Market Risk, Volatility, Growth

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Investors are four long month away from the market volatility and meltdown experienced by investors in late December 2018. During the market upheaval, prognosticators were predicting the death of the bull market, the end of global economic growth and the advent of recession in the U.S. and globally.

In short, the bears were out of their hiding place to proclaim that the financial sky was falling and that public companies would experience an earnings recession that would drive U.S. equity markets down more than ten percent from their September 2018 highs.

Granted, the U.S. equity markets did experience a significant correction that spooked even the most seasoned investors in December, the Chinese and European Union economies were were showing signs stagnation, and calendar year fourth quarter U.S. GDP grew 2.2 percent annualized. 

Today, the financial horizon reveals a much more positive disposition. U.S. public corporations first quarter 2019 earnings are beating analyst expectations, Chinese economy has appeared to bottom and is showing signs of recovery, and Europe has apparently stabilized despite negative central bank interest rates. And, on top of the many positive indicators, the U.S. Federal Reserve has adopted an accommodating policy of pausing federal fund interest rates hikes and tightening the monetary supply.

My late April 2019, the U.S. equity markets (S&P 500 and Nasdaq) have achieved new all time closing highs and the Dow Jones is within striking distance of its all time high.. Fear of missing out of the market steady rise is bringing those investor that have been sitting on the sidelines back into the market.

Believing the equity markets will continue its steady rise has investors chasing hot technology stocks and driving up the prices of recent IPO’s. Recently, Jamie Dimon, the CEO of JPMorgan Chase, was reported as stating that he believes the U.S. economy is okay citing strong corporate balance sheets, positive consumer confidence and rising income.

With all the positive news economic and equity market news, investors should exercise caution and always consider equity risk before jumping back into the revved up markets because of the fear of missing out and chasing hot technology stocks. This course of action rarely bodes well for impatient and exuberant investors. 

The Best Way to Bankroll Your Kids—Without Ruining Your Retirement – Barron’s

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For the best after-tax returns, investments with the biggest tax consequences should be sheltered in tax-deferred accounts such as a 401(k) or IRA. Among these are corporate bonds, bond mutual funds, and REITs, whose income is subject to income tax rates of up to 37%. Other good candidates for tax-deferred accounts are investments that generate short-term capital gains, such as actively traded stocks. Gains are considered short term if they’re realized within 12 months, and are taxed up to the 37% income tax rate.

Meanwhile, taxable accounts should hold the most tax-efficient investments, such as tax-exempt municipal bonds and separately managed investment accounts in which a manager actively harvests losses to offset gains and minimize taxes. Other investments in this camp include stocks held for the long term and mutual funds with low turnover rates, such as stock index funds.

— Read on www.barrons.com/articles/the-best-way-to-bankroll-your-kidswithout-ruining-your-retirement-51553287755

States Experiencing Excess Tax Revenues

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On CNBC Power Lunch, the commentators reported that several U.S. states are experiencing a problem of excess tax revenue, which all agreed is a great problem to have.  They also reported that the states’ dilemma is what to do with the excess collected tax revenue.  While some states have decided to give the excess back to tax payers in the form of a rebate; others have decided to reduce tax rates to their respective state’s taxpayers.

Another option states have employed is to add to their respective ‘rainy day fund’ that increases their dry powder for the inevitable economic downturn.

With a growing U.S. economy hovering about three (3) percent, high employment rates creating more taxpayers and all time highs in U.S. equity markets creating capital gains, states are reaping the benefits of record high inflows of tax revenues.

Investment Strategy for the Future

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While attending a recent wine tasting featuring several wines from the Tuscan region of Italy, the conversation around the table drifted towards investing for retirement.  During the table talk, someone shared that they had recently met with their financial adviser to reallocate their retirement portfolio into less risky securities such as U.S. Treasuries and corporate bonds.

Given today’s interests rates and relatively low coupon rates on most Treasury and corporate bonds, my initial reaction was that moving assets out of equities and into bonds may prove less than a wise move depending on ones short and long term goals.

The volatility the U.S. equity markets experience in late December 2018 was frightening for both smart money and retail investors.  When financial pundits and business media were proclaiming the end of the bull market and the advent of global economic recession, it is understandable why many investors “threw in the proverbial towel” and reduced their exposure to U.S. equities.

Dependent on ones short and long term goals, abandoning equities in ones portfolio of investments may be an incorrect move. If ones long term goal is to save for retirement in ten or more years, time in and staying invested in the equity market remains the best investment strategy for achieving above average returns while realizing below average risks.

Bottom line, to achieve one long term financial goals of retirement, time in the market is paramount.  From my humble viewpoint, reallocating one’s portfolio to lower return securities puts an investor at a greater risk of not meeting their long term retirement goals.

 

Stop Losing Money!

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The first rule of saving and investing is to stop losing money and end bad spending habits.

It is imperative to stop doing the old, ineffective things. An investor must first identify what is no longer working and secondly, stop doing what is no longer working.

It is the presence of the of old bad habits that keeps savers from experiencing new positive financial behaviors.

Retirement Planning

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It’s not retirement planning. It’s life (financial, physical and emotional health) planning.

For many people, retirement is a reward for decades of daily work—a time to relax, explore, and enjoy the life they dreamed. For others, though, retirement can be a frustrating period marked by loss of identity provided by the workplace, declining health and increasing financial, physical and emotional limitations.

Once upon a time, the decision to retire was easy for most Americans and, in many cases it was encouraged. At some time between age 62 and age 66, often at age 65 which corresponds with Medicare eligibility, Americans pilled the plug and retired from the workforce. We retired with Social Security benefits, a healthy pension, and some form of employer-paid health insurance. The question was not whether we would retire by age 66, but when between age 62 and age 66.

Today, for most working men and women, the decision of when to retire from the workforce is more complicated and more difficult. For many, the question is not when to retire, but whether traditional retirement is feasible at all. 

Planning for Retirement

Life is ten percent what happens to you and ninety percent how you respond to it.  – Lou Holtz

While Individuals increasingly have to take responsibility for their financial security during retirement, the majority of Americans do not appear to have done much retirement planning. Forty-one percent of respondents to a FINRA Foundation survey have tried to figure out how much they need to save for retirement, while 54% have not. The act of planning for retirement is a strong positive indicator of retirement wealth. 

Recognizing that many Americans are not familiar with the technical terms and distinctions used to describe various types of retirement plans, the FINRA Foundation survey employs plain-language questions to assess whether respondents have a retirement plan through an employer, and if so, which type (specifically, a defined benefit plan or a defined contribution plan, such as a 401(k)). In addition, the survey asks whether individuals have retirement accounts they set up on their own, such as an Individual Retirement Account (IRA), Keogh Plan, SEP, or other type of retirement account. More than half of all non-retired respondents (58%) have some kind of retirement account, either employer-based (for example, 401(k) or pension) or independent (for example, IRA). Despite a decades long bull market, GDP and the considerable improvement in Americans’ ability to make ends meet relative to 2009, the percentages of those who have planned for retirement or have a retirement account have not shifted much over the past decade.

Source:  The State of U.S. Financial Capability: The 2018 National Financial Capability Study, FINRA Foundation page 17

Additionally. U.S. Census Bureau data show an upward trend over the past 20 years in the percentage of men and women who remain in the workforce over the age of 65. For example, in 2008, 72 percent of employed men age 65 to 69 were working full-time, compared with 57 percent in 1995 and 56 percent in 1990, an astonishing difference. 

Source:  (http://aging.senate.gov/crs/pension34.pdf)Cdc-pdfExternal.

As contributing factors, economists cite a decline in traditional pension plans, a drop in the percentage of employers that offer retiree health benefits, and the impact of the economic upheaval on individuals’ and families’ financial security. Retiring on a nest egg and a fixed income becomes increasingly less desirable when the nest egg is cracked, retirement benefits are calculated in large part on Social Security, and the prospect of medical bills looms. 

Source: Howard, John, M.D., Director, NIOSH, From the Director’s Desk: The Gold Watch Decision, Volume 8 Number 6 October 2010. 

People are supposed to relax when they retire, not worry about financial problems. They are suppose to kick back and enjoy life since everyday should feel like a Saturday during retirement, and for the first time, they are supposedly in control of their day-to-day leisure and non-leisure activities. 

Unfortunately, Studies show that millions of retirees turn to alcohol for relief from boredom, a limited lifestyle and loneliness, but there are better ways to “living the dream” lifestyles retirees desire than through booze and drugs.   

Additionally, there are no guarantees with your physical or emotional health, just as there are no guarantees with your wealth.  But, you can stack the odds in your favor by making sacrifices today that are worth the potential gains in the long term.

A survey conducted by Fidelity Investments in collaboration with the Stanford Center on Longevity 1 provided several significant insights regarding why people decide to retire from the workforce.  While financial and work-related factors were many of the primary reasons people continued to work, with the age of eligibility for to start receiving Medicare and Social Security benefits standing as key factors, the survey also finds that it’s often nonfinancial factors like family, health, and lifestyle that ultimately cause people to pull the plug to retire. 

Among retirees, 72% chose leisure as a reason to retire, 64% pointed to wanting to escape the stress at work, and 62% cited a desire to spend more time with family and grandchildren, if they had them.  

One additional reason people decide to retire, especially for those living in metro Atlanta, site frustration with Atlanta’s infamous traffic congestion and the desire to escape the daily grind of the morning and afternoon commutes.

And, there are shifts in Americans’ values as they near retirement. Many Americans seem to desire freedom over money. They value spending time where it matters most to them and look forward to the freedom that retirement brings such as spending time with their family, volunteering or doing hobbies they enjoy. The ultimate objective is to trade job stress for leisurely interests.

Footnote 1:  The Fidelity Investments Decision to Retire research represents insights from a series of in-depth interviews conducted in Boston, Chicago, and San Francisco and from an online survey of more than 12,000 defined contribution plan participants record kept by Fidelity, ranging in age from 55 to 80 across all industries and income levels, who felt they had some control over their decision to retire. The research was completed in 2015 by Greenwald & Associates, Inc., an independent third-party research firm. Fidelity also worked in collaboration with the Stanford Center on Longevity on the study.