Category Archives: Investing

Grow Your Retirement Savings to Keep Up With Inflation- Ticker Tape

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Source: TD Ameritrade’s The Ticker Tape

— Read on tickertape.tdameritrade.com/retirement/your-retirement-savings-plan-inflation-15452

Key Takeaways

  • Understand if your assets are keeping pace with inflation and cost of living increases
  • Consider how even an “average” rate of inflation can cut into your retirement savings
  • Take a look at some saving and investing suggestions that might help you combat inflation
  • Most of us probably strived for better-than-average grades at school and better-than-average salaries at work. That being the case, it’s kind of surprising that so many investors seem to be comfortable having “average” retirement savings for their age.

Unfortunately, if your savings are just “average,” they probably aren’t going to account for inflation and cost of living increases both before and during retirement. The hard truth is that even after you retire, your assets will need to grow quicker just to keep up with higher prices.

Retirement Concern: How to Alleviate Four Common Fears for Retirees

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Source: TD Ameritrade’s The Ticker Tape 

https://tickertape.tdameritrade.com/retirement/reduce-common-retirement-concerns-fears-17461

1. Investment Loss

One of the biggest financial fears retirees may have is investment loss. Because the markets move cyclically, there’s a good chance you’ll experience a market downturn during retirement. This can be doubly painful if you’re a retiree, because you have little choice but to sell at a loss for the capital you need. For retirees this is called “sequence of return risk,” because withdrawing investments in a down or declining market may cause you to liquidate too many shares, which then leaves fewer shares to grow when the market bounces back.

2. Running Out of Money

When you’re younger, a market decline can be weathered in multiple ways: perhaps by saving more, working longer, getting a second job, or just waiting it out because you won’t need to use your savings for years. But once you’re close to or in retirement, running out of money becomes a serious concern. Few people would want to go back to work at age 95 because they ran out of money. Fortunately, the flooring strategy helps here too. Lifetime income means just that: an income stream that’ll last no matter how long you live. By deploying annuities and other lifetime income strategically—just to meet your essential expenses—you can cover basic needs and avoid becoming a burden to your kids or others.

3. Major Health Event

As we get older, it’s common to see an increased need for health care. It’s natural, as a retiree, to worry about a major health event that can set you back financially. But it’s possible to prepare to some degree for such events.

4. Inflationary Effects

Inflation is sometimes considered the “quiet killer” of retirement. Over time, prices rise, making your money less valuable. A dollar today is worth more than a dollar tomorrow. Keeping up with inflation is an important part of retirement planning.

Planning Matters

One of the best things you can do for yourself is to plan ahead. Meet with a retirement specialist to create a plan that might help you avoid unpleasant surprises in the future. The earlier you start, the more likely you are to avoid the common fears faced by retirees. Having a plan in place and making consistent contributions to a retirement portfolio can go a long way.

 

A Rich Life – HumbleDollar

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A Rich Life – HumbleDollar
— Read on humbledollar.com/2019/09/a-rich-life/

Frugality is about avoiding spending on things that have little value.

Affluence is about having things that truly matter.

It’s possible to strike a balance, so you’re frugal and affluent at the same time.

Track your expenses, ruthlessly reducing or eliminating spending that has little meaningful value. This will help you spend more on things you find truly rewarding. It doesn’t take a supersized income, financial windfalls, unsustainable self-deprivation, extraordinary luck or investment genius to become affluent.

Even if you have none of these, but you have frugality, financial success is all but inevitable.

Volatility Index (VIX)

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What is volatility?

Volatility measures the frequency and magnitude of price movements, both up and down, that a financial instrument, sich as stocks or options, experiences over a certain period of time. The more dramatic the price swings in that instrument, the higher the level of volatility.

Volatility can be measured using actual historical price changes (realized volatility) or it can be a measure of expected future volatility that is implied by option prices.

Volatility Index, more commonly known as the VIX is an index that measures anticipated volatility in stocks over the next 30 days. It does so by looking at activity in the market for puts and calls — derivatives that allow someone to bet on the direction of a particular stock or index over a given set of time in the future.

The VIX Index is a measure of expected future volatility. The Cboe Volatility Index® (VIX® Index) is a leading measure of market expectations of near-term volatility conveyed by S&P 500 Index® (SPX) option prices. Since its introduction in 1993, the VIX® Index has been considered by many to be the barometer of investor sentiment and market volatility. It gauges market risk based on investor sentiment about stocks listed on the S&P 500.

The lower the VIX, the lower the expected volatility, and vice versa.

The VIX is a measure of the implied volatility from option prices on the stock market.It has been dubbed the “fear gauge” by financial journalists for its famed ability to track market sentiment.

Mis-pricing of Volatility. One flaw with the Black-Scholes pricing model is the assumption that Volatility is known and fixed. Volatility in itself is volatile.

If you think Volatility will rise, you should buy options. If you think Volatility will fall, you should sell options.

The VIX was like the secret sauce that livened up an ordinary dish. The VIX was able to capture the way that risk appetite fluctuated in the financial system. Risk-taking depends on leverage, and if the financial system as a whole goes through a period of ample funding liquidity, even thinly capitalised banks can borrow on easy terms. Since banks borrow in order to lend, easier borrowing conditions translate into easier lending conditions, reinforcing the  already easy financial conditions.

By the nature of the interactions between liquidity conditions and leverage, the boom phase rides an apparent virtuous circle of greater leverage and easier liquidity. The VIX index was capable of capturing such shifts in sentiment.

U.S. Dollar’s Role in the Global Economy

The U.S. Dollar is a better gauge of risk in the global financial system than the so-called “Fear Gauge” – the CBOE Volatility Index (VIX). As long the U.S. Dollar remains stable then the financial markets should remain calm. But if the U.S. Dollar rises, it creates risks to the global economy that are not captured by the VIX index.

To understand the role of the U.S. dollar in the global economy since WWII, the dollar has been at the center of the global economy serving as the “reserve” currency. Reserve currency status is both a burden and a privilege. It means that most currencies, commodities and debt are priced in U.S. dollars. It also serves as a reference currency for the majority of global trade. For a country, company or individual that does not hold U.S. Dollars they must first buy dollars before they can buy the raw materials needed to produce their product.

Talking the Economy into Recession

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In the past four to six weeks, the financial forecasters and entertainment media hosts have been stoking fears of recession occurring in the next twelve to eighteen months. Additionally, numerous financial TV hosts and commentators have performed a Paul Revere like “recession is coming” warning (e.g., “Recession Countdown Clock) despite existing strong fundamentals of the U.S. economy. Essentially, they’re following the standard news media mantra that “if it bleeds (economy perceived to be falling into recession), it leads”.

Whether recession becomes the top trending financial search engine topic or fanned by the hysterical coverage by the financial entertainment media, Americans are succumbing to worry about recession. As a result, they are behaving and taking action that may be detrimental to their long term financial goals and health. Several reports indicated that investors have been moving from equities to less riskier asset classes of bonds, cash and cash equivalents.

Recently, a financial pundit commented that we’re in a peculiar environment of increased U.S. recession fears in the midst of a fundamentally strong economy. Anecdotally, the growing recession fears are due to the near constant media coverage about recession. This recession talk persist despite the strong economic fundamentals, an economy that is still growing, and a strong labor market and consumer spending. The pundit also commented when such dichotomous conditions are present, there are always opportunities present for the savvy and patient investor.

Bottom line, the U.S. economy remains strong and is still growing, but the rate of economic growth is slowing (decelerating growth). Labor market remains healthy and the consumer is spending. The uncertainty of the trade turmoil has caused a slowdown in capital expenditures and business investment. One question disturbing economists is whether businesses have slowdown on hiring due to economic uncertainty. And, finally, Americans are working and Americans are getting paid, according to the August 2019 Payroll numbers.

What Is Financial Health? – Morningstar Blog

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When evaluating a client’s “financial health,” advisors should take into account both economic stability and emotional well-being.

Emotional health is wreaking havoc on their finances. Some clients may be financially well-off, but so fearful of making a wrong choice that they don’t make any, leaving their wealth to slowly erode in cash accounts. Then there are clients who spend too freely, choosing blissful ignorance about potential damage to their bottom line.

Neither of these types of clients are financially healthy—regardless of wealth—because an individual’s attitude toward finances is just as essential to overall health as it is to the economic aspects of one’s life. In fact, the American Psychological Association  reports that money is continually one of the top sources of stress in U.S. households, regardless of the economic climate. 

It’s time to redefine the term “financial health” so it includes both a person’s economic stability and emotional well-being around his finances.  

— Read on www.morningstar.com/blog/2019/04/11/financial-health.html

U.S. Recession has Already Started

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BNN Bloomberg

Published on Jun 17, 2019
There has been growing concern over the state of the global economy. David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, thinks the U.S. recession has already started.
An anomaly continues in the market. Bond yields, a “safe haven” asset, have been falling while stocks have been rising. “We all have to make up our minds as to which of these two asset classes has the right story,” Rosenberg indicated.

Citi Personal Wealth Management — Mid-Year Outlook 2019:  Hope and Fear

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Summary:  After a strong start to the year, financial markets are now being driven by both hope and fear. Hope that the U.S. can reach bi-lateral trade deals with key trading partners (China, Europe, Japan, etc.) and fear that the global economy may slow in the absence of such deals.

The global economy remains on solid footing, but faces downside risks. Citi’s economists are looking for global growth of about 2.9% year-on-year in both 2019 and 2020. However, global trade war simulations suggest that global growth could slow to a rate of 2.0% year-on-year in just 12-months’ time if trade tensions escalate on a broad scale. Under such a scenario, global growth forecasts for 2020 would be lowered dramatically.

We think that the bull market remains intact, but are recommending a more cautious stance over the near-term. While underweight U.S. stocks for now, Citi’s mid-year 2020 S&P 500 target of 3,000 still presents upside from today’s levels. Globally, Citi’s bear market checklists are signaling some caution, but are not yet worrisome. As such, Citi’s global equity strategy team thinks that global equities can return an additional 13% over the next two years.

A dramatic shift from the Federal Reserve helped to boost stocks in the first part of 2019. After once predicting three rate hikes in 2019, the Fed is now signaling that it may be willing to cut rates if the U.S. economy were to weaken due to trade tensions. However, monetary policy often operates with a significant lag and may not be sufficient to offset the immediate impact of tariffs. Our fixed income preferences remain geared towards U.S. Treasuries and short- and intermediate-duration corporate debt.

https://marketinsights.citi.com/marketoutlook/2019-hope-and-fear/

Negative Interest Rates And The Future Of Investing: MARKET COMMENTARY – Charles Schwab

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https://client.schwab.com/secure/cc/guidance/insights/content/negative-interest-rates-and-future-investing

Key Points:
Over 20 years ago the Bank of Japan first cut interest rates to zero, a policy adopted in both the U.S. and Europe a decade later during the financial crisis.

Japanese investors have become more attracted to stocks as stocks’ dividend yields rose relative to bond yields.

Investors’ increasing focus on income may lead to long-term shifts in portfolios that favor international stocks.

Dividend yield table

 

What Is Financial Health? – Morningstar Blog

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Economic stability is only part of reaching financial health 

What is financial health? The topic usually brings to mind only a person’s monetary wealth, but, as many advisors know, even the wealthy can suffer because of their finances. For example, consider the client who has more than enough financial resources to last the rest of his life, but gets anxious about even the smallest splurge. A standard financial algorithm would classify this type of client as being in excellent financial health, since he possesses enough material wealth to withstand any reasonable economic shock. Yet, this finance-related anxiety can ultimately mean his quality of life is quite low.
— Read on www.morningstar.com/blog/2019/04/11/financial-health.html