Retirement Confidence Increases for Workers and Retirees
The 29th annual Retirement Confidence Survey (RCS), conducted by the Employee Benefit Research Institute (EBRI) in 2019, found that two-thirds of U.S. workers (67%) are confident in their ability to live comfortably throughout their retirement years (up from 64% in 2018). Worker confidence now matches levels reported in 2007 — before the 2008 financial crisis.
Confidence among retirees continues to be greater than that of workers. Eighty-two percent of retirees are either very or somewhat confident about having enough money to live comfortably throughout their retirement years (up from 75% in 2018).
Retirement plan participation
Retirement confidence seems to be strongly related to retirement plan participation. “Workers reporting they or their spouse have money in a defined contribution plan or IRA, or have benefits in a defined benefit plan, are nearly twice as likely to be at least somewhat confident about retirement (74% with a plan vs. 39% without),” said Craig Copeland, EBRI senior research associate and co-author of the report.
Basic retirement expenses and medical care
Retirees are more confident than workers when it comes to basic expenses and medical care. Eighty-five percent of retirees report feeling very or somewhat confident about being able to afford basic expenses in retirement, compared with 72% of workers. Confidence in having enough money to pay medical expenses in retirement was also higher among retirees than workers: 80% versus 60%. However, 41% of retirees and 49% of workers are not confident about covering potential long-term care needs.
Debt levels
The survey consistently shows a relationship between debt levels and retirement confidence. “In 2019, 41% of workers with a major debt problem say that they are very or somewhat confident about having enough money to live comfortably in retirement, compared with 85% of workers who indicate debt is not a problem. Thirty-two percent of workers with a major debt problem are not at all confident about their prospects for a financially secure retirement, compared with 5% of workers without a debt problem,” said Copeland.
What Are the Costs of the Government Shutdown?
The longest government shutdown in U.S. history ended after 35 days on January 25, 2019. A temporary appropriations bill extended funding for shuttered federal agencies to February 15, 2019, while a bipartisan committee negotiates a new spending bill for the Department of Homeland Security.1
The full impact of the shutdown will not be known for months, but official estimates have been released, and it may be helpful to look at the estimated cost to the U.S. economy, as well as the effect on public safety and other government services.
Nine departments closed
The shutdown began on December 22, 2018, when funding lapsed for nine cabinet-level departments (agriculture, commerce, homeland security, housing and urban development, interior, justice, transportation, Treasury, and state) as well as a number of other government agencies.2
About 800,000 federal workers in these organizations missed two consecutive paychecks.3 Some 380,000 of these workers were originally placed on unpaid leave (furlough), while 420,000 were deemed “essential” and required to report to work without pay.4 As the stoppage progressed, tens of thousands of furloughed workers were ordered back to work without pay.5
All federal employees will receive full back pay as soon as possible — many by the end of January — but about 1.2 million government contractors had no guarantees and may lose income permanently. It has been estimated that contractors faced more than $200 million a day in lost or delayed revenue.6-7
Family hardship and public safety
Missing paychecks was a hardship for many families and especially difficult on lower-paid essential workers. (Furloughed workers in many states could apply for unemployment benefits or seek other employment opportunities.)
The most visible manifestation of this issue was increased absences by Transportation Security Administration (TSA) workers. On January 20, the absentee rate for TSA airport screeners was 10%, up from 3.1% on a comparable day last year. According to the TSA, many workers took time off for financial reasons, such as an inability to pay for child care or transportation. Increased absences resulted in long lines, delays, and gate closures at some airports.8
Air traffic controllers, who are better paid, remained on the job without pay and normal support staff. However, on January 25, an increase in absences by controllers temporarily shut down New York’s LaGuardia Airport and led to substantial delays at airports in Newark, Philadelphia, and Atlanta. This may have been an impetus to reopen the government later that day.9
Other public safety employees who worked without pay include the U.S. Coast Guard, customs and border protection agents, and law-enforcement officers at the Federal Bureau of Investigation, U.S. Marshals Service, Drug Enforcement Administration, and Bureau of Prisons.10
Disrupted services
While essential workers maintained some federal services, furloughed workers left significant gaps. National parks were closed or understaffed, resulting in lost revenue, vandalism, and mounting trash.11 Many federal services were delayed or suspended, ranging from food inspections and civil court cases to consumer protection services, rural home loans, and federal reports used for everything from projecting the economy to deciding what crops to plant.12-16
The IRS called back 26,000 furloughed workers to process tax refunds, but almost 14,000 of them had not reported as of January 22. The IRS is understaffed under normal circumstances, and it may take time to get up to speed, adding to the challenges of processing returns that reflect changes in the new tax law.17 About $2 billion in tax revenue may be lost as a result of reduced IRS compliance efforts during the shutdown.18
Broader economic impact
According to the nonpartisan Congressional Budget Office (CBO), an estimated $18 billion in government spending was lost or delayed during the shutdown. This includes $9 billion of direct spending on goods and services and $9 billion in compensation for federal employees. Assuming the government stays open, most of this is expected to be recouped over the next eight months, but $3 billion in gross domestic product (GDP) may be permanently lost.19
Three billion dollars is a tiny fraction of total U.S. GDP — about 0.02% — but quarterly GDP growth may take a larger hit. The CBO projects an annualized loss of 0.2% growth in the fourth quarter of 2018 and 0.4% in the first quarter of 2019. So the CBO’s pre-shutdown estimate of 2.5% annualized growth in the first quarter would be reduced to 2.1%. GDP growth may be 1% higher than expected in the second quarter.20
Even if delayed spending is recovered, lost productivity by furloughed workers and government contractors will not be regained.21 Consumer confidence dropped in December and January due in part to the shutdown, but may rebound if the government remains open.22 A longer-term concern is the potential loss of federal workers, including those who leave for other opportunities and qualified candidates who may look elsewhere due to doubts about the future stability of federal jobs.23
It remains to be seen whether all government agencies continue to operate with full funding after the February 15 deadline. If so, the long-term economic costs of the shutdown may be relatively small, but the impact on individuals who fell behind financially or missed out on government services could be significant.
1, 9) The Washington Post, January 25, 2019
2, 18-20) Congressional Budget Office, January 2019
3, 23) CNBC, January 26, 2019
4) The Wall Street Journal, December 21, 2018
5, 13) CNN, January 16, 2019
6) Federal News Network, January 28, 2019
7) Bloomberg, January 17, 2019
8) Associated Press, January 21, 2019
10) ABC News, December 29, 2018
11) nationalgeographic.com, January 7, 2019
12) The Wall Street Journal, January 9, 2019
14) Federal Trade Commission, December 28, 2018
15) CNBC, January 9, 2019
16) CNN, January 8, 2019
17) The New York Times, January 25, 2019
21) S&P Global Ratings, January 11, 2019
22) The Conference Board, January 29, 2019
2018 Year-end opportunity
The end of the year presents a unique opportunity to look at your overall personal financial situation. With factors like tax reform, life changes or just working towards your goals, end of year is an especially important time to review things. Weaving together your prior planning, subsequent changes and revised goals helps you stay on course. Following are some things you consider before the year ends.
Income Tax Planning –Ensure you are implementing tax reduction strategies like maximizing your retirement plan contributions, tax loss harvesting in portfolios and making charitable contributions can all help reduce current and future tax bills. It is also good to review your current year tax projection based on your income and deductions year to date and how that may be different from before.
Estate Planning – Examine your current estate plan to visualize what would happen to each of your assets and how the current estate tax law will impact you. Be sure that your estate planning documents are up to date – not just your will, but also your power of attorney, health care documents, and any trust agreements and beneficiary designations are in line with your desires. If you have recently been through a significant life event such as marriage, divorce or the death of a spouse, this is especially important right now.
Investment Strategy– The recent market volatility has some people feeling uncomfortable. Market declines are a natural part of investing, and understanding the importance of maintaining discipline during these times is imperative. Regular portfolio rebalancing will allow you to maintain the appropriate amount of risk in your portfolio. And, if you are retired and living off your portfolio, you also want to maintain an appropriate cash reserve to cover living expenses for a certain period of time so that you do not have to sell equities in a down market.
Charitable Giving – There are many ways to be tax efficient when making charitable gifts. For example, donating appreciated stock could make sense in order to avoid paying capital gains taxes. Further, you may want to consider bunching charitable deductions by deferring donations to next year or making your planned 2019 donations ahead of time. If the numbers are large enough, you might even consider a private foundation or donor advised fund for your charitable giving. If you are at least 70.5 you may want to consider Qualified Charitable Distributions (QCD) from your IRA.
Retirement Planning –Think about your future when working becomes optional. Whether you expect a typical full retirement or a career change to something different, determining an appropriate balance between spending and saving, both now and in the future is important. There are many options available for saving for retirement, and we can help you understand which option is best for you. If you are at least 70.5 you should be sure your 2018 Required Minimum Distributions (RMD) from your IRAs are paid before year-end. Qualified Charitable Contributions, up to $100,000, will be treated as part of your RMD but not taxed.
Cash Flow Planning – Review your 2018 spending and plan ahead for next year. Understanding your cash flow needs is an important aspect of determining if you have sufficient assets to meet your goals. If you are retired, it is particularly important to maintain a tax efficient withdrawal strategy to cover your spending needs. If you have not yet reached age 70.5, it is prudent to ensure you are making tax-efficient withdrawal decisions. If you are over age 70.5 make sure you are taking your RMDs because the penalties are significant if you don’t.
Risk Management – It is always a good idea to periodically review your insurance coverages in various areas. Recent catastrophic events like hurricanes serve as a powerful reminder to make sure your property insurance coverage is right for your needs. If you are in a Federal disaster area, there are additional steps necessary to recover what you can and explore the tax treatment of casualty losses. Other areas of risk management that may need to be revisited include life and disability insurance.
Education Funding – Funding education costs for children or grandchildren is important to many people. While the increase in college costs have slowed some lately, this is still a major expense for most families. It is important to know the many different ways you can save for education to determine the optimal strategy. Often, funding a 529 plan comes with tax benefits, so making contributions before the end of the year is key. With the added flexibility of funding k-12 years (set at a $10,000 limit), 529 accounts become even more advantageous.
Elder Planning – There are many financial planning elements to consider as you age, and it is important to consider these things before it’s too late. Having a plan in place for who will handle your financial affairs should you suffer cognitive decline is critical. Making sure your spouse and/or family understands your plans will help reduce future family conflicts and ensure your wishes are considered.
The decisions you make each year with your personal finances will have a lasting impact. I hope this has begun to generate some insight to areas of your personal finance that need attention. Please contact me if you have any comments or questions.
Perspective on February 5, 2018 Market Events
It looks like the U.S. stock market will finally get something that happens, on average, about once a year: a 10+% percent drop—the definition of a market correction. The last time this happened was a whopper—the Great Recession drop that caused U.S. stocks to drop more than 50%–so most people today probably think corrections are catastrophic. They aren’t. More typically, they last anywhere from 20 trading days (the 1997 correction, down 10.8%) to 104 days (the 2002-2003 correction, down 14.7%). Corrections are unnerving, but they’re a healthy part of the economy—for a couple of reasons.
Reason #1: Because corrections happen so frequently and are so unnerving to the average investor, they “force” the stock market to be more generous than alternative investments. People buy stocks at earnings multiples which are designed to generate average future returns considerably higher than, say, cash or municipal bonds—and investors require that “risk premium” (which is what economists call it) to get on that ride. If you’re going to take more risk, you should expect at least the opportunity to get considerably more reward.
Reason #2: The stock market roller coaster is too unsettling for some investors, who sell when they experience a market lurch. This gives long-term investors a valuable—and frequent—opportunity to buy stocks on sale. That, in turn, lowers the average cost of the stocks in your portfolio, which can be a boost to your long-term returns.
The current market downturn relates directly to the first reason, where you can see that bonds and stocks are always competing with each other. Monday’s 4.1% decline in the S&P 500 coincided with an equally-remarkable rise in the yields on U.S. Treasury bonds. Treasuries with a 10-year maturity are now providing yields of 2.85%–hardly generous, but well above the record lows that investors were getting just 18 months ago. People who believe they can get a decent, relatively risk-free return from bond investments are tempted to abandon the bumpy ride provided by stocks for a smoother course that involves clipping coupons. Bond rates go up and the very delicate supply/demand balance shifts, at least temporarily, in their direction, and you have the recipe for a stock market correction.
This provides us all with the opportunity to do an interesting exercise. It’s possible that the markets will drop further—perhaps even, as we saw during the Great Recession, much further. Or, as is more often the case, they may rebound after giving us a correction that stops short of a 20% downturn. The rebound could happen as early as tomorrow or some weeks or months from now as the correction plays out.
Once it’s over, no matter how long or hard the fall, you will hear people say that they predicted the extent of the drop. So now is a good time to ask yourself: do I know what’s going to happen tomorrow? Or next week? Or next month? Is this a good time to buy or sell? Does anybody seem to have a handle on what’s going to happen in the future?
Record your prediction, and any predictions you happen to run across, and pull them out a month or two from now.
Chances are, you’re like the rest of us. Whatever happens will come as a surprise, and then look blindingly obvious in hindsight. All we know is what has happened in the past. Today’s market drop is nothing more than a data point on a chart that doesn’t, alas, extend into the future.
Sources:
https://www.fool.com/knowledge-center/6-things-you-should-know-about-a-stock-market-corr.aspx
https://www.yardeni.com/pub/sp500corrbear.pdf
https://finance.yahoo.com/news/stocks-getting-smashed-143950261.html
Bob Veres
U.S. Census Bureau Releases Report on Young Adulthood
In an April 2017 report, the U.S. Census Bureau examines changes in young adulthood over the last 40 years. The study looks at how the economic and demographic characteristics of young adults (ages 18 to 34) have changed from 1975 to 2016.
The report defines adulthood as a period in life associated with common experiences and the achievement of particular milestones, such as living independently of parents, working full-time, getting married, and having children.
This puts some recent changes in perspective: In 1975, 45% of young adults (ages 25 to 34) had completed four specific milestones — lived independently of their parents, had ever married, lived with a child, and were in the labor force — compared with only 24% of 25- to 34-year-olds in 2016.
The report also reveals that while educational and economic accomplishments are considered important milestones of adulthood by most of today’s Americans, marriage and parenthood rank much lower.
Education and economic stability rated most important
The highest-ranked milestone of adulthood by Americans today is completing a formal education: More than 60% of Americans believe that doing so is extremely important. Ranked second is working full-time (52%), followed by the ability to support a family financially (50%).
More young adults today have achieved this educational milestone compared with their counterparts 40 years ago. For example, less than one-fourth of 25- to 34-year-olds had a college degree in 1975, compared with more than one-third in 2016.
Marriage and parenthood are delayed milestones
Over half of Americans believe that getting married and having children are not important to becoming an adult, but this does not mean they plan to forgo these milestones altogether. Instead, getting married and having children are occurring later in life.
Whereas eight in 10 young adults in the mid-1970s had married before age 30, this milestone isn’t reached today by the same proportion of Americans until their early 40s. Similarly, more than two-thirds of women in the mid-1970s were mothers by the time they were ages 25 to 29, but today that proportion is not reached until ages 30 to 34.
Living independently is less important
Only about one-fourth of Americans rank moving out of a parent’s home as an extremely important adult milestone. So it’s not surprising that the number of young adults living independently has declined. In 1975, 26% of young adults (ages 18 to 34) were living in their parents’ home, compared with 31% in 2016.
Also noteworthy is that in just a decade, living arrangements changed dramatically. In 2005, a majority of young adults lived independently in their own households (either alone, with a spouse, or with an unmarried partner) in 35 states. By 2015, though, only six states had a majority of young adults living independently.
Not completing a formal education and lack of a steady job are contributing factors to the decline in young adults living independently. Young people who still live with their parents today are far less likely than their peers to have a college degree or a full-time job. Of young adults (ages 25 to 34) today who are living independently, 41% have a bachelor’s degree and 64% have a full-time job. Not surprisingly, young people living independently also tend to have higher incomes: More than half of older millennials living in their own households earn $30,000 or more in income, compared with only about one-third of their peers who live with roommates and one-fourth who live with their parents.
Of young adults (ages 25 to 34) living in their parents’ home today, one in four are not attending school or working. Often they are older millennials who have only a high school education. This group typically faces challenges such as the loss or unavailability of a job, unaffordable housing rates, and child-rearing responsibilities.
The shifting paths of young adulthood
Over the last 40 years, the milestones of adulthood have remained largely the same, but the importance and timing of these milestones have changed. Young adults today are less focused on marriage and parenthood in their 20s and early 30s and are more concerned about establishing financial security by finishing school and gaining work experience. More of them have college degrees and full-time jobs than their counterparts did in 1975, but fewer own their own homes. As a result, young people today often delay establishing a household and settling down with a family until they are able to support themselves financially.
Source: Jonathan Vespa, “The Changing Economics and Demographics of Young Adulthood: 1975-2016,” Current Population Reports, P20-579, U.S. Census Bureau, Washington, DC, April 2017
New Real Estate Sector Puts Equity REITs in the Spotlight
Publicly traded REITs and other listed real estate companies are being moved to a distinct Real Estate sector by S&P Dow Jones Indices and MSCI.
S&P Dow Jones Indices and MSCI recently moved publicly traded equity real estate investment trusts (REITs) and other listed real estate companies from the Financials sector into a new, separate Real Estate sector effective September 1, 2016. (Mortgage REITs remain in the Financials sector, along with banks and insurance companies.) There are now 11 headline sectors instead of 10. It’s the first time a new sector has been added to the Global Industry Classification Standard (GICS®) since it was created in 1999. (1)
The move has implications for investors, because S&P and MSCI indexes are common benchmarks for investment performance, and the GICS is often used as a framework for portfolio construction. By some estimates, fund managers could shift as much as $100 billion to the Real Estate sector in a collective effort to follow the market weightings of various indexes. (2)
The change could also affect the asset allocation decisions of some individual investors by drawing more attention to equity REITs as income-generating assets with the potential for capital appreciation.
Fixed-income appeal
An equity REIT is a company that combines capital from investors to buy and manage income properties such as apartments, shopping centers, hotels, medical facilities, offices, self-storage units, and industrial buildings. Publicly traded REIT shares can generally be bought or sold on an exchange at a moment’s notice, making them more liquid than physical real estate investments, which involve transactions that can take months to complete.
Many REITs generate a reliable income stream regardless of share price performance, primarily because they are required by law to pay out 90% of their taxable incomes as dividends to stakeholders. In the second quarter of 2016, the S&P REIT index had a dividend yield of 3.73%. (3) The performance of an unmanaged index is not indicative of the performance of any specific security. Individuals cannot invest directly in an index.
REIT share prices can be sensitive to interest rates. As rates rise, steady dividends may appear less attractive to investors relative to the safety of bonds offering similar yields. On the other hand, current fundamentals, including modest economic growth, lower unemployment, and rising rents, are generally seen as positive conditions for REITs and other real estate businesses.
Diversification tool
Breaking real estate out of the Financials sector acknowledges that the industry’s business models and ties to underlying property markets produce a distinctive risk-return profile, including a relatively low correlation to the rest of the stock market. (4) Because the share prices of equity REITs don’t rise and fall in lockstep with the broader stock market, including them in your portfolio could help reduce the overall level of risk.
The return and principal value of all stocks, including REITs, fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Diversification and asset allocation do not guarantee a profit or protect against investment loss; they are methods used to help manage investment risk.
REIT distributions are taxable to the extent they include any ordinary income and capital gains. Some REITs may not qualify as a REIT as defined in the tax code, which could affect operations and negatively impact the ability to make distributions.
There are inherent risks associated with real estate investments that could have an adverse effect on financial performance. Such risks may include a deterioration in the economy or local real estate conditions; tenant defaults; property mismanagement; and changes in operating expenses (including insurance costs, energy prices, real estate taxes, and the cost of compliance with laws, regulations, and government policies).
Breaking real estate out of the Financials sector acknowledges that the industry’s business models and ties to underlying property markets produce a distinctive risk-return profile, including a relatively low correlation to the rest of the stock market.
(1) , (3) S&P Dow Jones Indices, 2015-2016
(2) Investor’s Business Daily, March 18, 2016
(4) FinancialAdvisor.com, March 1, 2016
The foregoing is provided for information purposes only. It is not intended or designed to provide legal, accounting, tax, investment or other professional advice. Such advice requires consideration of individual circumstances. Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained. JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.
The British Are Leaving! Why the Brexit Matters to Investors
Here’s an overview of the economic issues surrounding the Brexit, and what this historic
decision could mean for the United Kingdom, world trade, and international investors.
On June 23, citizens of the United Kingdom (England, Scotland, Wales, and Northern
Ireland) voted to leave the European Union by a margin of 52% to 48%.1 Though pre-election
polls suggested that public opinion was evenly divided, when the election results became
clear, financial markets around the world reacted swiftly to concerns about potential economic
ramifications of a British exit—or Brexit—from the EU.
On June 24, the British pound plunged more than 10% against the dollar to its lowest point
since 1985, before recovering slightly to settle nearly 8% lower at the end of the day.2 European
stocks suffered the worst sell-off since 2008, with the Stoxx Europe 600 Index tumbling 7%, and
the Japanese Nikkei Index posted a one-day drop of 7.9%.3–4 In the United States, the S&P 500 Index fell 3.6%, reversing year-to-date gains.5
Here’s an overview of the economic issues surrounding the Brexit, and what this historic
decision could mean for the United Kingdom, world trade, and international investors.
The EU and the Referendum
The European Union was formed after World War II to help promote peace through
economic cooperation. Over time, it became a common market, allowing goods and people to
move freely around 28 member states as if they were one country. The U.K. joined the trading
bloc in 1973, when there were only 9 member states.
In 2012, Prime Minister David Cameron rejected calls for a referendum on EU membership
but later agreed to hold one if the Conservative party won the 2015 election.6 The leaders of
all five major political parties campaigned to remain in the EU, including Cameron, warning
voters that leaving the EU was a leap into the unknown that could damage the U.K.’s economy
and weaken national security.7
Brexit supporters said leaving the EU allows the nation to take back control over business,
labor, and immigration regulations and policies. They also claimed the money being
contributed to the EU budget (a net contribution of 9.8 billion pounds in 2014) would be better
spent on infrastructure and public services in the U.K.8
Economic Expectations
The negative outlook for the U.K. economy depends on the terms of trade deals yet to
be negotiated with the EU and other nations. For example, the International Monetary Fund
(IMF) projects that U.K. gross domestic product could decline about 1.5% by 2021, assuming
the United Kingdom is granted access to the EU market quickly. Under a more adverse
scenario (which assumes trade defaults to World Trade Organization rules), the IMF projects a
precarious decline in GDP of about 4.5%.9
The U.K.’s departure strikes a serious blow to the EU, which has been beleaguered by debt
crises, a Greek bailout, the influx of millions of refugees, high unemployment, and weak GDP
growth. If trade activity and business conditions in the region deteriorate, it’s possible that the
U.K. and the EU could fall back into recession.
Next Steps
Once Article 50 of the Lisbon Treaty is invoked, the formal process of leaving the EU will
begin, opening up a two-year window of negotiations on the terms of the exit. The U.K. will
remain a member of the EU until it officially departs.10
The U.K. is the first nation to break away from the EU, but a larger concern is that anti-EU
factions in other nations could be empowered to follow suit. Moreover, Scotland could seek
independence from the U.K. in order to remain in the EU, and Northern Ireland might consider
reunification with the Republic of Ireland.11
What About Us?
The EU is the largest trading partner of the United States, so the Brexit complicates
pending trade negotiations and will require adjustments to existing agreements. It may also
take time to forge new deals with the U.K.12
U.S. companies with a significant presence in the U.K. could take a hit. With the British
pound weakening against an already strong dollar, U.S. exports become more expensive,
reducing foreign sales. The U.S. economy is not as vulnerable as the EU, but the U.S. Federal
Reserve may be more likely to delay its decision to raise interest rates until the consequences
of the Brexit on U.S. and global markets can be assessed.13
Brexit-related anxiety could continue to spark market volatility until the details are finalized
and the economic fallout is better understood, possibly for several years. Having a sound
investing strategy that matches your risk tolerance could prevent you from making emotional
decisions and losing sight of your long-term financial goals.
Investments are subject to market fluctuation, risk, and loss of principal. Investing internationally
carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic
and political risk unique to a specific country. This may result in greater share price volatility.
Shares, when sold, may be worth more or less than their original cost. The performance of an unmanaged
index is not indicative of the performance of any specific security. Individuals cannot invest in any
index.
1-2, 7, 10-11) BBC News, June 24, 2016
3, 5) Bloomberg.com, June 24, 2016
4) Reuters, June 24, 2016
6) The New York Times, June 25, 2016
8) CNNMoney, June 2, 2016
9) International Monetary Fund, 2016
12-13) The Wall Street Journal, June 24, 2016
The foregoing is provided for information purposes only. It is not intended or designed to provide legal, accounting, tax, investment or other professional advice. Such advice requires consideration of individual circumstances. Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained. JAS Financial Services, LLC is not responsible for any modifications made to this material, or for the accuracy of information provided by other sources.
Supreme Court Upholds Health Insurance Subsidies
The case of “King v. Burwell” challenged the interpretation of a portion of the Affordable Care Act (ACA). The ACA provided health insurance subsidies for quailed persons. One requirement was that the insurance be purchased through state-based exchanges (marketplaces). Only 16 states and the District of Columbia operated their own state-based exchanges. Most consumers purchased insurance through federal exchanges through the federal government websites. June 25, 2015 the U.S. Supreme held that insurance subsidies were available to those that qualified for subsidies purchased insurance through the federal exchange.
The lessons learned from “the old Enron story” still apply.
The following is from Edward Mendlowitz’s Feb. 24, 2015 Blog.
“in his book Money: Master the Game, Tony Robbins dredges up the old Enron story, which I agree with, and want to call to your attention now. Here is a brief listing copied from Tony’s book of the lauds, Enron received right up until their bankruptcy filing.
Mar 21, 2001 Merrill Lynch recommends
Mar 29, 2001 Goldman Sacks recommends
June 8, 2001 J.P. Morgan recommends
Aug 15, 2001 Bank of America recommends
Oct 4, 2001 A G Edwards recommends
Oct 24, 2001 Lehman Brothers recommends
Nov 12, 2001 Prudential recommends
Nov 21, 2001 Goldman Sacks recommends (again)
Nov 29, 2011 Credit Suisse First Boston recommends
Dec 2, 2001 Enron files Bankruptcy
Millions of Investors trusted these venerable firms and followed their recommendations. A question I had at the time was, “How much work did they do before they made their recommendations?” I could not have been too much since every recommendation was wrong. Another observation is that many of the largest mutual funds has significant positions in Enron.
Now, lets fast forward to today. Has anything changed? Were lessons learned? Are more intensive analysis being done now? I suggest that nothing has changed. Examples are in the many recommendations to buy oil stocks a few months ago before a subsequent additional 35% drop. …Next, as Robbins points out, most actively managed mutual funds do not outperform the index they are trying to beat….
The principles in the book are easy to understand, digest and act on…. I have condensed them [his seven steps] and … restate as follows:
1. Commit to regular savings program
2. Know and understand why you are investing in
3. Develop a plan and, while at it, reduce spending, keep investment costs low and shed debt
4. Allocate your assets carefully and rebalance periodically
5. Create a lifetime income plan
6. Invest like the .001%, i.e. don’t be stupid and re-look at step 2
7. Be happy by growing and giving
All good advice you can start following today.
Market movements are often not based on fact.
Robert J. Shiller’s October 18th New York Times article, “When a Stock Market Theory Is Contagious” discusses the recent stock market fluctuation. In addition to being a professor of economics at Yale University, he has authored many books, writes columns, co-created the “S&P/Case-Shiller Home Price Indices” and was 1 of 3 recipients of the 2013 Nobel Prize in Economic Sciences.
The topic of the article ties into my comments about risk and volatility in my October newsletter.
“The problem is that short-term market movements are extremely hard to forecast. But we live in the present and must try to understand what’s driving the market now, even if it’s much easier to predict their behavior in the long run.” That is to say we do not know the future, but we can explain what happened in the past.
“…stock markets are driven by popular narratives, which don’t need basis in solid fact.” The article compares the narratives with the “Ebola virus: they spread by contagion.” The narratives causes investors “…to take action that propels prices…in the same direction.” That is, we do not know why the market fell but people and companies may respond by cutting spending resulting in the market falling further.
Recent stories attribute the current drop in the stock market to a “global slowdown”. The narrative can cause people and companies to spend less continuing the fall in the stock market. He concludes with the following. “The question may be whether the virus mutates into a more psychologically powerful version, one with enough narrative force to create a major bear market.”
