September 14

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Why the Election Will Cause a Crash No Matter Who Wins

The world is crazy right now if you haven’t noticed.  I can’t even watch the news anymore.  It is repetitively upsetting.   As always, the financial media machine is taking advantage of this chaos.  Remember, the more things they say that elicit an emotional response from you, the better for them.  People are drawn to articles called, “This Presidential Election Will Cause the Market to Crash No Matter Who Wins.”  People are not drawn to articles like, “Stop Paying Attention to the Markets, Everything Will Be Fine.”   As I’ve discussed, repeatedly, Baby Boomers have been put into an almost impossible position.  Instead of traditional pensions enjoyed by their parents’ generation, Boomers need to rely on investments that they don’t understand (or trust) to secure their retirements.  Dumb system, right?   I hear it all the time.  “Dave, I never paid much attention to my 401k.  Sure it went up and down, but I was still working, making an income.  Now that I retired, suddenly these investments REALLY matter.  I have no income to fall back on.  I get sick with worry over this stuff.”   The financial news loves this fear.   The Motley Fool published: Stock Market Crash 2.0: A Perfect Storm Is Brewing  (source)   Forbes says: Stock Market Crash: Warning Signs Are Flashing (source)   Barrons’ reports: The Bear Market Is Nearing an End. The Bubble Might Just Be Getting Started.  (source)   Please ignore.  Nobody has a crystal ball.  The more you read this stuff the worse investor you become.  Not to mention it will stress you out.  If any of these people really had an accurate inkling of the future of the markets, wouldn’t they be the most sought after people in the world?  Wouldn’t every investor beg them for their priceless knowledge?  I don’t think they’d be working, getting paid $40,000 a year (which they are) to write articles.   It’s nonsensical.   Next up:   “Should I rush to pay off my mortgage?”  Note:  This is a touchy subject, so don’t read this if you are easily offended.   While it might feel great to have no mortgage once retired, should you do everything you can to pay it down?  Maybe double your payments or put in any extra money at the end of the month?   My answer is:  No.   Why?  
  1.  You should be putting that money into your 401k.  Huge tax savings over time.
  2. Once you pay off your house and have no savings left, what do you do if you need money suddenly?  You can’t take it from your house.  While you may be able to get a home equity line of credit or a second mortgage, do these sound like attractive options?  Cash is king.
  3. If you are going to live in the same house for the rest of your life, just look at your payments as “renting” your home.  It’s just an expense that needs to be added to your budget.
  4. I’m not even against refinancing your mortgage into a new 30-year term.  It would dramatically lower your payment (especially with today’s interest rates).  Who cares if your house isn’t paid off when you’re gone?  Your kids are going to sell it anyway.
  5. By the way, if you have a ton of money in cash at the bank, you need to invest some of it.  Getting .01% on your savings messes up my advice.  You have to get at least 3% to make the math better.  3% is a very reasonable expectation for a conservative portfolio.
  “Should I pay off my credit cards even though they are zero interest?”   Yes.   I know, I know.... you are getting 0% on this card until December.  Don’t fool yourself.  December is going to roll around and you’ll be paying 19%.  Pay them off.  Before your 401k.  Before anything.   “I have a pension through work.  They gave me two options.  I can get a higher payment, but the payment will stop if I were to pass away.  I could also take the lower payment.  In that case, my spouse will keep getting the payment.  Which one should I take?”   C’mon.  You’ve got to protect your spouse.  Unless your spouse has severe health problems, it almost always makes sense to take the protection option. It is called a “Joint Annuity with 100% Survivor Benefits.”   “Why is the stock market having such a tough week?”    I don’t know and it doesn’t matter.   Be Blessed,   Dave

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