MONEY Gold

What I Tell Clients Who Want to Buy Gold

Stacks of gold bars
Mike Groll—AP

Sometimes people want gold because of greed, sometimes because of fear. Here's what you should know before you buy it.

“Okay,” the client said at the end of our meeting, after I had recommended my investment strategy, “I’ve just got one more question.”

“Go ahead,” I said.

“What about gold?”

“Why gold?” I asked. I’ve found that the reasons people give me really vary. When they say they want to buy gold, there’s some deeper issue we need to get at. “What is it about gold that appeals to you?”

“It’s low right now. You believe in buy low, sell high, right? I want to earn more than I can from bonds. There’s always a market for gold, no matter what happens.”

Hmmm. The client is expressing both greed and fear. It’s usually one or the other.

So I tried to explain:

You don’t invest in gold; you speculate on gold. Gold grows in value when someone else will speculate more than you did when you bought it. Perhaps it rises and falls with inflation. An exhaustive 2013 article in Financial Analysts Journal concluded that’s not really true. The authors found that the price of gold rises…when it rises. The price of gold fall…when it falls.

There’s some evidence that gold has kept its value in relation to a loaf of bread. The problem is that this comparison goes back the reign of the Babylonian king Nebuchadnezzar in 562 BC. For most investors, that time frame is way too long.

Some people want gold in case all hell breaks loose. It makes them feel safer than boring bonds. I can understand where they’re coming from. Bonds are almost purely conceptual because most people don’t ever even get a piece of paper saying they own them. These people want gold so they can make a run for it if necessary. Like I said, I understand: I like feeling safe, too.

If you’re in this camp, you could use 1-2% of your portfolio to buy some gold. Take physical custody of it. Put it in your safe at home.

Remember the practicalities. Small coins will probably work best; you don’t want to be stuck trying to get change for $1,000 gold bars when the banks have closed. Gold weighs a lot so just buy enough to get you over the border. You don’t want your stash to slow you down when you’re sneaking away in the night.

Still not feeling secure? To take the next step down this road, add the following to your safe: guns, ammo, water, and copy of Mad Max or other favorite movie of this genre. The Book of Eli was okay and 2012 was even better.

However, none of these movies features a post-apocalyptic gold standard. According to them, if and when all hell breaks loose, you’ll want guns, ammo, gasoline, and perhaps a jet.

———-

Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.

Read next: Dubai’s Kids Now Worth Their Weight (Loss) in Gold

MONEY Investing

Pigs Fly: Millennials Finally Embrace Stocks

Jeans with cash in pocket
Laurence Dutton—Getty Images

Young adults have been the most conservative investors since the Great Recession. But now they are cozying up to stocks at three times the pace of boomers.

What a difference a bull market makes. The Dow Jones industrial average is up 160% from its financial crisis low, and the latest research shows that young people are beginning to think that stocks might not be so ill advised after all.

Nearly half of older millennials (ages 25-36) say they are more interested in owning stocks than they were five years ago, according to a Global Investor Pulse survey from asset manager BlackRock. This may signal an important turnaround. Earlier research has shown that millennials, while good savers, have tended to view stocks as too risky.

In July, Bankrate.com found that workers under 30 are more likely than any other age group to choose cash as their favorite long-term investment, and that 39% say cash is the best place to keep money they won’t need for at least 10 years. In January, the UBS Investor Watch report concluded that millennials are “the most fiscally conservative generation since the Great Depression,” with the typical investment portfolio holding 52% in cash—double the cash held by the average investor.

This conservative nature has raised alarms among financial planners and policymakers. Cash holdings, especially in such a low-rate environment, have no hope of growing into a suitable retirement nest egg. In fact, cash accounts have been yielding less, often far less, than 1% the past five years and have produced a negative rate of return after factoring in inflation.

Conservative millennials, with 40 years or more to weather the stock market’s ups and downs, have been losing money by playing it safe while the stock market has turned $10,000 into $26,000 in less than six years. Yes, the market plunged before that. But in the last century a diversified basket of stocks including dividends has never lost money over a 20-year period—and often the gains have been more than 10% or 12% a year.

Millennials are giving stocks a look for a number of reasons:

  • The market rebound. The market plunge was scary. Millennials may have seen their parents lose a third of their net worth or more. But with few assets at the time, the market drop didn’t really hurt their own portfolio, and stocks’ sharp and relentless rise the past six years is their new context.
  • Saver’s mentality. Millennials struggle with student loans and other debts, but they are dedicated savers. They have seen first-hand how little their savings grow in low-yielding investments and they better understand that they need higher returns to offset the long-term erosion of pension benefits.
  • Optimism still reigns. Millennials are easily our most optimistic generation. At some level, a rising stock market simply suits their worldview.

This last point shows up in many polls, including the BlackRock survey. Only 24% of Americans believe the economy is improving—a share that rises to 32% looking just at millennials, BlackRock found. Likewise, millennials are more confident in the job market: 32% say it is improving, vs. 27% of Americans overall. Millennials are also more likely to say saving enough to retire is possible: only 37% say that saving while paying bills is “very hard,” vs. 43% of the overall population.

Looking at the stock market, 45% of millennials say they are more interested than they were five years ago. That compares with just 16% of boomers. Millennials also seem more engaged: They spend about seven hours a month reviewing their investments, vs. about four hours for boomers.

This is all great news. Millennials will need the superior long-term return of stocks to reach retirement security. Yet many of them are just coming around to this idea now, having missed most of the bull market. In the near term, they risk being late to the party and buying just ahead of another market downdraft. If that happens, they need to keep in mind that the market will rebound again, as it did out of the mouth of the Great Recession. They have many decades to wait out any slumps. They just need to commit and stay with a regular investment regimen.

Read next:

Schwab’s Pitch to Millennials: Talk to (Robot) Chuck
Millennials Are Flocking to 401(k)s in Record Numbers
Millennials Should Love It When Stocks Dive

MONEY The Economy

The Stock Market Loses a Big Crutch as the Fed Ends ‘Quantitative Easing’

The Fed has concluded its asset-purchasing program thanks to an improving labor market. Here's what QE3 has meant to investors and the economy.

After spending trillions of dollars on bond purchases since the end of the Great Recession — to keep interest rates low to boost spending, lending, and investments — the Federal Reserve ended its stimulus program known as quantitative easing.

The central bank’s decision to stop buying billions of dollars of Treasury and mortgage-related bonds each month comes as the U.S. economy has shown signs of recent improvement.

U.S. gross domestic product grew an impressive 4.6% last quarter. And while growth dropped at the start of this year, thanks to an unusually bad winter, the economy expanded at annual pace of 4.5% and 3.5% in the second half of 2013.

Meanwhile, employers have added an average of 227,000 jobs this year and the unemployment rate rests at a post-recession low of 5.9%. It was at 7.8% in September 2012, when this round of quantitative easing, known as QE3, began.

What this means for interest rates
Even with QE over, the Fed is unlikely to start raising short-term interest rates until next year, at the earliest.

In part due to the strengthening dollar and weakening foreign economies, inflation has failed to pick up despite the Fed’s unprecedented easy monetary policy.

And there remains a decent bit of slack in the labor market. For instance, there are still a large number of Americans who’ve been unemployed for 27 weeks or longer (almost 3 million), and the labor-force participation rate has continued its decade long decline. Even the participation rate of those between 25 to 54 is lower than it was pre-recession.

What this means for investors
For investors, this marks the end of a wild ride that saw equity prices rise, bond yields remain muted, and hand wringing over inflation expectations that never materialized.

S&P 500:
Equities enjoyed an impressive run up after then-Fed Chair Ben Bernanke announced the start of a third round of bond buying in September 2012. Of course the last two times the Fed ended quantitative easing, equities faced sell-offs. From the Wall Street Journal:

The S&P 500 rose 35% during QE1 (Dec. 2008 through March 2010), gained 10% during QE2 (Nov. 2010 through June 2011) and has gained about 30% during QE3 (from Sept. 2012 through this month), according to S&P Dow Jones Indices.

Three months after QE1 ended, the S&P 500 fell 12%. And three months after QE2 concluded, the S&P 500 was down 14%.

 

Stocks

10-year Treasury yields:

As has been the case for much of the post-recession recovery, U.S. borrowing costs have remained low thanks to a lack of strong consumer demand — and the Fed’s bond buying. Many investors paid dearly for betting incorrectly on Treasuries, including the Bill Gross who recently left his perch at Pimco for Janus.

Bonds

10-year breakeven inflation rate:

A sign that inflation failed to take hold despite unconventionally accommodative monetary policy is the so-called 10-year breakeven rate, which measures the difference between the yield on 10-year Treasuries and Treasury Inflation Protected Securities, or TIPS. The higher the gap, the higher the market’s expectation for inflation. As you can see, no such expectation really materialized.

BreakEven

Inflation:

Despite concern that the Fed’s policy would lead to run-away inflation, we remain mired in a low-inflation environment.

fredgraph

Unemployment Rate:

The falling unemployment rate has been a real a bright spot for the economy. If you look at a broader measure of employment, one which takes into account those who’ve just given up looking for a job and part-time workers who want to work full-time, unemployment is elevated, but declining.

unemployment rate

Compared to the economic plight of other developed economies, the U.S. looks to be in reasonable shape. That in part is thanks to bold monetary policy at a time of stagnant growth.

Indeed, many economists now argue that the European Central Bank, faced with an economy that’s teetering on another recession, ought to take a page from the Fed’s playbook and try its own brand of quantitative easing.

MONEY stocks

Why It’s Not Too Late to Buy Apple Stock

Michele Mattana of Sardinia, Italy, poses with an iPhone 6 Plus and an iPhone 6 on the first day of sales at the Fifth Avenue store in Manhattan, New York September 19, 2014.
Adrees Latif—Reuters

Apple could very well have another blowout quarter up its sleeve.

It’s taken 2 years to get back to this point. After peaking in September 2012 at approximately $705 (pre-split), Apple has now climbed all the way back after its prolonged pullback to fresh all-time highs. Shares have now traded over $105, the equivalent of $735 pre-split.

Naturally, with shares back to all-time highs investors are now wondering if it’s too late to get in, or if they can still buy Apple. Let’s take a look.

Word on the Street

For starters, let’s consider the Street’s opinion on Apple. According to Yahoo! Finance, the average price target for Apple is $115, which represents about 10% upside from here. That may not seem like a lot, and it’s also a modest hurdle for the S&P 500 to clear in the next year, which determines if Apple were to outperform or underperform should it hit that average price target.

The high price target is $143. After giving up the Street high target temporarily, Cantor Fitzgerald analyst Brian White is back at the top of the list. White seems to always want to have the Street high price target on Apple, and reclaimed his title from JPM Securities analyst Alex Gauna earlier this month. The low price target is $60, but we’ve already covered how silly that sounds.

For the most part, the Street remains bullish overall, suggesting that it’s not too late to buy.

Apple pays

Re-initiated in 2012 after a 17-year hiatus, Apple’s dividend continues to climb higher as the company remains committed to returning its copious amounts of cash to shareholders. While the majority of Apple’s capital return program is being allocated to share repurchases, its still paying out hefty amounts of cash in the form of dividends.

Apple increased its quarterly payout by 15% in early 2013, following up with an 8% increase earlier this year. The Mac maker usually updates its capital return program in March or April, which is likely when investors will find out more about the next dividend boost.

Importantly, Apple’s dividend is sustainable — its dividend payout ratio has averaged 30% since bringing its dividend back.

Source: SEC filings and author's calculations. Fiscal quarters shown.
Source: SEC filings and author’s calculations. Fiscal quarters shown.

There’s no magic number when it comes to payout ratios, but generally investors prefer a figure in the 30% to 60% range. A payout ratio that’s too low may have investors asking for more, while a ratio that’s too high could potentially suggest that the company is being too generous and a dividend cut could be in the cards.

At current levels, Apple’s dividend represents a 1.8% yield. That’s less than some fellow tech giants like Microsoft and Intel, both of which yield around 2.7% right now, but it’s still a respectable yield nonetheless. There’s something for income investors here too.

Apple buys (itself)

As mentioned, the other aspect of Apple’s capital return is its massive share repurchase authorization, which currently sits at $90 billion. This is where Apple has been focusing most of its capital return efforts, believing shares remain cheap.

It should be telling that Apple just embarked upon its fourth accelerated share repurchase program while shares are at all-time highs. That’s literally Apple telling you that it thinks its shares are cheap at current prices and putting its money where its mouth is — because it’s also repurchasing shares itself. While many companies have rather bad timing with repurchases, it’s hard to argue that Apple is overpaying for itself when it’s trading at just 16 times earnings (a discount to the S&P 500).

Thanks to the resulting earnings accretion, EPS growth has been continuously outpacing net income growth by a healthy margin.

Source: SEC filings. Fiscal quarters shown.

Considering the sheer magnitude of Apple’s repurchase program, it’s also worth noting that share repurchases can drive capital appreciation. As Apple continues to amplify EPS growth through aggressive repurchases, its earnings multiple will contract (all else equal) due to a larger denominator.

If Apple’s earnings multiple contracts, shares look even cheaper, which creates buying interest. If the market is willing to simply maintain Apple’s earnings multiple, then that requires prices to go higher still.

An all-time record quarter is around the corner

Apple’s guidance for the current quarter is mind-boggling. The roughly $14.4 billion that the company expects to make over the holidays is well above what any other company in the S&P 500 is capable of producing, including oil companies. As Apple has just dramatically broadened its addressable market by launching larger iPhones (opening up a whole new world of potential Android switchers), Apple could very well have another blowout quarter up its sleeve. The iPhone and Mac businesses are as strong as ever, and the iPad’s recent woes are possibly temporary hiccups.

When the company releases its fiscal first quarter earnings in January, the figures could potentially be a positive catalyst as the quarter is expected to set new all-time records in both top and bottom lines. Shortly thereafter, Apple Watch will ship, potentially boosting investor confidence (and share prices) further.

Yes, you can still buy Apple.

MONEY stocks

How Arnold Palmer and Yo-Yos Can Help Your Finances

Arnold Palmer, golfer
Meeting your idol on the golf course can end up putting your mind at ease. Jim Young—Reuters

When stocks jump around, ease your worries by distracting yourself and taking the long view.

One of my newer clients, concerned about the latest stock market drop, called me earlier this month. After catching up briefly, she began describing the unsettling nature of the market volatility she was hearing on the news. She was feeling fearful about losing more of her nest egg, since she’s in her mid-60s, has recently retired, and wouldn’t be able to make the money back up by working.

No doubt many other financial advisers have received calls like this in recent weeks.

I responded by validating her thoughts, since our emotions play dirty tricks on us when investing. We all want to sell when fear is strong and buy when things have been hot.

We next spent some time discussing her longer-term financial plan and the idea that when stock prices fall we are then positioned for better future returns going forward.

It was at this point that the conversation went off on a tangent. Earlier this year, while planning for her retirement, we budgeted an annual allotment for golf. My client was planning to join a Thursday morning women’s golfing group and play at different courses around the region.

When I asked her how that was going, she started to gush about the experience she had at the U.S. Open golf tournament over the summer in Pinehurst, N.C. One of her friends had received corporate hospitality tickets, so they were able to access the clubhouse. While having a drink on the patio, she spotted her childhood idol, Arnold Palmer. She immediately walked up to him and asked for a picture, to which he agreed. While chuckling she said, “It took everything I had not to lay one on his cheek during the picture.” She said she hadn’t felt that much like a schoolgirl, since, well, she was a schoolgirl.

By the time she finished, and we had both stopped laughing, she took a breath and said, “Now what were we talking about?”

A saying attributed to Milton Berle is, “Laughter is an instant vacation.” It’s true. Laughter temporarily helps to take the focus off of our fear. But a falling stock market is no laughing matter.

It’s easy to get swept up in the fear that comes from stock market drops, especially after a five-and-a-half year period of gains. In the moment, the fear takes over, making us feel like we should do something to stop our cascading portfolio values.

The key to successfully overcoming this fear is to have expectations aligned before the drop happens. To help our clients truly internalize this concept, we walk through a set of steps to help them digest what a loss may feel like.

  • We begin with a look at the wide range of historical stock return outcomes possible over a one-year period compared to a 10-year period. This helps the client to see the random nature of one-year results and the increasing probability of higher returns for longer-term periods. We often compare it to a person walking up a set of stairs while using a yo-yo. The yo-yo will move up and down with each step but ultimately will make it to the top of the stairs.
  • Reviewing the client’s multi-year plan also calms the urgency to sell when stock prices dip. Because as prices fall, future return assumptions increase. Focusing on hitting income and spending targets, which the client can control, shifts the focus away from the fear. Circling back to important goals or memories the client mentioned when establishing the plan adds perspective and serves as a reminder of why a plan was created in the first place.
  • Running hypothetical examples of a loss in dollars, not percentages, helps to lessen the shock value when it actually becomes reality. Instead, reminding clients (and ourselves) to associate losses with opportunity in the good times makes us better prepared to make stock purchases when prices have fallen. Additionally, reflecting on historical gains that have occurred after certain percentages of losses can build confidence for when things seem extremely bleak.

We all face uncertainty when dealing with decisions surrounding our money. We also all know that stock market drops are inevitable. Removing the element of surprise allows us to be better equipped when the drops come along. Losses will never feel instinctively good, but seeing opportunity instead of being consumed by anxiety will help.

———-

Smith is a certified financial planner, partner, and adviser with Financial Symmetry, a fee-only financial planning and invesment management firm in Raleigh, N.C. He enjoys helping people do more things they enjoy. His biggest priority is that of a husband and a dad to the three lovely ladies in his life. He is an active member of NAPFA, FPA and a proud graduate of North Carolina State University.

MONEY stocks

Should I Be Worried That Stocks Are at Near-Record Highs?

Ritholtz Wealth Management CEO Josh Brown, a.k.a. the Reformed Broker, explains how to look at the market's recent performance.

MONEY retirement planning

Millennials Feel Guilty About This Common Financial Decision—But They Shouldn’t

Sad millennials leaning on desks
Paul Burns—Getty Images

Young adults aren't saving as much as they think they should for retirement. But paying off debts is just as important.

Millennials are pretty stressed out about their long-term finances, according to Bank of America’s latest Merrill Edge Report. Some 80% of millennials say they think about their future whenever they pay bills. Almost two-thirds contemplate their financial security while making daily purchases. And almost a third report that they often ponder their long-term finances even while showering.

What’s eating millennials? Student loan debt. Even the very affluent millennials surveyed by Bank of America feel held back by student debt—and these are 18-to-34 year-olds with $50,000 to $250,000 in assets, or $20,000 to $50,000 in assets and salaries over $50,000. Three-quarters of these financially successful Millennials say they are still paying off their college loans.

Among investors carrying student debt, 65% say they won’t ramp up their retirement savings until they’ve paid off all their loans. But with that choice comes a lot of guilt: 45% say they regret not investing more in 2014.

Contrary to popular wisdom, millennials are committed to investing for retirement. Bank of America found that the millennials surveyed were actually more focused on investing than their elders. More than half of millennials plan to invest more for retirement in 2015. But 73% of millennials define financial success as not having any debt—and by that measure, even relatively wealthy millennials are feeling uneasy.

Fear not, millennial investors. You’re doing just fine. First off, you’re saving more — and earlier — than your parents’ generation did. A recent Transamerica study found that 70% of millennials started saving for retirement at age 22, while the average Baby Boomer didn’t start until age 35. On average, millennials with 401(k)s are contributing 8% of their salaries, and 27% of millennials say they’ve increased their contribution amount in the past year. Even if you can only put away a small amount at first, you can expect to ramp up your savings rate during your peak earning years.

For now, here are your priorities:

Save enough to build up an emergency fund. You could be the biggest threat to your retirement savings. A recent Fidelity survey found that 44% of 20-somethings who change jobs pull money out of their 401(k)s. (That’s partly because some employers require former workers with low 401(k) balances to move their money.) Fidelity estimates that a 30-year-old who withdraws $16,000 from a 401(k) could lose $471 a month in retirement income—and that’s not even considering the taxes and penalties you’d owe for cashing out early. If you have to make the choice between saving and paying off debt, at least save enough to get through several months of unexpected unemployment without draining your retirement accounts.

Pay off any high-interest debt first. When you pay off debt, think of it this way: You’re making an investment with a guaranteed return. Over the long term, you might expect a 8% return in the stock market. But if you have a loan with an interest rate of 10%, you know for certain that you’ll earn 10% by paying it off early.

Save enough to get your employer’s full 401(k) match. The 401(k) match is another investment with a guaranteed return. Invest at least as much as you need to get the match—typically 6%—with the goal of increasing your savings rate once you’ve paid off the rest of your debt.

Related:

MONEY holiday shopping

13 Halloween Costumes for Finance Geeks

Actress Katie Seeley as a bear (left) and Sacha Baron Cohen as a bull (right)
Combine a bear costume (as worn by actress Katie Seeley, left,) and a bull suit (see Sacha Baron Cohen, right) for a punny stock market couples costume. Paul Archuleta/FilmMagic (left);Fotonoticias/WireImage (right)

Look like a million bucks—literally—with these creative costumes.

Still not sure what you’re dressing as for Halloween? Don’t despair. We’ve got a bunch of costume ideas that are right on the money. These finance-themed getups are accessible for a general audience (so you don’t have to spend your evening explaining, “No, the other kind of black swan…”), cheap, and quick to pull together.

For some tried-and-true ideas, you could go as Zombie Lehman Brothers, the London Whale, or characters from Dave Chappelle’s classic “Wu Tang Financial” sketch. Or you can try one of the more timeless 13 suggestions below. Then again, you could just dress up as prerecession government regulations and stay in for the night.

1. Money. Let’s be honest: Dressing as a giant bill or stack of bills is kind of boring. The concept is improved if your homemade costume is a reference to the “made-of-money man” in those Geico ads—or if you are an adorable baby swaddled in a sack of money. (Mom and Dad, throw on a mask and a badge, and voila! A cop-and-robber duo.)

2. A market crash. If Halloween season sneaked up on you like the October stock swoon did on traders, you can craft a “market crash” costume in five minutes by taping a fever line on a t-shirt with some masking or electrical tape. Use light-up accessories, and you’ve got a flash crash. This costume can be modified for a couple or group—just extend the fever line across your torsos—and it pairs nicely with a “broke broker.”

3. The Federal Reserve Chair. Mimic Janet Yellen’s signature white bob with a wig and her go-to outfit with a black blazer over a black dress or pant suit. Don’t forget a gold necklace. If people ask who you’re dressed as, throw fake money at them and yell, “Loose monetary policy!” To turn this into a group costume, grab yourself a Ben Bernanke and Alan Greenspan. Wear matching “chair” shirts for solidarity.

4. Bull & Bear (couples costume). Like salty-sweet snacks and Brangelina, this costume combination is greater than the sum of its parts. Relatively inexpensive store-bought costumes are easy to find, assuming you don’t want to spend hundreds of dollars, or you can always build a DIY ensemble with homemade horns and ears. Hang little signs with upward and downward trending fever lines around your necks for extra clarity. The only hard part will be deciding who gets to be which animal.

5. “Bond” girl. Personify this pun by dressing as your favorite 007 lady-friend and adding a hat, sign, or other accessory that reads “T-Bill” or features an image of a (now-technically-obsolete paper) Treasury bond. Jill Masterson’s “Goldfinger” look might be most recognizable: You can do it with gold spandex or body paint.

6. Wolf of Wall Street. See bull and bear, above. You just need a suit and tie, a wolf mask, and pockets brimming with fake money. And maybe some fake Quaaludes.

7. Cash cow. Unless your name is actually Cash (like this little guy), channel the Daily Show’s Samantha Bee and decorate a cow suit with dollar symbols.

8. A mortgage-backed security. This one might seem a little 2007, but there’s evidence these investment vehicles are coming back in vogue. Start with a shirt that says “security” in front. If you’re handy, you can then turn a small backpack into a “house” and wear that around. If not, just write “mortgage” on your back, and you’re done.

9. Gross domestic product. Just wear a “Made in America” t-shirt covered in dirt and fake blood.

10. Dogs of the Dow (group costume). Grab up to ten of your friends and dress as dogs. Wear tags with ticker symbols for each of the current Dogs of the Dow.

11. Distressed securities. Similar to #8, start with a shirt that reads “securities,” then layer on some dramatic makeup, to make yourself look, well, distressed.

12. Naked position & hedge (couples costume). This idea is pretty inside-baseball, but will be a fun challenge for your finance-savvy friends to guess at. The person dressed as the “naked position” can wear flesh-toned spandex, while his or her partner dresses like a hedge, as in shrubbery. Here are DIY instructions.

13. Spider / SPDR fund family (group costume). This one is pretty easy, since instructions for homemade spider costumes abound. You could go as a solo arachnid, with “ETF” painted across your chest, but dressing up is always more fun with friends. In a group you can each represent different funds; for example, the gold fund spider can wear a big gold chain and the ticker symbol GLD, and the high-yield bond spider can glue candy wrappers and bits of tinfoil all over himself and wear a sign that says JNK.

MONEY Markets

The Dow Moved Triple Digits Today. Here’s What You Should Do.

Arrow cut out of piece of paper
Gregor Schuster—Getty Images

Nothing. You should do absolutely nothing. Here's why.

[Update: The DOW went up 216 points on Oct. 23.]

The Dow Jones Industrial Average has long been held up as the stock market index to follow. Now that the Dow Jones is at such a high level, even moves that are small on a percentage basis allow for attention-grabbing headlines like “Dow Jones Today Skyrockets Over 200 points!” or “Dow Jones Plummets 150 points!”

While these headlines lure in readers, they do nothing to make us better investors. Read on to see why the best investors ignore the daily movements of the DJIA.

Dow Jones today

Do you remember when the Dow jumped 220 points after tensions with Ukraine moderated? How about the 200-point drop after Chinese industrial production slowed, or the 180-point jump following the release of minutes from the secret early-March meeting of the Federal Reserve?

I doubt it.

And don’t get me started on early October. The Dow Jones Industrial average dropped 272 points on a Tuesday — its biggest drop of the year to that point. The next day, the Dow jumped 274 points — the Dow’s biggest gain of the year. Then, on Thursday, the Dow fell 334 points.

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The headlines would have you think the world is ending or that you won’t be able to retire because of these market dips. The stock market is one of the few places where, whenever things go on sale, no one wants to buy.

However, these moves only amounted to a 2% drop from the end of the previous week. To put that in an even bigger-picture perspective, the Dow is basically flat year to date.

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What you should do now?

Nothing. You don’t have to do anything. If your investment strategy changes based on one day’s market movements, you’re doing it wrong. Your focus should be to stick to your plan, constantly educate yourself, and invest for the long term. And if you don’t have a clear strategy, this is your wake-up call.

Research has shown that process is one of the biggest determinants of success in the market over the long term. While your process can yield good or bad results in the short term, those with a proven process do better than the average investor over the long term.

For total beginners, I would first suggest learning about how the market works and how you can do at least as well as the market through index investing. I highly recommend The Little Book of Common Sense Investing by John Bogle as a great place to start.

If you understand the basics of the market as well as index investing, check out The Motley Fool’s 13 Steps to Investing Foolishly, which will teach you the process The Motley Fool has used to consistently beat the markets over the long term.

Everyone can learn from this

For every investor, focusing too much on daily market movements is a mistake. Things happen for no discernible reason. Rather than wasting time wondering why the market is up or down by a percent or two, we should focus on business fundamentals and continue to search for quality stocks trading at bargain prices.

We also must keep calm and not make rash decisions based on short-term market moves. Research has shown that it is far better to focus on minimizing mistakes, rather than overreaching for greatness. As economist Eric Falkenstein wrote: “In expert tennis, 80% of the points are won, while in amateur tennis, 80% are lost. The same is true for wrestling, chess, and investing: Beginners should focus on avoiding mistakes, experts on making great moves.”

And as Warren Buffett’s longtime business partner Charlie Munger said: “We try to profit more from always remembering the obvious than grasping the esoteric. It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

My Dow Jones Industrial Average prediction for today

The Dow Jones Industrial Average will continue to fluctuate. That’s a given, and we have no control over it. What you can control is your reactions to those fluctuations — and the best reaction is usually no reaction.

Dan Dzombak can be found on Twitter @DanDzombak, on his Facebook page DanDzombak, or on his blog where he writes about investing, happiness, life, and success in life. He has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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3 Steps Retirement Investors Must Take Now To Survive This Market

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Valentin Russanov—Getty Images/Vetta

No one knows if the recent stock market turmoil is over or just beginning. Either way, it's time to re-think your investing strategy.

Is the recent volatility a prelude to worse to come? Or just another scary bump in a near six-year bull market that still has legs? Neither I nor anyone else knows the answer. But I can tell you this: It would be foolish not to take the recent turmoil as an opportunity to re-evaluate your retirement investing strategy.

Stocks have given investors a wild ride lately: one-day swings in value up or down of 1% to 2% (or more) have become frighteningly common. And with both valuations and concerns about slowing global growth running high, we could easily be in for more of the same, if not worse. Or not.

And that’s the point. Since we just don’t know, the best you can do is take a step back, re-evaluate your investing goals and risk and make whatever changes, if any, you must to make sure you’d be comfortable with your portfolio whether the market nosedives from here, or recovers and moves to even higher ground. What follows are three steps that will help you make that assessment.

1. Assess your risk tolerance: If you’ve never completed a risk tolerance questionnaire to gauge your true appetite for risk, don’t put it off any longer. Do it now. If you don’t want to go through the process of completing a questionnaire, then at the very least tote up the value of your stock and bond holdings and estimate what size loss you might be facing if we see another downdraft like the 57% drop from October, 2007 to March, 2009. Should the market take a turn for the worse, you don’t to find that the mix of stocks vs. bonds in your portfolio is out of synch with the drop in the value of your portfolio that you can actually tolerate.

In fact, even if you have assessed your risk tolerance in the past, I recommend you do it again now. Why? Stocks have had a terrific run since it bottomed out during the financial crisis. Even after recent losses, the Standard & Poor’s 500 index was still up some 175% since March, 2009. It’s natural during such extended booms to become complacent. The fear and anxiety we felt during the last big market meltdown fades with time and we fall prey to overconfidence in two ways. First, we may begin to overestimate our real appetite for risk. Second, we begin to underestimate the actual risk we face in the market. Doing either of those alone isn’t good. The combination of both can wreak major havoc with your finances.

2. Bring your portfolio in line with that risk assessment: Once you have a sense of what size loss you can handle without selling in a panic, you can then start making any adjustments, if necessary, to make sure your mix of stocks and bonds reflects the level of loss you can comfortably absorb. For example, if you feel that you would begin to freak out if you had to watch your portfolio decline any more than 20% but five-plus years of stock gains have bulked up the equity portion of your portfolio so that it represents 90% of your holdings while bonds have dwindled to just 10%, then Houston, you have a problem. A 90-10 mix in 2008 would have left you staring at a 33% loss. And that doesn’t count the decline that occurred at the end of 2007 and in the early months of 2009.

If you find that for whatever reason your portfolio is much more aggressive than you are, you need to scale it back—that is, sell off some of your stock holdings and reinvest the proceeds in bonds and/or cash. This sort of adjustment is especially important if you’re nearing retirement or have already retired, as a severe setback can seriously disrupt your retirement plans.

I’m sure you can come up with dozens of reasons to put off doing this. You’ll wait for the market to come back and then rebalance your portfolio. (News flash: The market doesn’t know—or care—that you’re waiting for it rebound.) Or you don’t want to sell because you’ll realize taxable gains. (Oh, you’ll feel better selling later for a smaller gain or even a loss. Besides, to the extent you can shift assets in 401(k)s, IRAs and other tax-advantaged retirement accounts, taxes aren’t an issue.)

Or maybe you’re one of those people who has a “feel” for the market, so you’ll wait until you sense the right vibe before making any adjustments. Fine. But at least check to see how well your ESP worked back in early 2000 when the dot-com era imploded and in late 2007 when stocks went into their prolonged tailspin. Unless your timing was spot on (and you’re willing to risk that you’ll be as lucky again), I suggest you revamp your portfolio so you’ll be able to live its performance in the event of a severe downturn.

3. Take a Xanax: I’m speaking figuratively here. Once you’ve gauged your risk tolerance and assured that your portfolio’s composition is aligned with it, you’ve done pretty much all you can do from an investing standpoint. So try to relax. By all means you can follow the market’s progress (or lack of it). But try not to obsess about the market’s dips and dives (although much of the financial press will do its best to try to get you to do just that).

What you definitely do not want to do, is react emotionally to the latest news (be it good or bad) and undo the changes you made during your re-evaluation. That would be counterproductive and, far from following a well-thought-out strategy, you would be winging it. Which is never a good idea, and a particularly bad one during tumultuous markets. If watching market news on cable TV or reading about the financial markets online makes you so nervous that you feel the need to do something, then step…away…from…the…screen.

If all else fails, comfort yourself with these two thoughts: Market downturns are a natural part of the investing cycle—always have been, always will be. And investment moves driven by emotion and made in haste rarely work out for the best.

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