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Category: Wisdom

The Anatomy of the Index

Did you know that nearly $10 trillion in assets are benchmarked to the Standard & Poor’s 500 Composite Index, including about $3.5 trillion in index assets?[i]

 

The S&P 500 is ubiquitous. It is constantly referenced in financial and non-financial media, and we may compare the return of our own investments to its performance. As the index represents approximately 80% of the value of the U.S. equity market (or in financialese, about 80% of market capitalization), it may be worthwhile to gain a better understanding of its structure and workings.1

 

Breaking down the benchmark. The S&P 500, as we know it today, was introduced in March 1957. It tracks the market value of about 500 large firms that are listed on the Nasdaq Composite and the New York Stock Exchange. The S&P is structured to include companies from across the sectors of the business community, in an effort to represent the breadth of the U.S. economy.1,[ii]

There are a number of criteria a company must meet to be considered for inclusion in the index. A firm must be a U.S. company publicly listed on a major equity market exchange, have a market capitalization of $6.1 billion or more, and have at least 250,000 of its shares traded in each of the six months prior to its consideration for index membership by Standard & Poor’s. A company must also be financially viable: the ratio of its annual dollar value traded to its float-adjusted market cap must be greater than 1.0.[iii]

 

The S&P has changed over time. Companies have been gradually removed and added over the past 60-odd years. At the benchmark’s fiftieth anniversary in 2007, just 86 of the original components remained. Subsequent mergers and acquisitions have reduced that number further.3

Right now, about 20% of the weight of the S&P is held in ten companies, and the performance of tech shares influences the benchmark’s return, perhaps more than any other factor.3

The index has been altered through the years in response to changes in the economy. Across several decades, the makeup of the index’s various sectors has differed, along with their weightings. This leads to frequent updates for the equity funds that aim to replicate the index; in order to maintain that replication, they may quickly need to buy or sell shares of corporations that are being added or removed.3

It should be noted that investors cannot invest directly in an index. Also, index performance is not indicative of the past performance of a particular investment, and past performance does not guarantee future results. Investment choices designed to replicate any index may not perfectly track it, and their returns will be reduced by fees and expenses.

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

 

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://us.spindices.com/indices/equity/sp-500

[ii] https://www.investopedia.com/ask/answers/041015/what-history-sp-500.asp

[iii] https://www.fool.com/investing/2018/07/10/7-fascinating-facts-about-the-broad-based-sp-500.aspx

Putting a Price Tag on Your Health

We constantly hear how important it is to maintain a healthy lifestyle. That is not always easy, especially in the face of temptation or the easy option of procrastination. For some, the monetary benefits of maintaining a healthy lifestyle may provide an incentive.

 

Being healthy not only makes you feel good, it may also help you financially. For example, a recent Johns Hopkins Bloomberg School of Public Health study determined that a 40-year-old who simply moves from being obese to overweight could save an average of $18,262 in health care costs over the rest of his or her lifetime. If that person maintains a healthy weight, the average potential savings increase to $31,447.[i]

 

If you’re wondering how your health habits might be affecting your bottom line, consider the following:

Regular preventative care can help reduce potential healthcare costs. Even minor illnesses can lead to missed work, missed opportunities, and potentially lost wages. Serious illnesses often involve major costs like hospital stays, medical equipment, and doctor’s fees. Preventative dentistry may help you reduce dental costs as well.

 

In a way, staying healthy helps our potential to save for retirement. If your health declines to the point where you cannot work, that hurts your income and your ability to contribute to retirement accounts. The threat is real: the Social Security Administration notes that a quarter of us will become disabled at some point during our working years.[ii]

 

Higher weight seems to be a factor in overall health care costs for many. Ask the Centers for Disease Control and Prevention; they note that per-year health care expenses are about 41% higher ($4,870) for an obese individual than for a person of normal weight ($3,400). The biggest factor in this difference: prescription drug costs.[iii]

 

Some habits that lead to poor health can be expensive in themselves. Smoking is the classic example. A pack of cigarettes costs anywhere from $5-14, which means ballpark expenses of $2,000-5,000 or more a year in expenses for a pack-a-day smoker. Smokers also pay higher premiums for health, disability, and life insurance.[iv]

 

By focusing on your health, eliminating harmful habits, and employing preventative care, you may be able to improve your self-confidence and quality of life. You may also be able to reduce expenses, enjoy more of your money, and boost your overall financial health.

 

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.bankrate.com/banking/savings/healthier-lifestyle-can-save-you-money/

[ii] https://www.cnbc.com/2018/11/11/protect-yourself-from-a-career-derailment-that-trips-up-1-in-4-workers.html

[iii] https://abcnews.go.com/Health/Healthday/story?id=8184975&page=1

[iv] https://money.usnews.com/money/personal-finance/family-finance/articles/the-real-cost-of-smoking

Help Reach your 2019 Financial Resolutions

The start of the new year always seems to represent new beginnings. It’s a time to remake our priorities and to reimagine our futures. Although the calendar may not recognize its significance, our humanity marks the passing of the old year with poignancy.

We awaken to the opportunities that surely await us—just over the proverbial horizon. We may suppress our yearnings, but, nonetheless, we lay our hopes on the promise that the new year will be different, more fulfilling, more exciting, more focused. We’ll achieve our goals in the new year.

Never mind the statistics about short-lived New Year’s resolve. We are beginning again. Putting the missteps and misgivings aside, we take aim. The more daring and adventuresome among us, emboldened by even greater prospects ahead, develop resolutions—or at least we aspire to do so.

So, how do you develop sound, achievable New Year’s resolutions, especially those involving your finances? And why are they so important?

Here are five tips about goals and resolutions:[I]

  1. Successful resolutions should be constructed with goals. And goals should include benchmarks or steps, each leading you closer to fulfilling your resolution.
  2. Your brain speaks the language of resolutions. Your brain instinctively performs executive functions, which draw you closer and closer to what you resolve.
  3. Goals provide focus. They give you direction and vision. You have a place to go. Goals give clarity to your resolutions.
  4. Goals provide purpose. You know what you want, you make resolutions, and goals provide the catalyst.
  5. Goals make you feel good, so say neuroscientists who study the brain’s emotional circuits.

Setting New Year’s resolutions can be easy and fun, and lead to some exciting changes in your life. Making your goals, based on your resolutions, become reality requires a few steps.[i]

  • Keep them short and easy. Create achievable resolutions. Setting Herculean goals will only set you up for failure.
  • Take it easy. Do one behavioral change at a time. Replacing unhealthy behaviors that have developed over a lifetime may take time.
  • Share your aspirations. When you discuss your resolutions with your family and friends, you create a kind of support (or accountability) group. You may have others wanting to join you in your pursuits. Going to the gym. Saving money. Investing. The more who are signed on, the more likely you (and they) are to achieve the goals.
  • Get help. You may want to adjust your resolutions along the way, making them more challenging or, on the other hand, more realistic. And if you get overwhelmed, seek advice from a trusted friend or a professional. They may give you all the encouragement you need at the time. Financial professionals can provide invaluable guidance to pursuing your goals.

Developing goals to achieve your New Year’s resolutions can be challenging. A goal, technically, differs from a resolution. Goals help you produce the desired results in your life.[i] Resolutions are designed to bring change to aspects of your life: health, diet, finance, behavior. Goals provide the stepping stones to achieving your resolution.

Resolutions are the “what.” Goals are the “how.” And your dreams are the “why.”

Here are some principles to help you to develop your goals:[ii]

Develop goals that inspire and motivate you. Think about what and why something is important to you. Your goals should have a sense of urgency to them. You simply must achieve them.

Put it in writing. Writing out your goals reinforces your commitment. Use strong command words like “will” or “shall.” Don’t use “would like to” or “might.” The weaker words convey hesitation and doubt. Goal setting is as much mental as physical.

Develop a plan. Although the idea of achieving a goal may excite, you can’t ignore the journey, your action plan. Write down the steps to achieve your goal (which brings you closer to your New Year’s resolution), and cross off the steps as you complete them.

Stay at it. Don’t give up. Goal setting involves dedication. Remind yourself regularly to keep on track. Monitor your plan and look forward to achieving each of your goals. Keep yourself motivated. One day you’ll be able to look back with pride at achieving your dream.

As you look forward to the promise of a new and better year, we encourage you to develop resolutions and to stay focused on your plan. We are available and ready to help you with pursuing your financial goals and creating your happy financial future. 800.929.1001

From all of us at CapSouth, have a happy, healthy, and fulfilling New Year!

[i] http://www.differencebetween.info/difference-between-goal-and-resolution

[ii] https://www.mindtools.com/pages/article/newHTE_90.htm

[i] https://www.apa.org/helpcenter/resolution.aspx

[i] https://www.psychologytoday.com/us/blog/smashing-the-brainblocks/201512/8-reasons-we-really-do-need-make-resolutions

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