Enjoy Wall Street’s Quiet Time While It Lasts

Stock market calm has reached new extremes as ongoing central bank asset purchases — mainly out of Japan and Europe — quell volatility. Investors have rarely had it better. A breakdown in the GOP’s health care reform effort? Doesn’t matter. Uneven big-bank earnings? Boring and irrelevant. Evidence of a retrenchment by U.S. consumers? Sorry, I was busy browsing Amazon.

One gets the impression that anything — even an eruption of the Yellowstone super-volcano — would result in a rally to new record highs. In fact, by multiple measures, these are the easiest market conditions in decades. Stocks haven’t suffered a 5% pullback in more than a year.

This is all behavior that has presaged periods of market weakness in the past. But perhaps it’s different this time. 

For now, nothing seems to matter besides the ongoing flow of central bank asset purchases, led currently by the Bank of Japan and the European Central Bank. Investors are ignoring the acrimony and gridlock in Washington, even though hopes of action by President Donald Trump and Congressional Republicans on things like health insurance and tax cuts fueled the post-election ebullience in the first place.

But that’s poised to change in September. The Federal Reserve is expected to unleash its “quantitative tightening” program to start rolling back its $4.4 trillion balance sheet. This also coincides with the appearance of policy risk as Washington contends once more with the debt ceiling.
— Anthony Mirhaydari, CBS Money Watch, 7/20/17. Read the full article.

This One Simple Exercise Can Dramatically Improve Your Retirement Prospects

[Note: The MoneyGuidePro® financial planning tool available to SMI premium members will help you create the kind of plan this Sighting talks about. For details on how to sign up, see SMI’s February 2017 cover article.]

Wouldn’t it be great if there were a simple exercise that could help you better prepare for retirement and make you feel more confident about your prospects for a financially secure post-career life? Well, there is: Put your retirement plan in writing.

A recent Schwab report shows that people who have a written retirement plan were 60% more likely to increase their 401(k) contributions and twice as likely to stick to a monthly savings goal than people without such a plan. Similarly, a Wells Fargo/Gallup survey released earlier this year found that investors who had a written plan for retirement were almost twice as likely as those who didn’t to feel they would have enough money to maintain their lifestyle after they retired.

“Putting your plan in writing makes planning for retirement less intimidating,” says Joe Ready, head of Wells Fargo Institutional Retirement and Trust. “It helps you see what steps you need to take, which builds confidence and makes it more likely you’ll follow through.”

Unfortunately, not enough people go to the trouble of putting pen to paper (or, as is more likely the case today, fingers to keyboard). According to the Schwab study, only 24% of Americans say they have a financial plan in writing.

Which is a shame, because it’s not as if you have to produce a magnum opus to significantly improve your shot at a secure retirement. Indeed, I’d say you should be able to reap the benefits of a written plan with a straight-forward document that includes these three basic elements:

  1. A target savings rate
  2. A long-term investing strategy
  3. A regular monitoring schedule

None of this is to say that a written plan is some sort of a silver bullet. It’s not; you’ll still have to do the actual saving and investing. But by putting the steps you need to take in writing and then monitoring your progress and making adjustments as you go along, you’ll be much less likely to find yourself on the threshold of the date you hoped to retire, but woefully unprepared to do so. — Walter Updegrave, editor of Real Deal Retirement, 7/18/17. Read the full article.

What I Learned From My ‘Faux-tirement’

I’m not ready to retire any time soon, but my recent sabbatical from Morningstar — a six-week break totally free from work obligations, available to Morningstar’s U.S. employees every four years—gave me a chance to noodle on what retirement would feel like for me.

Here are three of my key takeaways.

  • My to-do list wasn’t all that long after all.
    As sabbatical dawned, I had a long list of projects that I hoped to accomplish — tasks like settling the final details of my mom’s estate, organizing files on my computer, and figuring out what to do with all of my photos, digital and otherwise. But while my to-do list was daunting, I found that I knocked off most of those tasks in short order. If I were embarking on my actual retirement, I might be asking myself, “Is that all there is?” We’re all different, of course, but the experience underscored that I don’t want to spend my retirement years attending exclusively to my own to-dos (and there may not be that many, anyway). I suspect I’ll need more of a sense of purpose on an ongoing basis, probably community-service work, a part-time job, or both.
  • The balanced days were the best days.
    In a related vein, I found that I enjoyed my days the most when I combined doing something fun or leisurely with knocking off some bothersome task that had been hanging over my head. Just as we workers enjoy the weekends most when they’ve been preceded by a particularly tough workweek, my free time was more enjoyable when I had a sense of having accomplished something beforehand. To help keep myself on track and maintain a sense of balance during my time off, I maintained to-do lists for each day, just as I do when I’m working.
  • My spending was a mixed bag. 
    Because I’ve focused so much on the financial side of retirement in my work, I was keen to see if my spending habits differed significantly during my break from when I’m working. I detected a mixed picture. On the one hand, not working gave me more time to engage in pleasurable activities that don’t cost anything—walking, reading, and gardening, for example. On the other hand, having more time brought more shopping opportunities — I could readily pop by Target after having lunch with a friend, for example. On the spending front, I’d call it a draw. — Christine Benz, writing for Morningstar, 7/3/17. Read the full article.

The Complex Motivations Of Money And Retirement

The traditional view of work is that it’s something we wouldn’t otherwise do, without the financial reward of getting paid… such that the whole point of work in the modern era is to earn and save enough to get to the point where you can “retire” and not need to work anymore.

Yet research on what actually motivates us reveals that “money” is a remarkably inferior motivator (both to incentivize and reward desired behavior, and to punish bad behavior) compared to the motivation we derive from interpersonal relationships with other people. To the point that turning social connections into financial arrangements can reduce our motivation to engage in the desired behaviors. Yet due to our inability to judge our own motivations, and what will make us happy in the future, we continue to pursue financial rewards… even as a growing base of research reveals that it doesn’t actually improve our long-run happiness.

The reason why all of this matters is that it implies the whole concept of “retirement” may be predicated on a mistaken understanding of our own motivators…a realization that most people don’t have until they actually retire (or at least, are on the cusp of it), and suddenly discover that “not working” isn’t nearly as enjoyable as expected, despite all the sacrifices of potentially undesirable work that was done to earn the money to retire along the way. — Michael Kitces, writing on Nerd’s Eye View, 7/26/17. Read the full article.