Dividend Growth

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“One common trap that dividend investors can fall into is chasing stocks with high yields when they should be buying dividend growth stocks that can promise years of steady income raises.” ~ Dan Burrows, Senior Investing Writer, Kiplinger.com

Over the last few years when non-dividend paying growth stocks were delivering significant double-digit gains in the span of months, it was easy to ignore the benefits of equity income, writes Stephen Dover, CFA, Chief Market Strategist, Franklin Templeton Institute. Today, given rising interest rates, slowing growth and heightened volatility, the role of dividends is changing amid a more challenging environment for multiple expansion.

Over the long-term, dividends have proven to be a significant driver of total return. Over the last 31 years, spanning January 1990 through December 2021, the receipt and reinvestment of dividends accounted for about 50% of the cumulative total return of the S&P 500 Index, according to Franklin Templeton. In addition, dividend growers, proxied by the S&P 500 Quality High Dividend Index, have outperformed their value and growth counterparts over the more than two decades since 1995.

Dividend payouts can act as a useful quality barometer. A solid track record of growing dividends consistently and sustainably over an extended period of time is typically seen as a signal of healthy company fundamentals, astute and efficient capital allocation and a firm commitment to shareholder value.

Dividend payouts are often cut during periods of grave economic stress, particularly in the most vulnerable companies.

  • Dividends offer evidence of financial strength. Historically companies that initiated or increased their dividend have significantly outperformed those that cut or don’t pay a dividend.
  • Often, stocks with the highest dividend yields come from companies whose market prices have fallen, indicating stress.

In the U.S., 242 companies cut or suspended dividends, according to Capital Group. This number of dividend cuts and suspension nearly match the total for the previous 11 years combined.

After historic cuts, some U.S. companies are restoring dividends

Source: Wolfe Research, LLC. Copyright © Wolfe Research, LLC 2021. All rights reserved. Only companies with market cap of at least $250 million included. Reinstated dividends statistic is through 5/31/21.

But the picture is improving. With the rollout of COVID-19 vaccines and the reopening of economies, many U.S. companies have begun to resume payments.

Many investors, when they search for dividend paying stocks, tend to start with companies that pay the highest dividend yields. These companies can be sound investments, but the high yield can also be a warning sign. “Companies that have very high dividends to start may not be able to sustain them,” Joyce Gordon, Capital Group equity portfolio manager, notes. “The high yield may indicate a company is a melting ice cube, and their business is in decline and they’re not reinvesting.”

Gordon says that dividend growing stocks represent a compelling value for investors. “I look for companies that are yielding around 2.5% to 3.0%, and that are growing their dividends and earnings around 10% or 12% a year. Today I am finding a number of companies that meet that criteria across a wide range of sectors and global markets.”

The best dividend stocks – companies that raise their payouts like clockwork decade after decade – can produce superior total returns (price plus dividends) over the long run, even if they sport apparently ho-hum yields to begin with.

Dividend growers are strong companies that are likely to be even stronger in five or 10 years. “I look for a company that can demonstrate the capacity and commitment to raise its dividends over time,” Gordon says. “I look for dividend growth that matches the underlying earnings growth of the company.”

Dividend growers historically have tended to generate greater returns than other dividend strategies, while also keeping up relatively well with the broader market. People assume that growth companies far outpaced dividend paying stocks over the past decade, and that’s true when you look at the highest yielding stocks. But dividend growers did nearly as well as the overall market.

By providing a growing stream of income, dividend growth can be a sign of company executive management’s more rigorous capital allocation process. “Because they are committed to setting aside some proportion of their earnings for investors, they tend to have better discipline and may be less likely to make some ill-advised acquisition,” Gordon says.

Because it is reflective of growing earnings, dividend growth can also offer a measure of resilience against interest rate hikes, Gordon adds.

Reinvested dividends. The power of reinvested dividends

One company that has consistently grown its dividends is McDonald’s. To get a sense of how regularly reinvesting dividend payments can compound over time, consider a hypothetical $100,000 investment in the company for the 20 years from December 31, 2000, through December 31, 2020, with all dividends reinvested.

Sources: Capital Group, FactSet. Growth rate calculations for value of shares from reinvested dividends and dividends paid use the first year’s dividends payment ($676) as a starting value.

Reinvested dividends tend to provide a downside cushion for total returns during periods of modest capital gains. The 2000s—the “lost decade” for stocks—is a crucial case-in-point. While the S&P 500 delivered annualized total returns of -0.95% in the 10 years from January 2000 through December 2009, the figure would have been worse had dividends been removed from the calculation. Annualized price return for the index in the 2000s averaged -2.72% versus dividends, which provided 1.77% annualized return over the 10-year period.

Using the power of the compounding of re-invested dividends is a good way to build real wealth, simply. Albert Einstein has called compound interest the “Eighth Wonder of the World,” since the power of compounding can be a wonder to behold. The magic of compounding, as Ben Franklin famously said, “Money makes money. And the money that money makes, makes money.”

“Compound interest is the Eighth Wonder of the World. He who understands it, earns it. He who doesn’t pays it” ~ Albert Einstein

Compound interest or “interest on interest” is effectively what compound interest is for investors. “Interest on Interest” or “dividends on dividends” is why the compounding effect on dividend reinvestment creates wealth. The longer you reinvest the dividends, the more dividends you receive because you own more shares. And the cycle continues as long as the investor stay invested in the market and reinvests his/her dividends.

S&P 500 Dividend Aristocrats.

The objective is to find companies that are growing their dividends faster than the market average over time. The Dividend Aristocrats are companies in the S&P 500 Index that have raised their payouts for at least 25 consecutive years. This list of the S&P 500’s best dividend stocks is a mix of household names and more obscure firms, but they all play key roles in the American economy. And although they’re scattered across pretty much every sector of the market, they do all share one thing in common: a commitment to reliable and long-term dividend growth.

References:

  1. https://www.capitalgroup.com/advisor/insights/articles/dividend-growth-special-sauce-long-term-investing.html
  2. https://www.franklintempleton.com/articles/strategist-views/the-case-for-dividends
  3. https://www.kiplinger.com/investing/stocks/dividend-stocks/604131/best-dividend-stocks-you-can-count-on-in-2022
  4. https://www.wealthplicity.com/investing-strategy/stocks-and-equities/the-power-of-compounding-dividend/

All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested.

U.S. 10 Year Treasury Note

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The benchmark 10-year yield matters to financial markets because it informs prices for everything from mortgages to corporate debt. Higher borrowing costs can slam the brakes on economic activity, even provoking a recession.

The 10-year treasury bond is a debt instrument issued by the government of the United States. As its name implies, it matures in ten years. Over the course of that time, investors holding 10-year treasury notes, earn yields. The 10-year T-notes are issued at a face value of $1,000, and a coupon.

The Coupon is the nominal or stated rate of interest on the 10-year Treasury Note. This is the annual interest rate paid by the U.S. government, based on the note’s face value. These interest payments are made semiannually. 

The 10-year Treasury Note is also an economic indicator. Its yield provides information about investor confidence. While historical yield ranges do not appear wide, any basis point movement is a signal to the market. The 10-year treasury note is the gold standard of interest rates. Nearly every United States lending institution derives its interest rates by benchmarking the 10-year treasury note. This makes it both a powerful investment tool and a financial barometer for evaluating other types of investments—including debt securities. 

There are many factors that affect the 10-year yield, the most substantial being investor sentiment. When investors have high confidence in the markets and believe they can profit outside of Treasury securities, the yield will rise as the price falls. This sentiment is determined by both the individual investor and investors as a whole, and can be based on any number of factors such as economic stability, geopolitical fluctuations, war, black swan events and more.

The 10-year treasury note is both a powerful investment tool and a financial barometer for evaluating other types of investments—including debt securities. 

If bond investors think the economy will do better in the next decade, they will require a higher yield to keep their money socked away. When there is a lot of uncertainty, they don’t need much return to keep their money safe. Usually, investors don’t need much return to keep their money tied up for only short periods of time, and they need a lot more to keep it tied up for longer.

Treasury yields change every day because they are resold on the secondary market. Hardly anyone keeps them for the full term. If bond prices drop, it means that demand for Treasurys has fallen, as well. That drives yields up as investors require more return for their investments.

Thus, on the secondary bond market, when there’s a bull equity market or the economy is in the expansion phase of the business cycle, there are plenty of other favorable investments. Investors are looking for more return than a 10-year Treasury note will give. As a result, there’s not a lot of demand. Bidders are only willing to pay less than the face value. When that happens, the yield is higher. Treasurys are sold at a discount, so there is a greater return on the investment.

The 10-year Treasury note yield is also the benchmark that guides other interest rates. As yields on the 10-year Treasury notes rise, so do the interest rates on other types of debt instruments like fixed-rate mortgages. Investors who buy bonds are looking for the best rate with the lowest return. If the rate on the Treasury note drops, then the rates on other, less safe investments can also fall and remain competitive.

10-year bond yields provide insight into a number of interrelated variables, including bond prices, mortgage rates, investor confidence, and more. This means that Treasury yields can provide insight into upcoming market conditions, or otherwise reflect current investor sentiment.

This all begs the question, what do the currently elevated 10-year Treasury yields say about the state of the economy.

Rising yields in particular present a uniquely terrifying possibility to investors. Should the yield grow too high, the stage could be set for a substantial stock market selloff as investors instead funnel their money into safer Treasurys. This could spell the end of whatever bull market Americans have been enjoying.

With that said, historically troublesome 10-year yield rates are closer to the 3% to 4% psychological level. But the above 4.0% yield currently in play is actually not as troublesome as one might have anticipated.

Depending on inflation expectations, the point where investors begin to look at Treasurys as a substitute for stocks will change. Should investors expect more inflation, which, despite the Fed’s plan is still the general consensus, the yield may have to hit 4% to present a comparable threat to the markets.

There may not exist a static roadmap for understanding 10-year Treasury yields, as they themselves are dynamic. Understanding the role Treasurys play in reflecting economic expectations and investor sentiment can dramatically enhance your understanding of financial markets, and facilitate better decisions for your portfolio.

Government bonds are the safest, because they are guaranteed. Since they’re the safest, they offer the lowest returns. U.S. Treasury notes and bonds are the most popular.

The 10-year Treasury yield is used to determine investor confidence in the markets. It moves to the inverse of the price of the 10-year Treasury note and is considered one of the safest—if lowest returning—investments that can be made. Although the investment is guaranteed by the U.S. government, investors could still lose money if inflation outpaces the 10-year yield.

The 10-year Treasury note is worth paying attention to as a key metric for tracking other interest rates. Use it as a barometer for understanding why other debt securities behave the way they do.

You can learn a lot about where the economy is in the business cycle by looking at the 10-year U.S. Treasury note. It indicates how much return investors need to tie up their money for 10 years.

References:

  1. https://www.thebalancemoney.com/10-year-treasury-note-3305795
  2. https://investorplace.com/2022/02/10-year-treasury-yields-today-what-to-know-as-yields-continue-climb-above-1-9/
  3. https://investmentu.com/what-is-a-10-year-treasury-note/

Credit Score

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Credit scores are mathematical formulas that help lenders determine how likely you are to pay back a loan. Credit scores:

  • Range from 300 to 850.
  • Are not based on your income.

Here’s a breakdown of all the factors that affect your scores, according to Nerd Wallet:

Payment history. Your credit reports reveal your payment history, or whether you’ve consistently paid bills and other obligations on time. FICO says payment history accounts for 35% of your score. Paying bills late by 30 days or more can dent your scores — and the later you pay, the greater the damage.

Credit utilization The amount of your credit limit you use, expressed as a percentage, is called credit utilization. FICO says the amount of available credit you use counts for 30% of your score.

Other credit score factors you should know about

Other credit factors that also affect your scores include:

  • The length of time you’ve had credit: Longer is better, so keep old accounts open unless there is a compelling reason to close them, such as an annual fee on a card you no longer use.
  • The kinds of credit you have, or credit mix: It’s best to have a mix of installment accounts — those with a set number of equal payments, such as car payments or mortgages — and credit card accounts.
  • The length of time since you’ve applied for new credit: Each application that causes a hard inquiry on your credit may take a few points off your score.
  • Total balances and debt: It’s best if you’re making progress in paying off your debt.

Factors that don’t affect your credit score

  • Checking your own score: If you get your own score through your bank or a free credit score service, it does not affect your score. That’s because checking your own score is considered a soft pull on your credit. You can check it as many times as you want with no impact to your score.
  • Rent and utility payments: In most cases, your rent payments and your utility payments are not reported to the credit bureaus, so they do not count toward your score.
  • Income and bank balances: Credit reports do include some employer information, but it’s used only to match account data to the right person. Getting a raise won’t bump up your score, and it is possible to build credit on a small income. And since reports list only credit accounts — not savings, checking or investment accounts — your balances in those also won’t help your score.

Want to raise your credit score? Here are some tips!

  • Start by checking your score (for free).
  • Tackle your debt, even when you can’t pay very much.
  • Avoid asking for more credit.

It’s an often repeated myth that keeping a balance when using credit cards will raise your credit score. The truth is that paying on time, every time, is what’s good for your credit — and paying in full is the most economical, because it lets you avoid interest, explains Nerd Wallet.

It’s important to put at least some of your spending on a credit card from time to time, but spending more will not benefit your score. Aim to use no more than 30% of your credit limit on any of your cards, and less is better. That’s because the second-biggest influence on credit scores is credit utilization — the portion of your credit limits you use.

To keep your credit utilization low, you can:

  • Sign up for balance alerts via text or email from your credit card issuer so you can stop using a card if the balance gets close to 30% of the limit.
  • Consider making several payments throughout the month to keep balances low.
  • If your credit is good or your income is up since you applied, ask for a higher credit limit. This will lower your credit utilization by bumping up your total credit limit, as long as your spending stays the same.
  • Think twice about closing old or little-used cards, because they contribute to your overall credit limit. Your credit utilization could shoot up due to the loss of available credit from a canceled card.
  • You could also increase your available credit by opening a new credit card, but it’s important to research the best credit card for your financial needs before applying.

Checking your credit score

There are several ways that you can check your credit score for free. A great place to start is to check if your bank or credit union offer this service for its customers. Additionally, each of the three credit reporting agencies (Experian, Equifax and Transunion) allows you to check your credit score for free.

Everyone is entitled to one free credit report a year from the three agencies at annualcreditreport.com, according to the federal government.

References:

  1. https://www.nerdwallet.com/article/finance/credit-score-does-carrying-a-balance-help
  2. https://apnews.com/article/business-0a536993ce494fc8d6fe2c5d637da5b5

Improve Your Life

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“The key to happiness is really progress and growth and constantly working on yourself and developing something.” —Lewis Howes

Self-improvement, improvement of one’s mind, character, habits, and life through one’s own efforts. Life only changes as a result of the improvements you make by the actions you take.

Here are 10 Things You Should Do Every Day to improve your life.

1) Get out in nature

You probably seriously underestimate how important this is. (Actually, there’s research that says you do.) Being in nature reduces stress, makes you more creative, improves your memory and may even make you a better person.

2) Exercise

We all know how important this is, but few people do it consistently. Other than health benefits too numerous to mention, exercise makes you smarter, happier, improves sleep, increases libido and makes you feel better about your body. A Harvard study that has tracked a group of men for more than 70 years identified it as one of the secrets to a good life.

3) Spend time with friends and family

Harvard happiness expert Daniel Gilbert identified this as one of the biggest sources of happiness in our lives. Relationships are worth more than you think (approximately an extra $131,232 a year.) Not feeling socially connected can make you stupider and kill you. Loneliness can lead to heart attack, stroke and diabetes. The longest lived people on the planet all place a strong emphasis on social engagement and good relationships are more important to a long life than even exercise. Friends are key to improving your life. Share good news and enthusiatically respond when others share good news with you to improve your relationships. Want to instantly be happier? Do something kind for them.

Every morning send a friend, family member or co-worker an email (or text) to say thanks for something. There’s tons of research showing that over time, this alone – one simple email a day – can make you happier.

Harvard professor Shawn Achor’s The Happiness Advantage explains:

“This is why I often ask managers to write an e-mail of praise or thanks to a friend, family member, or colleague each morning before they start their day’s work—not just because it contributes to their own happiness, but because it very literally cements a relationship.”

4) Express gratitude

Gratitude is more powerful than you realize. In an experiment, people were asked to spend some time helping a student improve a job application cover letter. After they sent their feedback, the student replied with a message, “I just wanted to let you know that I received your feedback on my cover letter,” and asked for help with another one in the next three days. Only 32% of the people helped. When the student added just eight words—“Thank you so much! I am really grateful”—the rate of helping doubled to 66%.

In another experiment, after people helped one student, a different student asked them for help. Being thanked by the first student boosted helping rates from 25% to 55%. The punch line: a little thanks goes a long way, not only for encouraging busy people to help you, but also for motivating them to help others like you.

Plus, by expressing gratitude:

  • It will make you happier.
  • It will improve your relationships.
  • It can make you a better person.
  • It can make life better for everyone around you.

5) Meditate

Meditation can increase happiness, meaning in life, social support and attention span while reducing anger, anxiety, depression and fatigue. Along similar lines, prayer can make you feel better — even if you’re not religious.

6) Get enough sleep

You can’t cheat yourself on sleep and not have it affect you. Being tired actually makes it harder to be happy. Lack of sleep = more likely to get sick. “Sleeping on it” does improve decision making. Lack of sleep can make you more likely to behave unethically. There is such a thing as beauty sleep.

Naps are great too. Naps increase alertness and performance on the job, enhance learning ability and purge negative emotions while enhancing positive ones. Here’s how to improve your naps.

7) Challenge yourself

Learning another language can keep your mind sharp. Music lessons increase intelligence. Challenging your beliefs strengthens your mind. Increasing willpower just takes a little effort each day and it’s more responsible for your success than IQ. Not getting an education or taking advantage of opportunities are two of the things people look back on their lives and regret the most.

“There is nothing noble in being superior to your fellow man; true nobility is being superior to your former self.” Ernest Hemingway

8) Laugh

People who use humor to cope with stress have better immune systems, reduced risk of heart attack and stroke, experience less pain during dental work and live longer. Laughter should be like a daily vitamin. Just reminiscing about funny moments can improve your relationship. Humor has many benefits.

9) Touch someone

Touching can reduce stress, improve team performance, and help you be persuasive. Hugs make you happier. Intimate contact may help prevent heart attacks and cancer, improve your immune system and extend your life.

10) Be optimistic

Optimism can make you healthier, happier and extend your life. The Army teaches it in order to increase mental toughness in soldiers. Being confident improves performance.

Bonus:

Email a good friend and make plans.

Research says that to keep friendships alive, you should stay in touch every 2 weeks.

Got 14 friends, then you need to be emailing somebody every day and making plans to get together. Research shows the best use of electronic communication, like email or social media, is to facilitate face-to-face interaction:

The results were unequivocal. “The greater the proportion of face-to-face interactions, the less lonely you are,” John T. Cacioppo, author of “Loneliness: Human Nature and the Need for Social Connection” says. “The greater the proportion of online interactions, the lonelier you are.” 

Facebook is merely a tool, and like any tool, its effectiveness will depend on its user. “If you use Facebook to increase face-to-face contact,” Cacioppo says, “it increases social capital.” So if social media let you organize a game of football among your friends, that’s healthy. If you turn to social media instead of playing football, however, that’s unhealthy.

“Beginning today, set an intention and a relentless focus on living your life as the greatest person you can be, in all situations.” —Brendon Burchard

References:

  1. https://bakadesuyo.com/2012/05/what-10-things-should-you-do-every-day-to-imp/
  2. https://bakadesuyo.com/2013/07/make-your-life-better/

World in Love with Debt

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“There is $50 trillion more in world debt today than there was in 2018.” And that will hurt equities. Larry McDonald

2021 global debt database shows largest one year debt surge post World War II to $226 trillion, i.e., 256% of global GDP in 2020. Government borrowing was half this increase; global public debt rose by 20% to an unprecedented level in over 50 years.

In a financial sense, the bond (or debt) market dwarfs the stock market. Although the rise in interest rates has been devastating for bond investors because of the inverse relationship between rates (yields) and bond prices. In actuality, both the debt and equity markets have fallen this year.

Yet, “The world is still in love with debt,” according to analysts at Bank of America Merrill Lynch. Debt vulnerabilities are rising, with potential costs and risks to debtors, creditors and, more broadly, global stability and prosperity. But, does it matter. After all, world governments owe the money to their own citizens. The rising total global debt is important for two reasons.

  • First, when debt rises faster than economic output (as it has been doing in recent years), higher government debt implies more state interference in the economy and higher taxes in the future.
  • Second, debt must be rolled over at regular intervals. This creates a recurring popularity test for individual governments’ sovereign bonds. Fail that test, as various euro-zone governments have done, and the country (and its neighbors) can be plunged into fiscal and economic crisis.

If the Federal Reserve raises the federal funds rate by another 100 basis points and continues its balance-sheet reductions at current levels, “they will crash the market,” states Larry McDonald, founder of The Bear Traps Report and author of “A Colossal Failure of Common Sense”.

A pivot may not prevent pain

McDonald expects the Federal Reserve to become concerned enough about the equity market’s reaction to its monetary tightening to “back away over the next three weeks,” announce a smaller federal funds rate increase of 0.50% in November “and then stop.”

References:

  1. https://www.msn.com/en-us/money/markets/the-stock-market-is-in-trouble-thats-because-the-bond-market-is-very-close-to-a-crash/ar-AA12Q8kd
  2. https://www.businessinsider.com/baml-global-debt-has-rise-by-50-trillion-since-the-financial-crisis-2015-10
  3. https://www.imf.org/external/pubs/ft/ar/2022/in-focus/debt-dynamics/

Intro to Stock Options

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“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” ~ Warren Buffett

Options are financial contracts whose values are tied to another underlying asset.

Options trading can be an appealing way to build wealth or manage risk, especially if you’re looking beyond just investing in stocks, bonds, and other assets in your portfolio.

But options trading can be a complex and challenging endeavor. The key to success in options trading is understanding the basics, including knowing what options are and the risks and rewards involved.

Options Basics

Options are contracts giving the purchaser the right to buy or sell a security, like a company stock or exchange-traded fund (ETF), at a fixed price within a specific period of time.

Options holders can buy or sell by a certain date at a set price, while sellers have to deliver the underlying asset. Investors can use options if they think an asset’s price will go up or down or to offset risk elsewhere in their portfolio.

Options are financial derivatives because they’re tied to an underlying asset. Other types of derivatives include futures, swaps, and forwards. Options that exist for futures contracts, such as S&P 500 or oil futures, are also popular among traders and investors.

A stock option typically represents 100 shares of the underlying stock. Stock options are common examples and are tied to shares of a single company. Meanwhile, ETF options give the right to buy or sell shares of an exchange-traded fund.

An option is a contract between the holder and the writer. The holder (buyer of the contract) pays the writer (seller of the contract) a price – the premium – for the right to buy or sell the underlying asset.

Option holders can buy or sell the underlying security by a specific date (called expiration date) at a set price (called the strike price). If the option holder exercises the contract on or before the expiration date, the option writers must deliver the underlying asset.

Many investors get interested in options trading because it can be a way to generate income, speculate on the price movements of securities, as well as a way to hedge against losses. However, with these possibilities, they are downsides to options trading too.

Before diving into the world of options contracts and options trading, it’s essential to understand the benefits and risks of this investment strategy.

Some of the main advantages of options trading are:

  • Options give you the chance to make money whether the market is going up, down, or sideways.
  • Options may be an inexpensive way to participate in the market without tying up as many funds as stock or bond trading requires.
  • Options provide investors with leverage, which can help magnify returns.

Some of the main drawbacks of options are:

  • Options trading is a complex and risky strategy and one that requires a great deal of knowledge and experience to succeed.
  • Options involve a great deal of leverage, which can amplify losses if the trade goes against the trader.
  • Options contracts are not always as liquid as other securities, making them harder to buy and sell.

Options are a complex, risky market and may not be suitable for everyone.

“Successful trading depends on the 3M`s – Mind, Method and Money. Beginners focus on analysis, but professionals operate in a three dimensional space. They are aware of trading psychology their own feelings and the mass psychology of the markets. Each trader needs to have a method for choosing specific stocks, options or futures as well as firm rules for pulling the trigger – deciding when to buy and sell. Money refers to how you manage your trading capital.” ~ Alexander Elder

References:

  1. https://www.sofi.com/options-trading-101/
  2. https://www.sofi.com/learn/content/how-to-trade-options/

Mindset: Steps to Success

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“A mind is a terrible thing to waste.” ~ Arthur Fletcher

The mind is a powerful and extraordinary thing. And, your mindset shapes your happiness, success and ultimately the direction and destination of your whole life.

Essentially, “mindset is a way of thinking; it is a habitual opinion or attitude that affects thinking”, explains Aaron Jarrels, a Licensed Therapist, and Certified Motivation & Mindset Coach. “A strong and growth mindset is confident, focused, determined, and maintains a desire to learn.”

Your life is a reflection of your habits and thoughts, and habits and thoughts are driven by your mind. Thus, the mind is everything… you become what you feed to it and what you focus on.

By developing the right mindset you can achieve almost anything. A growth mindset on the other hand, rewards those who want to get better at something. When you believe that you are capable of learning to do something, it sparks hope in the future.

Thus, it’s important to design your mindset and life for growth, learning and continuous expansion and improvement. Here are several steps:

1. Positive thoughts and outlook. Use positive thoughts and words to evoke feelings of strength, confidence, courage and success about yourself. Practice being kind and loving to yourself. You need to be able to keep yourself encouraged. Focus on the traits and skills that you like and that are productive, because what you focus on expands. Direct your thoughts towards the belief that you will succeed and achieve your life’s goals. But if you fail, embrace the failure, analyze, learn and grow from what went wrong. Give yourself credit and kudos for having the courage to try.

2. Build systems and a routine. Before you can permanently change your thoughts, you have to change your habits and behaviors. You must take responsibility and be accountable for you actions and behaviors. Discipline, patience and long-term perspective breed a positive mindset because you’re motivated by results and concentrating on achieving your goals. Delayed gratification is a key trait of successful people, states Jarrels. If you cannot control yourself and your desires, you will always be a slave to your impulses. When you develop the ability to maintain self-control, you conquer your biggest foe, your impatience. Owning your faults and how you respond gives you the power to change them.

3. See beyond today and maintain a long-term perspective. What the mind believes, the body achieves. Believe you can win. Visualize and focus on the end result, creating a mental image of the future you’re striving to achieve. Visualizing the desired outcome allows you to begin to accept the possibility of achieving your desired outcome. Perception is reality and the brain can be positively hacked with this simple strategy. And, be mindful of your tongue. If, you catch yourself saying “I can’t” you should stop immediately and replace it with “How can I?” Doing this will prime your mind and brain to look for possible solutions that were not imaginable prior. By asking “How can I?” you are creating a place for the desired outcome as well as the path to get there.

4. Step away from safety and liv outside your comfort zone. Operating in an stress free environment and using a limited set of behaviors won’t increase your performance or growth. It’s facing your fears and dealing with your challenges that allows you to realize your goals and to grow mentally, physically and emotionally. If you take risks and are willing to accept and learn from setbacks, nothing can stop you! Remember, if it scares you and makes you uncomfortable, it’s probably the right course of action to catalyze some next level personal growth.

High performance and growth is not realized when you’re comfortable and steering clear of stressful situations. You’re restricted by your self-imposed limiting beliefs. Becoming abundantly successful in whatever goal you want to achieve is simply a mindset shift away.

Developing a strong mindset takes the decision not to give up. It takes a willingness to grow and become more than you currently are now. It takes a strong determination to focus on what’s good, what’s going well and what’s positive in your life. It takes living a life of faith, rather than a life of fear.

Additionally, a strong mindset is one that sees, what others call failure as lessons and successes as steps along the way.

“The mind is everything. What you think you become.” ~ Buddha

References:

  1. https://aaronjarrels.com/how-to-develop-a-strong-mindset/
  2. Peter Oakden, There’sNo Such Thing as Luck: 4 Steps to Abundant Success, Muscle and Health Magazine: The Wealth Issue, Fall 2022, pg. 89.
  3. https://www.setquotes.com/a-mind-is-a-terrible-thing-to-waste/

Minimum Book Corporate Income Tax

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Book income is the amount of income corporations publicly report on their financial statements to shareholders. This measure is useful for assessing the financial health of a business but often does not reflect economic reality and can result in a firm appearing profitable while paying little or no income tax. ~ Tax Foundation

In August, President Biden signed a minimum book income tax into law under the 2022 Inflation Reduction Act. The law was passed in both chambers of congress by Democrats.

Book income is the amount of income corporations publicly report on their financial statements to shareholders, explains the Tax Foundation.

The appeal of the minimum book tax for Democrats is two-fold, explains Laura Davison, in an article written for Bloomberg.com.

  • First, the minimum tax goes after corporations that many Democrats say don’t pay enough in taxes.
  • Second, it’s a way to raise taxes on corporations without increasing the 21% headline tax rate.

Senator Joe Manchin, Democrat (WV), says the minimum tax doesn’t so much raise taxes as close a loophole — even though it would mean that some corporations have to pay more to the federal government.

The law enforces a 15% corporate minimum tax targeted at companies that earn more than $1 billion a year. President Joe Biden cited a report in his State of the Union address that found that 55 companies paid no federal income taxes in 2020, despite earning profits under the standards of GAAP.

The corporate minimum tax would require companies with at least $1 billion in income to calculate their annual tax liability two ways:

  • One using longstanding tax accounting methods, which is 21% of profits less deductions and credits;
  • The other by applying the 15% rate to the earnings they report to shareholders on their financial statements, commonly known as book income.

Whichever amount is greater would be what they owe to the IRS.

A corporation’s profits for tax purposes and for financial reporting to shareholders often vary. Book income sticks more closely to generally accepted accounting principles, or GAAP, while the Internal Revenue Service code includes a slew of deductions and credits that companies can use to offset their income. 

This roundabout method to collect more money from corporations provides much of the new revenue to fund the energy investments and deficit reduction that Democrats are hoping to tout in the midterm elections this November.

References:

  1. https://www.bloomberg.com/news/articles/2022-08-01/how-the-15-us-minimum-corporate-tax-would-work-quicktake
  2. https://taxfoundation.org/tax-basics/book-income-vs-tax-income/

Social Security Trust Fund

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Social Security’s Trustees project that the trust fund will be depleted in 2034. At that point, 71 million beneficiaries could face across-the-board Social Security benefit cuts of 23 percent if elected leaders fail to act.

With the retirement of baby boomers and lengthening life expectancies, programs critical to older Americans, such as Social Security, will come under significant strain in coming decades. Social Security’s Trustees project that the combined Old-Age and Survivors Insurance and Disability Insurance (OASI) trust fund will be depleted in 2034. At that point, 71 million beneficiaries could face across-the-board Social Security benefit cuts of 23 percent if policymakers fail to act.

Social Security is the primary source of retirement income for million of Americans. But without action, it will lack sufficient resources to pay for all of the benefits promised under current law.

Almost every American worker pays a dedicated payroll tax, which entitles them to benefits when they retire or become disabled. But as the population ages, fewer workers will be paying taxes to support each Social Security beneficiary, thereby endangering the program’s finances.

Understanding the importance of the Social Security program for low-income Americans is a critical aspect of reforming the program in a fair and equitable way.

In 2018, Social Security was responsible for lifting almost 22 million Americans out of poverty, nearly 15 million of whom were seniors age 65 and older.

Options for improving the financial outlook of Social Security’s retirement program include:

  • Increasing payroll taxes. Raise the payroll tax rate from its current level of 12.4 percent (half paid by employees and half by employers) on wage earnings subject to the tax. In 2022, earnings up to $147,000 will be taxed.
  • Raising the full retirement age. Propose increasing the retirement age above age 67 for younger cohorts to account for future gains in average longevity.
  • Reducing initial benefits. Change the amount that retirees can receive when they first apply for benefits. Many proposals combine a reduction in benefits for high earners with an increase in benefits for lower earners. (This is known as “progressive price indexing.”)
  • Adjusting benefits after retirement. Slow the growth of retirees’ benefits over time by changing the cost-of-living index. Many economists believe that Social Security currently uses an index that overstates inflation, so benefits grow faster than the true cost of living. They propose replacing the current index with chained-CPI, which is a more accurate measure of inflation. (That change would also apply to other inflation-indexed federal retirement programs and tax provisions.)

These proposals are intended to put Social Security’s finances on a long-term sustainable footing.

References:

  1. https://www.pgpf.org/finding-solutions/retirement

Investing Lessons Learned

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“To maximize returns, buy stocks when everyone hates them and sell them when everyone loves them. This is easy in theory, but brutally difficult in practice.” ~ Brian Feroldi

Brian Feroldi is a financial educator and he has been saving and investing for 18+ years. From his experiences, below he shares 10 painful lessons he had to learn and sometimes relearn the hard way:

1. You don’t need leverage.

Margin and options are fun on the way up and BRUTAL on the way down. Many investors have lost more than 100% on investment before. Why? Leverage.

Buffett said it best:

2. Optimize for longevity, not upside

Compound interest is the most powerful wealth-building force that exists. But, it only works if you SURVIVE long enough for it to work.

You must avoid investing to optimize for upside potential. Instead, you should follow the barbell method to optimize for longevity.

3. High conviction DOES NOT = correct

If you convinced yourself that a certain stock could only go up. you might be right on some. On others, you may lost significant value.

Conviction is useful, but just because you think you are right doesn’t mean that you are right.

Allocate accordingly

4. Stock prices and business results (and intrinsic value) are 0% correlated in the short-term and 100% correlated in the long-term

Do not sell future mega-winners because their stocks were down (dumb).

Instead of watching the stock, instead focus on the fundamentals of the business.

5. Not having a system

Do not try to keep everything in my head, which was dumb (and impossible).

Instead, use checklists, journals, or watchlist, which are invaluable free tools.

6. Not understanding the P/E ratio

Do not pass on high P/E ratio stocks that went up big and buy low P/E ratio stocks that went down big.

Why? It’s about understanding the P/E ratio’s flaws.

Now, P/E only works in stage 4. It doesn’t work in stages 1, 2, 3 or 5

7. Panic selling and panic buying

Emotions have caused many investors to panic buy hype stocks and panic sell future mega-winners.

It’s easy to say you’ll be greedy when others are fearful, and visa-versa.

It’s hard to actually do it.

8. Study history

Human nature is remarkably consistent. The same forces that drove markets 100+ years still exist in all of us today.

There’s always a smart-sounded reason to sell and it’s important to understand that.

9. Don’t focused on what you can’t control

Do not follow the news closely, or watch for clues to predict the market.

This will be time poorly spent. Macro factors matter, but you have no control over them.

It essential you focus far more on what you can control.

10. Not changing your mind

This one is REALLY hard, but it’s necessary to do well.

Changing your mind is hard. Admitting you’re wrong is hard.

But, @JeffBezos said it best:

Learning invaluable investing lessons, especially from the mistakes of others, is an essential part of becoming a more successful long-term investor.

References:

  1. https://bookshop.org/shop/Feroldi
  2. https://www.marketwatch.com/amp/story/the-critical-money-and-investing-lessons-i-wish-my-younger-self-had-understood-11651762064
  3. http://mindset.brianferoldi.com