Mid Year Investing Change

Not an investment guru nor paid financial advisor. Just interested amateur who is convinced No One Really Knows what is going to happen. The stock market often surprises me with its ongoing changes. Stock market is driven more by investor psychology/feelings than statistics or data. Made more sense once figured that out.

Building wealth is making good consistent decisions to save and invest steadily while avoiding debt. Very few lottery winners have their windfalls 10 years later, spending wildly and taking high investment risks. Like they felt guilty having wealth. 

The S&P 500 is up ~17% this year after a ~10% drop in the 4^thquarter of 2018. The ongoing economy expansion is over 10 years old, but has only grown ~2% a year. Hardly the sign of a stock bubble. Bubbles follow 100% growth over 2 years. Market volatility has been increasing over the last year. The Federal Reserve is concerned about the slowing economy, and no longer raising interest rates.

The average is recession show up every 3 years, so expect a 10% - 20% stock recession in next 1-3 years. However the stock market may be slowing, but could still grow another 10% this year. What is an investor to do?

Choose to reduce the percentage of stocks in my 401K by 20%. A 60%/40% or 80%/20% stock to bond ratio could be dangerous to your principle. Lower interest rates benefit bond funds and reduce 401K volatility.

Jared Dillian, Mauldin Economics, (who I subscribe to) has proposed a 35/55/3/3/4 Portfolio which performs well with 80% less risk. He describe it below:

• 35% in equities invested in stocks with growing dividends, across all sectors.
• 55% in fixed income split between Treasuries (including TIPS), corporates, mortgages, municipal bonds, and a handful of international bonds.
• 3% commodities, 3% gold, and 4% REITs.

The blended yield of this portfolio is probably around 3 to 3.5%. 

For us nearer to retirement or uncomfortable with current market conditions, this plan would let you sleep at night. Remember Have No Idea what will happen next. Nor compensated for writing this. Just sharing thoughts or a strategy that may benefit you.

Innovate New Ideas

Industry Best Practices versus “That’s the way we always did it” are always a challenge. But the reason you have a team involved is there is a problem. Why limit your results to copying?

First step is not coming up with possible fixes. Research and deeply understand the issues facing your coworkers. The symptoms are not the cause. Often the people doing the daily work have the best insights. What they see and hear often identifies where the process is failing. Be sure you have deep understanding.

People often jumps to the wrong conclusion. Told by senior manager, “Your department is delivering orders late. What is wrong with the shop?” Company delivered finished products in 5 days, knew the shop is well organized. Asked the line manager, “We are getting the orders late on days 4 and 5.” Led to investigating and fixing the order entry process. 

Second come up with alternative solutions. The more ideas you incubate the better. Don’t be critical. “What If …” questions are great here. There are no bad ideas at this point. Bend, break or connect different idea. Try the opposite “What is the worst thing we could do?” Don’t limit creativity. Good ideas come from everyone.

When you rank ideas or have the light bulb moment, time to execute and verify the solution. Often solutions have to intenerate or be redesigned to get the desired outcome. Follow up to get it right.

Safe Travel

The aerospace industry had a “bad year” in 2018. International accidents accounted for 564 fatalities. 2017 was the safest year in history, but 2018 was still among the safest. This is despite increases in passengers and miles flow. 2019 expected passengers are almost 4.6 billion, around 130 percent higher than in 2004. 

In the 1950s & 1960s US airlines has at least a half dozen crashes per year, most leading to fatalities. The number of fatalities per million miles flown has dropped drastically since the 1970s.

Why? Safety has been created by developing systems and through extensive testing. Aircrafts are designed with safety and redundancy in mind. Two engine airplanes could take off, fly and land with one engine. They are built and maintained by trained professionals executing detailed plans. Pilots are extensively trained and rehearse emergency procedures just in case. Regulators ensure procedures are sufficient and followed.

Everyone works together - airports, competitors, and regulators from around the world. When an incident happens, we study what happened and what the potential causes may have done that. We learn together, design solutions, mitigate risks, and ensure incidents will not be repeated. We grieve those we lost.

New materials, electronics, sensors, computers and controls are being developed daily. It is not simple, nor easy to do. But that is most valuable for everyone. Safety depends on everyone working together. How can you help?

Life has never been risk free. Happily will fly on any commercial or regional flight with my family.