In the past, retirement has been portrayed as an ending, a grand exit from your years in the workplace. But the rules are shifting. Labor force participation among those aged 65-74 is predicted to reach 32 percent by 2022, up from just 20 percent in 2002.
Did you know you will not be able to fly or access Federal facilities after October 1, 2020 without having your driver’s license updated to the federally mandated REAL ID?
It is not mandatory that states update their driver’s licenses, but citizens will not be able to use old style IDs to obtain admission into federal facilities and at airport security checkpoints run by the Department of Homeland Security.
Read more on the DHS website>>
This July 4, I hope we all can take a moment to reflect on the meaning of the Declaration of Independence. It goes beyond politics and partisanship. It’s more than a historical artifact. It’s the foundation upon which our nation rests.
What if I said that people who try to invest for retirement on their own have almost 50% less in their accounts than those who use an experienced financial advisor? Would you be surprised? The proof is in the numbers.
Over the past several months, you’ve most likely heard or seen some combination of the following predictions:
If someone was forced to do nothing but read headlines and predictions, they would probably get whiplash. That’s because there’s always so much conflicting analysis and information out there about what’s happening, or what’s going to happen. The result is a lot of uncertainty – and if there’s one thing the markets hate, it’s uncertainty.
In this letter, I want to briefly recap a few of the stories behind that uncertainty. Then, I want to tell you exactly what my team and I are doing about it.
The long-running Trade War with China blew up in a big way last month – and then expanded into a twofront war with our neighbors to the south.
Early in May, President Trump placed a new 25% tariff on all Chinese imports that had been previously been spared.1 Soon after, China responded with more tariffs of their own. Then, just as the smoke started to clear from that announcement, the White House announced a new set of tariffs – this time on Mexico.
Why does this matter to the markets? In the short term, it all goes back to uncertainty. Remember, a tariff is essentially a tax on imported goods. With over $50 billion a month moving back and forth across the border every month, higher prices on Mexican products could potentially have a major impact on the economy.2 After all, American businesses rely heavily on everything from Mexican cars to Mexican cables; from food to appliances. Tariffs could lead to longer and more costly supply chains, which in turn can eat into corporate profits.
When that happens, the markets hurt.
On the other hand, recent history suggests the markets can be remarkably resilient to the Trade War’s effects. Often, when new tariffs are announced, the markets will dip and then rise again. Furthermore, the news broke out on Friday, June 7, that the tariffs on Mexico will not come to pass – at least for the time being.3 That’s why the only thing we can be certain of is, well, uncertainty.
After roughly a decade of growth, signs of a slowing economy continue to stack up.
Economists use various indicators to forecast where the economy will go. One indicator is the job market. While the nation’s unemployment rate remains historically low at 3.6%, fewer and fewer new jobs are being added. In May for example, the economy added only 75,000 new jobs, which seems like a lot but was far less than the 180,000 most experts predicted.4
Another indicator is the yield on U.S. Treasury bonds. To put it simply, the yield is the return you get on a bond. Bond yields will fall when bond prices – the amount you pay when you purchase a bond – go up. Bonds are often perceived by investors as being less risky than stocks, so during times of uncertainty, more and more investors will pile into bonds, driving up the price and driving down the yield.
Got all that? If not, that’s okay, because here’s what really matters. When the yield on short-term Treasury bonds rises higher than the yield on long-term bonds, economists tend to sit up and push their glasses further up their noses. That’s because this “inverted yield curve”, as it’s often known, is rare, and sometimes signals an impending recession.
An inverted yield curve is happening now.5
I could go on for pages and pages on how bonds and the overall economy intersect, but time is precious, and you shouldn’t have to spend yours reading about things like inverted yield curves. (That’s what you pay me for!) The point is, there are a number of indicators suggesting that the economy is weakening. On the other hand, optimists can point to other, equally compelling data – like the unemployment rate, the country’s GDP, and high consumer confidence reports – that says the economy is doing just fine.
So, how do we know what’s going to happen?
We don’t. Nobody does. Experts can make educated guesses. Analysts can make data-driven predictions. Some of those will undoubtedly come true. Most will be wrong. Nobody has a crystal ball. The greatest financial advisor in the world can’t tell you what will happen in the markets tomorrow, let alone next month or next quarter.
In the world of finance, uncertainty rules. Sometimes its influence is greater or lesser, but it’s always there.
But that doesn’t mean we can’t do anything about it.
I said at the beginning of this letter that I would tell you what my team and I are doing. I can sum it up in two words: Risk Management.
Risk management is the process of identifying, analyzing, accepting, and then working to mitigate the risks that come with uncertainty. It’s one of the most important things I do for clients like you!
Standard disclaimer: All investing involves some risk. It’s impossible to get rid of it entirely –nor would we want to! (It’s a truism that no risk means no reward.) But we can take steps to manage your risk, and that’s what my team and I do every day.
It’s true, I can’t tell you exactly what the markets will do. So, here’s what I can do instead:
Use rules-based investing and a sell-side discipline
These are just fancy terms for something very simple. While many investors practice something called “buy-and-hold”, where they pick some investments and then hold onto them no matter what, we put rules in place that determine when to sell an investment if it falls below a certain price, or is likely to. While we can’t control whether an investment will grow or not, we can take steps to protect you from losing your principal. The ancient Greek physician, Hippocrates, had a maxim: “First, do no harm.” I take a similar view. While we want to help you grow your money, we’re dead set on protecting your money.
Monitor trends by tracking supply and demand
Risk management is sort of like buying strawberries. When you go to the store, you might ask yourself, “Is it worth it to buy strawberries today?” The answer would depend on lots of things. Are strawberries in season? Are they more or less expensive than usual? Do they look ripe?
That’s how you determine whether buying strawberries is worth the risk or not.
We do the same thing with the investments in your portfolio. We look at whether there’s more supply or more demand for an investment – more buyers or more sellers – to determine whether that investment is trending up or down. We look at how strong or weak an investment is relative to other investments that are similar to it. We look at how close it is to the buy/sell price we’ve already established. (That’s rulesbased investing.)
That’s how we determine whether the investments in your portfolio are worth the risk or not.
Here’s why I’m telling you all this. While we can’t know for certain how the Trade War will affect the markets, or whether the economy will veer into a recession, that doesn’t mean we’re sitting idle. I want you to know that my team and I are working constantly to analyze how these stories could affect your hard-earned money. We’re always working to manage the risk in your portfolio. To keep you on track to your financial goals. Sometimes, we try to speed up the journey. Sometimes, we may slow down, or move off the road entirely. But we always try to keep you pointed in the right direction.
If you ever have any questions or concerns, please contact us. In the meantime, I hope you enjoy a wonderful summer!
1 “Trump Renews Trade War as China Talks End Without a Deal,” The NY Times, May 10, 2019.
2 “Tariffs on Mexican imports will ripple across the US economy,” CNN Business, June 3, 2019.
3 “US, Mexico Reach Deal to Avoid Tariffs,” The Wall Street Journal, June 8, 2019.
4 “U.S. Added 75,000 Jobs in May as Hiring Slowed,” The Wall Street Journal, June 7, 2019.
5 “Bond Yields Extend Drop Toward 2%,” The Wall Street Journal, June 7, 2019.
Three financial principles our fathers taught usHappy Father's Day!
It’s June, and that means Father’s Day!
As you know, Father’s Day is a chance to tell our dads how much we love and appreciate them. A chance to say “thanks” for providing for us, protecting us, and teaching us – this last above all.
The older I get, the more I realize how important my dad’s lessons were in shaping my life. Now, as a financial advisor, I also realize how important fathers can be in shaping a child’s financial future. That’s because they’re often the first people to teach us good financial habits and principles – principles that remain with us for the rest of our lives.
So, in honor of Father’s Day, I would like to highlight:
Three Financial Principles our Fathers Taught Us
1. The importance of budgeting and saving
Did you ever plan a family vacation and see your dad sit down to budget everything from the plane tickets to the hotel to the cost of food and souvenirs?
Did you ever go to the carnival and get tempted to spend all your money on games and prizes – only for your dad to warn you that if you did, you wouldn’t have enough to go on that one ride you’d been salivating over?
Did you ever spend all summer delivering newspapers, babysitting, or mowing lawns, so you could buy those new shoes that all the cool kids were wearing? Only for your dad to insist you set the money aside for college, or your first car?
Life is a constant battle between choosing between what you want the most and what you only want right now. As a financial advisor, a big part of my job is helping clients achieve the former.
But when it comes to saving for what you want the most, there’s often no better financial advisor than a father.
2. Staying out of debt
When I was a kid, I remember asking my dad, “Why can’t we just use the credit card?” That’s when my dad sat me down and explained exactly how debt works, and how we should never buy what we can’t afford.
It’s almost impossible to achieve what you want the most if you have a lot of debt. Think of it like trying to sail in a leaky boat. No matter how much water you bail out, it will continue to sink. That’s what debt does to our finances.
Of course, it’s virtually impossible not to take on some debt, some time. But paying for college, or buying a house is a lot different than maxing out your credit card or buying a car you don’t have money for. The former is investing in your own future. The latter is robbing it.
Because fathers have so much to take care of, and so many people to be responsible for, they are often the first who teach us this crucial lesson. Which is why, for many of us, the only debt we owe is the debt we owe our dads.
A debt of gratitude.
3. When it comes to life – and finances – you get out what you put in
Sometimes in life, we all will fail a test, miss an opportunity, or get cut from the team. Sometimes, we’ll come home from school with a report card that’s less than ideal. During those times, it’s easy to think, “This is stupid, why should I bother, I hate this anyway.”
It’s during those times that dads often shine.
“All you can control in life,” the best dads often say, “is your own attitude. Your own work ethic. Your own time.” And that’s when we realize that maybe there was a reason we didn’t get the grades we were capable of. There was a reason we missed out on that job or got cut from the team. That’s when we realize that attitude determines effort, and effort determines our results.
In short, dads teach us that you only get as much out of life as you have put in.
As a financial advisor, I rely on this lesson every day. I teach people that if they want to grow their money, they have to invest their money. If they want to retire, they have to save for retirement. And the only reason I can teach it is because my dad taught me.
It’s possible, of course, that your own dad taught you vastly different lessons than the ones I’ve listed here. But whatever your dad taught you, let’s make sure we all take the time to tell our dads “Thanks.” Thanks for every lesson – about money, life, and everything.
May we continue to learn those lessons well.
On behalf of everyone at Research Financial Strategies, we wish you a Happy Father’s Day!
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Jim Streight James Streight Chief Marketing Officer