It’s important to know where you stand before moving forward with planning decisions.
FIDELITY VIEWPOINTS – 09/30/2019
Key takeaways
Understanding your current financial position can provide a solid foundation for your financial planning process.
Knowing how much you spend and save can provide some key insights into your financial health.
It is also important to review some of the basics of financial planning, like your insurance, college savings, will, and more.
When you start a financial planning process, you usually begin with the goal or the problem you are trying to solve. Then, you take a deep look at your financial wellbeing. It’s a bit like getting a physical for your finances.
You will review some financial vital signs—key indicators of your financial health—and then take a careful look at key planning areas to make sure some common mistakes don’t trip you up.
What is Inflation? Inflation is the rate of increase in goods and services. According to Wikipedia, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.
This could be the first year ever where stocks, bonds, gold and crude oil all returned double digits, according to LPL Financial.
The S&P 500 has returned nearly 22% in 2019 while gold and crude are sporting returns of 16.1% and 17.8%, respectively. Treasuries are right on the cusp, with the the 10-year Treasury note up more than 9%
Through Wednesday’s close, just 75 stocks in the S&P 500 were down for the year while 361 were up at least 10%.
Assets have gotten a boost from lower Federal Reserve rates as well as generally strong consumer spending.
Failure is as powerful a tool as any in reaching great success.
“Failure and defeat are life’s greatest teachers [but] sadly, most people, and particularly conservative corporate cultures, don’t want to go there,” says Ralph Heath, managing partner of Synergy Leadership Group and author of Celebrating Failure: The Power of Taking Risks, Making Mistakes and Thinking Big.
In today’s post-recession economy, some employers are no longer shying away from failure—they’re embracing it. According to a recent article in BusinessWeek, many companies are deliberately seeking out those with track records reflecting both failure and success, believing that those who have been in the trenches, survived battle and come out on the other side have irreplaceable experience and perseverance.
“The quickest road to success is to possess an attitude toward failure of ‘no fear.’ ”
They’re veterans of failure. The prevailing school of thought in progressive companies—such as Intuit, Corning and Virgin Atlantic—is that great success depends on great risk, and failure is simply a common byproduct. Executives of such organizations don’t mourn their mistakes but instead parlay them into future gains.
“The quickest road to success is to possess an attitude toward failure of ‘no fear,’ ” says Heath. “To do their work well, to be successful and to keep their companies competitive, leaders and workers on the front lines need to stick their necks out a mile every day.
Embrace failure as a necessary step to unprecedented success.
Many young American adults seemingly believe that capitalism is failing to lift the economic boats of a majority of its citizens. They believe that it is only benefiting the wealthiest Americans, the top one percent. Theses young American adults are beginning to listen to socialist leaning politicians, and embrace their philosophy and beliefs of socialism.
“Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery”.— Winston Churchill
However, socialism is not the solution to American’s woes of unequal sharing of economic prosperity and vast unequal distribution of wealth. Americans only have to look in its own Western Hemisphere backyard at the failed economies of Cuba and Venezuela for glaring examples of socialism grandiose failures. In both countries, socialism proved once again that its “…inherent virtue is the equal sharing of misery”. They stand as reminders just like the economies of the former Soviet Union and East Germany, and the pre-capitalist economy of People’s Republic of China of last century prove that socialism simply does not work.
Winston Churchill once said: “No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time.” And, capitalism is a lot like democracy, it’s the worst form of economic system except all those other economic systems that have been tried from time to time, according to John Hope Bryant on CNBC Morning Squawk.
“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” -Winston Churchill
Former Prime Minister Churchill further stated that “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” In socialist countries, government officials seize and exercise central control of the means of productions and take ownership or embezzled most of their society’s wealth.
In 2019 America, the country must find someway for all Americans, not just the wealthy and political elite, to share in the nation’s prosperity brought about by capitalist economy.
Don’t let the constant flow of predictions and prognostications about the markets and the economy—no matter how prescient they may seem—divert you from a comprehensive plan designed to achieve success over the long term.
If you’ve ever been inclined to try to improve your retirement prospects by closely tracking the financial news and then shifting your strategy to stay a step ahead of the market’s twists and turns, 2016 seemed to provide a bounty of opportunities.
Those who start businesses later in life have a better chance of reaching success: Studies have shown that if you’re over 55 years old, you are twice as likely as your counterparts who are under 35 to launch a high-growth startup.
A 2016 study from the National Capability Study by the FINRA estimated that nearly two-thirds of Americans couldn’t pass a basic financial literacy test, meaning they got fewer than four answers correct on a five-question quiz. What can be concluded from the study is that Americans demonstrate relatively low levels of financial literacy and have difficulty applying financial decision-making skills to real life situations.
Financial literacy is about money management. And, managing money is a lacking skillset of most Americans. A significant part of money management is the ability to make ends meet through spending less than you earn and possessing adequate savings. Individuals who are not balancing monthly income and expenses are not saving and thus may find themselves struggling to make ends meet.
Personal finance expert Manisha Thakor, founder of MoneyZen Wealth Management, emphasized that it is important to learn to live within your means — making sure that no matter what your income is you have something leftover to set aside for savings and investing, and that you are not carrying credit card or consumer debt. Make sure that your mortgage, car loan, and student loan are the only types of debt you carry.
If you’re not saving and have not created an emergency fund, it’s a sign that you’re not living within your means and that you are spending more than you earn. For every year that you work, she advises that an individual should strive to fund a year of retirement. In an ideal world, people would be saving 10, 15, 20 percent of their earned income.
Living below ones means and agreesively saving is key for working adults to not engage in lifestyle creep. As your income goes up, temptation escalates to live larger and spend more. It’s not always frivolous or non-essential spending that is the culprit. Oftentimes the frivolous spending can be on children or what one deems essential for an upgraded lifestyle.
Individuals should commit to viewing money as something much bigger than just a tool, but as a means to an end. Give money purpose or make it a means to achievimg long term goals and aspirations, such as buying a home, saving for retirement or sending a kid to college.
Ms. Thakor states that people must view money as part of creating a desirable “financial well-being” — an aspect of well-being that individuals grow and nurture the way they would spiritual well-being, physical well-being, and emotional well-being throughout their lives.
Please understand that risk and security are fundamental personal finance concepts. Regarding risk, according to Ms. Thakor, there are three components to risk: one’s willingness, one’s ability, and one’s need.
Willingness means being able to “sleep well at night”. As an investor, do you have the “psychological predisposition” toward taking risk or not?
Ability is “a function of an investor’s age and the stability of their income”. If they are a very young director of sales, they have a much higher capacity to take risk than a 60-year-old retiree.
The final piece is need. “An individual should not take more risk than they need.” One should know the “least amount of risk that they need to assume” in order to realize their long term goals.
It is important to appreciate that much of the America’s personal finance industry, which we will call Wall Street, is geared towards getting the retail investor, which we will call Main Street, to take on more risk because it generates more fees and revenue for Wall Street. Essentially, in the American culture, there exist a paradigm toward growing for growth’s sake. And, as individual retail investors, there is no good reason to blindly follow the crowd.
A recent survey conducted by UBS found that only 23% of women globally take charge of long-term financial-planning decisions. And it isn’t a generational problem: 56% of women aged 20 to 34 defer to their spouse compared with 54% of women over 51 years of age.
A report from the Financial Industry Regulatory Authority suggests that women’s financial understanding is going in the wrong direction, too. Baby boomer and Generation X women revealed higher levels of financial literacy than millennial women based on a five-question quiz.
JP Morgan (JPM) released its quarterlyearnings yesterday beating The Street estimates.
During the earnings call, JPM Chief Executive Officer Jamie Dimon commented that, “the consumer remains healthy with growth in wages and spending, combined with strong balance sheets and low unemployment levels.” He also indicated that economic growth appears to be in slowing and U.S. – China tensions continue to be a drag on growth. (https://bit.ly/2ML9qO6)
CEO Dimon’s positive view of the U.S. economy and consumer stands in sharp contrast to the prevailing mood on both Wall Street and Main Street regarding the immediate future and direction of the U.S. economy. Many individuals in the financial industry and also retail investors are skittish and fleeing from growth to safety in their investment portfolios.
The proverbial elephant in the room is whether the economy is headed into a recession the business cycle that is long in the tooth. According to CEO Dimon, there will be a recession sometime in the the future, but probably not in calendar year 2020 or the next six to eighteen months.
