@dasnoozegk Warren Buffett #markets #money #stocktok #stocks #wallstreet #gk
Category Archives: Building Wealth
The Federal Reserve indicated it would continue raising interest rates in an effort to cool inflation, but also said it was worried that if rates were tightened too much it would hurt the economy. https://t.co/pwkCoR8ZnJ
— Barron's (@barronsonline) August 18, 2022
Inflation and Political Silly Season
40-year record high inflation of 9.1% is driving up the price of everything from gas to groceries, according to a recent Bureau of Labor Statistics report.
The consumer price index was unchanged in July, the first month without an increase since May 2020. But, this does not suggest that the inflation problem has gone away, despite political wishful thinking, states Brian Wesbury, Chief Economist, First Trust.
This Week's Monday Morning Outlook – "Silly Season" – https://t.co/pXgMO89Olf
— Brian Wesbury (@wesbury) August 15, 2022
Energy prices surged 7.5% in June and then dropped 4.6% in July. That’s what you really need to know about inflation in the past two months. As a result, overall consumer prices soared 1.3% in June and then were unchanged in July. But a new inflation trend this doesn’t make. Looking at both June and July, combined, consumer prices rose at an annualized 8.1% rate. That is no different at all than the 8.1% annualized increase in April and May, before the extra surge in energy prices in June then the drop in July.
Some 96% of global economists said they expect the U.S. to face “high” or “very high” levels of inflation for the rest of the calendar year, according to a World Economic Forum (WEF) report. Inflation refers to when prices for consumers increase, thus driving down the purchasing power of consumers’ money.
If you look at the unchanged CPI in July and think the Federal Reserve is nearly done, you’re in for a big surprise, says Wesbury. The Fed isn’t close to done. Yes, the inflation rate likely peaked at 9.1% in June. But getting from 9.1% down to the 5 – 6% range by sometime next year is the relatively easy part. Getting from there back down near the Fed’s 2.0% target is the hard part. Rents have been increasing rapidly around the country and we don’t see that ending anytime soon, which will make it very tough for the Fed to reach its stated goal.
And, it’s delusional to think that the officially-called “Inflation Reduction Act” is actually going to reduce inflation. Inflation is a monetary phenomenon; the bill passed by the Democrat controlled Congress isn’t going to have any noticeable short-term impact on inflation.
Bottomline, regardless of political affiliations, the economy continues to grow and inflation remains a very serious problem. “Investors need to set aside their personal political preferences and follow economic reports as they are, not as they want them to be,” writes Wesbury.
Timeless Investing Lessons
“It is near impossible to consistently outperform the market, which supports passive investing in lieu of active management strategies.” ~ Burton G. Malkiel
- Buy and hold investments for the long-term. Investment expenses and taxes will eat away at your returns. It’s impossible to perfectly time the market. You will make mistakes. Buying total market index fund will include buying nonprofitable companis in the mix. And, historical analysis shows:
- When markets are high is when most people put money into the market.
- When markets are low is when most people take money out of the market.
- Timing the market doesn’t work. Timing the market means selling assets at the top of the market and buying the asset at the bottom of the market. Successfully trying to time the stock market has never earned. Thus, you should not try to time the market.
- Dollar cost averaging. DCA means putting money into the market regularly overtime.
- Broad Diversification. You do not want all your personal capital and savings invested in a single stock or a single asset class, such as stocks only. You should diversify your investment across different asset classes (stocks and bonds), industries and countries. You want to own both domestic and foreign stocks, bonds, real estate and some cash.
- Cost matters. The two variable costs you can control are investment costs and taxes. Jack Bogle said, “you get what you don’t pay for.” Since, the lower the expense ratio the investor pays the purveyor of investment services, the more capital that is left over for the investor. Look carefully at the expense ratio.
- Index funds. Buy a total market index fund with zero or low expenses. Two-thirds of active investment managers are beaten by stock index funds annually. Ninety percent of active investment managers are beaten by stock index funds over a ten year period.
- Buy bond substitutes instead of total bond index fund such as preferred stocks or high yielding dividend paying established companies.
- Rebalance annually or at least bi-annually. This requires you to sale highly appreciated assets to buy assets that have not appreciated greatly or are on sale.
These are just a few timeless investing lessons that invest can follow to build wealth
References:
Quote of the Day
“A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.” ~ Burton G. Malkiel, Professor of Economics, Emeritus, Princeton University
Too Much Free Money in the Economy
“The way to think about it is there’s not going to be a lot of relief on inflation because if we pump another $600 billion free cash, which is basically what ‘The Inflation Reduction Act’ is, into the market after putting $6 trillion of free money in — there’s a reason we have inflation. We just print too much money.” Kevin O’Leary, Shark Tank
Key Points:
- Federal government is printing too much free money
- Supply chain is still broken
- Perpetual Inflation – Inflation will continue around 6% to 8% due to increased demand and loss of purchasing power.
Adding more money to an already inflated economy won’t bode well for Americans and their families, O’Leary argued. The Inflation Reduction Act won’t help the U.S. with its ongoing labor shortage, as the labor force participation rate sits at 62.2%, a slight tick downward from the prior month. There are nearly twice as many job openings in the U.S. as there are unemployed people. “Part of that is a result of just giving free money to everybody all of the time and saying, ‘Look, stay at home. Stay on your sofa,'” O’Leary said.
Reference:
Measuring Inflation
The consumer-price index reached 9.1%, its fastest pace in nearly 41 years, as strong consumer demand collides with supply shortages. ~ Wall Street Journal
U.S. inflation accelerated to a 9.1% annual rate in June, its fastest pace in nearly 41 years. Consumers are seeing prices rise sharply for a variety of goods and services as strong demand collides with persistent supply shortages.
Inflation is one of the most vexing issues facing economists and government policy makers, and is a factor raising the risk of U.S. recession.
The current bout of inflation has several causes, many linked to the pandemic. For one, consumers have been flush with savings from government stimulus programs, leading them to open the spigot for goods that are in scarce supply.
Supply-chain disruptions have also persisted across the global economy, with Russia’s invasion of Ukraine and Covid-19 cases in China adding additional pressures. Energy prices have gone up sharply.
Fewer workers are in the labor market, encouraging those who are working to demand raises. And low interest rates from the Federal Reserve have made borrowing cheaper, making big purchases more attractive. The Fed is now moving rapidly to make borrowing more expensive, using the central bank’s primary tool of raising rates.
Inflation reflects the broad rise of prices or the fall in the value of money. It generally results from too much demand chasing too few goods or limited services, leading to broad price increases.
To measure inflation, Labor Department’s consumer-price index, or CPI, has become the established benchmark. It is calculated using a survey of households and only covers spending on goods and services. It excludes expenditures that aren’t paid for directly, such as medical care paid for by a person’s health insurance. Its limited set of expenditures can make CPI more volatile.
The personal-consumption-expenditures price index, or PCE, takes into account a broader range of expenditures—and feedback from businesses—to provide a more expansive picture of price changes. This inflation reading is the Federal Reserve’s preferred measurement. The Commerce Department releases its PCE estimate monthly as part of its income and spending report.
Ref:
Commit to Building Wealth
“Change your mindset and change your life.”
If you think you can improve your financial situation, you’ll do exactly that.
“Change your mindset around wealth,” said Mandi Woodruff-Santos, co-host of the “Brown Ambition” podcast. “Tell yourself it’s possible to build wealth, that you can learn anything, and that you can do it! Once you begin to internalize your ability to build wealth, it makes it easier to take the steps needed to increase your earnings, start investing and learn along the way.”
It’s important to realize that no one is going to change your life for you. you must make the decision to learn, to grow, and to improve your life. The most important thing is that you get started!
There are five areas to work on in order to create the most efficient and effective change to your mindset – Your beliefs, fears, perspective, self-talk, and support.
CHALLENGE YOUR LIMITING BELIEFS
Limiting beliefs are the stories we tell ourselves about who we really are: shy, overweight, undeserving of love or success. But, they can be replaced with empowering beliefs.
Nearly everyone has some measure of limiting beliefs that prevent them from realizing their dreams and achieving great milestones. Those who are able to challenge and overcome them go on to achieve their goals. Those who don’t continue to live in negative patterns – and often don’t even realize it.
By rebuilding a positive set of habits, we are able to reach new levels of success* in all aspects of our lives.
FACE YOUR FEARS
When we have identified and gotten honest with ourselves about our belief system, we can then go deeper by really examining our fears. When we examine our fears, we ask ourselves questions like; what is the surface level fear? Where is it coming from? Is it a real or perceived fear? What is the underlying fear? What can I do to change my experience of it? And other such questions.
Fear is a destructive emotion; we often carry fears that we don’t need to. Overcoming your fears is a major step toward how to change your mindset for success.
SHIFT YOUR PERSPECTIVE
Learning how to change your mindset can seem overwhelming, but it doesn’t have to be. Sometimes all it takes to change your mindset forever is the smallest shift in the way you see the world. One choice that we can easily make is the meaning that we give to our experiences. Tony Robbins says, “Nothing in life has any meaning except the meaning I give it.” Do we see challenges as obstacles – or as opportunities?
When we start to make changes to our perspectives, we consider things like; how am I responding to situations? What am I doing, what am I thinking, what meaning am I giving things that I experience? When it comes to our perspectives a small shift with massive results.
CHANGE YOUR SELF-TALK
When you’re thinking about how to change your mindset, do you find yourself mired in negative thoughts? If you do, focus on your language to change your mindset. Change your self-talk starting with how you begin your day. If you plant positive language in your head at the beginning of the day, you’ll feel more energetic. You might find it effective to make a mantra for yourself, depending on how you’re feeling.
Change your mantra as often as you need to, in order to maximize your own power. In addition, remember that it’s okay to need to correct your course many times during the day.
To keep your positivity flowing, surround yourself with people whose mindsets reflect where you want to be. And remember, setbacks are normal. Bounce back from setbacks by reminding yourself why you want to change.
GET SUPPORT
Find some like-minded people whom you can share your experiences with, learn, and grow together.
These days it is pretty easy to find a group or forum online though you might need to try a few before you find a community that really resonates for you. In time many of the people in your life will see you grow and change and want to know more but for now, just find a few people who want to create change in their mindset (or have already done so) and enjoy the process!
References:
Taxes are Your Largest Expense
“Taxes are your largest single expense.” ~ Robert Kiyosaki
Total taxes are by far and away the largest expense that most households face on an annual basis. Total taxes are levied on income, payroll, Social Security, Medicare, property, real estate, sales, alcohol, gasoline, capital gains, dividends, imports, estates and gifts, as well as various other fees such as vehicle tags and driver license. It’s important for Americans to understand that income taxes, sales, Social Security and a myriad of other taxes and fees dramatically reduce your discretionary net income.
The average American household spends anywhere between 25-50 percent of their life working just to pay the diversity of taxes. That means that more than three to six months out of every year are spent working solely to pay your local, state and federal taxes and fees.
Effectively, all levels of government in the U.S. (federal, state, county, city/local) confiscate nearly half of the average household’s income every year, and yet they still cannot balance the national budget and always seem to need more money.
How much is enough when nearly half of the productive effort of the nation is taxed and used unproductively.
Your total tax rate, the one which actually matters the most to you includes more than just income. And these insidious taxes grow in size and quantity every year.
Total taxes are by far the single largest expense that you will pay every year. And, you can’t escape taxes, so the best thing you can do is learn how to better manage your taxes burden and understand how federal , state and local tax laws and regulations can work in your favor.
References:
Dow Jones Industrial Average
The Dow Jones is a terrible measure of the U.S. economy
Created by Charles Dow in 1896, the Dow Jones Industrial Average was intended to act as a “proxy for the broader U.S. economy.” Currently, it’s purpose is to provide a big-picture view of whether stock prices are generally moving up, down, or sideways from moment to moment, and by how much.
For the past 126 years, the Dow Jones Industrial Average (DJIA) has served as a barometer of the stock market’s health. The index is composed of 30 highly profitable, multinational companies.
In many respects, the Dow Jones is home to mature and generally slower-growing businesses. Although, “mature” businesses can make patient investors wealthier and long-term investors financially independent.
All components of the DJIA are household names like Johnson & Johnson (JNJ), Coca-Cola (KO), Disney (DIS), and Microsoft (MSFT).
Dow Is Weighted
The DJIA is price-weighted. Rather than using a simple arithmetic average and dividing by the number of stocks in the average, the Dow Divisor is used.
This divisor smooths out the effects of stock splits and dividends. The DJIA, therefore, is affected only by changes in the stock prices, so companies with a higher share price or a more extreme price movement have a greater effect on the Dow.
Many financial pundits argue that the DJIA has lost its relevance as a barometer of U.S. stocks. the Dow is deeply flawed. Professor Jeremy J. Siegel at the Wharton School summed it up. Today, no one would build a stock market index that contains only 30 companies, with some sectors of industry completely excluded (like utilities). Worse, the index is weighted by share price instead of market capitalization, which means one company, Boeing, has a wildly outsized sway on the entire stock market.
Yet, DJIA continues to serve as a market and economic indicator. As long as it contains the stocks of companies that reflect the major industrial areas of the U.S. economy during any given period, this 30-stock index will likely remain the standard of financial indicators.
References: