Charts of Q3 2021
Welcome to fall! Before we race to the pumpkin patch, let’s look back on July, August and September. We selected 5 different visuals from the past quarter to share with you.
1: The S&P 500 Reaches an All-time High
On September 2, 2021, the S&P 500 closed at an all-time high (see chart). While this is a record-breaking statistic, the S&P 500 has also experienced more than 50 all-time highs in 2021. Prior to this year, there are only six other calendar years with at least 50 record closes (2017, 2014, and 1995 are the most recent years).
As a result of these market highs, we have noticed heightened concerns about a looming market crash. Because what goes up, must come down?? The two most common concerns we hear are:
“I know the market is at an all-time high. I want to sell my investments today and reinvest these dollars when the market crashes in the coming months”. See chart 2 for our typical response.
“I know the market is going to crash. I want to move all my money into something safe like cash or bonds. What do you think I should do?”
If you are someone that is worrying about your investments (maybe it’s something entirely different from the two concerns listed above), please reach out to our team so we can listen to your concerns and build an investment strategy for you going forward. To be frank, the timeline for spending 401(k) dollars impacts the advice we give. For example, we would give different advice to someone planning to spend their 401(k) savings soon than to someone in their mid-forties with no intentions of spending their 401(k) soon.
2: What About This Looming Market Crash?
If you have setup a 401(k) account, then you are investing your dollars every single pay period. This phenomenon is called dollar-cost averaging and it works really well for most retirement accounts. If you have a 401(k) account, we recommend leaning into dollar-cost averaging, setting up annual account rebalancing, and assessing your account strategy periodically. Of course, this strategy is not one-size-fits-all. Some investors prefer to intervene with their investments if they are predicting an upcoming market crash.
That being said, we recently found this article by Nick Maggiulli that compares gradually investing a consistent dollar amount (like per paycheck 401(k) contributions) to saving dollars up to buy a market dip. Please take the time to read the whole article, but if you want the cliff notes here you are:
The article points out that stockpiling cash in anticipation of a market crash is an unlikely strategy to win out in the long run.
Trying to buy the dip usually fails because large dips are rare. As a result, the strategy turns into stockpiling cash which is not a good idea for the long-term.
If you do want to try and buy the dip, think about getting your cash invested in the stock market as soon as possible.
For some help interpreting this chart, here is the text directly from Nick Maggulii’s blog post. “This chart shows that there is roughly a one in four chance of beating DCA when using a Buy the Dip strategy with a 10%-20% dip threshold. If you were to use a 50% dip threshold, the chance of outperforming DCA increases to nearly 40%. But this doesn’t come without a cost. Because while you are more likely to outperform DCA when using a bigger dip threshold, you also underperform by more (on average) as well.”
3: Monthly Child Tax Payments
July 2021 was the beginning of the monthly child tax credit payment for parents. Did you see our 20-minute webinar about the child tax credit, why it matters, and some financial planning considerations for parents?
Flash-forward a few months, and we have found a study of 1,514 American parents who received the monthly child tax credit payments. As you can see, most parents have saved their payments for emergencies which is a disciplined usage of the excess cash.
4: Vanguard Announces Lower Fees for Target Retirement Funds
In late August, Vanguard announced they are lowering the expense ratio (the cost) of their target-date funds by February 2022. We believe this is good news for all investors using Vanguard target retirement funds!
Vanguard will lower the expense ratio to 8 basis points meanwhile they are committed to maintaining the same glidepath methodology and asset allocation.
To articulate the cost savings, we assembled a table showing the potential impact for someone invested in a Vanguard target retirement fund with the updated expense ratio. For someone with $100,000 in a Vanguard target retirement fund, this lowered expense ratio means immediate annual savings. Just to be clear, the $90 vs $80 are annual fees which add up to be meaningful cost savings for you over a long period of time. Cheers!
5: Be Careful who you Get Advice From
How many self-proclaimed market savants are sharing their opinions with the world? So many! Be careful who you listen to. We couldn’t help but include some humor in this post. Feel free to relish in the ridiculousness of this chart.
That concludes our Charts of Q3 2021 post. We will be assembling the next Charts of the Quarter post before we know it. Take care! — Your Human Investing Team
