The Best Places to Live in Virginia in 2022
Virginia is for lovers — or so the saying goes. It's near impossible not to fall in love with a state that contains so much U.S. history, as many former U.S. presidents were born here and the first Thanksgiving took place here. Plus, it has charming small towns and access to both the mountains and the ocean.
Virginia forests cover over 60 percent of the state for the outdoor enthusiast, making it easy to be one with nature on the weekends. It also attracts young professionals to its many universities and top military, business and manufacturing jobs.
Four of the wealthiest counties in the U.S. are in Virginia, thanks to higher spending power. Keep on reading to get to know the best places to live in Virginia in 2022, including one of its biggest cities, Virginia Beach.
Located right at the state's northern tip, Alexandria borders the Potomac River with Washington, D.C., just across the water. Old Town Alexandria, the city's historic area, showcases Colonial-era architecture that takes you right back in time. Walk the cobblestone streets to the many museums and restaurants and learn more about George Washington's hometown.
Living in Alexandria makes it convenient for those that work in the nation's capital but enjoy a quieter, more affordable suburb. You can rent a one-bedroom for $1,952 per month on average and enjoy a stroll through Huntley Meadows Park on the weekends.
Arlington's strategic location just across the Potomac River from Washington, D.C., makes it an excellent option for those working in the nation's capital and one of the best places to live in Virginia. Average rents for a one-bedroom hover around $2,315 per month if you want to move to Arlington. Employers in the city mainly focus on the federal government, including the Pentagon.
While the rent prices are higher, the city's walkability and outdoor spaces like the W&OD Railroad Trail make up for it. You can also visit the Arlington National Cemetery and other wartime monuments nearby, as the city had a large part in the nation's wars.
Median home price: N/A
Median household income:$59,471
Home to the University of Virginia, Charlottesville is more than a college town. Charlottesville has more than 40 wineries along the Monticello Wine Trail, thanks to the perfect combination of soil and climate.
If you're more of a hiker, don't miss the trails at Shenandoah National Park, right by the Blue Ridge Mountains. In Historic Court Square, you can find the town's first taverns along with the Live Arts Theatre, the art center and other museums. On average, you can find one-bedroom apartments in Charlottesville for $1,417 per month.
Located off Interstate 95, Fredericksburg is the perfect location for those commuting to either Washington, D.C., or Richmond. The preserved buildings from around the turn of the century now house restaurants, antique shops and small retail shops right in the center of town. Craft breweries and distilleries have recently opened in the area, as well.
Head to the Rappahannock River with your kayak and enjoy floating downstream when the weather is nice. Living in Fredericksburg brings a quiet, charming community, as well as convenience to your 9-to-5.
Newport News is right along the banks of James River, near the Hampton Roads harbor. The city is central to several amenities offered in Williamsburg and Virginia Beach, too — just a short drive away. The city has a rich history dating back to the Revolutionary War and the founding of Jamestown so you can tour all sorts of attractions and museums. You can also enjoy hiking, camping and more nearby at the York River State Park.
Prominent employers in the area focus on transportation, mainly railroad and aviation. You can find an apartment in Newport News for $1,155 per month on average for a one-bedroom.
Conveniently located near Virginia Beach, Norfolk has many ports that have helped make its economy one of the fastest-growing in the U.S. The suburb features several malls, a thriving performing arts center, the Virginia Opera and the critically-acclaimed Chrysler Museum of Art. Nearby, you can also see the world's largest battleship, the USS Wisconsin.
You're a hop and a skip from the beach and several state parks like False Cape State Park for hiking and boating. It's easy to find a home in Norfolk — you can rent a one-bedroom apartment for $1,451 per month on average.
One of the oldest major cities in the U.S. and one of the best places to live in Virginia, Richmond now serves as the capital of the state. Right in the middle of the city, you can enjoy a stroll through Libby Hill Park in the historic Church Hill neighborhood. This park is one of three original parks created while Virginia was a colony.
You can also walk in the Fan District and enjoy the mansions and row houses built at the end of the last century. The city is also home to six Fortune 500 companies with a growing economy. You can live in Richmond for $1,376 per month on average for a one-bedroom apartment.
Nestled in the south part of Shenandoah Valley, Roanoke is right by the beauty of the Blue Ridge mountains. The small town turns on the charm with its many festivals like the Strawberry Festival, Dickens of a Christmas and the Kite Festival. The downtown area boasts a farmer's market, several museums and a zoo.
The Historic Roanoke City Market is the oldest market in Virginia that has been continuously operating since 1882. Healthcare, transportation and banking are the primary industries in the area. You can find an apartment in Roanoke for $800 per month on average for a one-bedroom.
One of the biggest cities in the state, Virginia Beach boasts a three-mile boardwalk that's a sight as the afternoon sun sets. The beachfront area encompasses about 40 city blocks, with small restaurants, hotels and family-friendly activities. The Virginia Beach Art Center showcases local artists' works so you can grab custom items.
It's not all beach all the time. Virginia Beach also has access to some of the best schools, especially in the Bayfront neighborhood. Many large employers have headquarters in the area, including insurance and the federal government.
If that all sounds good, you can find places to live in Virginia Beach for $1,309 per month on average for a one-bedroom.
The self-proclaimed "Colonial Capital of Virginia," Williamsburg truly feels like you were back in the 18th century. The city's intentional restoration and preservation of structures and architectures are seen throughout. The Historic Triangle, a hub for several historic sites and museums, is a fun stop for landmark lovers.
Williamsburg is also home to the College of William and Mary, the second-oldest institution for higher education in the U.S.
The York River State Park offers more than 30 miles of hiking trails, kayak and mountain biking opportunities. If the colonial city charmed you and you're ready to find an apartment in Williamsburg, you can rent one for $1,705 per month on average.
Find an apartment for rent in Virginia
The Old Dominion state has a beautiful coastline and a rich history as one of the 13 original colonies. Many nature opportunities abound thanks to the Appalachian Mountains, along with a strong economy in Virginia.
Whatever you're looking for, one of these best places to live in Virginia will match your lifestyle — from big cities to small towns. Thinking of moving to one of these cities? Check out all the apartments for rent in Virginia right here.
Source: apartmentguide.com
How the Latest Biden/House Tax Proposal Affects Millionaire Retirees
Back in November 2017, I did a deep dive into the House version of the Tax Cuts and Jobs Act (TCJA). It's hard to identify anything I've done that was a bigger waste of time. The final version of the bill signed into law by former President Trump had almost no resemblance to its initial form. Today the Build Back Better proposal has also gone through multiple twists and turns — and probably will continue to do so. This time, however, the House version is more likely to be close to its final form. As I write, it is also possible that this will play out in the Senate in January. Happy New Year!
Here's the good news for the wealthy: If you have $1 million to $5 million, this bill is not going to have a significant impact on your finances unless you are about to sell a business or hit the lottery. But here are three items still in the bill that you should be aware of:
1. Increase of the SALT deduction
Unlike the many tax hikes in the bill for the wealthy, this provision is likely to reduce your taxes. The TCJA put a cap of $10K on the amount of state income taxes and personal property taxes you can deduct. In high-tax, high-property-value areas, this cap significantly reduced the amount of itemized deductions you could claim. This bill raises that cap to $80K. That's great news for retirees who live in valuable homes or have significant retirement income subject to state income taxes.
Example: If your itemized deductions increase by $10K due to the SALT cap expansion, your taxable income will drop by the same amount. Your tax bill will decrease by your [marginal rate * $10K]. So if you were in the 32% marginal tax bracket, you would owe $3,200 less in taxes.
2. Wash sale rules would apply to cryptocurrencies
My mom, who is in her 70s and largely hands-off with her investments, inquired about Bitcoin earlier in the year. That was my sign that cryptocurrencies are here to stay, and we know that many of our clients are investing in them. What I think many retirees don't realize is that there is a way to take advantage of a current loophole until (if) this bill is passed.
Cryptos are extremely volatile. If you have a bad Bitcoin day, you can sell your position, claim the loss on your tax return, and reinvest the same or next day. With stocks, bonds, mutual funds, etc., you must be out of that position for more than 30 days to be able to claim that loss.
Many experts think that this contributes to the volatility of the asset class as there is actually a tax advantage to selling when everyone else does, leading to self-perpetuating volatility. Should the Build Back Better plan as currently written pass, cryptos will follow the same wash sale rules as other publicly traded securities.
3. Reduced estate exemption (but not until 2026)
Full disclosure: This reduction actually stems from the expiration of the TCJA, not as part of the Build Back Better act. I imagine this all seems like Greek, but, as a refresher, the exemption is the amount you can pass to beneficiaries without owing federal estate tax. The TCJA doubled this amount from roughly $5.5 million to $11 million per person, meaning that very few people have to worry about it. Many of the earlier versions of Build Back Better accelerated the reduction. However, the latest version does not.
Assuming that the estate tax exemption in the final bill is exactly what the House passed, the reduction of the exemption amount would come in 2026. While the vast majority of Americans would still be just fine, many of you may not be. When you add your home, your investments, etc., that number can climb quickly. Add compounding interest for the next 20 years and you may need a different level of estate planning.
Bottom line: This bill has been defanged for almost all but the uberwealthy. If you're wondering why Elon Musk is selling Tesla stock, it's not because of a Twitter war with Bernie Sanders; it's because he's betting his tax bill will be lower today than in the future. For those like Elon, it's a safe bet. The rest of us need to wait and see.
Wealth Manager, Campbell Wealth Management
Evan Beach is a Certified Financial Planner™ professional and an Accredited Wealth Management Adviser. His knowledge is concentrated on the issues that arise in retirement and how to plan for them. Beach teaches retirement planning courses at several local universities and continuing education courses to CPAs. He has been quoted in and published by Yahoo Finance, CNBC, Credit.com, Fox Business, Bloomberg, and U.S. News and World Report, among others.
Dogs of the Dow 2022: 10 Dividend Stocks to Watch
The start of the new year means a fresh chance for yield-seeking investors to get in on one of the easiest market strategies in the book:
The Dogs of the Dow.
Investment manager Michael B. O'Higgins popularized the idea in his 1991 book Beating the Dow. And it doesn't get much simpler: At the beginning of the year, buy the 10 highest-yielding Dow Jones Industrial Average components in equal amounts. Hold them until the end of the year. Rinse. Repeat.
While the Dogs of the Dow sounds like a dividend strategy, it has its roots in value. O'Higgins' proposed that firms with high dividends relative to their stock price in the index would be near the bottom of their business cycle and represent bargains compared to components with lower dividend yields.
And why the DJIA? The Dow Jones has long been considered one of the leading stock-market gauges of America's economy. While the S&P 500 has more components and is more diversified, the Dow still covers most sectors. Not to mention, its components are extremely liquid and there are reams of research available on all 30.
But buyer beware. While the Dogs of the Dow have posted a respectable 8.7% annual total return since 2000, the Dogs have trailed the DJIA in each of the past four years. Analysts have proposed that the shift to growth investing has hurt the strategy's performance; but with value stocks predicted to regain their mojo, the Dogs could again have their day.
Without further ado, here are the 2022 Dogs of the Dow.
Data is as of Dec. 31, 2021, the date on which the Dogs of the Dow are identified. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks listed in reverse order of yield.
Sector: Technology
Market value: $209.5 billion
Oh, how the tables have turned.
A decade ago, Intel (INTC, $51.50) was the leading name in chips, while Advanced Micro Devices (AMD) and Nvidia (NVDA) were promising yet still relatively minor players – combined, the two were worth less than a tenth of Intel by market capitalization.
But Nvidia is now several times Nvidia's size, and AMD isn't too far behind Intel's $210 billion market value. That's because in recent years, Intel has missed the boat on a variety of fronts. From mobile computing and productions capabilities for faster/smaller chipsets, Intel has stumbled … and its rivals have eaten its lunch.
But while Intel might be down, it's hardly not out.
Intel's Alder Lake 12th-generation core processor chips have started to eat away from AMD's high-end processors, and Intel recently announced the latest line of Alder Lake chips that include what the company says is "the fastest mobile processor. Ever." The next two years should see its 13th-gen (Raptor Lake) and 14th-gen (Meteor Lake) chips come live.
Intel also could squeeze some value out of Mobileye, the autonomous vehicle-chip stock that it acquired back in 2017. INTC in December announced its intent to spin the company off in an initial public offering (IPO) while maintaining controlling interest – allowing Intel to enjoy both an immediate windfall while still realizing gains as Mobileye grows.
In keeping with the Dogs of the Dow's value bent, Intel trades at just 14 times the coming year's earnings estimates, significantly less than both the S&P 500 (21) and technology sector (28). INTC's 2.7% yield is also much better than what you typically get out of tech shares.
In today's low-carb and keto-friendly world, sugary soft drinks and sodas are practically verboten. And in recent years, that has largely muted the returns of giant Coca-Cola (KO, $59.21), which has produced roughly half the total returns (price plus dividends) of the S&P 500 over the past half-decade.
But KO is doing a better job of ensuring it has the goods to shift with consumer tastes.
Coca-Cola has spent a few years moving its portfolio into healthier options. That includes teas, milk and sparkling water, among others. It also unveiled new zero-sugar versions of soda brands such as Sprite and Coca-Cola, which fueled about 25% of the Coca-Cola brand's growth in the third quarter.
KO is also looking toward athletics and fitness fanatics for growth. Back in November, Coca-Cola purchased sports beverage group BodyArmor – which it already had a 15% stake in – for $5.6 billion. This instantly gives it a meaningful presence in the industry. "BodyArmor is currently the #2 sports drink in the category in measured retail channels, growing at about 50% to drive more than $1.4 billion in retail sales," the company says.
And you don't get more dependable than Coca-Cola's dividend, which has been growing uninterrupted for 59 consecutive years. That easily puts it among the longest-tenured Dividend Aristocrats.
Market value: 102.4 billion
Unlike most of Wall Street, 3M (MMM, $177.63) was already getting crushed by the time the COVID bear market came around. The U.S.-China trade war and other difficulties were already weighing on the industrial name when COVID cramped demand for many of the company's products (except its N95 masks and filtering division, of course).
But 2022 could be another year of recovery for 3M.
3M makes more than 60,000 products, from consumer products such as sponges and packing tape to industrial diamond-coated grinding disks and orthodontic supplies. In normal times, this wide product portfolio provides insulation from specific shocks to its various businesses. And it allows 3M to enjoy in numerous facets of a broad economic recovery.
The company grew third-quarter revenues 7.1% year-over-year and generated more than $1.5 billion in free cash flow. 3M is benefiting from continued cost cutting and development programs, as well as from selling chronically underperforming business lines.
3M's forward P/E of 16 makes it one of the more expensive 2022 Dogs of the Dow, and yet it still trades for much cheaper than the S&P 500 and industrial sector (20) alike.
Sector: Healthcare
Patent expirations are a hurdle most pharmaceutical and biotechnology companies have to face, and that's no different for established biotech Amgen (AMGN, $224.97). Top drugs such as Enbrel, Neulasta and Otezla will fall off the patent cliff in coming years.
The good news? The earliest drug in that cohort to fall off patent won't do so until 2025. And often, U.S. drug manufacturers can kick the can down the road by making minor changes to drugs or adding more indications for the therapy. Not to mention, expirations go both ways – AbbVie's (ABBV) blockbuster drug Humira is set to lose patent protection in the U.S. in 2023, and Amgen has already gained approval to sell Amjevita, a biosimilar form of the drug.
Another big reason AMGN shareholders shouldn't panic is its potential-packed pipeline. The biotechnology firm has more than 20 drugs in Phase 2 or 3 trials. And recently, the FDA approved Amgen severe-asthma medication Tezspire, a potential blockbuster drug.
Nearer-term, another reason to like Amgen is its dividend. Namely, it'll be 10% bigger in 2022, at $1.94 per share quarterly, the company announced in December.
Merck (MRK, $76.64) has been doing a lot of evolving in recent years. It has gone on an impressive pipeline-buying spree, which continued in late November with its $11.5 billion buy of Acceleron. And Merck also recently spun off its legacy generic drug and off-patent medicines into a separate company, Organon (OGN).
The resulting Merck is one of the top growth-oriented drug producers in the world.
Sales of oncology blockbuster drug Keytruda jumped 22% year-over-year during Q3, to $4.5 billion. Some analysts believe Keytruda will soon be the world's best-selling drug, overtaking AbbVie's Humira. That's in part because Merck intends to seek approval for other indications of the drug. But Merck has other major drugs in the tank, including Gardasil, whose sales grew 68% to $2 billion in Q3. And its pipeline includes dozens of products in Phase 2 and 3 trials.
A low forward P/E of around 10, and a yield well above 3%, make MRK a model example of the income and value found in the Dogs of the Dow.
Market value: $45.2 billion
Walgreens Boots Alliance (WBA, $52.16) wasn't the COVID winner you might have thought. COVID prompted a shift in the company's sales mix to lower-margin items, and it dragged heavily on foot traffic in the company's Boots U.K. stores.
So, like many other retailers, an escape from the pandemic should help Walgreens, which used COVID as an opportunity to cut nearly $2 billion in costs from its operations.
Partnerships will be essential too. For instance, Walgreens has been opening branded primary-care clinics with VillageMD, who staffs these locations with physicians, allowing them to cater to more than ear infections and sniffles. Walgreens plans to open 1,000 of these clinics at its stores by 2027.
Also in play is the potential divestiture of its Boots business; several reports in December said Walgreens was mulling the move.
With foot traffic on the rebound and new avenues for growth opening up, WBA could be a productive Dow Dog. A forward P/E of around 10 doesn't hurt, either.
Sector: Energy
COVID was downright miserable for the energy sector – even integrated oil-and-gas giants such as Chevron (CVX, $117.35).
However, while numerous companies closed, and many more were forced to cut jobs, slash capital expenditures and pull back on their dividends, Chevron managed to keep its dividend running and even used an all-stock deal to acquire Noble Energy.
Chevron's acquisition of Noble at fire-sale prices boosted its overall presence in low-cost fields in the Permian Basin, allowing the company to better leverage a rebound in energy prices, which came in spades in 2021.
Energy stocks of all sorts went bananas in 2021, making it the S&P 500's top sector. Chevron returned 46% amid a complete rebound in its operations. For instance, its third quarter saw Chevron earn $6.1 billion versus the $207 million it lost in the year-ago quarter.
However, despite its massive 2021 move, CVX stock yet again finds itself among the Dogs of the Dow.
Chevron's 4.6% current yield isn't as generous as the 6% or so it offered at this same time last year, but it's still one of the top yields in the Dow. Meanwhile, it's value-priced at just 12 times earnings estimates.
International Business Machines (IBM, $133.66) has been nothing short of a disappointment in recent years.
Big Blue has struggled to remain relevant in the age of cloud computing while rivals chipped away market share. At one point, the firm recorded 22 consecutive quarters of declining revenue, then restarted that streak shortly after breaking it. Even including dividends, IBM shares returned just 1% between 2017 and 2021.
But IBM might finally be getting itself together.
Its 2019 purchases of open-source software firm Red Hat boosted the company's operations. Fast-forward to 2021, and the company cut loose some dead weight, spinning off its legacy IT infrastructure services as Kyndryl (KD).
A now leaner, meaner IBM is focused once again on growth.
We saw signs of this in the company's third quarter, where overall cloud revenues grew 14% year-over-year. It'll still be a while before IBM can report its post-separation numbers, but analysts are generally expecting IBM to start heading in the right direction once again.
Better still: IBM didn't give away any of the dividend game with Kyndryl. International Business Machines remains a Dividend Aristocrat whose 4.9% yield is among the best of 2022's Dogs of the Dow.
Sector: Communication services
Verizon (VZ, $51.96) spent the last few years trying to build out a communications and media empire. Wireless communication has become a commodity; there isn't much difference between carriers, plans or offerings at this point. The U.S. market is saturated. The major carriers can't rely on their legacy businesses for growth.
But Verizon's ventures, which included buying Yahoo! And other media properties, simply didn't pan out. Several write-offs later, and VZ is just getting back to basics: improving its giant network and providing services that utilize said network.
The 5G transformation is a major tailwind for Verizon. It's not just consumer devices; smart vehicles, the Internet of Things and other applications will be a big driver for its network. Also, Verizon has started to transition toward more enterprise customers, which includes fleet management software and applications to data security. These should also provide a runway for growth.
A forward P/E under 10 and a nearly 5% dividend, meanwhile, provide some of the best features of the Dogs of the Dow.
Dow has had a wild and transformative few years that saw it spin off assets before merging with rival DuPont (DD), then the chemical giant split into three separate firms. The remaining Dow contains the materials sciences chemicals, including adhesives, polyurethanes, silicones, resins and waxes, among others.
Like most other materials stocks, Dow struggled right alongside the broader economy during the COVID recession. For instance, during Q3 2020, the company lost 4 cents per share on $9.7 billion in sales. By Q3 2021, Dow had recovered considerably, posting $2.23 per share in earnings on $14.8 billion in revenues.
The omicron and future variants could throw more hurdles at the Dow recovery, but in general, a growing global economy should mean continued growth in demand for Dow's products.
You can buy into that recovery on the cheap through Dow. Shares trade at a svelte nine times future earnings and yield nearly 5% at today's prices. That's roughly four times the income you'll pull from the broader market, and at a much better valuation. A fair dividend payout ratio of 45% of earnings leaves Dow ample room to raise that payout further.
Aaron Levitt was long AMGN and MRK as of this writing.
30 Cincinnati Facts That Only Real Locals Know are True
Oh, Cincinnati, the home of Skyline Chili and flying pigs. The land of Steven Spielberg and Play-Doh.
Over 300,000 residents love this city and they aren't afraid to say it. Here are some interesting Cinicannti facts that only those who really love the city know about (so don't tell!).
30 Interesting Cincinnati facts only residents know about
1. Originally, the name of the city was Losantville. However, in 1790, the city changed to Cincinnati, after Lucius Cincinnatus, a Roman statesman and military leader who lived in c. 519 – 430 B.C.
2. Cincinnati was the first major city founded after the American Revolution. It's sometimes called the most "purely American" city because of this. It was also the first city founded inland after the American Revolution!
3. Steven Spielberg is from Cincinnati. The famous filmmaker, known for "E.T. The Extra-Terrestrial," the "Indiana Jones" series, "Minority Report," "War of The Worlds" and many more, was born in Cincinnati in 1946.
4. Cincinnati has a rich German, Polish and Hungarian heritage, many of whom immigrated to Cincinnati in the 1800s. There were German schools and newspapers printed in German. The first Mayor of Cincinnati, David Ziegler, was a German immigrant.
5. Due to its rich German culture, the biggest Oktoberfest in America is in Cincinnati. It's known as Oktoberfest- Zinzinnati®.
6. A Cincinnati fact is that they love chili so much, they have their own kind: Skyline Chili. If you live in Cincinnati, you know about Skyline Chili. No beans, just meat, spices and water. It's simple, but with a twist — the seasoning contains a hint of chocolate and cinnamon, for a slight hint of sweetness. Get it served straight in a bowl, on a bun or even over spaghetti.
7. The backyard classic game of Cornhole was born in Cincinnati. Talk about a (corn) hole-in-one!
8. The Cincinnati Music Hall has such a history of hauntings and ghost sightings, that "Ghost Hunters" featured it in a special Halloween episode in 2014. Paranormal lovers will delight in this haunted hall — there are plenty of after-hours haunted tours available to attend. Or, go tour on your own and maybe you'll get spooked!
9. Cincinnati is an American city based on freedom and equality, as it was a prominent and key stop on the Underground Railroad.
10. Cincinnati is a city with many nicknames: The Queen City. The Queen of the West. The Blue Chip City. The City of Seven Hills. One of its most infamous nicknames? Porkopolis, which means flying pig.
11. Speaking of flying pigs, there are statues of this cute, mystical animal all over the city. But the nickname comes from the fact that Cincinnati used to have over 48 pork packing facilities. That's a lot of jobs and a lot of hogs.
12. Four U.S. Presidents are from Cincinnati: William Howard Taft, Ulysses S. Grant, William Henry Harrison and Benjamin Harrison all have ties to the Cincinnati area.
13. The Cincinnati Reds were the first MLB baseball team in America. Founded in 1890, you can go see the Reds play 162 games each year, so there are plenty of opportunities.
14. The Cincinnati Reds aren't just the first MLB team in America, they are also the first team to travel by plane for games. On June 8, 1934, the Reds took a plane to travel to another city for a game.
15. Cincinnati is the only city in the United States to build and own a railway, The Cincinnati Southern Railway. The CSR went to Chattanooga, TN, and connected the west and the south, making it a prominent aspect of the American railway system.
16. The Ingalls Building, built in 1903 and located downtown, was the world's first concrete skyscraper. You can still visit it today!
17. A cardiologist named Samuel Kaplan created the first heart-lung machine in 1951 at the University of Cincinnati. This machine allowed for open-heart surgery to finally be a safe procedure and would go on to save untold numbers of lives.
18. The Vent Haven Museum is the only ventriloquist museum in America. So, if puppets and ventriloquism are your things, this is a must-visit. If you're afraid of puppets, maybe pass on this unique Cincinnati gem!
19. The Roebling Suspension Bridge, originally known as the Cincinnati-Covington Bridge, was the longest suspension bridge in the world in 1866, at 1,057 feet. However, the record was soon overtaken by the Brooklyn Bridge. Funny enough, the same designer that built the Roebling Bridge, John A. Roebling, built the Brooklyn Bridge. So, at least the award stayed in the family!
20. Neil Armstrong lived and died in Cincinnati. The famous astronaut was born in Wapakoneta, OH, and moved to Cincinnati after he resigned from NASA in 1971.
21. After he retired from NASA, Armstrong went on to teach at the University of Cincinnati. Unsurprisingly, he taught in the Department of Aerospace Engineering. He was the most famous faculty member in the history of U.C.
22. Albert Carter, the inventor of the original magic 8-ball, was from Cincinnati and came up with the first design for the Magic-8 ball, originally dubbed the "Syco-Seer."
23. The Cincinnati Observatory is the oldest professional observatory in America, established in 1842. It was a key part of the astronomy program at the University of Cincinnati. Perhaps this is part of why Neil Armstrong went on to teach at the U.C. — it sounds like the department was out of this world!
24. The inventor of Pringles, Fredric J. Baur, was buried in a grave in the Cincinnati area, inside of his original invention, the pringles can. It was his final request to have his ashes put in an Original-flavor pringles container inside of his grave.
25. The Centinel of the North-Western Territory printed its first edition on Nov. 9, 1793. It was the first newspaper published in the early days of the Cincinnati city settlement.
26. Cincinnati is home to the first paid, professional fire department, started in 1853. In fact, the co-inventor of the first steam fire engine was the first chief of the fire department!
27. Not only is Cincinnati the No. 1 place to live in Ohio, but it's also the 8th cheapest place to live in the state! An amazing place to live and it's affordable? Yes, please. If you're looking for apartments for rent in Cincinnati, you'll find a great deal!
28. Play-Doh, the moldable, safe-for-kids dough, was first manufactured in Cincinnati. But, it wasn't created as a kids' toy at first, it actually began as a wallpaper cleaner. In the 1950s, the company revamped it and it became the colorful, cute dough we know and love today.
29. The first bag of airmail (transported by hot air balloon) took off in 1835 from Cincinnati.
30. Martha, the world's last Passenger Pigeon, died at the Cincinnati Zoo in 1914. There is a memorial exhibit for Martha still there today.
Did we forget any Cincinnati facts?
Cincinnati natives are proud of our city — unique qualities included. So, let us know in the comments if we missed any Cincinnati facts!
If you're looking to move to Cincinnati, take a look at apartments for rent and homes for sale in the city.
PODCAST: Investing for Income with Jeffrey Kosnett
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David Muhlbaum: Everyone wants to make money on their investments, but some of us are a bit more focused on income. Does whatever we buy pay us back regularly with interest and dividends? You know, cash, not just paper gains. That's investing for income, and we'll talk today with Jeffrey Kosnett, who has covered this sector for decades.
David Muhlbaum: Welcome to Your Money's Worth. I'm Kiplinger.com Senior Online Editor David Muhlbaum, joined by my co-host, Senior Editor Sandy Block. How are you doing Sandy? Did you have a good Thanksgiving?
Sandy Block: Sure did. Got together with some family for the first time in a couple of years, so it was very special.
David Muhlbaum: Good, good. For a number of reasons, we have delayed ours to today, Friday. We just needed a little extra time to get everyone here and get ready, and it turns out you can just do that. I mean, I guess I'm violating the sanctity of Black Friday or something.
Sandy Block: Well, you're also working on a day off. We're both working on a day off.
David Muhlbaum: Well, yes. I mean, notably Friday, Black Friday, is not a day off for the stock market. They have a short day to trade and, my, they took full advantage of it. The market sold off like crazy over these fears about a new COVID variant. I think it already has a name: omicron.
Sandy Block: Oh, joy.
David Muhlbaum: Yeah. Red Friday? The stock market was only open for four and a half hours and it still managed to lose 2.5% to close at 34,899. That was its worst day of the year.
Anyway, a few quick thoughts about Black Friday, and a holiday shopping season that's still unfolding, before we get to our main segment, which is about income investing, and kind of long.
Sandy Block: But worth it. And Black Friday will be over by the time anyone hears this.
David Muhlbaum: Well yeah, that's true. But the reality is, Black Friday began before today too. Come on, the whole thing is an artifice. And obviously, every year retailers spend a lot of time and money on consultants, trying to figure out when to introduce discounts, how much those will be, and then when they're going to roll them out. And then we, as journalists, or something close, try to figure out how to translate those into the most savings for the customer. That's the guidance. And what comes out of that are these lists and slide shows and all sorts of other fun things that we post online, that I'm not going to recite here, other than to say, "Well, we got them." But the main takeaway that I can pass on is that the watchword in this year's holiday shopping season seems to be scarcity.
Sandy Block: Right. Supply chain problems.
David Muhlbaum: Yeah. Those are three words. I mean, we've heard that phrase a thousand times by now, but when it comes to actually fulfilling people's holiday wish lists, it's going to matter.
Sandy Block: So the idea of waiting for a better price is riskier than usual this year.
David Muhlbaum: Yeah. In short, yeah. I mean, I think the best advice is to do your research. Not just whether whatever items you're thinking about are going to be in short supply or not, but to check with your recipient, how much they really want this or that. And maybe you'll go ahead and buy this right now at full price, whatever, and you'll wait on buying that to see what happens. It kind of depends on how much they really want it.
Sandy Block: Which works pretty well. But what if your recipient thinks all presents come from Santa Claus? You're going to have to make up a story about Santa having a shortage of container ships.
David Muhlbaum: Yeah. I hadn't even thought about that. It's been a long time since my kids believed in Santa, the Easter Bunny, or the Grinch. Yeah. Anyway, let's move on to our main segment: income investing with Jeff Kosnett. We'll be right back.
Investing for Income with Jeffrey Kosnett
David Muhlbaum: Welcome back to Your Money's Worth. For our main segment, we're joined by Kiplinger Contributing Editor Jeffrey Kosnett, who is going to give us some insights into income investments. That's a topic we haven't given a whole lot of attention to here on Your Money's Worth, but it's a huge investing sector and one that Jeff has deep experience with. So welcome, Jeff.
Jeff Kosnett: Hi, thank you for inviting me.
David Muhlbaum: Yeah. Well, Sandy and I have a lot to learn. I mean, I know it will be educational for the two of us, and I hope the listeners will benefit in the process. Now, to clarify a bit about what Jeff does and what Jeff knows, we're going to need to talk about a phrase that I'm sure we're going to repeat a lot today, and that is the three words: Investing for Income.
Now, since you can't see capitalization or italics in podcast-land, I'm going to try to explain that investing for income means three things to us.
First of all, it means the behavior: buying bonds, certificates of deposit, and yeah, some stocks, with the goal of steady and hopefully generous payouts.
David Muhlbaum: Second of all, "Investing for Income" is the name of a column that Jeff writes for Kiplinger's Personal Finance every month. I'll put in a link.
Thirdly, and this is the big one, both for Jeff and his audience, is Investing for Income, the newsletter. And this is a monthly deep dive into all things fixed-income. Has a massively loyal following, strong subscriber base. Yes, that Income for Investing costs money to read. And I know Jeff isn't the only one who'd say it's worth every penny. So, how long have you been with Kiplinger, Jeff?
Jeff Kosnett: 40 years. I started at the end of 1981, and I think that really makes me a unicorn to have spent basically my whole life with one organization, and I'm very proud that I have.
Sandy Block: Well, and we're real lucky to have you, Jeff. And I think the fact that your experience shows so often in your column in your newsletter, in that very often, when you say something is going to happen with interest rates or bond yields or anything like that, you're usually right.
Jeff Kosnett: Well, thank you very kindly. I appreciate hearing that.
David Muhlbaum: Yeah, and I like unicorn. I, who have been with Kiplinger for quite a while too, generally refer to myself as a dinosaur. But you win in terms of years. So! And when did you launch Kiplinger's Investing for Income, the newsletter?
Jeff Kosnett: Okay. It first appeared in the world in August of 2012. So we have now completed, what, it looks like 10 full years of publishing. I prefer to say that we have now done 113 monthly issues, and many more to come.
David Muhlbaum: Not that we're counting. Okay. And about how many subscribers do you have?
Jeff Kosnett: Don't hold me to this exactly, but it fluctuates between 15,000 and 17,000. And we're always hard at work trying to get more.
David Muhlbaum: Yeah. And they ask you lots of questions, right?
Jeff Kosnett: They do. I have a very long and deep inbox of email questions. I get about two of them a day. And I get a few more than that when the newsletter reaches the subscribers and they read it and then they immediately have questions or observations related to what they just saw.
Sometimes it's as simple as saying, "Well, I'm glad that you like this strategy or this fund or whatever because I've owned it for a long time, and now I have a second opinion." Other times they say, "Have you thought about this idea? Or why have you overlooked this fund? Or why won't you suggest that people do this?"
And then I will reply. And oftentimes, it's because it's too risky or it's untimely. And I make every effort to treat everybody with total respect. And I think that Kiplinger, as a company, has always put a priority on reader service and I'm proud to continue that.
Sandy Block: Yeah, it's very old school. And Jeff, as someone who used to sit on the other side of the wall from you when we were in the office, I am well aware of how much time and patience you spent with your readers. It was always very impressive. And as you said, treating with respect because, as we know, calls we get aren't always respectful. But you were always extremely respectful and patient, and loud, because some of your readers didn't hear too good.
Jeff Kosnett: Yeah. Thank you. One thing about Investing for Income is it does appeal to an older audience.
Sandy Block: Yes.
Jeff Kosnett: So I have readers who are literally in their 90s and yet they want to talk about long-term investment strategies. And I have had people 95 years old who say, I want to buy a 30-year bond. Good for them. I hope they're around to see it mature.
David Muhlbaum: That is optimism. Yeah. And on a note about the old-school communications, I'd like to remind people that we take questions too. The email is [email protected] And we will repeat that and tell you more ways to stay in touch with us at the end of the show, in case you have questions.
Jeff, you've touched on the question of the demographics of your audience being a little bit older. But the reality is that a lot more people have fixed-income investments than are maybe even aware of it. And so, while the profile of the fixed-income investor is somewhat true to the stereotype of the pensioner, a lot of younger people have these fixed-income investments through a 401(k) or another retirement plan.
Now, maybe they own bond funds in those 401(k)s. And maybe those bond funds are themselves in a target-date fund, which that's a product we've talked about here. And so the ultimate owner, they're really distanced from the actual individual security. It's like the bond is somehow in a bunch of shells, like some sort of matryoshka doll. But in some way, right, that 401(k) investor is in some distant way tied to some bond issued by Lake County, Illinois, that pays 1.5% or whatever.
Jeff Kosnett: That is true. And through a mutual fund or through a 401(k) or through a pension fund, everybody is invested in bonds. But I would like to clarify that when we talked about Investing for Income, which, as you said, was the title of our newsletter as well as my column, we're not only talking about bonds, we're talking about many other kinds of investments, from oil wells to dividend-paying stocks, to preferred stocks, to financial intermediaries, mortgage companies who pass through a lot of interest income or dividend income. And that income is not fixed. You are not locked into collecting 1.5% for 30 years. You may get a growing dividend from a growing real estate company that is every bit as much of an equity investment as it is an income investment.
So the categories that we cover span a really wide range, and that appeals to people and investors and savers of all ages, not just your 90-year-old retirees or your 65-year-old who is wondering whether or not he has enough money to step down from his job, this sort of thing. So our field is extremely varied and highly interesting.
David Muhlbaum: That's a good point about the shorthand we should be using. I guess probably we should not be using the shorthand, fixed-income. We should be using the shorthand, as we talked about it at the beginning, investing for income, to reflect that range of asset classes involved.
But let's be frank. You say it's really interesting. And a lot of people do find it really interesting. And some people, I know some of them because I work with some of them, find it boring.
Jeff Kosnett: Yes.
David Muhlbaum: They just want to talk about stocks.
Sandy Block: GameStop.
David Muhlbaum: Yeah, a little bit GameStop. But what's going on there? What is up with that? Why do people tend to think of this as boring?
Jeff Kosnett: Well, first of all, bond math is just boring. It's finance, it's numbers, it's formulas. It's the net present value of a future stream of income, which translated means if you make an investment today and you know you're going to collect a thousand dollars in interest over the next 10 years, what's that really going to be worth? So, that is dull.
However, there are many, many people I have met for my 40 years in this business who find that the challenge of finding an unexpectedly good value somewhere in this field or finding a preferred stock that is priced to yield 8% when the company's paying only a 2% dividend, is really, really, not only challenging, but when it works, boy, you feel really good. And while everybody and their brother and their sister and their kids and their grandfather is trying to find these hot stocks, very, very fewer people are out there trying to find some of what I look for, and that's an advantage today.
David Muhlbaum: So Jeff, you brought in a term there; you brought in preferred stocks. So as I mentally promised, let's talk about what each of these things is as we bring them up. So can you give us a quick explainer: What the heck is a preferred stock?
Jeff Kosnett: A preferred stock is a combination equity and debt instrument that banks, real estate companies, and occasionally utilities or industrial companies issue. And it is sort of a bond in that there's a coupon rate, and it's usually a fixed rate, like 6% or 7%, that you get every year.
But it's also an equity because you are not guaranteed that you are going to collect this money if the company runs into trouble. So it's kind of in the middle. It's not quite as risky as a common stock, it generally pays more, but you are behind the bond holders when it comes to the pecking order of creditors, if indeed the company runs into trouble.
David Muhlbaum: Got it. It's the right bowl of porridge in Goldilocks' scenario. But it, on the face of it, 6 or 7 percent's, pretty good. No?
Jeff Kosnett: Yes, it's really good. And especially when you have not only low interest rates on bank deposits, but with the possibility of higher inflation. And we're now talking about hyperinflation or 1973-style inflation. But if inflation settles in at 3 or 4%, a 6% coupon bond or a preferred stock or anything is going to be something that more and more people are going to want to own.
And the economy's doing well. Nobody's worried about companies en masse going bankrupt. Many of these preferred stocks have good credit ratings, investment grade, and they are highly prized by a lot of people. And a lot of money is entering the handful of mutual funds that invest in them, so right now they're in their moment.
Sandy Block: So Jeff, I mean, I think to me what's very interesting about your column and your newsletter is that a lot of people do think bonds and they think buying a 10-year treasury or maybe… David, I think, the other day found a certificate for a Russian bond in his basement. An actual bond. But I think what you recommend is that people in general shouldn't actually buy a bond. And maybe this refers to preferred stocks, too. You can clarify. They're better off getting a fund? Can you talk about that?
Jeff Kosnett: Yeah. I think people should have some of both, and it varies for many reasons. First of all, if you're just starting out or if you're building a position over time and you don't have a lot of cash to put in, obviously, you can send $3,000 off to Vanguard and buy a total bond market fund, and then you don't have to worry about the minimum it takes, generally, to buy a bond from a broker, which is going to be $5,000 or $10,000.
But there are certain classifications of bonds that are very difficult to understand and to manage, such as high yield bonds. Preferred stocks are sort of are in realm, international bonds for sure, where you really do need the expertise of a professional management team, as well as a trading desk. Mutual funds are a partnership between a manager and a trader and some analysts, and they're out there looking for good bonds to buy at good prices.
So when it comes to anything other than a plain vanilla, like your local school bond, which is certainly safe to buy, I like active management of bonds through either funds or sometimes through ETFs, which are exchange traded funds, or closed-end funds, which is another variety of investment company.
Jeff Kosnett: But for somebody who is really experienced in this and is willing to hold the bonds for a long time, it is a good idea to own some individual bonds` for this reason: When interest rates are rising or inflation is a worry, and remember that it doesn't matter what the actual inflation numbers are, it matters what the psychology of the markets is, a bond fund may lose value, whereas your ordinary bond, it may lose value on paper, but you know that when that bond is ready to mature in 5 or 10 or 20 years, you can get back your original principal. So it really doesn't matter what the bond market does.
And meanwhile, you get paid your semi-annual or quarterly interest payment. So holding a bond itself kind of shelters you from the day to day volatility in the financial markets, and that's why a lot of people like to own individual bonds.
Sandy Block: So Jeff, you mentioned inflation, and that's all you hear about now. The inflation rate is expected to top 6% for this year. Based on my knowledge of the bond market, isn't inflation the Darth Vader for fixed-income investors? And what should they do about it?
Jeff Kosnett: Well, you're right. Inflation is public enemy number one or Darth Vader or whatever of fixed income investors, to the point that if you own a long term, say a treasury bond, that is going to give you a yield of one and a half percent, and inflation runs 6% during the life of that bond, obviously you have lost a lot of purchasing power. The humiliation is, in addition to that, you have to pay taxes on that interest income, so you're really going to get hit.
However, in my way of thinking, and I've written this and I've said it on television, there are several ways to look at inflation; and one is consumer inflation and the other is what I call bond-trader inflation. And that explains why, despite the fact that you're seeing all these headlines and you're going to get bombarded with how much it costs to buy a turkey and things like that, interest rates have stayed low and most bonds have either held their value this year or even gained in value. It's because the financial markets don't think this is a long term reality and a terrible risk.
Jeff Kosnett: And I kind of agree with that. I have been reading, since the end of the 2008 recession, that interest rates were supposed to, quote, and I use a little bit of jargon here, "normalize," which means get back to the levels that we all remember when we were kids: 4%, 6%. And also that you were supposed to go back to the world where, if the inflation rate was 2%, a bond would always pay 3 or 4 percentage points more, instead of the reverse of that.
Well, those days have changed. That ship has sailed. We have a doctrine called lower for longer, and I am still convinced that by this time next year or even sooner than that, everything will be back to roughly where it was before the pandemic and that this current burst of inflation hysteria will ease. People, of course, who get socked with it in their gas pump don't believe it, but it's true.
David Muhlbaum: Okay. That is a bold prediction and I think what we now know is that we're going to invite Jeff back here next year and see, "How'd it hold up?"
Jeff Kosnett: That's right. Yes. I've said this before, and I've been right for many years. And I could be wrong, but there's been a lot of inflation scares for a long time and nearly all the time they go away.
Sandy Block: So Jeff, does that mean, and I hope I don't get in too much jargon here, but there's been a lot of talk about investing in fixed-income investments that offer protection against inflation, such as treasury inflation-protected securities, or even I bonds. Are you saying that maybe people don't necessarily need to go there?
Jeff Kosnett: No. And right now they're a good deal, especially those I bonds. Because of the quirks of the way that the government sets the rates on some of these things, you can get, I think, 7.2% for the next three or four months on an inflation-linked savings bond.
And my observation on that would be: the government limits us to, I think, $10,000 a person. And that's a good thing because if the whole world, which owns 20 trillion or whatever it is of American debt, were to sell all their 1% bonds and buy these 7% bonds, well, I think you know where I'm going with that.
Sandy Block: We'd go broke.
David Muhlbaum: Yeah, I think we'd basically be subsidizing it at that point.
Jeff Kosnett: Yeah. Yeah. But there are other investments besides government securities that have some of these protections. One of my very, very favorite places to put savings is something called a floating-rate bank loan fund. This is a municipal or a taxable fund that owns participations in bank loans to corporations and other borrowers where the interest rate on these loans resets constantly, sometimes even overnight, but usually every quarter or every year.
So this is like a variable rate fund. It's generally going to pay you 3 or 4 or 5% as it is, and if inflation were to drive interest rates higher, these rates would float upwards. So this is a good way to protect your savings against what Sandy was just describing.
David Muhlbaum: Jeff, I want to check in about some of the operational approaches to investing for income. And we talked about a 401(k) investor having essentially exposure to this kind of security because they probably own a bond fund. And I would imagine the next step up for them would be to, well, start paying some closer attention to which bond funds and which ones you're recommending. Because they usually have a choice within their 401(k), they could start being a little bit more proactive about that.
But just the idea of buying an individual bond, as you posited, in a world where I can buy and trade stocks from my phone on Robinhood, how do I actually go and buy that Lake County, Illinois bond? I mean, where would I start?
Jeff Kosnett: It's not that hard. If you have an account with a brokerage firm like Fidelity or Charles Schwab or any of the other big ones, they will have a bond desk, just like they have a stock desk. And you click through the various places where it says products or whatever, and in addition to seeing stocks and CDs and mutual funds, you will see bonds.
And Schwab is a good example because they oftentimes participate in the same new individual bond issues as your Morgan Stanleys and Bank of Americas do for institutional investors. So one of the things is, let's say that you live in a high tax state like California, New Jersey, where it would benefit you to buy a state tax-exempt bond and therefore not have to worry about the taxes you pay on the interest, as well as, of course, saving the federal taxes.
Well, just go into one of these brokerage platforms, click in New Jersey, what bond rating you want, A or better. I trust that many of you know that there are bond ratings from… AAA is the best, and some bonds don't even have a rating. And see what's there, and it will tell you all the basics, like the yield, the current yield, the yield at maturity, the rating. It'll give you access to other documents relating to this bond and it will ask you how much you want to buy. And if you buy $5,000 dollars worth of bonds, you will see $5,000 worth of this bond land in your balance, just like if you went out and bought 500 shares of IBM stock.
David Muhlbaum: And then just to double check: those face values, the amount you have to buy, the minimums are 5 or 10 because that's the value of the product?
Jeff Kosnett: Yeah. It's usually 5 or 10, because the way that bonds are traded as a practical matter is even if the school board borrows $172 million, let's say, they break that up into $1,000 chunks. So there's an expression, a bond: a bond is a thousand bucks. So if somebody were to say, I'm going to buy five bonds, they're buying $5,000 of this massive issue. And that means you will get… Let's say if the interest rate is 3% on your $5,000, what does that add up to? About $150 a year, and there you have it.
David Muhlbaum: Yeah. There are a lot of terms out there in bond land.
Jeff Kosnett: Oh, yeah.
David Muhlbaum: And I was just thinking we actually… Earlier, I think I used the expression, on the face of it, and I just used that as the conversational metaphor. But then I thought, "Hey, wait a minute. Is that a reference to the face value of a bond?"
Jeff Kosnett: It could be. There's probably as many bond jargons as there are baseball terms used in investing. And let me tell you this: the men and women I know who have spent their life in bonds and similar, in real estate and preferred stocks and other sort of interest and dividend-driven investment strategies, it's a lot harder than with stocks.
Sandy Block: Oh, yes.
Jeff Kosnett: If you're just talking about a common stock, you interview the CEO, you follow the industry, you read the financial statements, you monitor what's going on with the… you try and learn what you can about what the company's new products are about and whether or not Apple is better than Samsung at something. But there are so many different bonds. There are millions upon millions of different bond issues, all priced differently, all maturing at different dates. It's hard.
David Muhlbaum: Yes. Well that's, I guess, why we have you-
Sandy Block: That's right.
David Muhlbaum: -and your column and your newsletter. But that's also, I think, kind of touches on a little of the question of what I was saying before, about how people tend to view stocks as interesting and bonds as boring. I'm oversimplifying. But is because the stocks, the companies have those stories and they have the people and they have that narrative that generates all kinds of coverage from lots of people, including us. And bonds, it's a little harder to write about what each bond's personality is.
Jeff Kosnett: That's true. I know. Everybody will joke about finding the next Microsoft stock or the next Apple stock. Nobody's going to say, "Boy, those 6.2% Walmart bonds of 2049. They just don't make them like that anymore." Which is true, that right now they're not.
David Muhlbaum: But as you mentioned earlier, the person who finds that overlooked security that is paying a high percentage and has a good risk, they're going to be like, "I did it. I got it."
Jeff Kosnett: I wish Kiplinger's Investing for Income had been around about three years before it started, when we were just coming off the financial crisis and the credit crunch and the recession of 2008 and 2009. What happened then was that the only bonds that really held their value and the only interest rates that stayed low were those guaranteed by the US government.
So you had Treasury bonds paying very low rates. You had cash savings accounts, CDs, that kind of stuff, because it's guarantee paying very low rates. But really great corporations, really the cream of the crop of American business, American Express and Walmart and Illinois Tool Works and all the AA- and AAA-type companies, they were going back into the bond market and they were having to pay very high interest rates: 6%, 7%, 8%.
Jeff Kosnett: I remember buying for myself, but also hopefully I recommended it for the Kiplinger's readers, an American Express 10-year bond, back in like 2009, 8.125%, eight and an eighth percent. Now that American Express bond, you would get 8% when the dividends in their stock maybe were one. The interest rate on a savings account was maybe two.
And of course, you know what that meant. One, if you sold that bond a few years down the road, you got a huge capital gain. Or if you kept it until it matured, you were collecting 8% on a very low risk investment when the bank was paying you one. So that's the advantage of buying individual bonds sometimes.
David Muhlbaum: As long as we're checking in on history, can we go back a few years ago when there was a lot of bonds, including lending by governments, paying 0%. Why that was, why it continued, and why anyone would buy a 0% bond?
Jeff Kosnett: Well, that's still the reality in a lot of the world, like Europe and Japan. An individual investor or saver who would buy a bond with a negative interest rate… In other words, I'm paying the government of Germany a half a percent a year, so they can use my money. It makes no sense. And you or I or any of the readers of Kiplingers would know better and would not do this. You would be better off, in theory, just carrying a wad of cash in your wallet or putting it in a drawer in your house.
David Muhlbaum: Under the mattress!
Jeff Kosnett: Under the mattress.
Sandy Block: Coffee can. Coffee can.
Jeff Kosnett: Right. However, there are two reasons why these bonds exist. One is that there was worry about deflation for a while. And if you're going to have deflation and you have a negative 1% bond, but everything deflates by 3%, you're better off. And in some of the world where the economy was really hurting for a long time, and still is, there was serious worry about that.
A second reason is that many government bonds, and this is true in the United States as well, the people that own them are not you and me: they are banks, they are pension funds, they are other governments. They're pretty much required to buy these bonds because of the government guarantee. The expression we all know as "full faith and credit."
So a German bank doesn't have much choice. They have to buy these German government bonds. And the government knows this and so they keep the interest rate to the point where even they profit from this. So these are not securities that are aimed at or are even suitable for individual savers and investors. It's more of a political and institutional type of a situation.
David Muhlbaum: Okay. I understand that those bonds are not for you and me as the retail investor, but again, going back to my idea of the 401(k) investor who holds bond funds in their 401(k) and that those bond funds then own individual securities. It's possible that those bond funds could have some of those very low-paying Treasuries because those bond funds, in turn, are structured so that they're supposed to invest in that kind of stuff. Is it possible?
Jeff Kosnett: That is correct. If you have a fund that is organized and structured as, say, a total bond market fund, it has to own bonds in proportion to what's out there, and that means a heavy dose of government bonds because, as we know, the government is the biggest bond issuer in the world.
However, there are many funds that do not have to do this. They are much more flexible, much more variable, much more able to focus on corporate bonds, on municipals, on credit instruments, on participating in loans, on buying packages of mortgages. All that stuff yields considerably more than the US Treasury right now. And the risk is minimal in terms of the credit.
Jeff Kosnett: I mean, once again, if we were having a economic downturn, where real estate borrowers were defaulting and corporations were going out of business and banks were folding like they did back in 2008, you are right, this stuff would be toxic. But we're not having that right now. Banks are in much better shape than they've ever probably been in this country, other than for the short time in 2008, maybe since the Second World War.
Corporations have so much cash they don't know what to do with it. You're going to get paid. You own a bond, you own shares of a dividend-paying company, you own part of a real estate trust: you are going to get paid. And if you're going to get paid several points more than the US government pays its borrowers from the Treasury, go for it. This has worked great for the whole time that we have published this newsletter. And if you have one bad year after 10 good ones, you're still way ahead, so go for it.
Sandy Block: All right. I think that's a good note to wrap up on because Jeff is telling us we're going to get paid.
David Muhlbaum: Yeah, and I think Jeff has also conclusively disproved the idea that bonds are boring. So thank you very much for joining us. We look forward to having you on again, if not in a year to talk about the inflation forecast, then maybe even sooner. Thanks again.
Jeff Kosnett: Thank you.
David Muhlbaum: That will just about do it for this episode of Your Money's Worth. If you like what you heard, please sign up for more at Apple Podcasts or wherever you get your content. When you do, please give us a rating and a review. And if you've already subscribed, thanks. Please go back and add a rating or review, if you haven't already.
To see the links we've mentioned in our show, along with other great Kiplinger content on the topics we've discussed, go to kiplinger.com/podcast. The episodes, transcripts, and links are all in there by date.
And if you're still here because you want to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at [email protected] Thanks for listening.
Using In-School Deferment as a Student
Undergraduate and graduate students in school at least half-time can put off making federal student loan payments, and possibly private student loan payments, with in-school deferment. The catch? Interest usually accrues.
Loans are a fact of life for many students. In fact, a majority of them — about 70% — graduate with student loan debt.
While some students choose to start paying off their loans while they're still in college, many take advantage of in-school deferment.
What Is In-School Deferment?
In-school deferment allows an undergraduate or graduate student, or parent borrower, to postpone making payments on:
• Direct Loans, which include PLUS loans for graduate and professional students, or parents of dependent undergrads; subsidized and unsubsidized loans; and consolidation loans.
• Perkins Loans
• Federal Family Education Loan (FFEL) Program loans.
Parents with PLUS loans may qualify for deferment if their student is enrolled at least half-time at an eligible college or career school.
What about private student loans? Many lenders allow students to defer payments while they're in school and for six months after graduation. Sallie Mae lets you defer payments for 48 months as long as you are enrolled at least half-time.
But each private lender has its own rules.
Recommended: How Does Student Loan Deferment in Grad School Work?
How In-School Deferment Works
Federal student loan borrowers in school at least half-time are to be automatically placed into in-school deferment. You should receive a notice from your loan servicer.
If your loans don't go into automatic in-school deferment or you don't receive a notice, get in touch with the financial aid office at your school. You may need to fill out an In-School Deferment Request .
If you have private student loans, it's a good idea to reach out to your loan servicer to request in-school deferment. If you're seeking a new private student loan, you can review the lender's deferment rules.
Most federal student loans also have a six-month grace period after a student graduates, drops below half-time enrollment, or leaves school before payments must begin. This applies to graduate students with PLUS loans as well.
Parent borrowers who took out a PLUS loan can request a six-month deferment after their student graduates, leaves school, or drops below half-time enrollment.
Requirements for In-School Deferment
Students with federal student loans must be enrolled at least half-time in an eligible school, defined by the Federal Student Aid office as one that has been approved by the Department of Education to participate in federal student aid programs, even if the school does not participate in those programs.
That includes most accredited American colleges and universities and some institutions outside the United States.
In-school deferment is primarily for students with existing loans or those who are returning to school after time away.
The definition of "half-time" can be tricky. Make sure you understand the definition your school uses, as not all schools define half-time status the same way. It's usually based on a certain number of hours and/or credits.
Do I Need to Pay Interest During In-School Deferment?
For federal student loans and many private student loans, no.
If you have a federal Direct Unsubsidized Loan, interest will accrue during the deferment and be added to the principal loan balance.
If you have a Direct Subsidized Loan or a Perkins Loan, the government pays the interest while you're in school and during grace periods. That's also true of the subsidized portion of a Direct Consolidation Loan.
Interest will almost always accrue on deferred private student loans.
Although postponement of payments takes the pressure off, the interest that you're responsible for that accrues on any loan will be capitalized, or added to your balance, after deferments and grace periods. You'll then be charged interest on the increased principal balance. Capitalization of the unpaid interest may also increase your monthly payment, depending on your repayment plan.
If you're able to pay the interest before it capitalizes, that can help keep your total loan cost down.
Alternatives to In-School Deferment
There are different types of deferment aside from in-school deferment.
• Economic Hardship Deferment. You may receive an economic hardship deferment for up to three years if you receive a means-tested benefit, such as welfare, you are serving in the Peace Corps, or you work full time but your earnings are below 150% of the poverty guideline for your state and family size.
• Graduate Fellowship Deferment. If you are in an approved graduate fellowship program, you could be eligible for this deferment.
• Military Service and Post-Active Duty Student Deferment. You could qualify for this deferment if you are on active duty military service in connection with a military operation, war, or a national emergency, or you have completed active duty service and any applicable grace period. The deferment will end once you are enrolled in school at least half-time, or 13 months after completion of active duty service and any grace period, whichever comes first.
• Rehabilitation Training Deferment. This deferment is for students who are in an approved program that offers drug or alcohol, vocational, or mental health rehabilitation.
• Unemployment Deferment. You can receive this deferment for up to three years if you receive unemployment benefits or you're unable to find full-time employment.
For most deferments, you'll need to provide your student loan servicer with documentation to show that you're eligible.
Then there's federal student loan forbearance, which temporarily suspends or reduces your principal monthly payments, but interest always continues to accrue.
Some private student loan lenders offer forbearance as well.
If your federal student loan type does not charge interest during deferment, that's probably the way to go. If you've reached the maximum time for a deferment or your situation doesn't fit the eligibility criteria, applying for forbearance is an option.
If your ability to afford your federal student loan payments is unlikely to change any time soon, you may want to consider an income-based repayment plan or student loan refinancing.
The goal of refinancing with a private lender is to change your rate or term. If you qualify, all loans can be refinanced into one new private loan. Playing with the numbers can be helpful.
Just know that if you refinance federal student loans, they will no longer be eligible for federal deferment or forbearance, loan forgiveness programs, or income-driven repayment.
Recommended: Student Loan Refinancing Calculator
What is in-school deferment? It allows undergraduates and graduate students to buy time before student loan payments begin, but interest usually accrues and is added to the balance.
If trying to lower your student loan rates is something that's of interest, look into refinancing with SoFi.
Students are eligible to refinance a parent's PLUS loan along with their own student loans.
There are absolutely no fees.
It's easy to check your rate.
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
The Best Places to Live in South Carolina in 2022
With its variety of beach towns and laid-back atmosphere throughout the state, there are a lot of cities considered the best places to live in South Carolina.
There are big plantation homes and tons of American history throughout the state, not to mention the unique culture of the Lowcountry. All combined, South Carolina is really like no other place in the U.S.
From outdoor fun to delicious, local eats and all the activities in between, living in South Carolina is an experience worth having. Here are 13 of the best places to live in South Carolina.
Median household income: $68, 438
With so much history packed into one town, Charleston is a great place to call home. As the starting point for the Civil War, you can explore Fort Sumter and take in a major turning point in our country's own story.
When you're ready to dip into the modern amenities of the city, there's no shortage of enticing eats, preserved architecture and culture to enjoy. It's the perfect mix of a city and a coastal town with so much to do right outside your door and so many beaches just minutes away.
1-BR median rent: n/a
Of course, the biggest draw to this particular city is Clemson University. There's plenty of student housing around this prestigious school. And, although Clemson gets billed as a college town, the city and school have a positive, intertwined community.
Leaving the draw of campus and all that football, introduces you to all the rest Clemson has to offer, including the Bob Campbell Geology Museum, the Brooks Center for Performing Arts and even the South Carolina Botanical Gardens.
Another college town, Columbia is home to the University of South Carolina. The campus stretches across the city, and tailgate culture is huge, everywhere. You're most likely a football fan, to some degree, if you call this city home.
In addition to being Gamecock central, Columbia is also the state capital, bringing in a diverse population — that's not all college students — to make the city run. It's one of the best places to live in South Carolina because of its varied population and professional opportunities. There's also plenty of fun things to do.
A charming historic district and proximity to Charlotte, NC make Fort Mill an appealing way to stay close to the city without actually living in it. Fort Mill offers miles of hiking and biking trails along its own greenway, plenty of golf and all the dining and shopping you could want.
One of the fastest-growing communities in the area, Fort Mill is drawing in families and young professionals alike — anyone who wants the combination of activity and natural beauty wrapped up in a carefully laid out town.
Known as an artsy city, neighborhoods in Greenville provide an eclectic mix of locations. Combining small-town charm and more urban amenities, you'll find plenty of galleries, public festivals and events to satisfy your creative side.
Greenville is also perfectly placed for nature lovers to get a dose of outdoor beauty. Situated right in the foothills of the Blue Ridge Mountains, scenic hikes are less than an hour away. For a closer touch of nature, Falls Park lures residents in with its waterfalls and suspension bridge.
While you may consider Hilton Head more of a vacation spot than a living destination, the island offers something for everyone. Beautiful beaches, world-class golf, shopping, restaurants and even nightlife are all here. But, it's not all resorts in this slice of the Lowcountry. There are plenty of communities that provide that homey feel.
Another draw of Hilton Head is its location. The island is one of the best places to live in South Carolina because of its proximity to both Savannah, GA, and Charleston. You can set yourself up for a more picturesque home life while taking advantage of big-city opportunities.
The historic and modern mix perfectly together in Lexington. Its historical claim to fame is the home to one of the first battles in the Revolutionary War. Another part of the city's history revolves around commerce, and Lexington's Old Mill stands as a symbol of the area's commitment to small businesses.
Shopping around here means supporting locals and long-standing, family-owned shops. Its history and commerce are all in one, packaged in a quaint, suburban environment that continues to draw in young professionals and families.
A suburb of Greenville, Mauldin provides that safe, suburban feel without taking you too far away from a bustling city center. With access to everything the big city has to offer, staying close to home also provides ample opportunities for natural beauty and activity.
The 400-acre Lake Conestee Nature Park is not only a natural habitat for lots of local wildlife, but it's also a perfect place for outdoor enthusiasts. And, it's only five minutes from the center of town. You also can't skip over the food in Mauldin when talking about the amenities of the town. You'll find delicious Lowcountry cooking and plenty of great local restaurants.
As a South Carolina town with literally everything you could ever want, Mount Pleasant is a popular choice to call home. It's quiet and picturesque, with strong community vibes and a variety of residents. It's a town that caters to its population with great restaurants, shops and thriving nightlife.
Another laid-back coastal town that has it all, you're also close to so much that makes South Carolina great. Sullivan's Island is only a short car ride away, and Isle of Palms isn't too far, either. On top of that, you're less than three miles from Charleston. It's the perfect, middle spot to enjoy everything the entire area offers.
Known primarily as a vacation destination that can get a little rowdy, Myrtle Beach has a lot to offer once you step away from the tourist traps and move past the amusement parks and high-rise hotels.
Taking up 60 miles of coastline, Myrtle Beach is a resort town, with all the typical amenities, and that presents a lot of opportunity both for job-seekers and entrepreneurs. There's also the climate to consider when thinking of Myrtle as one of the best places to live in South Carolina — it's fantastic. Mild weather and the lulling sounds of the ocean attract families, young professionals and empty-nesters to call this place home.
A thriving art scene gives the downtown area of Rock Hill its own signature. Named the state's first cultural district, this area is full of galleries, museums, theaters and art studios. Not only that, but you'll find the streets peppered with murals and sculptures from local artists.
Not an arts town alone, Rock Hill also has 31 parks, including Cherry Park and its 68 acres of hiking trails and landscaped walkways. Boyd Hill is another option with a disc golf course, picnic areas and even an outdoor swimming pool.
If South Carolina is calling to you for its mountain views, you'll want to check out Spartanburg. With its small-town feel and neighborly vibe, living here still reminds you that you're in the south but without the beach-front scenery the majority of the state provides.
A revitalized downtown is representative of the quick pace at which the city has grown over the last few years, and you'll find diversity in job opportunities and living options as a result.
Source: Facebook.com/TegaCayCity
Another suburb of Charlotte, Tega Cay is a close-knit, lakeside community that fits most people's ideal of small-town living. A family-friendly place, you'll find plenty of restaurants and shops, as well as water sports on the lake.
Residents of Tega Cay also value the safety of the city. It's the kind of place where kids are always out riding bikes and the community pool fills up with eager swimmers each summer. It's almost like the suburban town you'd find in a movie.
Find an apartment for rent in South Carolina
Whether you want city living, ocean waves or even mountain tops, apartments for rent in South Carolina can provide the perfect view. With locations that accommodate any pace of life, alongside some delicious, fresh seafood, you'll quickly see why there are so many places in the state people call the best.
The rent information included in this summary is based on a median calculation of multifamily rental property inventory on Apartment Guide and Rent.com as of October 2021.
Median home prices are from Redfin as of October 2021.
Stock Market Corrections – What Are They and How to Handle Them
People look to the stock market as a way to build and protect wealth, but experienced investors know it doesn't always work out that way. The market moves through a series of peaks and valleys, often leading to overvaluations or undervaluations.
When a long-term bull market takes place, investors know that a dreaded downturn on Wall Street is likely ahead.
These drawdowns, or market corrections, are periods when stock valuations fall. They tend to cause some investors to panic, but there's no need to be alarmed. These occasional declines are perfectly normal, and most consider them necessary in a healthy U.S. stock market.
Here's everything you need to know about market corrections.
What Is a Stock Market Correction?
A correction is a downward market trend characterized by the value of a financial asset falling at least 10% from its most recent peak.
For example, imagine stock ABC was trading at a peak of $100 per share 45 days ago. Today, the stock is trading at $89 per share, down $11 or 11% from recent highs. Since the decline is greater than 10%, the move would be considered a correction.
These market declines are often riddled with volatility as investors race to sell, hoping to protect themselves from further financial pain.
However, as you'll learn below, a sudden drop in stock prices from recent highs isn't always a reason to sell. In fact, corrections are often the best time to buy more shares of your favorite stocks, practicing dollar-cost averaging and increasing your overall return potential.
Here are a few important facts about corrections:
There Are Different Levels of Stock Market Corrections
First and foremost, market corrections take place on varying levels:
Individual Stocks
Like in the example above, corrections often happen on individual stocks. They can be spurred by bad news like missed earnings or revenue expectations, or they can come completely out of the blue as a group of investors decides it's time to take a profit. These corrections only tend to affect a single stock.
Some corrections wreak havoc on entire sectors, sending nearly every stock in an industry down a slide. For example, sudden shocks to the price of oil might put the oil and gas sector into a correction, or new legislation targeting drug prices might send the pharmaceutical sector into a slump.
Some events can lead entire financial markets in a specific region on a spiral downward. For example, when tariffs were placed on Chinese goods entering the United States, Chinese stocks took a dive, resulting in a regional correction.
Finally, corrections can happen across the global market. During a stock market correction, the entire market drops. These events are characterized by simultaneous declines of 10% or more throughout major market indexes around the globe.
Corrections Are Generally Short-Lived
While some market corrections lead to long-lasting bear markets, the vast majority of corrections are actually short-term sell-offs. In fact, only 10 out of the past 37 corrections from 1980 to 2018 resulted in bear markets, with the rest turning out to be short-term blips.
In general, corrections last between three and four months. Once the event is over, the market generally rebounds quickly, resulting in tremendous earnings potential. So, it's important not to panic when these events take place; keeping a level head and paying attention to market conditions will likely open the door to several profitable opportunities.
A Correction Isn't the Same as a Bear Market
Both corrections and bear markets are characterized by stock market crashes. However, there are a few important differences between the two:
Percentage Declines. Bear markets are generally characterized by declines of 20% or more from recent peak values rather than 10% declines.
Term. When the bears take hold of a sector, region, or the whole market, they tend to maintain control for some time. According to Hartford Funds, the average bear market lasts 9.6 months, which is substantially longer than the three to four months the average correction takes to subside.
Cause. Corrections can take place out of the blue when the investing masses decide it's time to take profit. However, bear markets are generally more meaningful. These long-standing declines are usually signs of concerning economic conditions, geopolitical conditions, or a mix of the two.
Corrections Happen Often
As mentioned above, 37 corrections took place from 1980 to 2018, working out to slightly less than one per year on average. That stands as evidence that you shouldn't panic when it happens.
While the talking heads on financial media will make a big deal out of any correction that takes place, level heads prevail in the stock market.
Examples of Corrections
One of the best ways to get an understanding of the nature of stock market corrections is to look at a few examples from history.
One of the most recent market-wide corrections was caused by the coronavirus pandemic in 2020. As the virus spread, hair salons, movie theaters, amusement parks, and shopping malls were considered nonessential and forced to shut down for months. This led to widespread job loss, corporate bankruptcies, and reduced consumer spending.
As a result, the market started to tank.
Soon, the correction caused by the pandemic became an all-out bear market, leading the S&P 500 index, Dow Jones Industrial Average, and the Nasdaq all down by more than 30%. It took 10 months for all three indexes to make a full recovery.
Another example occurred in February 2018, when the Dow Jones Industrial Average and the S&P 500 index fell by more than 10% each. While the correction was prompted by inflation-related concerns, the profit-taking proved to be overblown in the long run. By mid-March 2018, prices began to rise, eventually making a full recovery.
What Corrections Tell You
Market corrections aren't always as informative as you might think. They can be a sign of healthy market and economic conditions as valuations balance themselves out, acting as a perfectly normal part of the financial system.
For example, if a correction happens out of the blue at a time when economic growth is at its peak, corporations are experiencing growth in profitability, and geopolitical conditions are stable, the move is likely nothing more than investors taking profits, and it will soon be over.
On the other hand, when coupled with concerning fundamental data, corrections can be signs of tough times to come.
For example, if recent economic reports show slowing new home sales, increasing unemployment insurance claims, and declining consumer spending, and stocks slide by 10% or more, the move could be a sign that an economic recession and all-out bear market is on the horizon.
What to Do if a Stock Market Correction Takes Place
Although it may come as a surprise, many long-term investors do nothing at all when market downturns set in. These investors know that the vast majority of corrections won't last long, and they avoid knee-jerk reactions when it happens. Riding out corrections is the favored approach of buy-and-hold investors, especially those with a long-term outlook.
On the other hand, some seasoned active investors take steps in order to make the declines work to their advantage. Here's how:
1. Rebalance
If you've been following a solid investment strategy, your asset allocation was thoughtfully chosen to provide diversification.
Unfortunately, over time, your allocation will fall out of balance as some assets move at faster rates and in different directions than others. When imbalance happens, it can leave you either overexposed to risk or underexposed to opportunity.
With the market edging down, it's crucial to make sure your allocation isn't out of balance and the protections you've put in place are able to work to your advantage. Now is the time to rebalance your investment portfolio.
2. Assess the Correction
Next, you'll want to determine what type of correction you're seeing and whether the move is likely to continue into a bear market. Ask yourself the following questions:
How Widespread Is the Correction? Are you noticing the move on a single stock or single index? Take time to look around and see if it's more widespread. Look into what the Dow Jones Industrial Average, Nasdaq composite index, and S&P 500 index are doing. If they're all falling at a similar rate, the correction is a widespread one.
Is There a Clear Cause? Corrections can come out of nowhere with no rhyme or reason, or they may be the result of deep underlying issues. The only way to find out is to do a bit of research.
How Deep Is the Cause? Did the U.S. Federal Reserve raise interest rates by a quarter of a percent? If so, although the move may slow lending slightly, it's a sign that the U.S. economy is doing well, and the market will likely recover quickly. On the other hand, if war was just declared or jobs reports have shown months-long declines in hiring, there may be cause for long-term concern.
3. Act On What You've Learned
There are several different actions you could take based on your answers to the questions above, but they'll all boil down to one of the following:
If it's a Single Stock or Sector Correction With No Apparent Cause
If the move is in a single stock or sector, and there's no clear rhyme or reason to it, you're in luck — you've found a buying opportunity.
Traders take profits all the time, and this profit-taking can lead to painful, short-term declines. Although there's no telling where the bottom will be, now is the time to strategically buy more shares in a company you like. Here are a few tips for doing so:
Set the Floor. If the sell-off has no rhyme or reason, it's likely a technical move in which traders are taking profits. This means that there will likely be a clear point of support. Use technical analysis to find the support level.
Buy Even Blocks of Shares. As the stock continues to fall to support, make consistent, equal purchases of blocks of shares. This process of dollar-cost averaging ensures you don't lose too much with a large purchase before further declines or miss out on opportunities when the rebound happens. As the stock falls, your average cost per share will fall as well. When the rebound happens, that reduced average cost means larger gains.
Set Stop-Loss Orders. Set stop-loss or stop-limit orders just below the support level. If the stock falls below this point, there may be a significant underlying reason for the declines. It's time to exit the position and reassess the situation.
If it's a Single Stock With a Short-Term Cause
In some cases, there will be good reasons for a single stock taking a dive, but those reasons will only lead to short-term movement.
For example, a company may miss earnings or revenue expectations in a single quarter, leading to fear among investors. In this case, the company's stock will likely fall, but if the company is solid, it will make up the losses and then some in the long run.
If this is the case, consider using the dollar-cost averaging method described above to gain further exposure to the rebound.
If it's a Single Stock With a Serious Problem
If the correction takes place in a single stock and the reason is both clear and long term, it's time to sell and accept your losses.
For example, imagine a biotech company you've invested in has been working to find the cure for a devastating ailment. Things looked great. However, the FDA rejected the drug, and the company decided it's going to cut its losses and go back to the drawing board. At this point, the stock's losses are likely to continue for some time.
In this case, it's best to cut your losses and look for a more promising opportunity elsewhere.
If the Entire Market Is Falling
If you're looking at a market-wide correction, there are a few things to consider. In the majority of cases, if the entire market is falling, there's a reason, regardless of how clear or unclear that reason may be.
One of the most common reasons for market-wide corrections is high valuations. Movement in the market takes place through a series of ebbs and flows. However, when the market flows up too fast without enough ebbs in between, overvaluations happen, and investors begin to take profits.
These are generally short-term moves and nothing to be concerned about. As a result, outside of buying in on undervalued opportunities as prices fall, there's not much action that needs to be taken.
On the other hand, corrections can be signs of deep economic or geopolitical concerns. For example, if job growth in the U.S. seems to be plateauing, home sales are slowing, and unemployment lines are growing during a market correction, all these signs together point to a potential economic recession, which could cause the correction to turn into a long-term bear market.
Even in this case, it's important not to panic. After all, panicking leads to poor decision making.
Instead, consider making adjustments to your asset allocation to reduce your overall risk. To do so, move a portion of your money out of stocks and into fixed-income securities and other safe-haven assets.
After doing so, keep a close eye on economic data. When the economy begins to improve, it's time to go shopping for discounts in the stock market. At this point, long-term declines will have led the valuations of many quality companies into the dumps, which is great news for buyers. Buying in at these lows will often lead to jaw-dropping profits.
4. Consider Speaking to a Financial Advisor
If the market's experiencing declines, and you're not sure what to do, one of the best courses of action is to speak to a professional.
Sure, it may cost a few hundred dollars to get a financial advisor's ear for an hour, but those few hundred dollars could save you thousands — or, even better, help you turn a profit in a down market.
When you have a leak, you call a roofer, even though you know that will cost you more money than doing the research and fixing the roof yourself. There's no reason to be ashamed to call a financial pro when you have questions about your money and activities in the market.
Pros and Cons of Market Corrections
Although corrections may be concerning at first glance, they're not all doom and gloom. In fact, there are several benefits to corrections happening as well. Here are the pros and cons of these moves:
Market Correction Pros
1. Discounted Buying Opportunities
The basic concept of making money in the stock market is the act of buying low and selling high. If you're looking for a strong entry point, there are few better than in the midst of a correction. During these times, stocks are undervalued, offering discounted opportunities to get in on future gains.
2. Market Health
Financial markets are complex systems with multiple moving parts, and for those systems to work properly, there have to be checks and balances. Corrections help to keep the market balanced, which is necessary for a healthy system overall. An occasional round of profit-taking helps to keep euphoria in check.
3. Set the Stage for Bull Markets
A far smaller portion of corrections become bear markets than are followed by bull markets. Statistically, these moves are more often than not signs of a bull market on the horizon.
Market Correction Cons
Unfortunately, market corrections come with some drawbacks, the most important being:
1. Retail Investor Panic
The biggest victims of corrections are often inexperienced retail investors who panic and sell when stocks fall. While the retail crowd sells for a loss, savvy investors — often institutional investors or experienced traders — are picking up their shares and enjoying the gains the average investor would have had if they'd simply kept a level head.
2. Can Be Signs of Bear Markets
Although a market correction is more likely to be followed by a bull market than a bear market, there are times when bear markets do set in. If economic conditions are troubling, a correction can be a signal of something even worse ahead. It's important to understand the reason for the correction and determine whether a long-term bear market is likely before deciding how to react.
3. Short-Term Financial Pain
Finally, stock market corrections aren't significant points of pain for everyone. Although nobody likes to see short-term losses, for some investors, the moves can come with significant financial concern.
This is particularly the case for investors with a short time horizon, like retirees. Investors who are dependent on the income generated through their portfolios often have to withdraw money to survive during market corrections. Unfortunately, these investors don't always have the option of waiting for the correction to end and may be forced to realize significant losses.
All told, corrections aren't quite as scary as they're cracked up to be. Sure, losses can and often do happen during these downward moves. However, they're important cycles that help to keep the overall financial machine healthy.
Not to mention, savvy investors can make corrections work to their advantage by strategically buying undervalued stocks for a discount to take advantage of the gains that are likely to follow.
No matter what your plan is during a market correction, it's important not to panic. Level heads make educated decisions, and educated decisions usually equate to profits in the stock market.
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