Outside Economics

2014 What Will the Stock Market Do

Posted by Wendell Brock, MBA, ChFC on Thu, Jan 09, 2014

2013 was an amazing year for the Stock Market the S&P 500 ended up 30 points and the Dow made over 50 record highs. Over all it was a terrific year. For the past month the prognosticators have been lining up to forecast 2014.stock floor

The WSJ reported the average prediction is that the market (the S&P 500) will only go up 7%. A month earlier the prediction was 10%. It's interesting to note that the 10% prediction is about the average gain the S&P has had over its history.

As we all know when in the business of making predictions, the lunch menu always has crow for its main course. Because the interesting part, the WSJ further reported that the average strategist error was 11.8%. So the average error can wipe out the average prediction pretty quick, making me wonder the value of the predictions in the first place.

In a meeting this past week one of the presenters, questioned the sanity of the market that rose over 30% while the average earnings per share rose only 6%. He exclaimed that the fundamentals are gone! Now we all know that things just get crazy in the markets and perhaps this is the one time that is true.

So what to do in 2014? This is where portfolio management comes into play. A portfolio that uses well diversified funds (or ETF’s) across several asset classes is a solid strategy. The portfolio should have breadth and depth in the funds and asset classes. In this kind of portfolio each asset class will behave independently, but collectively risk is reduced. Some funds may be highly correlated, while several may not. One key is to have an overall low correlation between the funds.

One strategy is the 7Twelve® portfolio model, which provides this type of breath and depth in a portfolio. It utilizes 7 asset classes, with 12 different funds. The seven asset classes have over 40 years of data to provide an historical perspective on their behavior in different market cycles. The 7Twelve® portfolio model was developed by Professor Craig Israelson of who taught at Brigham Young University.

If the market goes up or down this next year, which we know based on the above averages it’s going to move one direction or another, having a diversified portfolio is a good plan. How is your portfolio situated? Is it an all-weather portfolio?

Topics: 7Twelve, Stock Market, S&P 500, Dow, Craig Israelson

Auto Sales = More Debt

Posted by Wendell Brock, MBA, ChFC on Thu, Jan 02, 2014

Auto sales in the past year have taken off – setting new records; the same is true with auto debt under the hood. So it’s time to get a new one but what and how to pay for it? Do you pull money out of savings and pay for it with cash or borrow money and incur more debt?t. I know you are thinking, the old car just isn’t what it used to be, not as stylish, a dent here, component lights not working any more, electric door locks stick and the thing-a-ma-jig makes a funny rattle 

Most folks these days are financing their auto purchases, in fact very few autos are purchased with cash.  This is causing consumers to take on larger

auto sale

 amounts of debt. According to a recent Wall Street Journal (WSJ) article; Consumer auto loan debt is anticipated to “reach an all-time high of $16,942 in the fourth quarter, according to credit reporting firm, TransUnion.”[i] This includes all auto debt – for both new and used car purchases. Experian reports that new-car financing hit a high of $26,719.

The average price of a new car hit an all-time high too; according to a recent AP article the average cost is a record $31,252, an increase of $1,000 over last year, as many folks are adding more expensive options to the vehicles they purchase[ii].

This means that people are purchasing their autos with an average down payment of $4,533. I know a fellow who has never paid more than $5,000 for a car in his life. He is skipping the debt.

Now if interest rates tick-up as they have been over the last six months that may slow down the auto sales, in the future; but people will still add the auto debt to their balance sheets. And that is the problem.

One reason people are borrowing so much is that current rates are so low in comparison when they may have purchased their last vehicle seven or more years ago. So it may make a more expensive auto have about the same payment as the last purchase.

However, debt is always expensive. Debt by definition means that you owe someone something, you have an obligation to fulfill. It is always better to be debt free and this should be the goal of every American. Adding more debt to the balance sheet is just not good period. It is risky business in today’s world where continuous change is the norm: jobs, illness of family member, interest rates, accidents, weather related problems, etc.

So here are a couple of ideas to make this happen. Purchase a less expensive automobile. A long time ago someone taught me that an expensive car gets bent up just the same as an inexpensive car. And the other day I was driving home on the freeway and saw a $60,000 car on the back of a tow truck all smashed up. Now I appreciate nice cars too, don’t get me wrong, it’s just that if you are committed to pay cash for a car and stay debt free, maybe for a while you purchase less expensive autos.

If you must go into debt take on as little as possible. Do this by putting at least 25-30 percent down on the car. If you don’t have that much save until you do. Or again buy a less expensive car. Remember, an auto is a depreciating asset, eventually it will be worth less than 10% of your original purchase price.

Another way to limit your debt is to commit to a savings program – over the years I’ve told my clients that they should save what they pay in debts. So if you are purchasing an auto with a $350 per month car payment then you should be saving $350 into some sort of savings/investment account.

If all you have in your budget is $400, then that limits the auto payment to $200. This does two things:

1. You limit the types of autos you can afford

2. It helps you approach savings with the same discipline as paying your debts.

Then when you go to buy the next car there will be a savings built up to help pay cash for the car or a significantly larger down payment. Work to get debt free and you will experience financial relief and a peace of mind that is unequaled. Are you paying for your car or did buy it with cash?


[i] WSJ – Wednesday, December 18, 2013, page B2, Car Sales Fuel Boom in Debt, by Christina Rogers


Wendell W. Brock, MBA, ChFC

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