SMART MONEY snippets --
Buying Value
Warren Buffett, one of the most successful investors of all time, is famous for his tenacious strategy of buying value stocks. Index funds such as the SPDR S&P 500 (SPY) and the SPDR Dow Jones Industrial Average (DIA) ETF Trusts are 2 great ways to invest in a whole group of value stocks that consistently perform well over the long term. The average annual returns for each are 8-9% and 10-11% respectively, including dividends over the last 20 years.
Dollar Cost Averaging vs. Lump-Sum Investing
Dollar cost averaging (DCA) is when you invest a fixed amount of money into a portfolio over time on a regular basis. This can be beneficial when markets are at all time highs or highly volatile. While DCA is a solid strategy, research has shown that lump-sum investing (LSI), where you invest all available capital immediately, often outperforms DCA in the long run. This is because markets historically trend upward over time, meaning investing early often leads to better returns. LSI therefore benefits from compounding earlier, whereas DCA keeps cash on the sidelines longer.
Timing the Market
Timing the market (attempting buy low and sell high) with most stocks is a common mistake made by many who see themselves as risk adverse. Markets tend to move upward over time, so selling in anticipation of a market downturn usually results in a loss when the downturn comes later if at all. There have only been 2 bear markets in the last 15 years: COVID 19 Crash of 2020 and then the year 2022 when both Russia invaded Ukraine and the Fed raised interest rates rapidly to combat inflation.
Step-up in Basis
Step-up in basis or basis reset refers to the adjustment of an asset's cost basis to its fair market value (FMV) at a specific point in time, typically when ownership transfers due to inheritance. Holding on to appreciating assets that are to be passed on as an inheritance eliminates all capital gains taxes that would be otherwise due at sale. The longer you hold the asset, the greater the tax benefit. This applies only to inheritance of regular taxable assets subject to capital gains. Tax deferred retirement accounts (eg., 401(k) and traditional IRA) pay tax on the entire withdrawal amount. It also does not apply to gifted assets as the recipient owes tax on a carryover basis (the original owner's basis).
S&P 500 30 year growth
If you invested just $50,000 30 years ago in the S&P 500 via the SPY ETF, those assets would be worth around $600,000 today. Reinvesting the dividends would have yielded even more. This highlights how making good financial decisions early in life can lead to substantial gains that help avoid playing catch-up later in life with retirement goals.
Social Security's impact
In January 2025, the Social Security Administration (SSA) reported that the average monthly benefit for retired workers was $1,979. The average spending for seniors according to the U.S. Bureau of Labor Statistics' Consumer Expenditure Surveys for 2021 and 2022 (see Table 3254) was $55,064. This means that with annual benefits around $24,000, Social Security provides only 44% of the required income for seniors. The other 56% must come from other sources like retirement savings.
Spousal benefit
The spousal benefit for married couples is up to 50% of the primary insurance amount (PIA). When someone earns significantly more than their spouse and will receive more than twice the Social Security benefit, they both can receive more benefits by having the spouse claim benefits at age 62 first. The higher earner can then claim their own benefits with the spousal benefit at full retirement age. There is no increase in the spousal benefit after full retirement age.
Debt vs. retirement
Paying off debt with an interest rate of 7% will take 30 years to pay off the principal. You would see no net gains with this debt from a similar investment in a retirement account that returns 6% annually on average over the same period. Debt avoidance for depreciating assets is a good long-term strategy for a secure retirement. In other words, be certain that all long-term debt will result in positive returns whether it be for a home, career education, or business.
Market Corrections
There are primarily two classes of investors that are most impactful in driving market corrections: institutional investors and high frequency traders. They are also known as “quants” in the media and financial industry. The term “quant” is a reference to a quantitative analyst who uses automated software to analyze and trade financial markets. These types of investors typically use mathematical models and algorithms to analyze vast amounts of data, identify patterns, and execute trades without human intervention. Consequently, this automated behavior can cause market corrections very quickly and without notice as concerted price adjustments feed back into the models of other quants. This is generally triggered in response to building market pressures but near impossible to predict.