I must have missed the big sale at Costco on crystal balls…
Because it seemed like every Wall Street analyst and market guru has one.
At the end of 2022, soothsayers made big and bold predictions on Tesla, the stock market and the banking crisis.
Now that we are halfway into 2023 … how’d all these predictions turn out?
Click on the link and I’ll share the results (Spoiler alert: it wasn’t pretty for them).
Now … the forecasters are back at it, in an asset class that I’ve done extensive research on.
And boy, they are dead wrong on this one. Click on my face below for the full story:
(Or you can read the transcript here.)
Santa Claus, the Tooth Fairy and Net Zero 2050…
Put them all right up there with crystal ball predictions. MYTHS.
When Mr. Market snaps back to reality, oil will enter a multiyear bull market.
I can’t say it’ll happen tomorrow, next week or next month … but over the next five years, oil should be materially higher than it is right now.
But with hundreds of businesses to choose from, how do you pick?
Regards,
Founder, Alpha Investor
“Risk-Free” Returns in the Back Half of 2023
The summer months are known for being a little slow on Wall Street. And the week of the Fourth of July is slow even by summer standards.
Even the cutthroat masters of the universe take the occasional day off to have a backyard barbecue (or perhaps have one catered at their house in the Hamptons).
But that’s OK. Slow news days give us the opportunity to look past the day-to-day trading noise and focus on big picture.
So let’s start with the basics, and give our 401(k) plans a look.
Why a 401(k) Is Your Biggest Asset
I love trading. But at the end of the day, the single biggest pool of assets for most investors is their company 401(k).
Between salary deferral and employer matching, you can really accumulate capital in a hurry.
Now, if you’ve been reading Market Edge, you know that I’m skeptical of our current market. If you ask me whether I think it’s likely to be 20% higher or 20% lower six months from now, I’d say that 20% lower is much more probable.
But that doesn’t dampen my enthusiasm for the 401(k). Not even a little.
And here’s why.
A 401(k) Has 3 Sources of ROI
There are three sources of return on investment (ROI) in a 401(k) plan. Market returns are, in my opinion, the least important of the three.
Employer matching and the tax deferral are vastly more important.
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Employer Matching
Let’s start here. Your employer may or may not match the percentage you invest in a 401(k). If they do, that percentage matched may vary, but the average these days is around 3% to 4%.
But for every dollar you invest that is matched, you just earned an instant, risk-free 100% “return.”
And yes, “risk free” isn’t hyperbole here. You can keep the funds in a U.S. Treasury fund or an FDIC savings product, and you’re still getting a 100% return.
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Tax Deferral
Tax savings are more complicated because you’re not technically avoiding taxes, but rather “deferring” them. In theory, you’ll have to pay the taxes once you take distributions in retirement.
But in my view, taxes deferred for years, or even decades, are as good as taxes not paid.
If you’re in the 24% tax bracket, you’re earning a 24% “return” on every dollar you invest on the tax break. If you’re the in 37% bracket, you’re earning 37%. And that’s on top of the 100% you earned on employer matching.
This year, you can defer up to $22,500 into a 401(k) plan and up to $30,000 if you’re 50 or older.
But believe it or not, 2023 is already half over. So you need to pace yourself if you plan to hit those figures by the end of the year.
Get on it!
Charles SizemoreChief Editor, The Banyan Edge