Monday Market Update – August 2nd

Forefront’s Monday Market Update

Finding value and assessing risk

My son, AJ, and I were having a catch this weekend when the ball rolled under one of our boxwood bushes. I hate those bushes, but at least the deer don’t eat them. I digress. He didn’t want to stick his hand underneath for fear of “prickers”, because ALL plants have prickers apparently.

Later that night, we had lit a fire in our outdoor fire pit, a solo stove. If you have never heard of these, check them out, they are amazing, but get INCREDIBLY hot. AJ was sitting in a chair facing the fire, rocking the chair back and forth. After my initial heart attack, I stopped him and our conversation of why he shouldn’t do that turned into a conversation about finding value in things, and assessing the risk to unlock that value. He is 8 by the way, but none the less, it was an important lesson to start to learn, even at that age.

Value

The cost of anything is only an issue when you can’t see the value in the good or service. I bet you every single new parent would pay 10X the price for pacifiers without batting an eye. There is a huge amount of value to that pacifier in the form of a calm, or sleeping baby. What about hiring a financial planner/advisor?

Many people think with the use of index funds there is no need for a financial advisor. This thinking was borne from an older generation of advisors who conveyed their value in terms of performance, and how good they were at picking “hot stocks.”

Luckily, Vanguard recently did a study to find what the TRUE value of a financial planner is, and broke down exactly what value they add. The table is below breaking it all down, and the best part is they assign 0% of value add to picking stocks or funds.

RISK

One of the pieces that I feel like Vanguard misses out on is the overall guidance of assessing risk. Most people see risk as “if I buy this stock will I lose money”? A more subtle look at risk though comes up when thinking about, should I refinance my mortgage to a 30 yr. fixed rate, or a 20 yr. to get the lower interest rate, but have a higher obligation each month. In that scenario we have to look at security of your job, future earning potential, future expenses, etc. There is a risk in making the wrong decision, and that guidance can add tens of thousands of dollars to your bottom line over your lifetime.

So What?

So how does this impact all of you?

  • Cost isn’t the measure to look at, value is.
  • Cost only becomes an issue in the absence of value

Stock market calendar this week:

Thursday August 5th:

Initial and continuing Jobless Claims @ 8:30AM

Most anticipated earnings for this week:

Want to learn more about finding value and assessing risk? Listen to the newest episode of Understanding the Power of Money and find out how an advisor SHOULD be providing you value. HINT: it is not performance!
Listen to episode 14 of Understanding the Power of Money.

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