Cheat Sheet Q&A: 

Today’s topic – Potential downside in the stock market

Hi Brian, every so often you update us on the value of the stock market compared to historical levels.  A lot of experts are now calling for a substantial decline.  Where do we currently stand and what is the downside?

Bottom Line:  During and after yesterday’s significant decline I began receiving questions like this one.  It’s understandable because the stock market has been trading well over historic average levels for awhile and we haven’t had an official correction in a few years.  So here we go… 

The best broad metric to view for historic valuation is the S&P 500.  Here’s the current breakdown:

  • The average historic P\E ratio of the S&P 500:  15.52
  • The current P\E ratio of the S&P 500:  19.14

So what does this really mean?  The market is currently valued at a 19-23% premium to its historical averages from current levels.  By definition a correction is a decline of 10% or more.  We’re about 4-5% lower from our highs of about a month ago so we’re nearly halfway there already. 

I’ve suggested for a few months that we’re due for a correction and I expect one this year.  It can actually be healthy for the market long term.  The market has been moving higher in a near straight line for years and the valuations of many companies have been stretched.  I’d much rather have a organized moderate decline along with improving earnings to justify stock valuations, that to continue higher only to have a quick ugly crash in the market when some big negative event were to occur. 

So simply put if you’re prepared for a worst case scenario of a 23% decline – I wouldn’t worry.  If a decline of up to 23% would impact your day to day life within the next 5 years – then you may want to consider talking to your advisor about taking risk off of the table. 

If you have a topic or question you’d like me to address email me:

Audio Report:


Guess what...  If you're financing a home right now you're getting a cheaper overall price today than one year ago today:

Bottom Line:  So yesterday, with the roiling in the financial markets, mortgage rates dipped yet again. 

  • The current rate on a 30 year fixed rate mortgage with good credit:  4.1%

Seeing that I went back to a year ago to the day…

  • A year ago to the day the average rate on a 30 year fixed rate mortgage was 4.31%

In other words financing costs are 5% lower today than a year ago.  It then hit me that with home price appreciation at only 4.3% last month it’s actually cheaper on a net basis to buy a home today (if you’re financing) than a year ago.  It’s the first time that has occurred since the start of the housing recovery in January of 2012.  So while the housing market is soft – this could be a real value opportunity if you want to buy. 

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Follow-up - The best overall college values for 2014 - 2015 according to Forbes:

Bottom Line:  So yesterday we received the overall college rankings for 2014-2015.  I have the direct link to the widget on yesterday’s Cheat Sheet so you can find your school’s ranking.  Florida based colleges didn’t fare so well overall.  The University of Florida was the only school in the top 100 & it was #87.  But we Forbes ranked college based on value for the outcome…  That tells a much different story for UF. 

Here are the top 5 non-military colleges ranked by value: 

  • #5 University of North Carolina
  • #3 BYU (Idaho)
  • #2 University of Wyoming
  • #1 BYU

So why did I skip #4?

The University of Florida ranks as the 4th best overall value when factoring in the cost vs. outcomes of a college education.  So if you want a balance of value and performance for your college education you need not travel farther than Gainesville. 

Audio Report:


Why job growth still doesn't seem to translate into a better overall recovery: 

Bottom Line:  Every so often I caution against looking at certain economic numbers in vacuum.  In other words, if the unemployment is x, it’s good or bad.  Too often though that’s the case.  All jobs are naturally not created equally right?  For example a full-time advanced level job is significantly more value than a part-time entry level job.  Yet most in the media, many mindless economists and politicians will rhetorically treat them all the same.  So where am I going with this?

Digging into the growth we’ve had most recently and ever since mid-2010 – there has been a consistent trend.  Part-time jobs are a much bigger part of the job growth story than full-time employment. 

  • Prior to the Great Recession about 13% of all US jobs were part-time
  • As of right now 19-20% all US jobs are part-time

And that figure is still growing.  It’s the largest percentage of part-time jobs that we’ve ever had.  That’s why better job growth isn’t translating into what feels like a much better economy on the ground level.  It always like demonstrates the chilling impact that the ACA has had on full-time employment as many employers have opted to hire multiple part-time positions rather than fewer full-time positions to be able to avoid ACA mandates on employers. 

Audio Report:


The best solution to date for password protection will be available for the next generation iPhone:

Bottom Line:  So imagine if all you needed to login into any of your accounts using a mobile device was your finger print touching the screen of your device?  It looks like we’re about their.  The leading password storage company, 1password is saying that Apple is allowing them to interface with their fingerprint technology for the next generation iOS 8.  Here’s what it means to you.  For any username and password stored with 1password, you’ll be able to simply touch your screen and 1password will auto import that information into the app or website.  Very cool & secure!  More to come, I’ll keep you posted. 

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