I wish I could tell Andrea when the stock market will stop being so volatile, but my Magic 8 ball is in the shop. But I can tell her that despite the market’s flat track record over the last 10 years, I feel confident that over the next ten years high quality stocks will outperform bonds. Interest rates on bonds are historically low and the earnings yield on stocks, which is company earnings divided by the stock price, is historically high relative to bond yields. Also, according to companies’ price to earnings multiples, they are not terribly expensive.

It all boils down to what price you pay for a stock. If you don’t have a professional advisor looking after you then I suggest you put your money into low cost stock funds at Vanguard or Fidelity. Two good funds are the Vanguard Dividend Appreciation Fund (VDAIX) and the Fidelity Contra Fund. The Vanguard Dividend Appreciation fund has an initial minimum investment of $3,000 and the Fidelity Contra fund has an initial minimum investment of $2,500.

And, it is always best to maintain a healthy balance between both stocks and bonds no matter which way the market is moving. That exact balance will depend on a variety of factors such as your asset base, your age, your income sources, and your tolerance for risk.

Jack, from Wilmington, asks if there is an optimal strategy for him and his wife to consider when they take their social security benefits. Jack is 64 years old and his wife is 57 years old.
Since Jack is several years older than his wife, it would be best for Jack to file for his benefit when he reaches full retirement age at 66. Jack would then immediately suspend his benefit and not take any benefit so that they are delayed and much larger when he takes the benefit at age 70. (Also, the survivor benefit for his wife would be much larger if he delays taking his benefit at 70.)

Because Jack has filed with social security (and then suspended it), when his wife reaches full retirement age at 66 she can apply for a spousal benefit rather than her own benefit, and then she won’t be locking in her lower benefit for life. She must specify that she is applying for the spousal benefit because the social security office will automatically give her the larger of her regular or the spousal benefit.

When Jack’s wife reaches 70 years old, she can then switch to her benefit which may be higher than the spousal benefit. She would not be able to switch to her larger benefit if she was already taking her own benefit.

Everyone’s situation is unique. This example is predicated on the notion that Jack and his wife can afford for Jack not to take his benefit at 66. It makes sense to talk to a financial advisor or the social security office directly before you make final decisions.