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With his tariffs, President Trump just unleashed all kinds of economic terror, not just on people and businesses in the US, but on those in nearly every corner of the world. Then what? He headed south to spend the weekend golfing at his country club rather than be confronted by the protests in Washington and other cities, due to his and Elon Musk’s actions and their devastating effects on families, their jobs, and their lives. Although he says “tariff” is the most beautiful word in the English language, Trump must have flunked his economics course. A tariff is a tax which makes things we all buy more expensive, promising much steeper inflation and hardships as millions of Americans struggle to make ends meet. You can gauge how devastating Trump’s tariffs will be by the stock market’s reaction. The two-day freefall ranks among the sharpest declines in history, according to CNBC. 

What should you do in reaction to Trump’s tariff announcements and the global stock market selloffs?  Sit on your hands and try to avoid the news. Unless you are an experienced investor with nerves of steel, almost anything you do might hurt you.  If you sell to stop the pain and preserve what’s left of your retirement savings, you will lock in losses.  It may seem hard to believe that the stock market will rebound, but it trends upwards in the long run, in spite of tumultuous periods like this one. Someday, today’s violent market swings will look like a tiny blip as stock markets continue to churn higher in the long run. If you can’t resist doing something, don’t sell, buy more. Stocks are on sale, so if you buy more, someday you’ll be happy you did. 

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A woman who interviewed for a job I’m trying to fill, asked me about the cost of living in Connecticut, where I live. I said it was really high. She asked if that made it a bad place to live. I told her it was a good place to live while you’re working, with high salaries and good benefits, but a lousy place to retire. I cited examples of people who had worked in CT, saved for retirement, and retired somewhere with a lower cost of living, like a southern state. 

I first became aware of differences in cost of living and salaries decades ago while I was living in Arkansas, but being paid by a company headquartered in the northeast. I was able to live better than a lot of Arkansans and save aggressively for retirement because my salary was relatively high compared to the cost of living.  

I know of American expats, who live abroad in countries where the cost of living is lower than in the US. They can save much of their salary and some can afford servants. Nice! 

I have friends who quit their Connecticut jobs and moved to South Carolina before they were ready to retire. They would have been better off waiting till retirement age. They are struggling to find and keep jobs with good benefits, and to save for retirement. 

So, if you have a choice, work where you can make the most money and retire where it’s cheap to live. Life is hard. Don’t make it harder. 

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It is very tempting to stop investing (e.g., buying new stocks and bonds) when you are afraid, when the news is terrible, or when your portfolio drops in value. It is tempting to sell your investments and stop buying new ones, when you think the president or congress are crazy, or horrible natural disasters seem rampant, or stocks and bonds seem way too expensive, or experts are recommending that you sell. But the only good reason to sell your investments is if you need the money, say if you are retiring soon or buying a house. But even then, you are unwise to sell all of your investments because, if you live for decades after you retire, the returns on cash don’t keep up with inflation, leaving you poorer over time.

At various times during my investing life, I have thought that selling many or all of my investments was wise. In almost all cases, I resisted the urge. In hindsight, it was never wise to sell everything. Even if I concluded that it was necessary to sell, how could I be sure it was the best time to sell? And how could I know that I wouldn’t regret selling? And how would I figure out the best time to get back in the market?

Most of us are terrible market-timers, unable to pick the best time to buy and sell. So, unless you are the next Warren Buffet, you will make far more costly mistakes than good decisions, if you try to decide the best times to buy and sell.

What is the answer? Start investing at the earliest age possible, invest as much as you possibly can regularly, and just keep doing it until you retire.

Letting your emotions drive your investing decisions is a recipe for disaster. If you set up an investing plan that enables you to invest as much as you can regularly, paycheck after paycheck, you will easily outperform most investors.

But, what If you can’t sleep at night? Spread your money around to different investments and ignore the news, experts, and your portfolio. Don’t buy the hottest stock; invest in mutual funds and exchange traded funds, which automatically spread your money around, reducing risk a lot.

Good luck!

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OLD-TIMERS MAY NOT BE BETTER INVESTORS THAN YOUNGER PEOPLE

Unfortunately, the wisdom we keep accumulating, during our lives, does not necessarily make us better investors. A recent study (Li, Liu, and Wu, 2024) found that middle-aged investors earned the best investment returns, while older investors earned lower returns. It appears that, after peaking at middle-age, our investing prowess may slip and slide as we age.

WHAT HURTS OLDER INVESTORS’ INVESTMENT PERFORMANCE?

Most likely cognitive decline is at work. Also, decades of experience may lead to overconfidence. Plus, mental shortcuts may lead to mistakes as older investors make faulty assumptions and trust their instincts and habits instead of facts.

AS YOU AGE, HOW CAN YOU LIMIT THE RISKS TO YOUR PORTFOLIO?

Take steps to maintain good health and slow cognitive decline. Keep learning all you can about money and investing. Learn about the risks of cognitive decline and mental shortcuts and how to limit the damage they may cause. Finally, get professional help, especially if your performance is sub-par.

Source: “Older investors at a loss: Cognitive aging and funds returns,” by Zhongtai Li, Jia Liu, and Yanran Wu; SSRN, November 12, 2024.

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It seems prudent to check your investments when markets are turbulent. But it can be dangerous to do so. Why? Checking your balance might lead you to take actions that are not in your best long-term interest.

Schlomo Benartzi and Richard Thaler, two behavioral economists, found that the more people look at their 401(k)s, the worse their long-term performance. Why? Chances are good that, if someone checks her account frequently enough, she’ll eventually make stupid mistakes, driven by fear or greed. Benartzi and Thaler found that people who don’t check their accounts have much better performance that those who do check them, mostly because they invest more in stocks. So, folks should buy stocks, hold them forever, and resist the temptation to check their accounts. Let them grow unmolested.

It’s not just those who check their accounts who are at risk; those who trade are also at risk. Terrance Odean, a finance professor at the University of California Berkeley found that the more frequently investors trade, the worse their performance. Guess what? The more you check your account, the more likely you are to trade. What’s the lesson here? Set it and forget it. Once you have started saving and investing regularly, the less you mess with your portfolio, the better. Checking in to see how your account is doing is likely to hurt your performance, so don’t look and don’t touch. Warren Buffett claims he is like a sloth, almost always motionless, and very rarely making trades. That has worked very well for Buffett and it can work for you.

When the news is real bad, are you able to ignore it? Do you check your account(s) regularly? How often have you decided to make a change to your investments after checking your account?

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The 1990s were an exciting time to invest. I bought and sold stocks frequently, checked my portfolio often, and was obsessed with the stock market and journalists who spewed forth endless analyses, predictions, and recommendations. However, I would have been better off dollar-cost averaging into mutual funds and buying and holding, not trading. 

I get better results now and it takes almost no time to maintain my investment portfolio even though it is much larger than 30 years ago. I learned that, regarding investing, less is more; the less I do, the better my results, as long as I dump a big chunk of every paycheck into index mutual funds. 

I learned the hard way that the more I traded, the poorer my investing returns were. Why? Because the more frequently I checked the markets or my portfolio, the more likely I was to trade, often making mistakes. I often sold a great company’s stock (taking profits) and then bought a lousy company’s stock. Investing mistakes can be costly and they pile up, costing you more and more.  

Warren Buffett, a highly successful investor, buys and sells infrequently. He may go months or years without making a trade. When he buys a company’s stock, he tends to hold it for years or even decades.  

So, the best approach for most of us is not to trade frequently, but to buy and hold forever (or until we need the money). Since we are highly unlikely to pick stocks as well as Buffett, the best approach is not to buy individual stocks, but to buy index mutual funds or exchange-traded funds regularly. Buy them like clockwork, every week or two weeks, or every paycheck and then just hold on to them. 

If you find investing thrilling, check your results, and consider another approach. A boring approach like dollar-cost averaging will likely yield much better results. 

Do you find investing boring or thrilling? How regularly do you save and invest? 

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Sometimes financial headlines are horrific. Perhaps the stock market is tumbling and every expert seems to predict that things will only get worse. But when everyone seems to have lost hope, we may have reached maximum pessimism. That’s when everything seems so bad that it can’t get any worse. Fortunately, when everything seems terrible and everyone is in the depths of despair, better times may be ahead.

When the stock market gyrates violently, headlines may proclaim how terrible things are and prescribe what you should do about it. But no one knows for sure what’s going to happen next and it’s hard to know whose advice can be trusted. Journalists crave eyeballs; that’s why they sensationalize. Don’t trust them with your future.

So, what must you do if the news is awful or full of predictions for a stock market crash or recovery? Nothing. On any given day experts are likely to predict a crash, a recovery, or both. But they are wrong much of the time and, even if they are right, following their advice may mess up your plans and steer you off course.

So, what should you do? Nothing. If you have a retirement savings/investment plan in place, stick with it. Don’t let headlines or others’ opinions throw a wrench in your plans; stay the course. If you feel like you just have to act, then increase the amount you save per paycheck, especially if you’re really afraid. That takes guts, but it makes great sense because you will buy stocks on sale since their prices have been beaten down. And the more terrified you are, the lower the sale prices are likely to be. That will pay off big when the market rebounds and the stocks you bought on sale bounce back.

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According to a Brookings Institution analysis, it costs $310,605 to raise a child to the age of 18. If the child has a disease, it will likely cost much more. And at 18, the college years often begin, and they can cost a fortune.

Children are not just expensive; they come with risks. For most parents, children will almost certainly affect how, when, and if they retire.

Clearly, most of us won’t stop having children. But consider the costs, risks, and consequences. Then plan and save.

Start a family if you wish, but look ahead and prepare. Start saving for college (and retirement) before your children are born. Otherwise, they’ll soon be ready for college, but you won’t be.

Do you have children? If so, do you regret that you didn’t save more or start saving earlier?

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I got a mailing from a realtor informing me that: there are relatively few homes for sale, home prices are at record highs, and buyers are waiting to pounce. Is this hyperbole? No. This is an accurate depiction of the real estate market. Sellers are in command and many buyers, facing challenging conditions, are desperate. Not only are houses in short supply, mortgage rates are much higher than they have been in years. Plus, buyers face competition from investors who can often make more attractive offers. 

I remember well trying to buy a house in a sellers’ market. It’s easy to panic as you submit one failed bid after another. It can lead you to spend too much. And it could result in a winner’s curse; making the winning bid, but later regretting it. After we bought, my wife complained for many years that we had overpaid. Finally, after nearly 15 years, Zillow said our house was worth what we paid for it. 

If you are in the market for a house, expect to be frustrated. Set a limit on how much you’ll pay and stick to it. It could help you avoid years of regret. 

Are you house-hunting? Are you frustrated? 

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I ran into a couple I’ve known for years; our kids grew up together. This couple just had a baby. In their fifties. They look like grandparents, not new parents. Although they are excited to be parents, the husband confided that he sometimes wonders what he and his wife were thinking.

Clearly, having a child in your 50s comes with an abundance of costs and risks. A 2022 Brookings Institution analysis found that it takes $310,605 to raise a child to the age of 18. That’s if everything goes right. If your child is disabled or has chronic health problems, all bets are off.

Of course, the four years after your child turns 18 can be very expensive too; the cost to raise a child and put her through college will exceed a half million dollars in many cases. If the money needed to raise a child was instead invested for retirement, one could reasonably expect it to yield far more than a million dollars.

Children are wonderful, but they are very expensive. And having children when you lack the resources, health, or energy could be a recipe for disaster. Even if you’re filthy rich, you can’t buy health or energy. Plus, things you do with ease in your 40s, such as carrying a sleeping child, giving horsey rides, or playing sports, will likely be challenging or downright impossible in your 60’s or 70s.

Before you decide on a mid-life surprise, consider the costs and risks and make certain you can dedicate the next 20 years and a boatload of money to another child or two (warning – fertility treatments increase the likelihood of twins).

Would you sacrifice your retirement to have a child in your 50s?

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