Inflation and Purchasing Power of the Dollar

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There is an extremely important concept that concerns the value of a dollar today versus tomorrow. Over time, inflation erodes the worth of money, so that a given amount buys less in the future than it can today.  When inflation is high, it erodes purchasing power, meaning your income must be greater to keep pace with rising prices and maintain a desirable lifestyle. The opposite is also true: A low-inflation environment, like the current one, puts less pressure on income.

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Consequently, you want your sources of income to regularly exceed, or at least keep pace with, the rate of inflation—something the S&P 500 has been doing for the better part of five years.

Investors who hold cash or cash equivalents should not feel comfortable. They may have opted for a less riskier short-term investment, but have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value over the long-term.

When you are planning for the future, you are examining dollars over numerous time periods. To compare them, you need to put them on an equal purchasing-power footing, so they are all in equivalent dollar terms.

One approach, the equal footing will be the purchasing power of today’s dollars—that is, dollar amounts will always be stated in terms of today’s dollar equivalent.

Emergency Savings

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Emergencies Do Happen

When things are going well financially and monthly bills are being paid, emergency savings can seem unimportant. But in addition to your regularly occurring expenses, like mortgage payments and utility bills, individuals often might deal with major unexpected costs such as car repair or medical bills.

Emergencies, by their nature, are unpredictable. When they happen, they can derail your financial stability. A sudden illness or accident, unexpected job loss, or even a surprise home or car repair can devastate your family’s day-to-day cash flow if you aren’t prepared. While emergencies can’t always be avoided, having an emergency fund can take some of the financial sting out of dealing with these unexpected events.

An emergency fund are savings used to cover or offset the expense of an unforeseen situation. It shouldn’t be considered a nest egg or calculated as part of a long-term savings plan for college tuition, a new car, or a vacation. Instead, this fund serves as a safety net, only to be tapped when financial crises occur.

Reasons why emergency savings are important:

  • Being prepared – Issues like car or home appliance repair are common occurrences. However, since they do not happen regularly, people often overlook these costs as they create a budget. By anticipating these costs, you can be prepared for these potentially expensive items.
  • Avoiding debt – Emergency savings give you the option of dealing with the unexpected without having to take on debt. Without the cushion of emergency savings, you may be unable to pay regular bills if you face an emergency, and are more likely to take on debt.
  • Having peace of mind – Having emergency savings will give you peace of mind. Even if you can’t save much, a little money set aside may make a big difference when you need it and reduce stress. Emergency savings give you the option of dealing with the unexpected without having to take on debt. Without the cushion of emergency savings, you may be unable to pay regular bills if you face an emergency, and are more likely to take on debt.

Emergency savings can help you handle unexpected events. With money set aside for emergencies like unexpected car repairs or sudden job loss, you can better take care of yourself and your family financially.

But saving anything, even small amounts, can prove helpful. Aim to set aside 3-6 months of expenses in your emergency savings fund, but with a start smaller amount if necessary. It may take months or years to build a sufficient emergency savings fund, so don’t worry if progress seems slow. Just keep at it! Since, emergencies do happen when least expected and often at the most inopportune time.

Tap your emergency savings only for expenses directly related to an unexpected emergency.

It is important to tap your emergency savings only for expenses directly related to an unexpected emergency. And when you do have to take money from this fund, it’s important to immediately start rebuilding it.

If you start saving now, the money you save today can go a long way towards meeting your needs when the next emergency occurs.

Source: Building Emergency Savings, UMBC

3 moves for catching up on retirement savings | MassMutual

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In order to have a decent shot at maintaining your standard of living in retirement, you should have six to nine times your salary tucked away in a 401(k) or other savings accounts by your mid-50s to early 60s.

“That’s as good a general rule of thumb as any, but most people don’t come close to that, and some don’t have anything saved,” said retirement expert Mary Beth Franklin, a Certified Financial Planner® and contributing editor at InvestmentNews, in an interview.

Indeed, in a 2014 national poll conducted by Bankrate, more than a quarter of survey respondents aged 50 to 64 said they had not started saving for retirement.1

Granted, it’s never too late to start saving for retirement, but let’s not sugarcoat this. “At this stage of the game, you would need to save 40 percent of your income to reach the equivalent of what you would have had, had you started saving just 10 percent of your income in your 20s,” said Liz Weston, a columnist with NerdWallet, a personal finance site.
— Read on blog.massmutual.com/post/retirement-savings-catch-up

Individual Retirement Accounts

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The Traditional IRA and the Roth IRA offer ways to save for retirement, although each offers different benefits and advantages.

The Traditional IRA allows an individual with earned income to take a tax deduction for dollars contributed (if income falls below a certain threshold), and the growth in the account is tax deferred. When distributions are taken from a Traditional IRA, they are taxed as ordinary income. If one chooses not to take distributions from an IRA after reaching 59½, the IRS will force distributions to be taken at age 70½. These are known as required minimum distributions (RMDs) and are based on the presumable retiree’s life expectancy.

The Roth IRA was established as an account into which after-tax dollars are invested. While the Roth gives no tax deduction on the front end, the growth—and eventual distribution—is federal tax-free. The Roth IRA allows one to take out 100% of contributions at any time for any reason with no taxes or penalties. It is only the growth on which one must wait until the age of 59½ to draw penalty-free. There is also a 5-year aging period, which means that a payment made from a Roth IRA account is considered a qualified distribution if it is made after a 5-year period, beginning with the first taxable year after which a contribution to the Roth IRA occurs.

  • Traditional and Roth IRAs: The annual contribution limit for traditional and Roth IRAs is $6,000 total across both account types for those under the age of 50 and $7,000 for people 50 and over. Tax deductions for traditional IRA contributions begin to phase out at certain income levels if you or your spouse has a workplace retirement plan. You’ll lose your deduction entirely once your income is too high, but you can still make nondeductible contributions. The amount you can contribute to a Roth IRA declines once your income hits a certain threshold, and you can’t contribute at all once your income hits $137,000 if filing singly, $203,000 if married filing jointly, or $10,000 if married filing separately.
  • SEP IRAs: The annual contribution limit for a SEP IRA is 25% of up to $280,000 in compensation or 25% of net self-employment earnings (self-employment income minus SEP contributions and 1/2 of self-employment tax). Only employers can make contributions (you’re counted as an employer if you run your own business). The total maximum annual contribution is $56,000.
  • SIMPLE IRAs: The annual contribution limit is $13,000 for a SIMPLE IRA or $16,000 if you’re over 50. Employers can contribute 2% of compensation or can match contributions you make up to a maximum of 3% of compensation. You can open a SIMPLE IRA if you are self-employed or run your own business and can contribute as both employee and employer.

China’s Seven Deadly Trade Sins

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China has not been partners in good faith in trade and economic negotiations. They’re an authoritative Communist Dictatorship that enslaves it citizens for the empowerment of the Party

The U.S. and the Western multinational enterprises have enabled and fueled China’s extraordinary quarter century economic and global geopolitical growth. While the U.S. goal is Free Trade, Individual Freedom and Democratic Capitalism. U.S. companies are getting fed up with the force technology transfer by companies doing business in China and the Chinese firms exporting and selling those products in the U.S. market.

China’s Seven Deadly Sins

1. Stop stealing Western intellectual property,

2. Stop forcing technology transfers,

3. Stop hacking U.S. computers,

4. Stop dumping into U.S. and Western markets and putting our companies out of business,

5. Stop state-owned enterprises from heavy subsidies,

6. Stop the importation of fentanyl, and

7. Stop the currency manipulation

They’ve reneged on the Hong Kong autonomy agreement, they reneged on the agreement signed in the Oval Office with President Obama regarding the militarization of the South China Sea. In 2015, China’s President Xi stood with President Obama in the Rose Garden at the White House and promised (lied) that “there is no intention to militarize” a collection of disputed reefs in the South China Sea known as the Spratlys.

President Obama stated on his way to the 2016 G20 Summit in Hangzhou China. That “If you sign a treaty that calls for international arbitration around maritime issues, the fact that you’re bigger than the Philippines or Vietnam or other countries … is not a reason for you to go around and flex your muscles,” Obama added, according to Reuters. “You’ve got to abide by international law.”

Military analysts have criticized President Barack Obama’s administration for having been too timid in countering China aggression and militarization in the South China Sea. Critics, for instance, have faulted the previous administration for not conducting more frequent freedom of navigation patrols. “China’s militarization of the South China Sea has been a gradual process,

Source: https://www.nytimes.com/2018/09/20/world/asia/south-china-sea-navy.html

The Beginner’s Guide to Intermittent Fasting

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The quote below from Dr. Michael Eades, who has tried intermittent fasting himself, on the difference between trying a diet and trying intermittent fasting.

“Diets are easy in the contemplation, difficult in the execution. Intermittent fasting is just the opposite — it’s difficult in the contemplation but easy in the execution.

Most of us have contemplated going on a diet. When we find a diet that appeals to us, it seems as if it will be a breeze to do. But when we get into the nitty gritty of it, it becomes tough. For example, I stay on a low–carb diet almost all the time. But if I think about going on a low–fat diet, it looks easy. I think about bagels, whole wheat bread and jelly, mashed potatoes, corn, bananas by the dozen, etc. — all of which sound appealing. But were I to embark on such a low–fat diet I would soon tire of it and wish I could have meat and eggs. So a diet is easy in contemplation, but not so easy in the long–term execution.

Intermittent fasting is hard in the contemplation, of that there is no doubt. “You go without food for 24 hours?” people would ask, incredulously when we explained what we were doing. “I could never do that.” But once started, it’s a snap. No worries about what and where to eat for one or two out of the three meals per day. It’s a great liberation. Your food expenditures plummet. And you’re not particularly hungry. … Although it’s tough to overcome the idea of going without food, once you begin the regimen, nothing could be easier.”

— Dr. Michael Eades

— Read on jamesclear.com/the-beginners-guide-to-intermittent-fasting

Beta

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Beta is an assessment of a stock’s tendency to undergo price changes, or its volatility, as well as its potential returns compared to a market benchmark.

Beta measures how volatile a stock’s price may be in relation to a market benchmark, such as S&P 500. Beta relies on past stock price information and past stock price performance is never a guarantee of stock performance in the future.

A good beta calculation requires that the benchmark must be as related to the stock as possible.

A stock with a beta greater than 1 may indicate that it’s more volatile than the market benchmark. This could also mean it has the potential for stronger returns. Stocks with a high beta are more prone to swings than the market benchmark and can have greater returns than the market average. Conversely, stocks with a high beta also mean that they are riskier investments.

A stock with a beta equal to 1 assumes its price moves hand-in-hand with the market benchmark.

A stock with a beta between zero and one means that they are less volatile than the overall market. This means that the stock is less excitable than the average market. Such stocks can be reliable investments, because they are unlikely to generate losses, but they also won’t create significant gains. Low stock beta scores are common for investments like utilities.

Betas below zero or negative indicate that the stock may respond in the opposite direction of the overall market. Investors should expect the stock’s price to go up if the market benchmark goes down and vice versa.

A beta of zero suggests that a stock acts independently of the overall stock market.

Beta can be a useful metric to determine how a stock’s price may move in relation to the overall market by examining its past performance. It can also be a useful indicator of risk.

30 Examples of 30-Day Challenges That Will Change Your Life | Psychology Today

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You can do anything for 30 days. And you just might find that one month is enough to inspire you to change your life permanently.

When it comes to self-improvement, two of the biggest stumbling blocks people encounter are a lack of motivation to get started and a fear that a goal will be too overwhelming.

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30-day challenges is a way to help people tackle both of those issues. For 30 days. People design their own challenge.

Thirty-day challenges feel doable—you can do almost anything for 30 days. You can also use a 30-day challenge as an experiment. If it enhances your life, you’ll create momentum that motivates you to create more positive change.

— Read on www.psychologytoday.com/us/blog/what-mentally-strong-people-dont-do/201811/30-examples-30-day-challenges-will-change-your-life

Financial Advisors: Here’s How Market Volatility Impacts Investor Psychology

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Humans either think that they’re in charge of what happens in their life, or they believe that life happens to them. Those who believe they’re in control of their life and its outcomes have an internal locus of control.

Having an internal locus of control tend to be associated with higher wealth, and because these people are more likely to take responsibility for the outcomes in their life. Additionally, the top one-percenters are also more likely to believe in their own abilities to solve problems and achieve goals, make better investment decisions and react more calmly when volatility strikes.

Having an external locus, however, is associated with self-destructive financial behaviors.

Financial advisors can help clients move to a more centered approach by asking thoughtful questions about past financial decisions, and can assist in determining where a client’s locus of control lies.

— Read on finance.yahoo.com/news/how-to-advise-your-clients-when-volatility-strikes-163641016.html