The S&P 500’s Valuation In The Age of Coronavirus

Even though the price of the S&P 500 Index has fallen from the 3,300 level just a few months ago to 2,472 at the time of writing, for a 25% decline since the outbreak of COVID-19 has gripped the global economy, I do not believe that investors can conclude that the S&P 500 is now “on sale.” 

When someone buys a share in an S&P 500 Index fund, paying $24.72 (or 247.20, or even $2,472 depending on the scaling), they are buying an asset that consists of America’s largest publicly traded companies that earns $1.33 per share. In other words, the S&P 500 is trading at 18.5x the most recent twelve months of earnings. 

That is still above the S&P 500’s historical valuation of 15x earnings. In other words, for investors to obtain the 10% annual returns that are often discussed as the historical returns of the stock market, the … Read the rest of this article!

Charles Schwab’s Insurance Policy For Accounts Exceeding $500,000

In a sign of the times, a few readers have contacted me over the past months asking what you’re supposed to do when your brokerage account balance exceeds $500,000 and the amount of your account is no longer covered by SIPC insurance.

As many of you know, the federal government is the first backstop against institutional failure. You got $75,000 in a bank account, and the bank goes under? No problem. You’re covered up to at least $250,000. Got $125,000 sitting in a credit union somewhere? No problem. NCUA insurance has you covered for at least $250,000. And because credit unions have no shareholders, the risk of institutional failure is minimal because the credit union is run to benefit the lives of depositors and other customers whereas banks have to charge higher fees to make a profit for shareholders. Plus, there is the prospect of demutualization. Every now and then, … Read the rest of this article!