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posted by janrinok on Sunday January 23 2022, @04:48AM   Printer-friendly
from the what-goes-up dept.

Americans are bracing for inflation and a market crash: survey:

Inflation and a potential stock market crash. These are the two biggest threats to the US economy and to the financial wellbeing of Americans, so says a survey by personal finance software firm Quicken.

The Menlo Park, Calif.-based Quicken/SurveyMonkey online poll was taken earlier this month, which consisted of a sample of 1,200 US adults ages 18 to 74 from the Cint Consumer Network, according to Quicken's press release.

The survey revealed that nearly three-fourths who responded to the survey (71%) ranked inflation (currently at 7% and the highest since the early 1980s), as the top concern, followed by new COVID-19 variants, supply chain disruptions and a stock market crash. On that last point, the survey noted that 52% surveyed agree that there will be a stock market crash in the next five years. Of that group, 58% expect a looming stock market crash will impact their finances negatively, according to the press release.

Yet not everyone views a potential crash as such a bad prospect. Some Americans saw the financial gains that more aggressive investors had made from the day of the 2008 stock market crash, and are now looking to capitalize for the next one. According to the press release, 52% of self-described "aggressive" investors are likely to say the 2008 crash benefited them financially, compared to 18% of so-called "conservative" investors. What's more, 71% of aggressive investors, compared to 20% of conservative investors, believe a stock market crash in the future would benefit them financially. A notable percentage of respondents who believe there's going to be a crash in the next five years – 35% – agree that they're waiting for a crash in order to invest some extra cash.

A sizable percentage of younger adult generations surveyed – Millennial and Gen Z – also see the benefits to a future stock market crash. According to the survey, 41% of Gen Z and 36% of Millennials agree that they are waiting for a stock crash in order to invest their extra cash. Another 30% of Gen Z and 28% of Millennials say they're waiting for a crash so that they can start investing, according to the press release.


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  • (Score: 2, Informative) by Anonymous Coward on Sunday January 23 2022, @06:31AM (6 children)

    by Anonymous Coward on Sunday January 23 2022, @06:31AM (#1214927)

    This is good advice. If I had any mod points left, I'd mod you up. Your post belongs at +5.

    Two questions:

    1) Many Americans make periodic contributions to retirement plans and invest that money. Personally, I invest a certain amount every month, with an automatic purchase of a diversified mutual fund. Some of that money also goes into a more conservative money market account. Is there any reason to pull back on putting money into the mutual fund, perhaps diverting it somewhere else? I'm considering pulling back on buying into the mutual fund and using that money to pay down debt for now. I've been working on paying down debt, but I'm thinking that perhaps my best move is to do so more aggressively. Is that the best option amid a possible significant pullback in the stock market?

    2) The discussion in the article seems to leave out an important variable, which is the possibility of war. Maybe tensions will calm, but right now the prospect of war in Europe seems likely. If Russia really does annex Ukraine, that seems unlikely to be the end of the story. I suppose appeasement is one possibility, hoping that Putin will stop at Ukraine. That might be a short term solution, but it increases the possibility of more incursions into Europe. Taking action against Russia, whether through sanctions, cyber attacks, or physical military conflict, seems likely to increase the possibility of war in the short term. Either way, the effects of such a conflict surely wouldn't stay confined to Europe, and we'd feel the effects economically in the United States. Does the possibility of war alter this calculation at all?

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  • (Score: 2, Informative) by khallow on Sunday January 23 2022, @05:40PM (4 children)

    by khallow (3766) Subscriber Badge on Sunday January 23 2022, @05:40PM (#1215038) Journal

    1) Many Americans make periodic contributions to retirement plans and invest that money. Personally, I invest a certain amount every month, with an automatic purchase of a diversified mutual fund. Some of that money also goes into a more conservative money market account. Is there any reason to pull back on putting money into the mutual fund, perhaps diverting it somewhere else? I'm considering pulling back on buying into the mutual fund and using that money to pay down debt for now. I've been working on paying down debt, but I'm thinking that perhaps my best move is to do so more aggressively. Is that the best option amid a possible significant pullback in the stock market?

    I'll start by saying, I don't know what the best option is. What I'll give you instead is my opinion.

    I think the money market you mention is going to perform badly - moderately better than cash in a coffee can in your backyard. You probably have reasons for it, such as a place to put cash that you're going to spend shortly. But if you're putting money in there long term, I think you can do a lot better elsewhere.

    As to mutual funds, in theory they should perform better than an individual investing on their own. Why they don't is due to conflict of interest between the fund managers and you. At this point, I see two things to try, especially if you're not interested in investing in the stock market directly. First, there's generic advice, warning signs and such, about mutual funds. For example, does it have high fees? Do they do an excessive amount of trading (often funds charge fees for such trading and thus, can deplete the funds they're supposed to be managing). Do they readily tell you not just the ideal return on the fund (where fees and other charges aren't counted), but the actual return on the fund (after they take their cut)? There are websites/news articles out there that talk about these things in great detail.

    Then there's the matter of how much they're invested in the present bubble. Funds are required to state how they're investing, but with a lag, I think of a year. A diversified fund should have a lot of investments in a lot of places and spread over a variety of investment vehicles (stocks/bonds/treasuries/etc). If instead, it's 50% in Apple or other highly inflated assets, then you have a problem. Inflation is moderately easy to hedge. Most assets (bonds and other loans being a notable exception!) will increase in value with inflation and if your fund doesn't trigger capital gains (say because you're in a 401k plan), you'll probably be well off versus inflation without having to explicitly do something about inflation.

    You should evaluate your fund, but I wouldn't be surprised to find it'll do ok even in this environment. I'd just watch out for the warning signs: taking an unusually large part of your investment for fees, invested heavily in stuff that would do particularly poorly in either an inflationary environment or if the present stock market bubble should collapse.

    Finally, there's a psychological matter. Be wary of taking advice from randos on the internet even if they appear to be confident in what they're talking about. That would be me, for example. I have been wrong about financial matters that I was confident in (for example [soylentnews.org]). They often will present themselves as experts through various claims (I got a PhD! I predicted the 2000-2001 and 2008-2009 crashes! - both true (and not really saying much TBH) but not going to recover any money you lose through taking my advice).

    And there are some serious players out there. Bernie Madoff [wikipedia.org] is an interesting example because he knew how to play the psychology game way too well. He was among the best. He had a great record. Very helpful advice giver and so on. But it didn't change that you were unknowingly investing in a pyramid scheme when you invested in his fund. I think there's still some big, long term players out there. For example, I don't truth Berkshire Hathaway's record. It's too good for too long.

    So TL;DR: review your mutual fund both for normal problems and for problems specific to the failure modes (described in this discussion) that could happen in a few years (high inflation, market crash, and/or war disruption) - I wouldn't recommend switching unless you see serious problems, use that money market only for short term tasks due to inflation, and be wary of advice from randos on the internets.

    • (Score: 2) by linuxrocks123 on Monday January 24 2022, @12:37AM (3 children)

      by linuxrocks123 (2557) on Monday January 24 2022, @12:37AM (#1215153) Journal

      As to mutual funds, in theory they should perform better than an individual investing on their own. Why they don't is due to conflict of interest between the fund managers and you.

      That's what a Board of Trustees or Board of Directors is for. All funds have to have one, a heavy majority of the directors or trustees are almost always independent from the manager, and they generally do an alright job.

      Do they do an excessive amount of trading (often funds charge fees for such trading and thus, can deplete the funds they're supposed to be managing).

      The fund manager is generally compensated a flat fee plus a percentage of assets under management. The fund likely has to pay some form of transaction costs to place trades, because it's a little harder than firing up Robinhood when you're trying to buy or sell 100,000 shares of something, but the fund manager won't be seeing that money.

      Fund managers actually have a pretty strong incentive not to engage in heavy trading unless they feel it's warranted, because doing so generates capital gains. Not only is this tax-inefficient for the fund, but it forces the fund to make distributions. Investors have a tendency to sometimes take those distributions as cash and not reinvest them in the fund. When that happens, it directly reduces the fund's assets under management and therefore the manager's compensation. If I were going to baselessly conspiracize about fund managers putting their interests ahead of their shareholders, I'd probably accuse them of prioritizing tax efficiency over total return in order to increase their assets under management.

      • (Score: 1) by khallow on Monday January 24 2022, @04:09PM (2 children)

        by khallow (3766) Subscriber Badge on Monday January 24 2022, @04:09PM (#1215272) Journal

        That's what a Board of Trustees or Board of Directors is for. All funds have to have one, a heavy majority of the directors or trustees are almost always independent from the manager, and they generally do an alright job.

        They do an alright job, except... when they don't. My take on this is that such a board is more designed to make the customer feel comfortable about putting their money in, rather than protecting that money once it goes into the fund. This falls in a large category of finance regulation that I consider to be window dressing like laws against insider trading and reserve requirements. There's always workarounds for the greedy scammer or the fund cutting a few corners.

        For example, do those boards do a good job of policing your later mentioned "prioritizing tax efficiency over total return"? While googling around, I ran across this interesting footnote in a 1999 paper [sec.gov]:

        See, e.g., Russ Wiles, Third Quarter Review: Your Money, Investments and Personal Finance; Study Raises Questions About the Vigilance of the Family Watchdog, L.A. Times, Oct. 6, 1996, at D5; Charles Jaffe, Don't Count on Directors to Guard Your Interests, Kansas City Star, Mar. 9, 1999, at D19; and Edward Wyatt, Empty Suits in the Board Room; Under Fire, Mutual Fund Directors Seem Increasingly Hamstrung, N.Y. Times, June 7, 1998, at C1.

        It's a bit over two decades old (and aside from the NYT story, offline), but those stories don't seem to share your optimism.

        The fund manager is generally compensated a flat fee plus a percentage of assets under management. The fund likely has to pay some form of transaction costs to place trades, because it's a little harder than firing up Robinhood when you're trying to buy or sell 100,000 shares of something, but the fund manager won't be seeing that money.

        Except, of course, when the fund is not so set up. Same goes for your next paragraph about incentives. Bad behavior may be scarcer than I thought, but the incentives for it don't go away.

        If you're making decisions on what "almost always" or "generally" happens, you're doing it wrong.

        • (Score: 2) by linuxrocks123 on Monday January 24 2022, @05:14PM (1 child)

          by linuxrocks123 (2557) on Monday January 24 2022, @05:14PM (#1215287) Journal

          While googling around, I ran across this interesting footnote in a 1999 paper

          The actual paper has this quote:

          The Commission staff revisited the issue of the effectiveness of fund directors in the early 1990s, which culminated in a published report in 1992.20 The staff concluded that the governance model embodied in the Act was sound, but suggested a number of changes designed to improve the effectiveness of fund directors.

          The SEC was revisiting the issue in 1999 due to the press concerns and due to situations where independent directors the fund manager didn't like were able to be replaced by ones nominated by the fund manager, which raised a red flag. Indeed, the SEC was right to look into that, because it's their job. It's not, however, on the same order of as things like the directors being paid off by the manager or anything like that. After all, it's quite possible those individual independent directors were simply not doing a good job. But it's good to know that the regulator is on top of anything with the appearance of possible impropriety.

          One thing I think we can agree on is that if an individual mutual fund doesn't have a majority of independent directors, that's a red flag.

          Except, of course, when the fund is not so set up. Same goes for your next paragraph about incentives. Bad behavior may be scarcer than I thought, but the incentives for it don't go away.

          If you're making decisions on what "almost always" or "generally" happens, you're doing it wrong.

          No, you're not. Focusing on weird, bizarre, unlikely situations is generally a waste of focus.

          Just look at the expense ratio. The expense ratio will cover all operating expenses, including frequent trades made for the corrupt purpose of benefiting the fund manager in some bizarre scenario. More importantly, look at the past performance of the fund, over the course of decades, including volatility.

          I said "generally" because I don't feel comfortable saying that no mutual fund manager somehow, for some reason, gets compensated for placing trades and abuses that fact to increase its compensation, because I don't know that for a fact and don't say things I'm not sure are true. I am, however, comfortable in stating that this is not some common pattern of corruption that people should be worrying about. I'm curious: is there even a single mutual fund you're thinking of that had some weird setup where this actually happened, or is this entirely all in your head?

          • (Score: 1) by khallow on Tuesday January 25 2022, @04:21AM

            by khallow (3766) Subscriber Badge on Tuesday January 25 2022, @04:21AM (#1215468) Journal

            The SEC was revisiting the issue in 1999 due to the press concerns

            To cut to the chase here, it was the SEC's job to downplay these issues. Still is. That's why I looked for critics rather than the SEC. I remain wary of your advice because you've emphasized official finance industry structures (like supervising boards and the SEC) for granting security rather than security based more on individual investor awareness.

            No, you're not. Focusing on weird, bizarre, unlikely situations is generally a waste of focus.

            Just look at the expense ratio. The expense ratio will cover all operating expenses, including frequent trades made for the corrupt purpose of benefiting the fund manager in some bizarre scenario. More importantly, look at the past performance of the fund, over the course of decades, including volatility.

            I grant that my scenarios may have qualified as "weird, bizarre, unlikely", but I remain amazed at the variety of tricks, legal and not, that have been used over the years to acquire more profit for mutual funds, stock brokers, bankers, etc.

            I said "generally" because I don't feel comfortable saying that no mutual fund manager somehow, for some reason, gets compensated for placing trades and abuses that fact to increase its compensation, because I don't know that for a fact and don't say things I'm not sure are true. I am, however, comfortable in stating that this is not some common pattern of corruption that people should be worrying about. I'm curious: is there even a single mutual fund you're thinking of that had some weird setup where this actually happened, or is this entirely all in your head?

            Aside from reading advice over the years to look out for such tricks, I have not. Keep in mind, my advice was to stay with the fund unless there were obvious signs of problems, and I used the cases I mentioned as examples. My take remains that window dressing like independent governance boards can be helpful, but they can also lull you into a false sense of security.

            Nobody represents your interests better than you do. That's what I want people to take away from my posts here. Those funds, supervising boards, SEC, etc can help, but it's not fully in their interests to do so and there is always potential for things to go very wrong as a result.

  • (Score: 2, Informative) by khallow on Sunday January 23 2022, @05:56PM

    by khallow (3766) Subscriber Badge on Sunday January 23 2022, @05:56PM (#1215049) Journal

    2) The discussion in the article seems to leave out an important variable, which is the possibility of war. Maybe tensions will calm, but right now the prospect of war in Europe seems likely. If Russia really does annex Ukraine, that seems unlikely to be the end of the story. I suppose appeasement is one possibility, hoping that Putin will stop at Ukraine. That might be a short term solution, but it increases the possibility of more incursions into Europe. Taking action against Russia, whether through sanctions, cyber attacks, or physical military conflict, seems likely to increase the possibility of war in the short term. Either way, the effects of such a conflict surely wouldn't stay confined to Europe, and we'd feel the effects economically in the United States. Does the possibility of war alter this calculation at all?

    On this second question, I honestly don't know. Technically, there's already war through proxies (Ukrainian government versus Donbas rebels). More of the same probably wouldn't be a serious drag. Past that, it depends on how far things escalate - and they can escalate way beyond mere issues of inflation and market crashes. If we're speaking of a relatively limited engagement where Russia invades Ukraine and there are sanctions and a strong Ukrainian rebellion, I think the effects will be similar to inflation and market crashes. The reality of small indefinite wars is just another disruption similar to economic bubble bursts.