Q: It’s been quite a rebound since Christmas Eve, so what’s going on with the stock market, lately?
A: You are very right. The market’s bounce back over the last six weeks has been both sudden and strong. It hasn’t quite clawed back all of the big decline that began last September. But, generally-speaking, it’s more than halfway there.
I’d chalk up the rebound to four factors. First, when the mood gets as dark as it was, you can usually expect a bounce back. It’s pretty typical when markets get so “oversold.” Second, the fear of a looming recession has somewhat faded. Recent economic data have been better than expected, including yet another strong jobs report in January. Third, the potentially damaging trade war with Trump and China appears to have cooled off. Continued spasms should be expected until that issue is resolved, however. Finally, the Fed blinked as Wall Street’s loud whining got their attention.
Of course, none of these factors are irreversible and the concerns of the recent past were not entirely invalid. Given this, my suggestion is to take this rebound as an opportunity to now evaluate your overall portfolio risk. After this big rebound, it feels like a second chance.
Q: With the Federal Reserve having raised rates over the last couple years, what return should I expect on my cash?
A: Cash is no longer trash. But, you need to be vigilant to get the return you deserve. Banks and brokerage firms are perfectly happy paying you far too little. It’s not evil; it’s just economics.
For example, the default money market funds at most brokerage firms pay about 0.25% to 0.5% today. You can easily get more than 2% on your cash, even if it comes with some very minor inconveniences. This difference can add up.
My suggestion is to first review your cash holdings as a percent of your portfolio. If your portfolio has much more than 5% sitting in cash, talk to your adviser about shifting it into a “position-traded” money market fund rather than the default, “sweep” money market fund. Yes, when you need access to your cash, you’ll need to sell (for free) your money market fund, like you do with a normal mutual fund. But, it takes just one day of planning ahead in exchange for getting an extra 2% return on your cash. It’s an easy move!
Join us for our next Money Series presentation this upcoming Wednesday at 6:30pm in the McGuire Room of the Traverse Area District Library. This month’s talk is based on a thought-provoking academic study on the power of working longer to boost your retirement planning. To register, please visit MoneySeries.org or simply call (231) 668-6894. Front Street Foundation, through its commercial-free Money Series programs, is a non-profit committed to providing open-access to financial education, for all.