The Week on Wall Street
Stocks drifted lower last week, weighed down by Federal Reserve Chairman Jerome Powell's unsettling comments on the economy and signs of renewed tensions with China.
FACT OF THE WEEK
If you were to spend one full lunar day on the Earth's moon starting from one sunrise to the next, the entire orbit cycle would last the equivalent of 29.5 days on Earth.
The Dow Jones Industrial Average fell 2.65%, while the S&P 500 retreated 2.26%. The Nasdaq Composite Index slipped 1.17% for the week. The MSCI EAFE Index, which tracks developed stock markets overseas, slid 3.66%.
Stocks Pull Back
Stocks moved lower throughout most of last week on worries that the emerging economic reopening might accelerate the spread of COVID-19. Comments by Fed Chair Powell added to the downside pressure when he expressed concern about the U.S. economy's path ahead.
The stock market managed to find some firmer footing, posting a healthy gain on Thursday. Stocks rallied again on Friday, overcoming headlines that suggested a souring relationship with China and a report that showed U.S. retail sales dropped 16.4% in April.
Fed Chair Powell spoke last Wednesday and painted a somber economic outlook, remarking that "the path ahead is highly uncertain and subject to significant downside risks." He urged the White House and Congress to pass additional financial relief to help the economic recovery, adding that there was no plan on the Fed's part to cut the federal funds rate to below zero.
Powell also referenced internal Fed research that found those least able to weather the current economic environment were most impacted, with nearly 40% of households making less than $40,000 per year having lost a job in March.
FINANCIAL STRATEGY OF THE WEEK
PAY YOURSELF FIRST
Each month, you settle down to pay bills. You pay your mortgage lender. You pay the electric company. You pay the trash collector. But do you pay yourself? One of the most basic tenets of sound investing involves the simple habit of "paying yourself first" – in other words, making your first payment of each month a deposit into your savings account.
The saving patterns of Americans vary widely. And too often, short-term economic trends can interrupt long-term savings programs. For example, the U.S. Personal Savings Rate jumped from 3.5% to nearly 8% in May 2008 during the housing and banking crisis. It then rose and fell sporadically as the economic environment appeared to stabilize. It peaked in December 2012 at 12%. As of 2019, the average rate has ranged between approximately 8% to 9%.
The Genius of Pay Yourself First
Anyone who's ever managed their finances knows that saving can be a challenge. There seems to be an endless stream of expenses that demand a piece of each month's paycheck. Herein lies the genius of paying yourself first: you get the cream at the top of the bucket and not the leftovers at the bottom.
The trick is to prioritize. Make it a point to put your future first. At first, saving may mean a small lifestyle change. But most individuals want to see their net worth increase steadily. For them, finding ways to save becomes more of a long-term commitment than a short-term challenge.
Putting Your Money to Work
If retirement is your priority, consider taking advantage of tax-advantaged investments. Employer-sponsored retirement plans, such as 401(k)s, can be a great way to save because the money comes out of your paycheck before you even see it. Also, as an added incentive, some employers offer to match a percentage of your contributions.
What will you do with the money you save?
If you are planning to set some funds aside that would be accessible to you before retirement, consider placing this money in a separate account. When the balance hits your target, you may want to move the money into investments that offer higher returns. Of course, this may mean exposing your money to more volatility, so you will want to choose vehicles that fit your risk tolerance, time horizon, and long-term goals.
As always, please contact my office with any questions or financial concerns you may have.