The Dirty Dozen
A list from our friends at the IRS
Good morning,
With a subject like “The Dirty Dozen” you may have thought I was referring to the 1967 movie starring Lee Marvin alongside an ensemble cast of other stars…
But today’s “dirty dozen” is something different…
Every year, the IRS posts their list of 12 tax and financial scams they want to remind and warn you about.
Here’s this year’s list:
And here’s another list of financial and identity theft scams to watch out for from Experian:
So please be careful with your personal and financial information at all times.
You can do everything right to prepare for a confident and comfortable retirement, but it can unravel quickly if you find yourself the victim of one of these fraudulent schemes.
And make sure your older friends and family are aware of these as well as they’re often the targets for this crap!
Dow 40,000!
On Thursday last week, you may have seen that the Dow Jones Industrial Average (DJIA) briefly hit a new record high of 40,000 before closing just below it.
Who knows where the DJIA will be by the time you’re reading this…
First, let me remind you that while many consumers, professionals, and CNBC talking heads often refer to the DJIA as “the market”, it isn’t.
The DJIA or “Dow” as it’s often called is comprised of just 30 companies.
Here they are if you’re curious.
The S&P 500 is a better representation of the US market with 500 companies. But it still falls short of being “the market.”
Currently, there are 3,648 unique publicly traded US companies of all sizes in the CRSP US Total Market Index.
When you’re trying to capture the returns of the entire market over long periods of time while maintaining as much diversification as possible, 3,648 companies is much better than 30 companies if you ask me.
Regardless, while 40,000 is a nice round number, it’s really pretty arbitrary.
Is the Dow hitting 40,000 any more magical than it having surpassed 39,000?
When I started as a financial advisor waaaay back in 1993, the average closing price for the Dow over that entire year was 3,524.92.
Today, as I type this on Friday, May 17th, the S&P 500 is at 5,297.10.
In 1993, the S&P 500 average closing price was 451.61.
That’s more than 11X growth of the DJIA and almost 12X growth of the S&P 500.
And that’s just based on the change in prices. These numbers don’t include all the dividends that were paid over the same period.
Of course, this growth wasn’t smooth and steady over those 30 years as you can see here:
But - and this is a BIG but - if you were able to hang on and white-knuckle it through some scary periods over these last 3 decades, you were the beneficiary of the power of compounding.
I don’t know what will happen today or tomorrow or 5 years from now, but over the long-term I’m as optimistic as I’ve ever been about the ingenuity and entrepreneurial spirit - in the US and around the world - of those willing to take risks to innovate and improve our lives and profit while doing so.
It’s very likely that if you’re reading this, you’ll live to see investment markets at much, MUCH higher levels than they are today.
For instance, if the DJIA were to average 6% each and every year for the next 10 years, it would go from 40,000 today to over 70,000.
I can guarantee this ain’t gonna happen as that’s not how investment markets work, but once again it demonstrates what a powerful combination time and patience can be when it comes to investing.
The question is, will you participate in this future growth - however it happens - while riding out the inevitable ups and downs?
Or will you watch from the sidelines waiting for the “right time” to get back in the market?
While investing is a small part of your retirement planning, it’s an important part.
And it’s easy to overcomplicate things.
Or to get taken advantage of while looking for a shortcut (see “dirty dozen” above").
So be careful.
Be patient.
Keep things simple.
And your diversified portfolio will do the rest.
Given time.
Links & Things
I enjoyed this article from Morgan Housel:
I suggest you give it a read, but here’s his perspective summed up:
As debt increases, you narrow the range of outcomes you can endure in life.
What do you think?
Hit reply or leave a comment and share your thoughts…
Until next Wednesday,
Russ