The occurrence of “market watching” unleashes during a robust bear or bull market. The practice of investors checking the stock market’s daily swings has spread faster than the Pinot Noir fad.
Frequent overused phrases in the media include, “The Market is up big!” or “The Market plunged.”
These market commentary one-liners pop up with increasing frequency at gas stations, soccer fields, grocery stores and permeate everyday life.
But watching the stock market creates bad habits.
Let’s face it-people do not make financial decisions based on what the market does today. Market watching is as productive as staring at a thermometer and shouting numbers in degrees Fahrenheit as the temperature rises and falls by fractions of a degree.
Friends don’t let friends watch the market. A better use of your time is:
- Determine which of your investments are tax efficient. Most investors have tax deferred accounts (such as IRAs) and taxable accounts (such as joint accounts). Position tax-efficient investments in taxable accounts and tax-inefficient holdings in IRA accounts.
- Verify beneficiaries on IRA, 401(k), or any Trust accounts are up to date.
- Consider refinancing your home. Currently, 30-year fixed rates are below 5%.
- Have you fully harvested any unrealized losses in your taxable accounts? These losses have an intrinsic worth as they offset future capital gains and even provide an annual $3,000 tax deduction from normal income each year until fully exhausted.
- What is the potential estate tax liability if you pass away? Does your potential estate have the liquidity to pay those taxes or would your heirs have to sell real estate, heirlooms, or even borrow money to meet those tax obligations?
- What is the deductible on your homeowner’s insurance policy? It may be too low. If the deductible is $1,000 and you experience a $1,500 loss is it worth filing a claim to collect that $500 and potentially hurt your insurability? Raising the deductible to $2,500 or higher could lower the premium.
I look forward to a day when investors behave rationally-when they don’t know what the stock market “did” that day. I’m not naive enough to expect good investor behavior, but at least we can take a time out from market watching and focus on areas of our financial lives over which we have control.
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