Author: Marc Cohen

(photo by Kelly Sikkema on Unsplash)

Here are nine personal finance ideas…

When possible, pay bills by credit card to earn credit card points. Be careful though, as some vendors may charge an extra fee when paying by credit card. Ensure that you have enough cash on hand to cover your charge, and pay your credit card bill in full each month. It’s been my experience that it takes a lot of spending to earn enough points to buy things for free. Only use credit card for necessary purchases. It has still been worth it for me. I earned enough points for a beginner $200 electric guitar and amp that has lasted for several years. I’ve ordered books here and there for $20 credits. And occasionally, I have enough points to pay a small portion of an Amazon bill with credits. Small payoffs yes, but still free money if you use your charge card in a healthy way.

Periodically call your credit card company to request an increase in your credit limit. As a valued customer who pays your credit card bill on time each month, the credit card company may approve your request. It’s always good to have additional credit on hand for emergency purposes. I have not had the need for this extra credit yet, and hopefully never will. If an emergency did occur, I would probably use my emergency cash fund first, so not to incur unnecessary interest charges. However, if I ever had a big life emergency, it’s good to know that I’ve got this extra amount available to me.

Periodically check your credit score. The higher the score, the more benefits to you, such as: lower interest rates offered on loans, access to better credit cards, insurance discounts, more housing options, etc. You are entitled to one free copy of your credit score every twelve months from each of the three nationwide credit reporting companies (Equifax, Experian, TransUnion). You will need to share your name, address, social security number, and date of birth to verify your identity. Some credit card companies offer free credit score lookups too.

Reconcile bank and credit card statements on a monthly basis. It is helpful to know how much money is available to you in your accounts each month. However, another important reason to stay on top of this is to ensure that no fraudulent transactions have been posted to your accounts. If, for example, someone illegally used your credit card to make purchases, you have a limited timeframe to contact your credit card company to file a complaint and to receive a credit back onto your card.

Contribute to your employer’s retirement plan, especially if they offer an employer match up to a certain percent. At a minimum, contribute enough to earn the full employer match. This is free money to you for retirement.

Spend less than you earn. Live below your means. It sounds easy but is not. Create a budget that lists out all income sources minus all expense items. Track expenses and assess if they are truly needed. Cut expenses when possible. Brainstorm ways to bring in extra income.

Pay yourself first. Put money aside before paying bills. If in debt, pay off first. Then build an emergency fund. And then save, save, save.

Invest your savings wisely. It’s difficult in the current economic environment to find investments that earn income at a higher rate than inflation. Interest on savings accounts, CDs, and bonds are non-existent. And the stock market is at all time highs. No one really knows which direction the stock market will go. It can certainly keep going up from here. Personally, I’m waiting for a drop before I invest. But I’ve been wrong in my assumption for quite some time, so what do I know. Corrections in the market are healthy. The stock market has not had a 10% correction since Feb 2018. “According to data from market analytics firm Yardeni Research, the S&P500 has undergone 38 corrections since the beginning of 1950. That’s an average decline of at least 10% every 1.87 years.” So it’s tough right now to decide how best to save. Everyone has different levels of risk. Determine your risk profile. Holding cash for a bit before making a decision is an option for sure.

Invest in yourself. You are your most valued asset. Grow your knowledge in topics that inspire you. Spend money on activities that lift up your spirit.

(photo by Meric Dagli on Unsplash)

How do we determine how the OVERALL stock market is doing? We can look at charts of individual stocks. However, 2,400 companies trade on the NY Stock Exchange alone. Instead, we can look at various indexes, which group together a bunch of individual stocks. In the U.S., the three biggest indexes are the S&P500, Nasdaq, and Dow Jones. I also like to include the Russell. In addition to these indexes, there are 5,000 others that make up the U.S. equity market, allowing us to dice and slice the market into many subcategories. Indexes can be constructed in a variety of ways, but they are commonly identified by capitalization (size) and sector segregation (similar businesses grouped together).

News broadcasts tend to focus on the Dow Jones, as it is one of the oldest and well-known indexes. It includes the stocks of 30 of the largest and most influential companies in the U.S. Because the Dow contains only 30 stocks, it really does not carry as much weight as the S&P500 (500 stocks), Nasdaq Composite (2,500 stocks), and Russell 2000 (2,000 stocks).

The S&P500 Index represents 80% of the total value of the U.S. stock market. Generally, the S&P500 reflects movement in the U.S. stock market as a whole.

The Nasdaq Composite Index is more technology focused, although it does include other non-technology industries, as well as some companies NOT based in the U.S.

The Russell 2000 focuses on smaller companies in the U.S. market in various sectors. The largest company in this index has a market cap of $32 billion, while the smaller ones have market caps around $200 million. This index also contains a lot of U.S. community banks. At least it did until June 2021. Every year, indexes recalibrate to remove and add companies based on how the company capitalization (size) has changed. Because bank stock prices have dropped over the past year, relative to other sectors, many banks’ capitalization dropped below the Russell $200 million threshold. I’m not sure how many banks got dropped.

The first thing I look at each trading day is which direction these four market indexes are moving. Many times they go up and down in unison. Other times, as an example, the Nasdaq may skyrocket higher due to tech stock focus, while the Russell (small caps) are dropping. This helps me gauge how the markets are trending.

There is overlap between these four indexes, because some of the same companies are included in more than one index. For example, Apple (ticker: AAPL) is a component of both the S&P (broader market) and the Nasdaq (high number of tech stocks). But AAPL is not included in the Russell (smaller companies). Thus, the S&P and Nasdaq have a stronger correlation between each other than against the Russell.

The screenshot below shows the correlation between:

SPY = S&P500; IWM=Russell; QQQ=Nasdaq; DIA=Dow

Looking at the first column, notice that SPY is the header. Looking down to the second row – column 1 – IWM has a 38% negative correlation to SPY. The third row – column 1 – QQQ has a 96% positive correlation to SPY. While the fourth row – column 1 – DIA has a negative 36% percent correlation to SPY. That means that generally (but not always), SPY and QQQ will move in similar directions; and IWM and DIA generally move independently of SPY and QQQ.

(above chart per MicroAxis.com)

Economic scenarios can affect various stock sectors differently. For example, I have noticed that changes in interest rates have a different impact on QQQ (Nasdaq-Tech heavy) versus IWM (Russell – Banks). Interest rates are currently low. In today’s interest rate environment, you can borrow money (i.e., auto loan, mortgage) at a very low rate. And, if you deposit money in a savings account, the interest you earn will also be very low. Banks make more money when there is a wider gap between the interest rate banks make off of your loans versus the interest rate the bank has to pay you each month for keeping your savings account funds with them. Banks have not been making enough net revenue on this spread in recent times. However, the outlook for banks going forward is favorable, because at some point interest rates will increase, producing a bigger net income spread.

Tech stocks are impacted by interest rates in reverse of banks. When interest rates are low, Tech stocks can purchase more materials at lower prices. But when interest rates eventually go back up, Tech stocks will have to pay more.

To summarize, following broad market trends can help in formulating opinions and trade ideas. Overarching trends can last a long time, such as straight up during this current multi-year bull market. But underneath the main trend, we can uncover money flows in and out of different sectors and industries that also help in assessing our next moves.

Notes: (www.investopedia.com was used to formulate index definitions)

(photo by Alec Favale on Unsplash)

Where can we invest our money right now? This is a tricky question to answer. Hold cash in a savings account earning 0.01%? No. Lock cash into a CD for 1 year earning 0.6%? No. How about bonds? No, extremely low interest rates too.

Stocks? Under normal circumstances, investing in the stock market is a great way to grow your money. And if you have invested in the market in recent years, congratulations. The markets are at or near all-time highs.

Here is a one-year chart of the SPY (S&P500) through today… Straight Up!

Many companies (but not all) are reporting all-time great earnings numbers for the most recent quarter, especially certain big name tech companies. With few exceptions, day-after-day the market rips higher, like today. Yet, I am leary to jump in here. Some of the big tech companies have stated they anticipate their next quarter to be weaker due to the the Covid variant getting worse, causing slowdowns in production.

If I thought the stock market still had upside from here, I would still wait for a pullback before investing. Two Monday’s ago the markets went down (a rarity).  The following days, Tue through Fri, the market cranked back up to all-time highs. That’s because investors are still “buying the dip”.

According to some stock market experts, another big reason the market continues to trend up is because the Federal Reserve Bank is pouring money into the market at record amounts. In effect, the federal government is printing extra money solely for the purpose of investing it in the market. Actually, Federal Reserve Chairman Jerome Powell confessed this fact on 60 Minutes last year (creating digital currency to invest in bonds). See 30 second clip here:

https://www.youtube.com/watch?v=lK_rYS8L3kI

Thus, stock market prices continue to move higher, in big part due to this federal support. What happens when the Feds ease this program?

I would be remiss to not bring up the topic of inflation. You may have noticed that prices for just about everything continue to go up. The “experts” state that the current inflationary trend is “transitory” (temporary) and that we will see a decrease in prices in just a few months. I’m not so sure.

Due to rising costs, companies have to pay more to purchase their raw materials. And finally some companies are increasing minimum wage to $15. However, no doubt these companies are passing these higher costs on to us, the consumers.

And as another example, there is a shortage of new cars being sold due to a shortage of computer chips. This has limited the number of vehicles for sale on car lots, which has led to astronomical prices for NEW vehicles. This in turn has caused prospective vehicle purchasers to scour the USED car, van, and truck inventories, causing a lot of demand, which in turn has caused extremely high prices too. The fair market value of many used cars today is worth MORE than the initial purchase price. Who knows when these sky high prices will drop back down to earth.

So where can you invest your money now?

Pay off debt, such as credit cards, and perhaps, pay more each month toward your mortgage. Your borrowing rate is most likely higher than the savings interest rate you could earn by keeping your money in the bank.

If you don’t have one yet, build up an emergency cash fund.

And while I do NOT recommend the following for any of my readers, in order to be transparent with my own trading, I am using a small portion of cash in my brokerage account to “short” the market. Most individual investors buy a stock at a low price, and sell it at a higher price for a profit. The opposite is true when “shorting”. A short position means that you sell a stock to open a trade, anticipating a drop in the stock, and then buy back the stock at a lower price for a profit. However, shorting (selling) a stock is viewed as more risky than buying a stock. If I buy 100 shares of stock currently trading at $25, if the stock goes to $0 (i.e., bankruptcy), I risk losing $2,500. However, if I short a $25 stock, in theory the stock can go higher forever. Thus, I would have unlimited risk in this scenario.

I also have cash on the sidelines. If (or when) the market ever drops significantly, I will have cash available to purchase ‘strong’ stocks at a discount.

(photo by Micheile Henderson on Unsplash)

It’s August 1st. And that means it’s time for another Ultimate Blog Challenge. If interested in participating as a blogger, here is a link to Paul Taubman’s website: https://ultimateblogchallenge.com Give it a try!

In the last challenge during May 2021, I chose to write about healthy habits that you can apply to your own life utilizing small steps over time.  I’m going to change things up this time around. My focus for this challenge will be on the stock market, personal finance, and other random topics of interest.

Whether you handle your investments and personal finances on your own, or you delegate these responsibilities to someone else, it is important to have an understanding of these topics so that you can make educated decisions on your financial situation that move you towards your financial goals.

The pandemic has put many individuals at risk financially, while others have thrived.

Those hurting may have lost jobs as certain businesses struggled to remain afloat during lockdown. And starting today, renters who have struggled to keep up with rent payments may be at risk at losing their apartments as the eviction moratorium deadline has just passed without the Federal government voting last Friday to extend this timeframe.

Those thriving financially may have had a steady job throughout the pandemic. And as the stock market has steadily moved higher and higher throughout lockdown after its initial drop, those who kept long positions in the market have done well.

The stock market is at or near all-time highs.  No one knows which way the market will go. I personally thought the market was over-bought a few years ago. If you have invested long in stocks during the pandemic, it has been easy money. And perhaps that will continue. However, at some point, volatility will return. And when it does, investors will need to be more selective on the investments that they make.

My goal for this blog challenge is to increase my knowledge of the markets and personal finance topics in order to become a better stock investor. If I can explain complex subject matter in easy to understand language, then you and I can both benefit.

Now for the usual disclaimers. I am not a professional stock trader, nor do I have any professional trading licenses.  I only trade stocks for myself as a personal investor. And while I do have a CPA license (currently in inactive status), these blogging topics are not my area of expertise. Thus, please consult with your own stock broker or accountant for guidance.

If you have any personal finance topics that you’d like me to write about, please let me know in the comment section below.

I look forward to researching and sharing these topics with you during this month. I hope that you get something beneficial out of it in order to reach your own financial goals, and to thrive.