on July 2, 2019, updated on June 30, 2020.

The Fourth of July is approaching, with images of fireworks, hot dogs, hamburgers, and apple pie. It is a favorite time in our household, sans the apple pie as my husband is allergic to apples. This year is very different. There may be fireworks but there still is social distancing associated with the still present coronavirus pandemic. Typical events like baseball, concerts, and family reunions are virtually canceled.

Our Fault Lines Are Very Visible And Needs Fixing

This time of year is a particularly good time to be proud of being an American despite our country’s faults. When you are raised by immigrants who loved their chosen country, freedom, security, and independence were always privileges. However, fault lines have widened as realizations have sunk in that racial inequalities have not narrowed as hoped. in fact, they are reemerging and threatening our union. Peaceful protests are giving voice to needed change.

To help celebrate Independence Day this year, and every year (why not every day?) I am sharing some of my favorite quotes. You may notice that many of these quotes are apt for financial freedom and financial independence. So I took the liberty of sharing those as well. I have added new quotes to represent those who need to be heard.

Freedom and independence mean different things to different people. Today, and forever, our country needs to fix our faults. If we are to have another 244 years, we need to wipe out all our inequalities. Then we can say we are truly free as one.

America, The Beautiful

“It will be celebrated with pomp and parade, bonfires and illuminations from one end of the continent to the other.” –John Adams, Second US President

“Liberty, when it begins to take root, is a plant of rapid growth.” –George Washington

“How important it is for us to recognize and celebrate our heroes and she-roes.”  -Maya Angelou, poet and activist


“Where liberty dwells, there is my country.” – Benjamin Franklin

“May the sun in his course visit no land more free, more happy, more lovely, than this our own country!” – Daniel Webster

“There can be no true home without liberty.” – Harriet Beecher Stowe


“America means opportunity, freedom, power.” – Ralph Waldo Emerson

“It does not take a majority to prevail, but rather an irate, tireless minority.” – Samuel Adams

“America…it is the only place where miracles not only happen, but where they happen only the time.” –Thomas Wolfe, Of Time and the River, 1935 

“The essence of America-that what really unites us–is not ethnicity, or nationality, or religion. It is an idea–and what an idea it is: that you can come from humble circumstances and do great things. That it doesn’t matter where you came from, but where you are going.” – Condoleezza Rice, Republican National Convention, 2012

Let Freedom Ring!

“Those who expect to reap the blessings of freedom must undergo the fatigue of supporting it.” – Thomas Paine

“In the truest sense, freedom cannot be bestowed; it must be achieved.” Franklin Delano Roosevelt

“For what avail the plough or sail or land or life if freedom fail?” – Ralph Waldo Emerson

“All we have of freedom, all we use or know, This our fathers brought for us long long ago”. – Rudyard Kipling

“Freedom lies in being bold.” – Robert Frost

“Freedom (n.): To ask nothing. To expect nothing. To depend on nothing.” – Ayn Rand

“We must be free not because we claim freedom, but because we practice it.” – William Faulkner


“Education is the door to freedom.” – Oprah

“Lock up your libraries, if you like; but there is no gate, no lock, no bolt that you can set upon the freedom of my mind.” – Virginia Woolf, A Room of One’s Own

“Freedom is never voluntarily given by the oppressor; it must be demanded by the oppressed.” – Martin Luther King, Jr.

“Freeing yourself was one thing, claiming ownership of that freed self was another”. – Toni Morrison

“Freedom is not worth having if it does not include the freedom to make mistakes.” – Mathatma Gandhi

“Freedom’s just another word for nothing left to lose.” Janis Joplin, Me and Bobbie McGee

“For to be free is not merely to cast off one’s chains, but to live in a way that respects and enhances the freedom of others.” Nelson Mandela

“He who has overcome his fear will truly be free.” Aristotle

Our Basic Rights

“Liberties aren’t given, they are taken.” – Aldous Huxley

“It is by the goodness of God that in our country we have three unspeakable precious things: freedom of speech, freedom of conscience, and the prudence never to practice either of them.” – Mark Twain

“If I follow the inclination of my nature, it is this: beggar-woman and single, far rather than queen and married.” – Elizabeth I, Collected Works 


“I do not wish them [women] to have power over men; but over themselves.” – Mary Wollstonecraft

“My own sex, I hope will excuse me, if I treat them like rational creatures, instead of flattering their fascinating graces, and viewing them as if they were in a state of perpetual childhood, unable to stand alone.” – Mary Wollstonecraft, A Vindication of the Rights of Women

“I’ll walk where my own nature would be leading, it vexes me to choose another guide.” – Charlotte Bronte, Jane Eyre

“People have only as much liberty as they have intelligence to want and the courage to take.” – Emma Goldman

“I think the girl who is able to earn her own living and pay her own way should be as happy as anybody on earth. The sense of independence and security is very sweet.” Susan B. Anthony 

Financial Freedom and  Independence

“The highest pleasure to be got of freedom and having nothing to do, is labor.” – Mark Twain

“Everything that is really great and inspiring is created by the individual who can labor in freedom.” – Albert Einstein

“For it is in your power to retire into yourself whenever you choose.”  – Marcus Aurelius, Meditations

Erasing Inequalities For Once And For All

“To bring about change, you must not be afraid to take the first step. We will fail when we fail to try.” Rosa Parks

“Prejudice is a burden that confuses the past, threatens the future, and renders the present inaccessible.” Maya Angelou

“Without a struggle, there can be no progress.” Frederick Douglass

“There is no such thing as race. None. There is a human race–scientifically, anthropological.” – Toni Morrison

“Not everything that is faced can be changed, but nothing can be changed until it is faced.” – James Baldwin

“To suppress free speech is a double wrong. It violated the rights of the hearer as well as those of the speaker.” – Frederick Douglass

“I see what’s possible when we recognize that we are one American family, all deserving of equal treatment.” – Barack Obama


“Let not your mind run on what you lack as much as on what you have already.” – Marcus Aurelius

“All good things are wild and free.” – Henry David Thoreau

“Men spend the best of part of their lives earning money in order to enjoy a questionable liberty during the least valuable part of it.” Henry David Thoreau

“Someone’s sitting in the shade today because someone planted a tree a long time ago.” Warren Buffett

America’s Greatness

“It’s never paid to be against America. We come through things, but it is not always a smooth ride. Warren Buffett

“From a standing start 240 years ago–a span of time less than triple my days on earth– Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants and the rule of law to deliver abundance beyond any dreams of our forefathers.” Warren Buffett, 2016 Shareholder Letter to Berkshire Hathaway Shareholders

I have as big an obsession as Warren Buffett appears to have when it comes to prosperity and his gratitude to our country.

Do you have any favorite quotes on Independence Day? Please share them with us! Enjoy your holiday! Stay healthy!





















How To Talk To Your Kids About Investing

How To Talk To Your Kids About Investing


There are many ways children can be exposed to investing at an early age when they are most fungible. It is important to teach children how to save more and spend less. During the pandemic, the US personal savings rate has been well above average at 23.2% in May compared to 7.5% at the end of last year. However, the means to make any interest income on the increased saving is virtually impossible. According to the FDIC, the national average rate on savings rates stands at a paltry 0.06% APY (annual percentage yield) for all deposits. That’s chump change. With the Federal Reserve keeping interest rates near zero–possibly to 2022–interest income will stay low.

However, saving more paves the way to investing more and building wealth, particularly if you start in your twenties. The longer the time to invest, the greater the growth potential.

Why Investing Early Matters?

You should start investing early in life so as to have as long time horizon as possible for these reasons:

  • Leverage the power of compound interest  (interest on interest) earned on your initial investment for significant returns in your retirement and investment accounts.
  • Take on greater risks when you are young and able to absorb the bumps and bruises of downturns.
  • Motivate yourself to save more, spend less so that you can grow wealth.

Investing is a viable means to accumulate wealth and enjoy financial comforts. The earlier you start to save money for investing purposes, the better.  Parents should begin talking to their kids about how to handle money when feasible, exposing them to developing good financial habits.

 9 Ways To Talk To Your Kids:



1. Start Early Lessons On Saving and Investing

Conversations with your kids about anything sensitive can be awkward, especially about money. According to a 2018 T. Rowe Price survey, 66% of parents have some reluctance to discuss money matters with their children. Only 21% of the kids recall their parents speaking about money at least once a week.

Speaking to children about investing at an early age takes some of the mystique out of it for them. For parents, it is more comfortable to talk about savings, giving them a head start in math. Explain how the bank holds money for people in savings accounts and can earn money. Use an example of putting $100 in the bank ( refer to a piggy bank) that can earn 1% a year paid by the bank and grow the amount to $101. Another bank may pay a higher interest rate of 5% and grow that same $100 into $105 in one year. Nowadays, interest rates are so low that investing makes even more sense.

Picking Familiar Names They Know

Savings comes about when you spend less than you earn. Investing is taking some of your savings and putting it to work so it makes even more money. There are many kinds of investments you can make. We will stick to stocks here. Explain to your kids that when you buy a stock such as Nike, you own a piece of that company. You can grow your original investment into a bigger amount over time. Investing over the long term benefits from compounding, a magic concept that can be taught through the following book.

2. A Lesson in Compound Interest From A Folktale

Compounding interest is a powerful concept when you have a long horizon by investing early discussed here. It occurs when interest or gains are added to the initial investment (or principal) providing substantial gains. It can lead to exponential growth over long periods of time. While it is a complex idea, young children can grasp it in the form of a story as my son, Tyler did.

When Tyler was in the second grade, he came home from school one day, carrying a beautifully illustrated book, “One Grain of Rice: A Mathematical Folktale” by Demi. He was carrying this large book with a reverence that I hoped would last longer given my love of books. Tyler asked us to read the story. It is a delightful Indian folktale about Rani, a clever young girl who outsmarts the greedy king. When the selfish raj offers to reward her, she asks for one grain of rice, doubled each day for 30 days. Rani uses the surprising power of compounding to snatch 536,870,912 grains to feed her hungry villagers.

Tyler’s Stock Pick

Tyler, a teenager now, actually reminded me the other day about this story when I was finishing a recent post on the magic of compounding. He recalled that it spurred his interest in numbers and later, in stock investing. When Tyler was about  8 or 9 years old, he would sit with me as I bought stocks. As a quiet boy, I encouraged him to talk:

Mom: What stock so should we buy today?

Tyler: Costco!

Mom: Why Costco?

Tyler: It was very busy in the store yesterday. You complained to Dad that you spent more than you expected when we were there. Maybe everyone else did the same thing!

So I bought Costco shares at around $90 per share and it turned out to be a profitable investment. Of course, not all of his “recommendations” have been as good. Tyler was in a stock market game club in high school and has shown interest in learning how to invest through the years.

3. Stock Market Games As A Learning Tool

Parents can explore investing basics with their kids without losing money through simulated stock market games. These games are a great way to practice before becoming an investor in the real world. By simulating the market in real-time, the player can experience gains and losses. As such, they can be effective learning tools. Investing can be daunting for the experienced investor, let alone for those who are just starting out. Virtual games are free, fun, readily available and user-friendly. They offer participants a faster learning curve to build investment skills and better financial habits.

Our kids are digital natives and are particularly attracted to simulations. They often prefer video and simulated games to traditional modes of learning. However, the virtual games are user-friendly and can appeal to anyone, even digital immigrants. I have experimented with several games. As a result,  I have settled on Market Watch Virtual Stock Exchange by Dow Jones for my college students as well as my kids at home. You can learn more on How Stock Market Games Can Teach Investing here.

Most stock market game sites have many articles and videos to help new investors to understand differences in risk/reward trade-offs and measure your own tolerance to make more risky purchases. Feeling gains and losses are real enough and allows you to pivot in different ways.

4. Valuable Lessons Are Everywhere

There are valuable lessons that young people can learn about investing. Being patient about investing can be a virtue. There is a tendency for beginners and even more experienced investors to start trading their stocks, particularly as markets get volatile. This usually ends up as a disaster if sold stocks of good companies that dipped temporarily. Teach them that stocks don’t always go up or down in a straight line. Sometimes there is a market downturn where virtually all stocks decline but the more favorable stocks may come back sooner.

As your children get older, they can learn about investing in different and fun ways. My kids watched Shark Tank before I did and enjoyed watching which products and services were hits with the investing sharks. I encourage my college students to watch Jim Cramer on Mad Money, with his strong focus on individual investing. When my daughter, Alex,  was younger, she watched Cramer for his zaniness but told me he ranted too much for her. She now will watch parts of the show to learn more about stock investing and his interviews with CEOs of companies she is aware of.

5. Diversifying Portfolios Reduces Risk And Growth

As you engage with your kids in encouraging them to invest money into stocks or other investments, they need to be aware of the risks and rewards. Generally, investing in stocks tend to carry higher risk and higher returns than putting money into a savings account or into bonds. Diversifying their portfolio is a key lesson on how to lessen those risks. Tell them about what kind of stocks you have and how each stock represents a different kind of business. Use company names they are familiar with such as Apple, Disney, McDonald’s, and  Facebook.

My son Tyler played a simulated game in a stock market club in middle school. He had put all of his money in one stock–Amazon–when it was rising significantly. He was so excited that he was doing the best in the club. Then Amazon reported quarterly results that missed analyst expectations. They also announced a rise in capital spending for their data business. Amazon shares crashed and became “dead money,” a term investors use to mean that the stock’s performance will drag.

For Tyler, it was a learning experience about why diversification is important in your portfolio. Concentrating all your money in one stock is a risky strategy. It is not good to put all your eggs in one basket. I told him it is always best to put your money into a group of 5-10 stocks that are different from each other. This post addresses tips on diversifying your portfolio. 

6. Bonding Experience For The Family

The T. Rowe Price study found the effectiveness of financial education in the home or school were both falling short. As parents, we are often role models for them so take advantage of their impressionable years to guide them. Encourage your children’s active participation in stocks by setting up an investment account where they can make decisions on what they want to buy. Ask them to give you their reasons.

Clearly, parents can enlighten their kids regarding their own attitudes and investing strategies. Investing is a great way for families to bond together as young kids gain confidence through your experience. It is a cool way to speak to your kids about your overall values. A big area of investing is in socially responsible companies that have an aspect of social change embedded in their mission. Important issues that these stocks or funds address relate to the environment, sustainable food, energy-efficiencies, income equality, and such.


7. Be Honest With Your Mistakes

We all wish we did everything well. The truth is that we all make mistakes, especially when investing. I share my investing blunders with my kids all the time. When I first began buying stocks, I often ditched good stocks that had gone down quickly and came back just as fast.  Day trading is speculation rather than investing and is more costly due to fees and tax implications. Over time, I learned to do more research and be more patient.

Among our bigger mistakes that I often share with our kids is buying a lot of art and antiques at probably peak prices. This happened before we had kids. I was limited by my Wall Street position from investing because of purchase restrictions. Frankly, I developed the bug to buy 18th century Federal furniture and other collectibles. This is not a category for investing I would recommend to anyone unless for aesthetics as it won’t contribute to retirement savings.

8. Opening Investment Accounts For Your Children

There are several ways you can get your children started on their path to investing and financial independence. Choices vary based on whether they are a minor or have reached the age of majority, usually at age 18 in most states. Consider if you are setting this up for your children to have the ability to make choices or as a passive account where you will use low-cost index funds or exchange-traded funds (ETFs) where they may be immediately invested in a diversified basket of stocks.

A Guardian Account

If your child is underage, a guardian account would be established in the child’s name and in the parent (s) or guardian’s name. The account is owned by the parent(s) who has legal title, owns the assets in the account, and is responsible for any liabilities such as fees and income taxes. At this age, the child has no legal ownership until it becomes a joint account at the time he or she reaches the age of majority. Depending on your goals for such an account, let your child make some of the buying decisions even if it means they may lose money. Guide them as they make their choices.

Custodial Accounts: Uniform Gifts to Minors Act (UGMA) or Uniform Transfers Minor Act (UTMA)

Parents can set up custodial accounts for each child if they are under the age of 14 years. The IRS considers the minor child as the account owner, managed by the parent until the child turns age 18 years unless stated otherwise. Investments in these accounts can hold just about any kind of assets.

For children below 18, the first $1,050 of unearned income from the investment is tax-free to the child, after which the next $1,050 is taxed at the child’s tax rate, usually a lower rate than their parents’ tax rate. Income above the $2,100 is taxed at the parents’ (usually higher) tax rate. When the child turns 18, they will be paying taxes at their own rate. Couples filing jointly can contribute up to $30,000 annually for each child, or $15,000 if an individual is setting up an account. Anyone can set up a custodial account, including grandparents, aunts, and uncles.

Once the child has access to the account based on their age of majority, it is their asset. The invested money may be used for anything that child wants, including frivolous things which unfortunately the parents have little power in reclaiming that asset. We have these accounts for our kids, investing in ETFs such as QQQ. Typically, custodial accounts can be used for supplemental spending money for college.

 Roth IRA

Sometimes referred to as kiddie Roth IRAs, these custodial accounts can be opened by parents for their children. There are no age restrictions. Studies show that this generation is more aware of the need to set up IRA accounts early. Teenagers can contribute to a Roth IRA up to the earned income they make from eligible employment.

If my son Tyler is earning $2,000 as a camp counselor, he can invest all or part of the $2,000. Although there is a current maximum of $6,000 in 2020, contributions to Roth IRA is limited to his earned income of $2,000. If your teen is under 18 years, typically the age of majority, he or she are minors and a parent has to serve as a custodian. Contributions can be withdrawn at any time without penalties. The money can be invested in savings accounts although investing in a diversified low-index stock fund would likely earn far more money over a long horizon for 40 or more years.

While it would be great for your teenager to contribute as much as possible to a retirement savings account, even a portion of their earnings would be a great start. The lesson for them is the growth of their contribution is tax-free and will benefit from compounding returns over the decades.

 Investing In A 529 Plan

As parents, you should set up 529 savings accounts for your children’s college education as early as possible. Your children may not even be walking or talking yet, but that shouldn’t stop you from beginning to save for your children’s future with tax-deferred dollars. As they get older, you can talk to them about this kind of investment designed to make their college costs more affordable.

It is way too early to know if they will go to college. However, getting an early jump may allow you and your children to reduce the need to take on debt. If you haven’t opened an account yet, involve your children when you open the account and explain what it is for. It is a good education to know that saving early may reduce the need for student debt later on.

9. Young Investors Have Been Opening Accounts

Due to the pandemic, major online brokers saw growth in new accounts as high as 170% in the first quarter of 2020. They were attracted by the collapse in stocks in March 2020 as lockdowns began. Brokers such as Charles Schwab, ETrade, and Robinhood, had reported that they saw the influx of young and inexperienced people. Citi Chief US equity strategist Tobias Levkovich, said in a note to clients, “New investors who sense a generational-buying moment but do not have much background in the equity space.” Trading oriented buying has dipped in names with higher volatility and questionable fundamentals. To some extent, this speculation or gambling, particularly as sporting events have been canceled.

Robinhood, Among the Largest Investment Apps

Young people have been drawn to investment apps like Robinhood. You need to be at least 18 years old to open your own account. These apps are based on financial technology or fintech platforms that do not offer custodial accounts.

The benefits of having a Robinhood account is that it is a commission-free stock trading app that allows users to invest in stocks, ETFs, and cryptocurrency. There are no required minimums for users to trade. Young investors can buy fractional shares which is great as you can more easily buy stocks with high prices like Amazon, now over $2,500 per share. Robinhood is regulated as a securities brokerage firm by the Securities Exchange Commission. Robinhood added 3 million new accounts, ending the first quarter of 2020 with 13 million accounts. Most of their customers are youthful investors who have been attracted to their gamified online platform that some worry is additive.

A Word of Caution To Your Children About Investing

Recently, Alexander Kearns, a 20 year old student at the University of Nebraska committed suicide. It seems he mistakenly believed he had a $730,000 negative balance on his account. Not all of the facts are known about this tragic event.  Kara Swisher discusses the tragedy in this article. Questions that have been raised as to how does a young new investor with apparently no income get access to a $1 million investment?

My college students share their experiences on the Robinhood platform which has opened the door for them to invest. I am happy to hear about their enthusiasm but worry about their inexperience in trading options. Robinhood, along with the overall securities industry, needs to consider how to better warn and protect these inexperienced investors from making preventable errors of judgment.

Parents Can Guide Their Children To Learn More

.Making buy and sell decisions requires some knowledge and the need to do research. There are many free resources for new and experienced investors to read about the company. With some digging on the Internet,  stock research may be available from experienced analysts and investors such as Investing is very different than the more risky day trading many young people prefer to do. That is not to say investing is not risky. It is but trading requires a different skill set than investing for the long term.  All investors make mistakes with real losses. That is inevitable. However, even as your children enter adulthood, take an interest in what they are investing in and whether it is appropriate. Guide them to know more about the risks and rewards of stock investments.

Final Thoughts

Parents have a role to play in encouraging their children at an early age to learn how to save and invest. The gift of starting early allows your children to have a longer time horizon and leverage compound interest. Stock investing has risks but comes with rewards that can build wealth over the long term. There are ways to lessen risks through diversification. Saving for college and retirement accounts involve basic investing skills as well. By saving more, you can teach your children how to have more flexibility. They can have the funds to allocate some of the money towards their overall financial goals.

Thank you for reading! Please join us by subscribing to our blog and get our weekly newsletter. What is your experience in speaking to your children about investing? What works and doesn’t work? We would like to hear from you!













Key Financial Concepts When Saving, Investing, and Borrowing

Key Financial Concepts When Saving, Investing, and Borrowing

“Many people take no care of their money till they come nearly to the end of it. And others do just the same with their time.”

Johann Wolfgang Von Goethe

Use Time Value Of Money To Achieve Your Financial Goals

Understanding financial concepts can help you make better decisions. Time and money are inextricably related as in  “Time is money.” A dollar in your pocket today is worth more than a dollar received five years from now. Time value of money is the notion that money has the potential to grow in value over a given period of time. Today’s money can be saved or invested so that it is worth more in the future. Present value relates to what the sum is worth today. On the other hand, the future value is what an investment (or a series of investments) made today will be worth later on.

Earning Simple Interest Is Good

Invest your savings today to have more money tomorrow. The potential for this earnings capacity depends on how the money is invested or interest is paid out.  One way of calculating interest is using the simple interest formula. Here, the principal is set aside while generating income based on the interest rate. So if you had $10,000 in your savings account at 8 percent for four years, you would earn $3,200. However, you can do better by compounding the interest.

Compound Interest Is Far Better In Building Your Wealth

A different and more beneficial way is to earn income through compound interest, closely related to the time value of money. Assuming you don’t withdraw any money, compounding allows you to earn interest on interest on your balance. That is, your principal continues to rise as interest is earned. The frequency of the compounding matters.  More frequent compounding (daily rather than annually) adds incrementally to more money.

Compounding serves as the basis of the time value of money. By adopting good financial habits of saving money, compounding over time is what builds wealth. Instead of earning $3,200 over 4 years at an 8% interest rate, compounding gives $405 more or $3,605 on your initial $10,000 deposit. Over a longer period of time of 40 years, that $10,000 would grow to $217,245. Most of that growth comes from interest earned on interest. Ka-ching!

A Positive Effect On Your Money

Compound interest is one of the most powerful forces of investing. It fuels the urgency to set aside money early for your retirement. This simply means that you are adding interest to the sum of a loan or deposit, or interest on interest. Your balance grows at an increasing rate so long as you don’t withdraw money from your funds. The power of compounding is the basis of everything from your personal savings plan, 529 Savings Plan, retirement, and investment accounts. The earlier you save money, the longer the compounding works for you.

To better illustrate the power of compound interest is the classic question, “what would you rather have, a penny that doubles every day for 30 days or $1,000,000?” And the answer is ….the doubling penny which yields $10,737,418.23. Quite a bit more than the one million dollars. Take a look at our excel spreadsheet here..

Now, it is not reasonable to assume a 100% annual growth rate for any investment annually, let alone on a daily basis.

However, if you save $2,000 per year in an investment account early in your lives at a more reasonable 8% return, and save an additional $500 per month on top of that, over a 35 year period, you could accumulate $1.1 million. Try using a compound interest calculator.

Saving For Retirement Early Beneficial For Growth

The power of compounding interest, linked to the time value of money, will benefit you the most if you save and invest early. Let your earnings accumulate and grow rather than withdraw money from your accounts. It makes a big difference if you start saving for your retirement 10 years later than your friends or if you invest for 10 years and then stop contributing to your 401K retirement account. It is difficult if not impossible to catch up by doubling the amount if you start investing later on.

As a goal, try to contribute to your 401K plan to the maximum level which is $19,500 in 2020.  Some years it may be hard to do, especially when you experiencing a job loss. Resist withdrawing money from your retirement account as there is usually a 10% penalty tax to do so before you turn 59.5 years. As a result of the CARES Act, it is easier to withdraw funds up to $100,000 during 2020 from certain tax-advantaged 401Ks and traditional IRA  accounts without penalty if you are eligible. That said, withdrawing this money will put in a dent into your retirement fund that will be painful later on.

Lottery Winners: Lump Sum Or Annual Payments

There is only a small probability of winning the lottery. However, it uses the time value of money calculations (present value and future value) to decide whether to take the winnings in a lump sum or annual payments. Lottery winners, after the rush of adrenaline, have a choice to make regarding time and money. Most lotteries allow the winner to take a lower lump sum or an annuity. The annuity option is a series of annual payments.

If the jackpot is $100 million, the lottery could arrange for 20 annual payments of $5 million while investing a lump sum to fund those payments to the winner. Assuming a present value of a series of equal payments of $5 million at 6%, they would need to only $57,349,500 to fund the stream.

What Should The Winner Do?

If the winner takes the lump sum payment immediately (setting taxes aside), they would receive cash of $57,349, 500 before taxes. I used a present value of an annuity table finding a multiple of 11.4699 (at 20 years and 6%) multiplying it by $5 million. The savvy winner would have the opportunity to invest the money and take advantage of compound interest. They would have to pay federal taxes and possibly state and local taxes as well.  Most lottery winners do take the lower lump sum payment upfront.  They want to have full access immediately rather than over several years which is fine if they stave off friends and family who often benefit from this sudden wealth.

Choosing the annuity may be better for tax implications than the lump sum. The latter raises separate issues of sudden wealth and risk of overspending. That is for another post, another day. We will get back to more examples of the time and money relationship.

Becoming wealthy is not always a function of investing a lot of money. It is rather the result of investing early, consistently for long periods of time without the pressures of high levels of debt.

The Downside Of Compound Interest

When borrowing money, compound interest works against you. Your lenders are reaping the benefits of earning interest on interest on your loans. Consider this when going for a loan such as a mortgage, student loan, personal loan, and credit cards.

Using credit cards can be particularly detrimental when you carry balances rather than paying the full monthly balance. By merely paying the minimum on your monthly card balance, your debt is ratcheting up quickly with high-cost debt. Most credit cards carry interest rates in the mid-high teens level. Your lenders are channeling the Rolling Stones, “Time is on my side, yes it is..”

Manage Debt Carefully

Let’s say your credit card balance is $5,000 with a 20% interest rate, and you pay only the monthly minimum. The average minimum is usually a small percentage such as 3% of the balance or a flat amount of $25. We ignore this for illustrative purposes. Your interest of $1,000 will be added to your new total of $6,000 and at the end of the second year, you will have debt of $7200, adding interest of $1,200. The debt mushrooms in a negative way, holding you back from paying your debt off. Spend less than you earn. Make savings your priority so you outpace the growth in debt and reduce it to more manageable levels.

Related Post: How To Manage Debt For Better Financial Health

Financial Implications For 30 Year versus 15 Year Mortgage

When buying your home, you are likely going to borrow money for about 80% of the value of a house or an apartment. You will pay less interest when opting for the shorter-term mortgage.

When comparing the different loan maturities on a $300,000 loan:

  • The annual percentage rate (APR) will be higher for the 30-year mortgage than a 15 year one, all else being the same.
  • The monthly mortgage payments will be significantly higher for the 15 year mortgage given the shorter period. If you can afford to pay the higher monthly amount, you are better off with the 15-year mortgage because you are paying less in total interest.
  •  Assuming you have a 720 credit score, the total home price, inclusive of total interest paid and down payment will be lower with a 15-year mortgage loan.
  • The 30 year mortgage is much higher because you are paying interest on your loan longer, so total home price or principal is $375,000 plus $189,622 equalling $564,620.
  • If you opt for a 15 year mortgage, your total home price or principal  is $375,000 ($300,000 loan + $75,000 down payment of 20%) + $76,012 in total interest equals $451,012 for principal and interest.

Rent As An Alternative To Buying Your Home

On the other hand, renting provides flexibility and freedom. Your rent is usually more affordable than home costs, not having to deal with the home’s repair and maintenance, freeing you to use savings to make investments, and not having to worry about potential declining home values. The downside of renting your home is having restrictions to do what you want to make your place more livable. Your landlord could decide to sell the property and require you to move. There is always the risk of having a bad landlord whose actions force you to pick up and leave.

Related Post: A Guide To Buying Or Renting Your Home


Rule Of 72: How Long To Double The Principal

This handy formula always reminded be of a card trick. The Rule of 72 is a simplistic formula used to determine how long an investment will take to double given a fixed rate of return. Simply divide the interest rate that the money will earn into the number 72. For example, suppose that you owe $1,000 on a loan and the interest rate you are charged is 20% per year, compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double? The formula for this rule is 72 divided by interest rate or 72/20 and equals 3.6 years.

As mentioned earlier, it is always key to use the magic of compounding in your favor and for money growth, not debt. For other financial ratios like the Rule of 72, read this related post.

Opportunity Costs in Decision Making

The opportunity cost of any decision is the cost or the value of the next best alternative that must be foregone. In our lives, we have many choices that may consider time, money, effort, health, and enjoyment. When we invest in financial assets, we should consider risk, return, safety, and liquidity. We are making tradeoffs between these variables that we balance off of each other. Am I seeking higher returns in my portfolio and able to take on some high yield bonds or am I adverse to such high levels of risk?

When managing money, you may need to make a decision to reduce high cost debt before actively saving and investing. Consider your alternatives and do research to find reasonable options. We have written on How To Make Better Money Tradeoffs here.

Final Thoughts

Time value of money and compound interest are among the most important financial concepts. Understanding these ideas can improve your decision making when managing your finances. Time is money though time is a priceless resource. Use it wisely and more productively.

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What You Need To Know When Getting A Dog

What You Need To Know When Getting A Dog

During the pandemic, there have been so many firsts. We engaged in social distancing, remote learning, telemedicine, and work from home. Our lives changed dramatically. For many, getting a pet became a viable option when lockdowns began. The ability to spend time with a new puppy or kitten at home, teaching our children how to raise a young pet was an added benefit. Although we began our own search for a puppy late last year, our family also realized the timing couldn’t be better for bringing that dog home. Although I love all kinds of pets, our experience has been primarily with dogs.

What Kind Of Dog Are You Looking For

Just before the lockdown orders began, we visited several rescue shelters, encountering throngs of families on lines looking for a dog. Speaking to the volunteers at the shelters,  they told us that traffic to their facilities had been ramping up. Although a rescue dog was appealing, my daughter, Alex and I need a hypoallergenic dog. Hence, Kelly, our soft-coated wheaten terrier, is such a good fit for a family. As a result, we remain steadfast loyalists to the wheaten breed by choice. For the first time, we have two dogs, including our 10 week old Teddy in our home.

Surge In Dog Adoptions During COVID

Between March 15 and April 15, as the COVID virus spread, Petfinder reported that traffic on their site increased 43% while adoption inquiries rose 122%. ASPCA saw a nearly 70% rise in animals going to foster care. I learned first hand as I contacted breeders and rescue shelters, they were largely overwhelmed by the number of people who were inquiring about adopting a dog for the first time. Many posted messages warning people to put the time into understanding the considerable needs of puppies rather than acting hastily.

According to a 2019-2020 survey by the American Pet Products Association (APPA), 67% of US households own a pet or 84.9 million homes. Overwhelmingly, dogs at 63.4 million are the dominant choice, followed by cats at 42.7 million. Americans love their pets.

Growing up, we had a typical set of pets for an apartment: turtles (one committed suicide off our terrace), a hamster, and a gerbil but no dog. My husband, Craig had dogs growing up so he had some experience. For some reason, I couldn’t even keep a ficus tree alive in our apartment but I wanted a dog very badly. Leaving my job on Wall Street, I decided to go to law school and get a dog. Craig thought those dual goals would pass. They didn’t. In fact, it became more urgent after September 11th. Losing a dear friend that day made it easier for me to make changes in my life.

What To Consider When Buying A Dog


1. Does A Dog Fit Into Your Lifestyle

Getting a dog cannot be an impulsive purchase. When bringing home a puppy, you are taking care of another life for potentially 15 years. It can be a tremendous sacrifice in terms of time, money, patience, and sacrifice. A lot of research and soul searching needs to be done before bringing a puppy into your household. Rescue shelters are sadly filled with mistakes made by other dog owners who thought they could handle the costs and sacrifices  Yet, for many families who have had experiences growing up and do their homework, getting a dog makes great sense.

2. Time, Patience, And Sacrifice

Time and devotion are essential for your dog. When we got our first wheaten, Riley, I happened to be home taking LSATs and filling out law school applications. By then, Craig had begun his own law firm. However, we were both home a lot at that time. Later on, as we both worked long hours, we needed to get a dog walker for at least one walk a day at $15 per half hour.

Keep in mind that if two people are working long hours every day you will be spending a lot of money annually to exercise your dog. They need a minimum of 4 walks per day at $15 per thirty-minute walk for about $260 working days a year. That will cost about $15,600 annually.  Besides needing exercise, they relish your companionship. We saw a big difference in our dog, Kelly during the pandemic. Our kids were home from school doing distance learning while I was teaching remotely, adding to her usual friend, my husband, Craig who often works from home. Pardon my French but our dog, Kelly was like a pig in s**t!

3. Emergency Funds For Your Pet

Before you even bring home your dog, be aware of the cost requirements. It is one thing to plan for the upfront and ongoing costs, However, it is the unforeseen costs that can most surprise you. As such, create an emergency fund separate for your dog from the rest of your family. We had a number of unforeseen events that were quite costly.

A True Story

One particular time, Riley stopped eating and seemed lethargic. After ordering Xrays for Riley, the vet determined that he needed emergency surgery to remove plastic flowers he had ingested. (I know this sounds weird but unfortunately it is true. The leaves were from a fake tree my mother loved. She had passed away and I didn’t have the heart to discard it.) After paying about $2,000 for the surgery, the surgeon came out to show us a large-sized bag filled with plastic leaves. Then, he asked if he could please use this bag as an artifact to teach students what they can find in a dog’s stomach cavity.

Dogs will eat or destroy almost anything. Our list is more extensive for our first dog than for Kelly because we probably got a little wiser. However, we have had damage to walls, library books, school supplies, lamps, my favorite pairs of glasses, shoes, and lots of clothing. Lost items aside, monitoring of your dogs to keep them safe is critical. If you live in a house, you probably will need to build an enclosed wooden fence or area for the dog to run and play outdoors. An invisible fence works for some dogs. We had one and Riley ran right through it looking like he had a fun adventure!

4. The Finances: Upfront/One-Time Costs

Dog ownership has a lot of responsibilities. Financial costs–one time and ongoing–can be considerable. Deciding whether to adopt a dog from a rescue shelter or directly from a breeder is an important decision. If you have a certain breed in mind, you may need to go directly to a reputable breeder. Generally, the cost will be higher depending on the breed. Don’t be surprised if the cost of your puppy is in the range of $2,500 and up.  On the other hand, you may be able to find a pure breed or mixed breed at a rescue shelter where the adoption cost is far less ranging up to $500.

The ASPCA has waived all fees during the COVID period. In lieu of fees, many shelters really need donations to keep the facilities running as they remain closed to the public. When searching for your pet, remain patient and do diligent research which is required.

Basic Supplies

Preparing your home for your puppy, especially if this is your first experience may be mindboggling. Before you pick up your pet, you may need to puppy-proof your home with gates and locks for the lower cabinets. Look around your home from a dog’s perspective which is closer to the floor.  There will likely be some danger spots such as easy to reach cleaning fluids. Unless you have young children at home, these risks are usually overlooked. When we brought our first puppy, I was amazed at how clever Riley was in opening all the drawers and cabinets. No, it was that we were totally unprepared and had to buy all the child locks so that Mr. Clean didn’t become his toy.

Initial Costs

Get a hard plastic travel crate ($50-$100) to take your puppy home in a car. You will need a leash, collar, ID tag, dog treats, chewy toys, and a larger wire crate (50-$75+) for sleeping in at night. On the latter, a crate becomes their little kingdom and a means to housetraining your pet. Later on, you will likely want a dog bed which can range from $50-$100 or higher depending on how plush you want the bed to be. Riley and later on Kelly both slept in our bed. However, I am not sure we can or should have two dogs in our bed so we have been searching for a dog bed now.

Make sure to have hard (kibble) and canned soft food at home. Our breeder was extremely helpful in providing us with a list ahead of time. Wheatens have sensitive stomachs. I am sure each dog has their own specific needs. There are some good pet food delivery services with monthly subscriptions so you never run out of food or treats.

The Vet Visit

Make an appointment with a reputable veterinarian in your neighborhood. Your initial appointment should be made within a day or two after taking your pet home. This visit has a dual purpose. First, it is a wellness checkup, and second, to get vaccines and medicine needed. This will be followed by two other visits soon to build your dog’s record. The vet will ask you to plan for spaying or neutering of your pet. This is usually required by most breeders at your cost and done after 6 months up to a year. Additionally, consider a microchip as pets may wander.

Housebreaking your puppy is an important and often difficult task. Our whole family is involved in this process. We look like the Keystone Cops trying to negotiate our puppy’s tendencies to pee and poop before we are ready to take him out. I highly recommend How to Housebreak Your Dog In 7 Days which has been working well.

Obedience Training: A Story

As your dog gets older, they need socialization and obedience training. Ask your vet for some recommendations. During the pandemic, attending these type of classes have not been available as social distancing has been required. While you may be able to find a lot of obedience training videos on Youtube, opportunities for socialization have been difficult. We have been fortunate to have Kelly, as a four-year playmate for puppy Teddy.

The average cost of dog training is $50 or more per hour. You can do a lot of this yourself if you have the time and patience. As we were clueless parents when we had our first dog, we registered for an obedience training program with several other families over 6 weeks with an experienced teacher. She walked us through ten commands. I thought Riley did pretty well though he well behind the pack.

Riley “Failed” His Test

On the last day, the dogs were tested by command. Then each family with their happy dog proudly lined up to get their test scores. We were last on the line. I recall feeling giddy as I saw each family get a certificate of completion. As I put out my hand for our certificate, the trainer handed me a dog bone instead  She told us Riley had “failed” the course, having only mastered three of the ten commands for a 30% score. Craig and I were both mortified at being told a member of our family had flopped. We didn’t yet have kids at the time but I hoped I never said that another being had failed at anything. By the way, we did sign Riley up for individual lessons with this trainer and he succeeded!

5. Ongoing Annual Costs

According to the American Pet Product Association (APPA), $99 billion is estimated to be spent on pet products in 2020 as follows:

  • $38.4B Pet Food and Treats
  • $9.8B Supplies, Live Animals & OTC Medicine
  • $30.2B Vet Care & Product Sales
  • $10.7B Other Services

Basic annual expenses in APPA’s 2019-2020 for dogs average $1,305 in the following breakdown:

Surgical Vet Visits                          $426

Routine Vet                                     212

Food                                               259

Kennel Boarding                             229

Vitamins                                           58

Groomer/Aids                                   73

Toys                                                  48

Our Costs Are A Bit Different

These amounts differ a bit from our expenditures for our dog annually. We have a different allocation so we will provide our amounts. It is hard to estimate surgical vet visits, having had major surgery for Riley and not yet for Kelly. On the other hand, we spend about $800-$900 per year for regular vet visits, which is above average. Our food costs, including treats, are about $400. Our wheaten is roughly 30 pounds and often a picky eater. We supplement regular dog food with plain yogurt Kelly enjoys.

We have rarely boarded our dog at a kennel. Instead, we have used a live-in pet sitter who charges $65 per day. That amount of about $450-$900 for one or two weeks away adds to our vacation cost. This is probably an indulgence that provides us with peace of mind when we are away on rare occasions. We spend about $100 annually for vitamins and toys. Grooming is far more significant for our hairy (not furry) dog friend which requires a lot more care at about $350 annually. In recent years, we have bathed our dog but professional grooming is essential. `Our dog is non-shedding, a wonderful benefit that is easier to clean.

Our costs, excluding surgeries, amount to $2,000-$2,500 per year. That higher amount has a lot to do to where we live (northeast) rather than spending more lavishly on our dog.  Other surveys have pegged the annual amount for dogs’ basic needs in the range of $1,000-$2,000 per year which sounds like a good ballpark estimate.

6. Is Pet Insurance Necessary?

Many dog owners have insurance. According to the North American Pet Health Insurance Association, 85% of pets insured are dogs. We researched a few pet insurance plans. Typically, pet insurance plans cover 1) accident only; 2) accident and illness; or 3) accident, illness, and wellness. We ended up using Trupanion for $75 a month as they had a lower deductible than the ASPCA plan. Our experience was not favorable because the plan would not cover pre-conditions such as the allergies Kelly had. Therefore, we dropped the plan.

Final Thoughts

Dogs require a lot of attention, patience, and sacrifice of time and money. However, our dog has a critical member of our family from the day we bring them home. They are non-judgmental, always happy to see you, and affectionate beings. We have never regretted our decisions in bringing a new member into our family. With bringing a second dog into the fold, we have found new challenges we expect to overcome. That said, it is a lot of work but we knew that as we picked out our dogs.

They are good friends to have and heartbreaking when they pass on to the rainbow bridge. We still remember Riley as the dog who taught us so much about ourselves. He was there when we brought our two children home. I wish you and your families the best as you embark upon getting your dog.

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The Relationship of The Stock Market And Our Economy

The Relationship of The Stock Market And Our Economy

2020 has been a remarkable year that continues to surprise us. On the one hand, the stock market records and its apparent recovery have been unusually swift.  However, the economy has been in and remains in dismal shape. This downturn occurred due to the coronavirus, which became a significant threat in our country in February 2020, posing profound implications for public health and our economy.

Does a V-shaped recovery in the stock market signal a V-shaped economic recovery where a recession could be brief? Recent market action is saying it is highly possible, supported by some positive economic news. Bureau of Labor Statistics (BLS) released an unemployment rate for May at 13.3%, better than the expected 20% rate.

Not So Fast…A BLS Correction Still Shows An Improvement

Unexpectedly, the BLS  admitted to misclassifying furloughed workers. They can be forgiven for this error as there are nearly 5 million people are in this category. That is a far more significant number because of the pandemic’s impact.

As a result, May’s unemployment rate is now closer to 16.3%. Also, April’s unemployment rate, previously 14.7%, would be revised to a 19.2% rate on an apples-to-apples comparison. That means May’s unemployment was still an improvement in April’s pace, justifying the stock market’s recent positive reaction. No question, there are still way too many people who are unemployed.


Relationship Between The Stock Market And Our Economy

Stocks move on news that conveys information related to the economy. Generally, the relationship between the stock market and our economy often converge and depart from each other. Gross domestic product, unemployment, inflation, and many other indicators reflect economic conditions.

As a leading economic indicator, the S&P 500 composite index represents the market proxy, is often predictive of a recession or economic recovery. The S&P index captures stock movements, along with the widely known Dow Jones Industrials, and NASDAQ composite index.

A rising stock market may indicate favorable economic conditions for firms, resulting in higher profitability. On the other hand, a declining stock market may signal an economic downturn. Over the long term, these trends are likely to show the economy and stocks in tandem. Day-to-day, those correlations may be harder to see.

Stock Market Turbulence During The Pandemic

After the S& P 500 index peaked at $3,386.15 on February 19th, the market bottomed on March 23rd at $2,237.40. This swift 33.9% decline marked the transition from a longstanding bull market to a bear market. Market volatility in that one-month timeframe was unprecedented. There were 18 market jumps greater than 2.5% in 22 trading days (February 24 to March 24).

That was not all to record-setting stock price movements as sudden as the S&P 500 index was its rally back to $3,193.93 on June 5th close. The substantial rise in stocks has responded to our economy’s opening as lockdowns ease, and people return to work. That is an astounding 42.8% climb through the latest close. The market is nearly back to the February 19th peak.

Bear Market Rally Or A New Bull Market

A question that keeps coming up: are we experiencing a bear market rally or a new bull market? We wrote about the difference between a bear market,  bear market rally, and bull market here. Generally, a bull market occurs when there is a rise of 20% or more in a broad market index over at least two months. Investopedia defines a bull market as when stock prices rise by 20% after two declines of 20% each.

Let’s leave aside the bull market definitions. We have been facing a time of extremes with the coronavirus’s impact on our markets, economy, lockdowns, and lives. When the markets initially plunged, we suggested that investors consider not selling stocks in panic unless they needed to do so for liquidity purposes. Having an emergency fund is essential providing liquidity so that you cover your living expenses during unforeseen events. I think we can agree that the coronavirus was such an event. We pointed to the Great Recession as a recent example of why you should avoid selling stocks at a market bottom.

How Far Can Stocks Rise? It Depends

With some early signs of economic improvement, do the stocks continue to rise? That depends on whether there will be future upside surprises to indicators that matter. Yes, the revised unemployment rate of 16.3% is a better number than the nearly 20% expected. The initial 13.3% rate (now adjusted) caused a positive surprise that had stocks soaring. After this climb, stocks may retrench a bit.

Let’s face the fact that even if the 13.3%  unemployment was correct, it is still a high number, well above the 10% peak of the Great Recession. To some extent, there were more liberal unemployment filings associated due to COVID-19. People who were part-timers, had hours reduced, or lost work-study income were allowed to file unemployment benefits. If people go back to work as quickly as they lost their jobs, that would be great news.

The continued rise in stocks will be dependent on how fast and far unemployment rates decline. According to the BLS report, those on temporary layoff included in the jobless numbers in the first wave of job losses (or 15 million), may be recalled to work. People are going back to work in phases. Whether unemployment rates continue to come down depends on whether we have more job cuts or the second wave of coronavirus infections as some fear.

3 Factors That Affect Stock Prices

Typically, a company’s value should reflect the present value of its future cash flows. Investors should consider several factors that affect whether the stock is overvalued or undervalued to calculate future cash flows. There are three key fundamental factors that affect stock prices.

1. The Economy

Investors look at how economic growth drives demand for the company’s products and services: the more substantial the need, the stronger the company’s revenue, cash flows, and potential valuation. When investing, you should have a basic knowledge of the economy and the Fed’s role in correcting economic changes. Those changes could indicate a weakening economy, direction of interest rates, or higher inflation. We believe that understanding why unemployment matters, which you can read here.

The severity of the coronavirus and government action encouraged social distancing and lockdowns. As a result, there were alarming changes in economic indicators, signaling a recession. With a low 3.5% unemployment in February, our economy was healthy, then rose to 14.7% in April. Weekly initial claims for unemployment insurance and its four-week moving averages tend to be a better economic gauge. They rose as we experienced the virus’s impact on our lives. Jobless numbers started to grow in the hundreds of thousands by late February, then to millions of people in March. Even now, the unemployed levels are still rising at high rates, though they improved from the initial claims in March and April.

From the start, this economic decline was different from previous recessions. Our economy’s downturn was event-driven by a coronavirus, but that doesn’t make it any less devastating. Economic activity ceased as many remained sequestered at home.  When unemployment rises, consumers spend less, and businesses suffer. Layoffs and furloughs resulted, mostly if workers could not work remotely. Essential workers were feverishly needed to do jobs despite the threat of the virus. They weren’t shopping either.

High Personal Savings Rates

Rather than spending, personal savings rates rose to a record level of 33% in April. That’s another indicator that consumers were hoarding cash out of fear or reduced consumption as we stayed home. That’s a good news-bad news story. Personal savings are essential to build as an emergency cushion, reduce high debt levels, or invest in assets. Americans had been lagging in savings rates for years. However, those rates have been improving to 8.2% in February. Ultimately, that cash will result in pent-up demand and consumer spending.

What Stocks Reflect

How quickly will our economy recover? The recent unemployment numbers may indicate that a V-recovery is possible. I think it is too early to tell as more good data is needed.  Stocks respond quickly to news that either reward or punish investors. The S&P rose 2.62% for the latest trading day (up 5.6% for the week) reacted to revised information. Investors have seemed to be optimistic. Market sentiment is a measure of the general mood of investors in the stock market. As stocks rise, the market may give back some of the gains if there is no further favorable news to support the stocks’ higher valuations.

Stock valuations reflect expectations in the future. However, existing poor economic conditions do not always negatively impact stock market performance. You can make money in the market, even in a weak or recessionary environment, based on optimistic expectations. Stocks rose during the Great Recession as they have during the past two months. A firm’s stock may be affected by its industry’s conditions or its relative strength.

2. Industry-Related Matters

Specific industries and their stocks–airlines, automotive, energy hotels, brick & mortar retail, restaurants-swiftly bore the brunt of the market decline due to the coronavirus impact. On the other hand, other industries benefited from the stay-at-home lockdown measures. Those were online businesses, notably leaders in e-commerce, telemedicine, video conferencing providers, and those with potential vaccines or testing equipment. Many investors made changes to their portfolios. They sold specific stocks they anticipated would be most hurt by the lockdown, rotating into the newer winners. I made some of those changes to my portfolio. Additionally, as the market seemed riskier, I bought more dividend-bearing stocks of companies with strong balance sheets.

What Industry Do You Want To Invest In

Generally, industry factors matter when picking stocks for your portfolio. What makes an investible industry? It may depend on what you are seeking.  If you are seeking growth, technology could be a profitable sector. Look at some of the various subsectors, such as cloud companies, very much in demand. On the other hand, if you are looking for stability, consumer staples (e.g., Colgate Palmolive) that produce and sell everyday necessities may be the right answer.

You want to look at industries that may have dominant companies that can ward off competition in a profitable sector. On the other hand, avoid sectors that may be subject to new regulations that hurt margins.  Once you decide on an industry you want exposure to, look at the best companies in that group. Investors compare relevant price to earnings valuation of a stock compared to its peers based on its competitive advantages, margins, market share, and management. Sometimes stocks or their industry may be in an infancy stage of development and may not necessarily generate earnings yet. Then, in that case, investors use other valuation metrics such as a multiple of revenue or cash flow

3. Company-Specific Aspects

The stock you are buying or selling will be based on your knowledge of that company’s relevant factors and its valuations. Investors look at specific expectations for growth in revenues, cash flow and earnings, balance sheet strength (e.g. liquidity and debt ratios), and corresponding valuation. To consider a company’s strength,  look at some of the personal financial ratios relevant for investing.

Positive earnings surprises may send a stock soaring, while a negative earnings surprise may prompt a stock to decline. Investors like to see mergers, acquisitions, and divestitures that may benefit one or both companies as they fill a void in their business portfolio or raise capital from a sale.

Investment Biases Affect Decisions

Volatile markets and economies impact our emotions. The more turbulent the market the greater the likelihood we may be affected by our biases. Generally, we make investment decisions by relying on fundamental analysis to determine if a security is undervalued. If the stock market is efficient, it means that the stock prices are rationally priced, fully reflecting all available information. As investors, we try to capitalize on any discrepancies on a particular stock or new report not already accounted for to profit on that position.

Sometimes stock may be mispriced because of the psychology involved in decision-making known as “behavioral finance.” This discipline can offer behavioral/emotional or cognitive biases to explain why markets or stocks are moving in a certain way. Learning about these biases can help us to shift away from these tendencies away and invest more wisely.

Having biases–cognitive and emotional– may cloud our judgment when making investment decisions. Since the coronavirus pandemic, we have changed many of our consumer habits to protect ourselves from exposure. We have quarantined ourselves to practice social distancing, buying products in bulk, and shopping online. Now we are slowly reversing ourselves as we come out of lockdowns. Be aware of some of the common biases we use when investing, which you can read here.

Final Thoughts

This year has been extraordinary, and we are only in June. The coronavirus has caused public health and an economic crisis challenging to deal with. Although the economy is far from recovery, there have been opportunities to make money in the financial markets. While the market has been turbulent, the S& P 500 is not far away from the February peak. Whether the V-shaped recovery in stocks will become a V-shaped economic recovery remains to be seen. High unemployment levels will take time to improve to normal levels as people return to work. I remain cautiously optimistic about a recovery but worry that stocks may be trading ahead of themselves.

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