Invest Financial Planning

Why The Markets Are No Place For Your Short-Term Funds

Jean Chatzky  |  November 17, 2020

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This Week In Your Wallet: It’s Just Emotion That’s Taken Me Over

Yesterday, during the mailbag segment of a HerMoney podcast that we were taping to launch in a couple of weeks, I got a question that I can’t stop thinking about. The writer was an impressive 33-year-old woman, single, employed, a homeowner, currently stuffing 22% (yes, 22%!) into her 401(k) and HSA combined, and taking advantage of the current 0% interest rates to make extra headway on her federal student loans. Her problem? She can’t keep her hands off her emergency fund. When she sees the money earning bupkis in the bank — and even when she doesn’t “see” it but just remembers it’s there not working for her — she takes it out and pays off more debt.

Now, I want to acknowledge that in the scheme of problems, particularly in this economy, this is a very nice one to have. But we’ve also learned over the last eight months that emergency cushions are not wants, they are needs. Jobs are tenuous. Health can teeter. She is right to want to remedy this situation, and I did my best to lay out suggestions. (No, I’m not going to tell you what they were. Subscribe to the podcast if you’re not already listening, please. This episode is due to drop next Wednesday, Nov. 25. But it was just a reminder to me of how big a role our emotions play in our financial lives, especially right now — and how important it is to try to reign them in.

Rocky Mountain High

That lesson is particularly true when it comes to the volatility in the stock market.  Yesterday’s amazing news that the Moderna vaccine was 94.5% effective in large-scale, late-stage clinical trials pushed the stock up 10%. The Dow and S&P closed at all time highs. I opened today’s issue of Bull Sheet — a Fortune magazine newsletter written daily by Bernhard Warner who writes about the markets clearly and with charm (reading him is much better than spending the day glued to market TV) to find him musing about the likelihood of Dow 30,000.

But before you rush out and buy shares of this company, or Pfizer, or any of the companies working so hard on pumping a vaccine into the market, consider that a new study shows your emotions could cost you 4% to 5% a year in investment returns, as Dayana Yochim writes for HerMoney.

The Wall Street Journal’s James Mackintosh got specific in his piece entitled: There’s No Vaccine Against These Investing Mistakes. He explains that the pharmaceutical companies face a number of “headwinds, plus the fear of a political storm” in profiting off their incredible work. These include the fact that a COVID vaccine might be one (or two) and done — i.e. not a recurring stream of revenue like the flu shot — and that they’re competing against each other. If you were trying to buy shares that would skyrocket on vaccine news, the better play would have been Carnival, the cruise line, which soared on the hopes of life getting back to normal. Out of the box. Hard — if not impossible — to a) predict and b) time correctly.

The bigger point is that there is very likely more volatility in the offing which is why the markets are no place — not now, not ever — for your short term funds. Although investors seem have been eating a diet of 100% optimism, we continue to see rising COVID cases every day, states and cities are issuing new restrictions, shut-downs remain possible, and hundreds of companies that have received PPP funds have filed for bankruptcy anyway. So hold on. It’s going to be a bumpy ride.

Leaving On A Jet Plane (Or Not)

I got an email yesterday from my friend Phyllis letting me know that she and her husband were cancelling a trip out west to spend Thanksgiving with their kids. The good news — for her and many others who decide they’re just not going — is that airlines are waiving ticket change fees. The bad news is that if you bought non-refundable tickets, you’re not getting your cash back. Instead, you’ll get a voucher good for rebooking in the next 12-24 months.  Jet Blue, American, Delta, United, Southwest and Alaska are all onboard with these changes.

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Tricky, Tricky…

Finally, whether you’re looking at the scale and seeing a little COVID creep that you’d like to unwind before the end of the year, or are considering ways to successfully save more in 2021, there’s one simple mind trick that might help you succeed. Have at it!

And have a great week,


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