One of the best businesses to be in is predicting disaster and selling books or newsletters telling people how to overcome the next cataclysmic decline in civilization. Thousands of investors missed the greatest bull market in history because they were subscribing to the monthly predictions contained in Howard Ruff's Ruff Times newsletter--which advocated investments in Krugerrands, guns and canned food and water against an apocalypse that never came. Going back further, Thomas Malthus predicted that rising human populations would eventually overwhelm the food supply, and Karl Marx predicted that capitalism itself would grow increasingly unwieldy and unsustainable until the inevitable revolt of the proletariat. In our times, we have seen sober predictions that the world would run out of oil, and a best-selling book saying that we're on the verge of financial collapse. ("The Great Deformation," which is not recommended here.)
Of course, our civilization managed to overcome all of these predictions with remarkable resiliency. Betting against the future has never been wise or profitable. But will that always be true?
A recent article by Kenneth Rogoff, professor of economics and public policy at Harvard University, outlines some future challenges which our civilization has never seen before, and which will require unusual resiliency. Rogoff is too smart to bet against the future, but the article does say that we have not yet come up with a solution to these challenges, and time is growing short.
What challenges? First, Rogoff says that our global economic systems have not done a very good job of defining "property rights" when it comes to our environment--specifically the quality of our air and water. Right now, oil companies are able to take millions of gallons of ground water and pump it into their fracking wells in order to drive up oil and natural gas. This fresh water is lost forever to our ecosystem, which in many areas is experiencing water shortages already. What do the companies pay for this water? Nothing. It's there in the aquifers for the taking--for now, at least.
Our power companies and factories, meanwhile, are not restricted in the amount of carbon they can return to the atmosphere after burning coal and oil, which has, over the last 150 years, dramatically changed the composition of the envelope of air that nurtures our global ecosystem. There are varying reports on the impact of these changes, including a scientific consensus that global temperatures are rising. Yet these companies pay no more for the privilege of adding greenhouse gasses to the atmosphere than you or I do for the oxygen we breathe.
Rogoff says that we need to do a better job of accounting for the present and future costs of using what have traditionally been public resources, and he doesn't see a lot of progress in our political system, and less in many foreign political arenas.
A second set of challenges revolves around the core assumption of our economic system: that it is fair to all. Rogoff says that this perception can no longer be taken for granted as we see greater income inequality within and between countries. He points to near-record gaps between the wealthiest and the rest, and anyone who witnessed the bailouts of the Wall Street investment banks, at a time when those institutions were paying out multi-million-dollar bonuses to the very people who engineered the collapse that led to the bailout, might wonder if we totally have this dynamic under control. Currently, much of the money that the Federal Reserve Board is pumping into our economy is sitting in interest-bearing accounts at these same banks, and more is being pumped in every day.
The third set of challenges involves something that is truly unique to our modern world: the aging populations in developed nations. Birthrates have fallen as a result of economic prosperity, at the same time that dramatic medical advances have prolonged lifespans to almost double what they were a century ago. Credible medical professionals are now talking about virtually unlimited lifespans for younger people who are alive today. The problem, of course, is that most of the systems that were set up to care for the elderly, and provide for their retirement, relied on the idea that there would be multiple workers for every retiree. What happens to those equations when the percentages are turned around? Nobody knows, and you don't hear anybody asking about it in the halls of Congress.
Dr. Rogoff points out that there are some workable short-term fixes for the aging population problem--like immigration reform, where we allow the best and brightest younger people into the country more freely than we have since 9/11, and encouraging people over 65 to stay in the workforce. But the longer-term fix will require us to rethink how we support aging populations through the economy--especially if some of our citizens are destined to retire at, say, age 55 and never die.
The conclusion is that our capitalist economies have been spectacularly efficient at overcoming challenges in the long-term. But the challenges are coming at us faster and with more complexity than ever before, and our political systems seem to be slowing down and becoming less adept at handling complexity--hardly an ideal combination. Dr. Rogoff is not predicting calamity or suggesting that you buy a shotgun and hide out in a cabin in the hills. His concern is more prosaic, and worth pondering: Will each future generation continue to enjoy a better quality of life than its predecessor? Or are we about to see humanity break our civilization's long winning streak?
Source:
http://www.project-syndicate.org/commentary/kenneth-rogoff-identifies-several-obstacles-to-keeping-living-standards-on-an-upward-trajectory
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Monday, April 7, 2014
Monday, March 31, 2014
WHAT??! THE STOCK MARKET IS RIGGED???
You may have heard about the 60 Minutes interview with author Michael Lewis, a former Wall Street broker, author of "Liar's Poker" and "The Big Short," who has just come out with a new book entitled "Flash Boys." Lewis is an eloquent and astute critic of Wall Street's creative and predatory practices, and in his new book (and in the 60 Minutes interview) he offers evidence that the stock market is "rigged" by a cabal of high-frequency traders, abetted by stock exchanges and Wall Street firms.
The charge is entirely true. And it is also completely irrelevant to you and anyone else who practices patient investing.
Lewis is exposing a secret advantage that a surprisingly large number of professional traders, employed by large brokerage firms, are able to get when they build high-speed fiber optic cable feeds directly into the computers that match buyers and sellers of securities. Some of those traders actually have their trading computers located in the same room as the New York Stock Exchange and Nasdaq servers. And some pay extra for access to more information on who wants to buy and sell, more quickly, than would be available to you if you were sitting down at your home computer looking to buy or sell Apple Computer through a discount brokerage account.
All of this is perfectly legal, but Lewis points out that it is also shady. Why should some buyers and sellers have millisecond advantages over others? The companies that see more of the market, more quickly, are able to jump in ahead of you and me and buy stocks at lower intraday prices, and then jump ahead 15 seconds later and sell to the highest bidder before you and I would even see that bid on our screen. They can buy the stock you put in an order for and sell it to you at a fractionally higher price through the normal market-matching mechanisms. This way, they can squeeze out additional pennies and nickels on each transaction, and if they do this thousands of times a day, it adds up to real money--millions of dollars a year.
Why is this irrelevant to you? Many of those lost dollars are coming out of the pockets of day traders, ordinary people who are foolish enough to think that they can outwit the markets by moving into and out of individual stocks several times a day, or professional traders at hedge funds who may not have access to the fastest server or a direct feed into the Nasdaq servers. There are tens of thousands of these investors, and many of them, watching the 60 Minutes report, discovered for the first time that they are getting routinely fleeced by Wall Street's money machine.
However, if you're invested for the long term, it really doesn't matter how many times the stocks you own inside of a mutual fund or ETF, or directly in your retirement account, change hands or at what price every few minutes. It doesn't even matter whether your stocks are up or down in any given month or year, so long as the underlying companies are building their value steadily over time. Your time frame is eons compared with the quick-twitch traders, who hope to be in and out of your stock in minutes rather than decades. Your mutual fund that buys when a stock seems cheap might, if it's careless or unsophisticated, give up fractions of a cent on its purchases, but that likely isn't going to have a measurable impact on your long-term investment returns.
Somehow, this important fact was lost in the 60 Minutes interview. The interview also didn't mention that things can go horribly wrong in the arcane and predatory world of rapid-fire trading. The Hall of Fame of trading losses includes $9 billion lost in credit default swaps by a single Morgan Stanley trader from 2004 through 2006, or the $7.2 billion lost by Societe Generale trader Jerome Kerviel over a few days in 2008, or the $2 billion "London whale" losses in 2012. They--and many others--used their milliseconds speed advantage to generate staggering losses, proving that even the smartest operators aren't always raking in the profits.
In the end, the interview tells us several things. First, it exposes, yet again, the fact that the Wall Street culture will go to great lengths to grab money out of the hands of unwary investors. One wishes that the 60 Minutes interviewers had asked a simple question: what economic purpose is served by fast-twitch traders, trying to make money for their wirehouse employers by purchasing and selling individual stocks multiple times a day ahead of other investors? Is this benefiting the economy in some way?
Second, the interview makes plainly clear the folly of an average investor trying to outsmart the markets with short-term trading activities.
And finally, for those who can see the big picture that is never explained in the 60 Minutes interview, these revelations confirm the wisdom of having a long-term investment horizon. When you measure returns over three-to-ten year time horizons, the milliseconds don't matter.
Sources:
http://www.cnbc.com/id/101537874
http://money.cnn.com/2014/03/30/investing/michael-lewis-flash-boys/
http://www.theguardian.com/business/2014/mar/31/us-stock-market-rigged-michael-lewis
http://newsfeed.time.com/2012/05/11/top-10-biggest-trading-losses-in-history/slide/7-jp-morgan-this-incident-2b/
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
The charge is entirely true. And it is also completely irrelevant to you and anyone else who practices patient investing.
Lewis is exposing a secret advantage that a surprisingly large number of professional traders, employed by large brokerage firms, are able to get when they build high-speed fiber optic cable feeds directly into the computers that match buyers and sellers of securities. Some of those traders actually have their trading computers located in the same room as the New York Stock Exchange and Nasdaq servers. And some pay extra for access to more information on who wants to buy and sell, more quickly, than would be available to you if you were sitting down at your home computer looking to buy or sell Apple Computer through a discount brokerage account.
All of this is perfectly legal, but Lewis points out that it is also shady. Why should some buyers and sellers have millisecond advantages over others? The companies that see more of the market, more quickly, are able to jump in ahead of you and me and buy stocks at lower intraday prices, and then jump ahead 15 seconds later and sell to the highest bidder before you and I would even see that bid on our screen. They can buy the stock you put in an order for and sell it to you at a fractionally higher price through the normal market-matching mechanisms. This way, they can squeeze out additional pennies and nickels on each transaction, and if they do this thousands of times a day, it adds up to real money--millions of dollars a year.
Why is this irrelevant to you? Many of those lost dollars are coming out of the pockets of day traders, ordinary people who are foolish enough to think that they can outwit the markets by moving into and out of individual stocks several times a day, or professional traders at hedge funds who may not have access to the fastest server or a direct feed into the Nasdaq servers. There are tens of thousands of these investors, and many of them, watching the 60 Minutes report, discovered for the first time that they are getting routinely fleeced by Wall Street's money machine.
However, if you're invested for the long term, it really doesn't matter how many times the stocks you own inside of a mutual fund or ETF, or directly in your retirement account, change hands or at what price every few minutes. It doesn't even matter whether your stocks are up or down in any given month or year, so long as the underlying companies are building their value steadily over time. Your time frame is eons compared with the quick-twitch traders, who hope to be in and out of your stock in minutes rather than decades. Your mutual fund that buys when a stock seems cheap might, if it's careless or unsophisticated, give up fractions of a cent on its purchases, but that likely isn't going to have a measurable impact on your long-term investment returns.
Somehow, this important fact was lost in the 60 Minutes interview. The interview also didn't mention that things can go horribly wrong in the arcane and predatory world of rapid-fire trading. The Hall of Fame of trading losses includes $9 billion lost in credit default swaps by a single Morgan Stanley trader from 2004 through 2006, or the $7.2 billion lost by Societe Generale trader Jerome Kerviel over a few days in 2008, or the $2 billion "London whale" losses in 2012. They--and many others--used their milliseconds speed advantage to generate staggering losses, proving that even the smartest operators aren't always raking in the profits.
In the end, the interview tells us several things. First, it exposes, yet again, the fact that the Wall Street culture will go to great lengths to grab money out of the hands of unwary investors. One wishes that the 60 Minutes interviewers had asked a simple question: what economic purpose is served by fast-twitch traders, trying to make money for their wirehouse employers by purchasing and selling individual stocks multiple times a day ahead of other investors? Is this benefiting the economy in some way?
Second, the interview makes plainly clear the folly of an average investor trying to outsmart the markets with short-term trading activities.
And finally, for those who can see the big picture that is never explained in the 60 Minutes interview, these revelations confirm the wisdom of having a long-term investment horizon. When you measure returns over three-to-ten year time horizons, the milliseconds don't matter.
Sources:
http://www.cnbc.com/id/101537874
http://money.cnn.com/2014/03/30/investing/michael-lewis-flash-boys/
http://www.theguardian.com/business/2014/mar/31/us-stock-market-rigged-michael-lewis
http://newsfeed.time.com/2012/05/11/top-10-biggest-trading-losses-in-history/slide/7-jp-morgan-this-incident-2b/
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Monday, March 24, 2014
SHRINKING THE "OTHER" DEFICIT
If you're looking for good news, consider what economists call the "current account deficit," which is a way of measuring the flow of goods and services into and out of the country. Up until around 1980, Americans tended to sell more products and services to the rest of the world than they were purchasing. Since then, dollars have been flowing out of the country at rates ranging from troubling to alarming--and in the runup to the recession, Americans were buying so much more from the world than they were selling out to it that the difference amounted to more than 5% of the total U.S. economy.
But the trend has been positive lately. Last year the deficit ran to just 2.3% of GDP, the lowest level since 1997, and it looks like the economy is starting to get back in balance with our global competitors. Part of the story is a reduction in petroleum imports--a trend which economists expect to continue. Also contributing is a small decrease in humanitarian aid flowing out of the U.S., from $34 billion down to $31.6 billion--which still represents more than a third of the $81.1 billion total.
Perhaps the most interesting component is services; last year, American businesses and consultants sold $57.92 billion more in services to the outside world than were purchased by Americans. This suggests that in an increasingly knowledge-based economy, our country is well-positioned, even against countries that live or die by export surpluses, like Japan and China.
Sources:
http://www.reuters.com/article/2014/03/19/usa-economy-currentaccount-idUSL2N0MG0MY20140319
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
But the trend has been positive lately. Last year the deficit ran to just 2.3% of GDP, the lowest level since 1997, and it looks like the economy is starting to get back in balance with our global competitors. Part of the story is a reduction in petroleum imports--a trend which economists expect to continue. Also contributing is a small decrease in humanitarian aid flowing out of the U.S., from $34 billion down to $31.6 billion--which still represents more than a third of the $81.1 billion total.
Perhaps the most interesting component is services; last year, American businesses and consultants sold $57.92 billion more in services to the outside world than were purchased by Americans. This suggests that in an increasingly knowledge-based economy, our country is well-positioned, even against countries that live or die by export surpluses, like Japan and China.
Sources:
http://www.reuters.com/article/2014/03/19/usa-economy-currentaccount-idUSL2N0MG0MY20140319
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Tuesday, March 18, 2014
CHINA, UKRAINE & THE MARKETS
New economic & political concerns are putting stocks to the test.
In Ukraine, the situation is fluid. As the trading week ended, much was unresolved about the nation's future. The parliament of its autonomous Crimea region had announced a March 16 referendum, which gave voters two options: rejoin Russia, or break away from Ukraine and form a new nation.3
Ukraine's government calls the referendum unconstitutional. The United States and key EU members agree and claim it violates international law. Russia welcomes the vote - 60% of the Crimean Peninsula's population is made up of ethnic Russians, and Russian troops more or less control the region now.3
Russia wants the real estate (its Black Sea naval fleet is based on the Crimean Peninsula) and could spread its economic influence further with the annexation of that region. The cost: economic sanctions, probably harsh ones. Should diplomacy fail to stop the secession vote, then Russia can expect "a very serious series of steps Monday in Europe and [the United States]," according to Secretary of State John Kerry.3
So far, the moves have been largely symbolic: a suspension of the 2014 G8 summit and the talks on Russia's entry into the OECD, and asset freezes for individuals and companies deemed to be hurting democracy in Ukraine.Additional "serious" steps could include financial sanctions for Russian banks, an embargo on arms exports to Russia, and the EU opting to get more of its energy supplies from other nations.Russia could respond in kind, of course, with similar asset freezesand possible pressure on eurozone companies doing business in Ukraine. The fact that Russia has already staged war games near Ukraine adds another layer of anxiety for global markets.4
Investors see China's growth clearly slowing. Its exports were down 18.1% year-over-year in February. Analysts polled by Reuters projected China's industrial output rising 9.5% across January and February, but the gain was actually just 8.6%. The Reuters consensus for a yearly retail sales gain of 13.5% for China was also way off; the advance measured in February was 11.8%. These disappointments bothered Wall Street greatly on Thursday. The news also roiled the metals market - copper fell 1.3% on March 13, its third down day of the week. Besides being the world's top copper user, China also employs the base metal as collateral for bank loans.1,5,6
As Chinese Premier Li Keqiang noted on March 13, the nation's 2014 growth target is 7.5%; the respected (and very bearish) economist Marc Faber told CNBC he suspects China's growth is more like 4%. The upside, Faber commented, is that "4 percent growth in a world that has no growth is actually very good."6
Will the bull market pass the test? It has passed many so far, and it is just several days away from becoming the fifth-longest bull in history (outlasting the 1982-7 advance). Bears wonder how long it can keep going, referencing a P-E ratio of 17 for the S&P 500 right now (rivaling where it was in 2008 before the downturn), and the 1.9% consensus estimate of U.S. Q1 earnings growth in Bloomberg's latest survey of Wall Street analysts (down from a 6.6% forecast when 2014 began).1
Then again, the weather is getting warmer and the new data stateside is encouraging: February saw the first rise in U.S. retail sales in three months, and jobless claims touched a 4-month low last week. Maybe Wall Street (and the world) can keep these signs of the U.S. economic rebound in mind as stocks deal with momentary headwinds.1
Citations.
1 - bloomberg.com/news/2014-03-12/nikkei-futures-fall-before-china-data-while-oil-rebounds.html [3/12/14]
2 - ajc.com/feed/business/stock-market-today-dow-jones-industrial-average/fYjPS/ [3/3/14]
3 - cnn.com/2014/03/13/politics/crimea-referendum-explainer/ [3/13/14]
4 - uk.reuters.com/article/2014/03/13/uk-ukraine-crisis-factbox-idUKBREA2C19L20140313 [3/13/14]
5 - cnbc.com/id/101492226 [3/13/14]
6 - cnbc.com/id/101489500 [3/13/14]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.
Tuesday, March 11, 2014
20 THINGS YOU PROBABLY DON'T KNOW ABOUT THE RUSSIAN INCURSION INTO THE UKRAINE
Our hearts and prayers go out to the people of Ukraine, as they undergo both an internal political crisis and what appears to be military intervention from Russia. For people of a certain age, the current events, with tanks rolling across the Russian border into a neighboring nation that wants to exercise its freedom, it feels a bit like the Cold War days all over again.
Whenever we see troop movements and fires raging in the streets of a capitol city the size of Chicago, our instinct is to assume the worst and move our money to the sidelines. But is this really the best strategy? Some commentators see any market downturn as a buying opportunity, since stocks are going on sale simply because of unfounded fear of economic aftershocks.
Here are some facts that you might not know about what has, hitherto, been a relatively quiet new member of the world economic community.
1) The word "Ukraine" means "borderland" in proto-Slavic. It appears to have acquired this name simultaneously from Poland, Austria and Russia, referring to the territory that sits across the border of so many European nations and Russia. In fact, the Polish referred to their troops stationed in this area as Ukranians--that is, borderlanders. Since the country became independent from the Soviet Union, it is no longer referred to internationally as "The Ukraine."
2) Ukraine's currency is the hryvnia, adopted in 1996 after the country suffered the greatest one-year bout of hyperinflation in global economic history. (Zimbabwe has since broken the record.) Today, one dollar will buy 9.6 hryvnias. A euro will buy 13.3 of them.
3) After Russia, Ukraine has the largest military presence in Europe. Ukrainian troops have been deployed as part of international peacekeeping missions in Somalia, Kosovo, Lebanon and Sierra Leone, and has engaged in multinational military exercises with U.S. military forces. NATO has accepted Ukraine as a member pending a national referendum on the matter--which will obviously be delayed until the conflict with Russia has played itself out.
4) Ukraine has one of the world's most active space programs. The National Space Agency of Ukraine has launched six self-made satellites and a total of 101 launch vehicles. The country also manufactures the An-225 aircraft, the largest aircraft ever built.
5) Due to low birth rates, Ukraine's population is declining at the sixth fastest rate in the world, behind the Cook Islands, the Federated States of Micronesia, the Northern Mariana Islands, Niue (an island nation in the South Pacific) and the Eastern European nation of Moldavia, which borders Ukraine.
6) Nevertheless, Ukraine's largest city, Kiev, has a higher population (2.8 million) than Chicago, America's third-largest city. The population of Kharkiv, Ukraine's second-largest city (1.4 million), is greater than San Antonio, San Diego and Dallas, America's seventh, eighth and ninth most populous cities.
7) According to the World Bank, Ukraine's economy is the 51st largest in the world, ranking just behind Peru and the Czech Republic, and just ahead of Romania and New Zealand. But its $7,295 (US) per-capita income (a rough measure of a nation's wealth) ranks 106th in the world, behind Namibia and El Salvador and ahead of Algeria, Micronesia and Iraq.
8) Ukraine co-hosted the Euro 2012 football (soccer) tournament (with Poland), which is one of the major sporting events in Europe.
9) Even though the Chernobyl nuclear disaster occurred in Kiev, Ukraine operates the largest nuclear power plant in Europe.
10) Despite comments that Ukraine is divided between ethnic Ukrainians and Russia, 77.8% of the population is ethnic Ukraine, and only 17.3% is Russian.
11) Ukraine is known as the "breadbasket of Europe" for good reason. The country is the world's fourth largest producer of barley, 5th largest producer of rye, 11th largest producer of wheat, the 6th largest producer of oats and the 9th largest producer of soybeans.
12) Russia sells approximately 80% of its oil and gas exports to the European Union through pipelines that pass directly through Ukraine. The European Union receives 25% of its oil and gas from Russian sources through these conduits.
13) Ukraine also happens to be Russia's second-largest customer of petro-fuels.
14) Russia is drilling for oil in the shallow waters of the Black Sea near the Crimean Peninsula, which shows promise of having significant reserves.
15) Among others drilling in the same area: Chevron and Shell Oil. If they begin production under the Ukrainian flag, it would significantly undercut Russia's oil and gas market share and prices, simultaneously boosting Ukraine's economy.
16) When the Russians (as the Soviet Union) invaded Afghanistan in 1979, the U.S. and many Western nations boycotted the 1980 Olympic games, which were hosted in Russia. Is it interesting that Russia decided to move forces into Ukraine immediately AFTER the Sochi Olympics were finished?
17) Among the most likely responses to the Russian/Ukrainian crisis is the cancellation of the upcoming G8 summit in Sochi. Another possible response might remove Russia from the G8 club. This would embarrass Russian strongman Vladimir Putin at home and isolate him (and Russia's economy) abroad.
18) Russia's economy could be the big loser in the aftermath of the Ukrainian crisis. Share prices for companies based in Russia declined by 10 percent the day after mysterious soldiers took over the Crimean peninsula, also triggering an outflow of domestic currency that Russia desperately needs to invest in modernizing an economy largely (today) based on selling abroad what is pumped or mined out of the ground.
19) The threat of disruption of trade between Western nations and Russia (either due to sanctions or reluctance to deal with a country that doesn't seem to be focused on following international law) cost the Russian economy $60 billion in a matter of days--more than the total cost to stage the Sochi Olympics.
20 (BONUS) Let's assume that we are not headed toward a world war. Several commentators have unhelpfully pointed out that the Crimea became the flashpoint for World War I, but the world is somewhat different today. There could be some impact from higher energy prices in Europe if the Ukraine pipelines are disrupted temporarily, but Russia needs to sell its oil and gas as much as Europe needs to buy it. Unless someone is heavily invested in Russian stocks, the crisis will likely be seen as a portfolio non-event.
Sources:
http://www.cnbc.com/id/101458530
http://redmoneyupdate.com/tag/ukranian-crisis-and-how-it-may-impact-investments/
http://www.fool.com/investing/general/2013/12/10/growing-uncertaintly-in-the-ukraine-could-impact-l.aspx
http://en.wikipedia.org/wiki/List_of_largest_producing_countries_of_agricultural_commodities
http://en.wikipedia.org/wiki/Ukrainehttp://www.reuters.com/article/2014/03/03/us-urkaine-crisis-russia-economy-analysi-idUSBREA221D020140303
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Whenever we see troop movements and fires raging in the streets of a capitol city the size of Chicago, our instinct is to assume the worst and move our money to the sidelines. But is this really the best strategy? Some commentators see any market downturn as a buying opportunity, since stocks are going on sale simply because of unfounded fear of economic aftershocks.
Here are some facts that you might not know about what has, hitherto, been a relatively quiet new member of the world economic community.
1) The word "Ukraine" means "borderland" in proto-Slavic. It appears to have acquired this name simultaneously from Poland, Austria and Russia, referring to the territory that sits across the border of so many European nations and Russia. In fact, the Polish referred to their troops stationed in this area as Ukranians--that is, borderlanders. Since the country became independent from the Soviet Union, it is no longer referred to internationally as "The Ukraine."
2) Ukraine's currency is the hryvnia, adopted in 1996 after the country suffered the greatest one-year bout of hyperinflation in global economic history. (Zimbabwe has since broken the record.) Today, one dollar will buy 9.6 hryvnias. A euro will buy 13.3 of them.
3) After Russia, Ukraine has the largest military presence in Europe. Ukrainian troops have been deployed as part of international peacekeeping missions in Somalia, Kosovo, Lebanon and Sierra Leone, and has engaged in multinational military exercises with U.S. military forces. NATO has accepted Ukraine as a member pending a national referendum on the matter--which will obviously be delayed until the conflict with Russia has played itself out.
4) Ukraine has one of the world's most active space programs. The National Space Agency of Ukraine has launched six self-made satellites and a total of 101 launch vehicles. The country also manufactures the An-225 aircraft, the largest aircraft ever built.
5) Due to low birth rates, Ukraine's population is declining at the sixth fastest rate in the world, behind the Cook Islands, the Federated States of Micronesia, the Northern Mariana Islands, Niue (an island nation in the South Pacific) and the Eastern European nation of Moldavia, which borders Ukraine.
6) Nevertheless, Ukraine's largest city, Kiev, has a higher population (2.8 million) than Chicago, America's third-largest city. The population of Kharkiv, Ukraine's second-largest city (1.4 million), is greater than San Antonio, San Diego and Dallas, America's seventh, eighth and ninth most populous cities.
7) According to the World Bank, Ukraine's economy is the 51st largest in the world, ranking just behind Peru and the Czech Republic, and just ahead of Romania and New Zealand. But its $7,295 (US) per-capita income (a rough measure of a nation's wealth) ranks 106th in the world, behind Namibia and El Salvador and ahead of Algeria, Micronesia and Iraq.
8) Ukraine co-hosted the Euro 2012 football (soccer) tournament (with Poland), which is one of the major sporting events in Europe.
9) Even though the Chernobyl nuclear disaster occurred in Kiev, Ukraine operates the largest nuclear power plant in Europe.
10) Despite comments that Ukraine is divided between ethnic Ukrainians and Russia, 77.8% of the population is ethnic Ukraine, and only 17.3% is Russian.
11) Ukraine is known as the "breadbasket of Europe" for good reason. The country is the world's fourth largest producer of barley, 5th largest producer of rye, 11th largest producer of wheat, the 6th largest producer of oats and the 9th largest producer of soybeans.
12) Russia sells approximately 80% of its oil and gas exports to the European Union through pipelines that pass directly through Ukraine. The European Union receives 25% of its oil and gas from Russian sources through these conduits.
13) Ukraine also happens to be Russia's second-largest customer of petro-fuels.
14) Russia is drilling for oil in the shallow waters of the Black Sea near the Crimean Peninsula, which shows promise of having significant reserves.
15) Among others drilling in the same area: Chevron and Shell Oil. If they begin production under the Ukrainian flag, it would significantly undercut Russia's oil and gas market share and prices, simultaneously boosting Ukraine's economy.
16) When the Russians (as the Soviet Union) invaded Afghanistan in 1979, the U.S. and many Western nations boycotted the 1980 Olympic games, which were hosted in Russia. Is it interesting that Russia decided to move forces into Ukraine immediately AFTER the Sochi Olympics were finished?
17) Among the most likely responses to the Russian/Ukrainian crisis is the cancellation of the upcoming G8 summit in Sochi. Another possible response might remove Russia from the G8 club. This would embarrass Russian strongman Vladimir Putin at home and isolate him (and Russia's economy) abroad.
18) Russia's economy could be the big loser in the aftermath of the Ukrainian crisis. Share prices for companies based in Russia declined by 10 percent the day after mysterious soldiers took over the Crimean peninsula, also triggering an outflow of domestic currency that Russia desperately needs to invest in modernizing an economy largely (today) based on selling abroad what is pumped or mined out of the ground.
19) The threat of disruption of trade between Western nations and Russia (either due to sanctions or reluctance to deal with a country that doesn't seem to be focused on following international law) cost the Russian economy $60 billion in a matter of days--more than the total cost to stage the Sochi Olympics.
20 (BONUS) Let's assume that we are not headed toward a world war. Several commentators have unhelpfully pointed out that the Crimea became the flashpoint for World War I, but the world is somewhat different today. There could be some impact from higher energy prices in Europe if the Ukraine pipelines are disrupted temporarily, but Russia needs to sell its oil and gas as much as Europe needs to buy it. Unless someone is heavily invested in Russian stocks, the crisis will likely be seen as a portfolio non-event.
Sources:
http://www.cnbc.com/id/101458530
http://redmoneyupdate.com/tag/ukranian-crisis-and-how-it-may-impact-investments/
http://www.fool.com/investing/general/2013/12/10/growing-uncertaintly-in-the-ukraine-could-impact-l.aspx
http://en.wikipedia.org/wiki/List_of_largest_producing_countries_of_agricultural_commodities
http://en.wikipedia.org/wiki/Ukrainehttp://www.reuters.com/article/2014/03/03/us-urkaine-crisis-russia-economy-analysi-idUSBREA221D020140303
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Monday, March 3, 2014
WHAT ABOUT myRA?
Chances are, you've heard about the new myRA retirement savings program that was proposed by President Obama during his State of the Union speech. But what is it, and how does it relate to the array of other retirement savings options you already have--including, of course, traditional and Roth IRAs, 401(k) and/or 403(b) plans? Is this something you need to be looking at in addition to, or instead of one of these other options?
The new account, which is scheduled to be introduced later this year, will be offered to workers who currently don't have access to any kind of retirement program through their employers. Remarkably, this underserved population is actually about half of all workers, mostly those who work for small companies which have trouble affording the cost of creating and administering a 401(k) plan. The idea is that a myRA would be so easy to install and implement (employers don't have to administer the invested assets), and cost so little (virtually nothing), that all of these smaller companies would immediately give their employees this savings option.
Only some of the employees would be eligible, however. Married couples earning more than $191,000, or singles earning more than $129,000, would be excluded from making myRA contributions. And there is currently no law which says that employers would be required to offer these plans.
So the first thing to understand is that people who already have a retirement plan at work, or who earn more than the thresholds, shouldn't give the myRA option a second thought.
Nor, frankly, would those people want to shift over to this option. Why? myRA functions like a Roth IRA, which means that contributions are taxed before they go into the account just like the rest of a person's salary, but the money will come out tax-free. Anybody can make annual contributions to a Roth IRA; the 2014 maximum is $5,500 for persons under age 50; $6,500 if you're 50 or older--and these are the same limits that will be imposed on the myRA. BUT--and this is a big issue--the myRA is not really an investment account. Any funds that are contributed to a myRA account earns interest from the federal government at the same rate that federal employees earn through the Thrift Savings Plan Government Securities Investment Fund--which is another way of saying that the money will be invested in government bonds.
Why does that matter? Retirement accounts that invested in the stock market earned close to 30% from their stock investments last year. The government bond investments that would have gone into a myRA earned 1.89% last year--which is below the inflation rate. In real dollars, that was a losing investment.
Another big issue is the employer match. Many workers who have a traditional 401(k) account get some of their contributions matched by their company, which effectively boosts their earnings. myRA accounts will get no such match.
The Obama Administration clearly understands the difference between saving in a government bond account and actual investing; there is a provision that whenever a myRA account reaches $15,000, it has to be rolled into a Roth IRA, where the money can be deployed in stocks, bonds or anywhere else the account holder chooses. The program seems to be designed to encourage younger workers to start saving much earlier than they currently do. Statistics show that the median retirement account for American workers age 25-32 is just $12,000, and 37% have less than $5,000.
Will they be motivated to save when myRAs roll out at the end of the year? Some commentators have noted that the money can be taken out of the account, for any reason, at any time, with no tax consequences. That is not a great formula for long-term savings. But it does make the myRA account a convenient way for a worker just starting out to build up a cash reserve which could serve as a cushion against job loss or unexpected expenses like car repairs. If it is not needed, the account could eventually grow into a retirement nest egg.
Sources:
http://www.dailyfinance.com/2012/11/14/retirement-savings-by-age-how-do-you-compare/
http://www.marketwatch.com/story/the-trouble-with-obamas-myra-plan-2014-01-31
http://www.foxbusiness.com/personal-finance/2014/02/12/what-all-fuss-about-myra-accounts/
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
The new account, which is scheduled to be introduced later this year, will be offered to workers who currently don't have access to any kind of retirement program through their employers. Remarkably, this underserved population is actually about half of all workers, mostly those who work for small companies which have trouble affording the cost of creating and administering a 401(k) plan. The idea is that a myRA would be so easy to install and implement (employers don't have to administer the invested assets), and cost so little (virtually nothing), that all of these smaller companies would immediately give their employees this savings option.
Only some of the employees would be eligible, however. Married couples earning more than $191,000, or singles earning more than $129,000, would be excluded from making myRA contributions. And there is currently no law which says that employers would be required to offer these plans.
So the first thing to understand is that people who already have a retirement plan at work, or who earn more than the thresholds, shouldn't give the myRA option a second thought.
Nor, frankly, would those people want to shift over to this option. Why? myRA functions like a Roth IRA, which means that contributions are taxed before they go into the account just like the rest of a person's salary, but the money will come out tax-free. Anybody can make annual contributions to a Roth IRA; the 2014 maximum is $5,500 for persons under age 50; $6,500 if you're 50 or older--and these are the same limits that will be imposed on the myRA. BUT--and this is a big issue--the myRA is not really an investment account. Any funds that are contributed to a myRA account earns interest from the federal government at the same rate that federal employees earn through the Thrift Savings Plan Government Securities Investment Fund--which is another way of saying that the money will be invested in government bonds.
Why does that matter? Retirement accounts that invested in the stock market earned close to 30% from their stock investments last year. The government bond investments that would have gone into a myRA earned 1.89% last year--which is below the inflation rate. In real dollars, that was a losing investment.
Another big issue is the employer match. Many workers who have a traditional 401(k) account get some of their contributions matched by their company, which effectively boosts their earnings. myRA accounts will get no such match.
The Obama Administration clearly understands the difference between saving in a government bond account and actual investing; there is a provision that whenever a myRA account reaches $15,000, it has to be rolled into a Roth IRA, where the money can be deployed in stocks, bonds or anywhere else the account holder chooses. The program seems to be designed to encourage younger workers to start saving much earlier than they currently do. Statistics show that the median retirement account for American workers age 25-32 is just $12,000, and 37% have less than $5,000.
Will they be motivated to save when myRAs roll out at the end of the year? Some commentators have noted that the money can be taken out of the account, for any reason, at any time, with no tax consequences. That is not a great formula for long-term savings. But it does make the myRA account a convenient way for a worker just starting out to build up a cash reserve which could serve as a cushion against job loss or unexpected expenses like car repairs. If it is not needed, the account could eventually grow into a retirement nest egg.
Sources:
http://www.dailyfinance.com/2012/11/14/retirement-savings-by-age-how-do-you-compare/
http://www.marketwatch.com/story/the-trouble-with-obamas-myra-plan-2014-01-31
http://www.foxbusiness.com/personal-finance/2014/02/12/what-all-fuss-about-myra-accounts/
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Monday, February 24, 2014
WISE DECISIONS WITH RETIREMENT IN MIND
Certain financial & lifestyle choices may lead you toward a better future.
Some retirees succeed at realizing the life they want, others don't. Fate aside, it isn't merely a matter of stock market performance or investment selection that makes the difference. There are certain dos and don'ts - some less apparent than others - that tend to encourage retirement happiness and comfort.
Retire financially literate. Some retirees don't know how much they don't know. They end their careers with inadequate financial knowledge, and yet feel that they can plan retirement on their own. They mistake retirement income planning for the whole of retirement planning, and gloss over longevity risk, risks to their estate, and potential health care expenses. The more you know, the more your retirement readiness improves.
Retire knowing that you'll have to assume some risk. Growth investing is increasingly seen as a necessity for retirees who want to keep ahead of inflation.
According to data and research compiled by the Social Security Administration, the average 65-year-old man will live to be 84 and the average 65-year-old woman will live to be 86. So that's a 20-year retirement. The SSA also notes that roughly a quarter of today's 65-year-olds will live past 90, and about 10% of them will live beyond age 95.1
If these seniors rely on fixed-income investments for the balance of their lives, they may end up with reduced retirement income potential, and in turn a reduced standard of living. Look at the Rule of 72: if an investment is yielding 2%, it will take about 36 years to double your money. Yes, interest rates are rising - but inflation should rise with them.2
A generation ago, mature Americans were urged to gradually shift their portfolio assets out of stocks and into fixed-income investments. One old rule of thumb was to subtract your age from 100, with the resulting number being the percentage of your portfolio you should assign to equities.3
Today, retirees and retirement planners are reconsidering this thinking. As the Wall Street Journal reported recently, one study of retirement money and longevity risk concluded that retirement funds may last longer if a retiree gradually increases the stock allocation within a portfolio about 1% per year from an initial range of between 20-50% to between 40-80%. The concept here is that a retiree's stock allocation should be lowest when their retirement nest egg is largest.3
Retire debt-free, or close to debt-free. Who wants to retire with 10 years of mortgage payments ahead or a couple of car loans to pay off? Even if your retirement savings are substantial, what will big debts do to your retirement morale and the possibilities on your retirement horizon? On that note, refrain from loaning money to family members and friends who seem quite capable of standing on their own two feet.
If the thought of using some of your retirement money to pay outstanding debts hits you, set that thought aside. You have dedicated that money to your future, not to bill paying. On second or third thought, other sources for the cash may be apparent.
Retire with purpose. There's a difference between retiring and quitting. Some people can't wait to quit their job at 62 or 65 - their work is "killing" them, or boring them senseless. If only they could escape and just relax and do nothing for a few years - wouldn't that be a nice reward? Relaxation can lead to inertia, however - and inertia can lead to restlessness, even depression. You want to retire to a dream, not away from a problem.
A retirement dream can become even more captivating when it is shared. Spouses who retire with a shared dream or with utmost respect for each other's dreams are in a good place.
The bottom line? Retirees who know what they want to do - and go out and do it - are contributing to their mental health and possibly their physical health. If they do something that is not only vital to them but important to others, their community can benefit as well.
Retire healthy. Smoking, drinking, overeating, a dearth of physical activity - all these can take a toll on your capacity to live fully and enjoy retirement. It is never "too late" to quit smoking, quit drinking or slim down.
Retire in a community where you feel at home. It could be where you live now; it could be a place hundreds or thousands of miles away where the scenery and people are uplifting. It could be the place where your children live. If you find yourself lonely in retirement, then "find your tribe" - look for ways to connect with people who share your experiences, interests and passions, and who encourage you and welcome you. This social interaction is one of the great intangible retirement benefits.
Citations.
1 - ssa.gov/planners/lifeexpectancy.htm [2/6/14]
2 - investopedia.com/terms/r/ruleof72.asp [2/6/14]
3 - tinyurl.com/m8akefj [2/3/14]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.
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