Investors making a deal

What is a SPAC?

As one of the hot investment ideas in the current market, you may have heard the acronym SPAC lately. A SPAC, or Special Purpose Acquisition Company, is a back door, formally out of favor investment approach to buying new Initial Public Offerings or IPOs. Basically, SPACs are a publicly traded firm that has no operations, no assets other than a pile of cash, and just one stated business plan— to eventually buy another company.

SPACs are created with the sole intent to merge with or acquire another business as a means to take it public. Companies may pursue this route since it’s a cheaper and faster way to an IPO. Investors essentially write blank checks to SPACs, while the SPAC can take up to two years to target and buy another firm. In simple terms, SPACs offer individual investors the chance to get in on the ground floor of a potential hot stock, but they are also risky.

A lot of individuals would love to get in early on an IPO when a company first launches on the stock exchange. However, institutional investors and pension funds typically get to have the first shot at these stocks before they become available to the retail investor.

Group of investors

SPAC’s Are Becoming More Popular

If a SPAC sounds like a situation where abuse can happen, it’s probably because it once was. A lot of fraud surrounded these blank check companies in the 1980s. However, the SEC has tightened regulations and the procedures for these ventures. SPACs now have to register with the SEC, even if they have assets under $1 Million. Basically, investors have to trust that the management of the SPAC will fulfill their intentions. Also, SPACs tend to start cheap, starting at $10 per share. Today, there are hundreds of SPACs available. Now, individual investors have access to SPACs in many of the hot areas of the current market, including technology, healthcare, and more.

An example of a recent SPAC is 23andMe, a consumer genetics company that is going public via a merger with Richard Branson’s SPAC VG acquisition. This deal is said to be valued at over $3.5 billion. However, as we said before, SPACs are a blank check that relies on management to fulfill their promise to the investor. While it can be a quick way to gain access to up-and-coming companies, investors have to keep these risks in mind. In short, buyers beware.
While most retirement investment strategies exclusively include mutual funds, ETFs have become more common in recent years. Each one of these funds will have pros and cons for investing. They all come with their share of risk as well. If you ever have questions about investing for your retirement, you can always consult a financial advisor to see how you can maximize your returns.

If you don’t know where to start with investing or if you want to kick your savings into high gear, a financial advisor can guide you onto the right path to retirement. At 401karat, we combine expertise with technology to help you make data-driven decisions for your 401(k) to help you maximize your returns. For just $50, you can get started and start saving more, speak to a 401karat advisor today!

 

two men looking at laptop computer together

In this era of instant gratification, investors have become increasingly gambler-like in the pursuit of immediate rewards; this is why many people recently gambled on “meme” stocks like GameStop and AMC Entertainment. Those who got lucky experienced a dramatic gain, while others have experienced a significant decline in these stocks as the hype has begun to fade.

Investing Money Today to Use as Retirement Income Tomorrow

Unfortunately for many of these modern investors, there simply isn’t an immediate reward for saving for retirement. While a new TV or car can be enjoyed immediately, it can take decades for you to realize any semblance of a reward for your diligent 401(k) or 403(b) contributions. Retirement financial planning takes a lot of patience but is all worth it in the end.
“ Maybe you don’t view retirement as a purchase in the same lens that you would view a new TV or car. Yet that is exactly what you do when you participate in a 401(k) or 403(b) plan; you are investing money today to use as retirement income tomorrow. Thanks to dollar-cost averaging, you can strive to retire on your own terms by simply investing a little bit all the time. ”

The Dollar-Cost Averaging Strategy

Dollar-cost averaging involves investing a constant dollar amount consistently for an extended period. You may not realize it, but your 401(k) or 403(b) already employs the dollar-cost averaging strategy every pay period. Since the prices of the investments in your 401(k) or 403(b) fluctuate daily, your contributions buy a different number of shares each pay period based on the current price. When shares are most expensive, you will buy fewer shares. In contrast, when the shares have decreased in price, you will buy more of them.

Dollar-cost averaging allows people to avoid the two most dangerous emotions of investing: fear and greed. When the stock market is down, investors become fearful and sell their investments while they are cheap. On the flip side, when the stock market is soaring, investors become greedy and rush in to purchase investments at or near their peak price. When you dollar-cost average, you avoid investing too much during market peaks and too little in market downturns.

Dollar-Cost Averaging StrategyTable

We have included a table that helps to illustrate dollar-cost averaging in action. Note that in this example, even though the stock’s price was lower in December than it was in January, the account still had a positive return for the year due to dollar-cost averaging.

While investors can treat the market like Vegas and gamble away, investing a specific amount of money on a consistent basis into the stocks of quality companies or quality investment options in your 401(k) or 403(b) tends to be a more reliable strategy in the long run. The savings process can take decades, and a small deferral amount today may seem trivial, but dollar-cost averaging mixed with compound interest can help turn decades of small but consistent contributions into a significant nest egg at retirement.

Expert 401(k) and 403(b) Advisors

Today, the burden of preparing for retirement has been placed on the individual, making saving for it more important than ever. But between balancing all other aspects of their lives, the average American doesn’t have time to add managing their retirement account to their to-do list. At 401karat, our expert 401(k) and 403(b) advisors do the heavy lifting for you, providing quarterly allocation recommendations based on your employer’s 401(k) options. If you’re interested in learning more, schedule a consultation with 401karat today.

Business investor analyst - 401(k) training for employees

The market seems to be taking a bit of a breather after all of the trading frenzies with GameStop and other “meme” stocks at the beginning of the year. The Reddit traders have seemed to move on to cannabis, as many cannabis stocks reached new highs in recent months. There is a lot to unpack with marijuana concerning federal regulations and the legalization of marijuana nationwide, but we will see how long this new ride lasts.

“It’s been a nice change of pace to the beginning of the year to watch all of the activity concerning the online trading craze, a craze we call the Robinhood Effect.”

This Robinhood effect has led to many young investors going it alone with just automated robo-advisors. By going that route, they’re are missing out on the full scope of strategies and advice they could have from top financial experts in the field. 401karat combines modern investment analysis with access to a real, professional financial advisor. With a real advisor, you can get 401(k) training to go along with all the other investment knowledge that you’ll never get with robo-platforms. 401(k) participants and investors should be able to discuss their financial questions or fears with a real person!

The Online Trading Craze

Most people didn’t have access to online trading back in the day, but nowadays people opening trading accounts online and picking individual stocks has become commonplace. On the positive side, it is fantastic to see all of these people get their feet wet so young when it comes to investing. However, the concern is that they are a bit more focused on greed and getting rich than they are on investing. As fiduciary to our clients, we must do what is in their best interests first and foremost. 

As a result, buying a “dinosaur” would not make the grade for our clients. A better strategy for these new investors would be to focus on buying quality, fundamentally sound companies with a strong future through dollar-cost averaging.

“Bäume wachsen nicht in den Himmel”  a German proverb that translates to “trees don’t grow to the sky. “  

This proverb suggests that there are natural limits to growth and improvement, and this includes investments. The proverb trees don’t grow to the sky is often used by bankers to describe the dangers of maturing companies with a high growth rate. In short, while we love the enthusiasm of these new investors, we hope they will begin to adopt sound investment strategies as they get their feet wet with these “meme” stocks.

Screen Shot 2021 06 10 at 5.09.45 PM

Three Market Drivers 

Here at 401karat, we focus on three market drivers that lead to notable movements in the stock market: market economic fundamentals, technical environment, and investor sentiment.

  • Our fundamental indicator follows 19 economic data points that track the underlying health of the US economy. From unemployment to homebuilding, changes in these economic data points tend to confirm recession or recovery after the technical and sentiment indicators have already reversed.
  • Our technical indicator measures the current strength of US stocks through methods such as comparing US stocks to bonds and cash, charting, and more. The technical indicator focuses strictly on math, making it the most objective of the three indicators. While it does not act as a leading indicator, the technical indicator historically only turns negative in significant market downturns, correctly ignoring healthy market pullbacks like in the fourth quarter of 2018.
  • Our sentiment indicator tracks how everyday investors currently feel towards the US economy and the stock market. Between 401karat’s own polling and professional surveys like the American Association of Individual Investors (AAII) Investment Sentiment Survey and Citigroup’s Panic/ Euphoria Model, 401karat tracks the two most dangerous emotions for investors: fear and greed.

Current Market Status 

From a technical standpoint, the pullback at the end of January helped to normalize most of the overbought levels we saw to begin the year. International equities and small cap stocks have also begun to join and, in some instances, surpass large cap stocks in the upper tier.

Despite the slight pullback we saw in the first quarter, investor sentiment remains greedy. The AAII Investor Sentiment Survey has over 44% of investors as bullish on stocks, which is a euphoric level based on levels from surveys in previous years. Citigroup’s Panic/Euphoria Model also continues to show euphoric emotions towards the market.

401(k) Training From a Top Financial Advisor 

Unlike automated robo-advisors that use the same investment strategies as they did in the 1950s, 401karat combines modern investment analysis with access to a real, professional financial advisor. 

If you’re facing challenges like company morale, productivity, getting 401(k) training for employees, staying competitive in the job market, or bringing in new talent, 401Karat can help you empower your employees to take control of their retirement. Take your employee benefits further by offering participant advice with quarterly modeling and financial education. If you’re interested in making sure you have the best employee benefits to stay competitive, schedule a consultation with  401karat.