The Napa earthquake reminded us this week of our restless earth, about the unpredictability of external shocks to the market, and how we don’t need to be lulled to sleep when volatility is relatively low.
Three Investing Lessons from the Napa Earthquake. Stocks and other risky assets have been doing particularly well the last few years. In such circumstances, it is easy to forget there are risks below the surface. It is worth remembering that, in constructing a portfolio, to consider that shocks do occur. Shocks, by definition, are unpredictable; their performance isn’t telegraphed to anyone ahead of time. Investors should have a financial plan and consider what their reaction will be in a downturn. Finally, a portfolio should be built for bad times as well as good. Recently, some investors have been ignoring this lesson.
Sound Familiar? The stock market continues to exhibit great resiliency, with bouts of selling this year stopping short of a correction, and reversing quickly. While still optimistic, the analysts at Charles Schwab are becoming more concerned about a possible melt-up in equities, which tend to end badly.
Tax-Smart Philanthropy Made Easy. Now may be a good time to consider opening a charitable-gift (or donor-advised) fund—or add to one that already exists. Appreciated stock and stock funds are attractive candidates for donations. The accounts offer charitably-minded investors an easy, low-cost and tax-favored way to manage their giving—and even to maximize it. Charitable-gift funds enable investors to earmark funds for gifts and get an immediate tax deduction, while allowing them to postpone making decisions about specific recipients. For people who are charitably inclined, the advantages of the donor-advised funds boil down to their ease of use, especially in capturing tax benefits through smart tax planning.
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J. Mark Nickell & Co.
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