economy, entrepreneurship, new economy, retirement, risk management

The Work of Nations: 30 Years On…

When I first read “The Work of Nations” by Robert Reich in the mid-1990s I had almost no background in macroeconomics. (1) But in reading it, Reich was able to effectively describe how radically the economic system was changing as a result of Globalization. Reich at the time was Bill Clinton’s Secretary of Labor and a key member of his economic team.

As context, China’s economy in 1991 was $400 billion compared to $6,174 billion for the US. China entered the global trade organizations in 1992. Today China’s economy is $15.6 trillion compared to $23 trillion for the US for 2021. (11)

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economy, interest rates, retirement, risk management

Jobs Friday: December 2021

As a financial advisor and someone who loves the study of economics, “Jobs Friday” is the highlight of my month. It is a signpost of where the economy has been for the past month or two, as well as giving clues about where it is headed in the coming month. Information derived from the Jobs Report posted by the US Dept of Labor is used by the Federal Reserve to judge, manage, and adjust monetary policy. Politicians on both sides use the information to justify and drive fiscal policy.

For this month’s report the expectation was for the economy to have created 550,000 new jobs. One factor going into the jobs report that is a concern is ‘how many people are going to come back into the labor market?’ Currently, economists estimate that nearly 8 million people are still out of the labor force, having left at the beginning of the COVID pandemic in February 2020. (3)

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economy, income, protection, retirement, risk management

Closing the Retirement Savings Gap

A new report from World Economic Forum shows that retirees could outlive their savings by a decade or more due to higher life expectancy. “Women should prepare to bear the brunt of such shortfalls, going without retirement savings for at least two years longer than their male counterparts.” (3)

“The size of the gap is such that it requires action,’ says report co-author Han Yik. (1)

The report shows men in the US have a retirement savings gap of 8.3 years. The report shows that women in the US have an average 10.9 year gap between what they have saved and what they will require due to increased longevity.

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health, income, protection, retirement, risk management

5 Tips to Make Your Retirement Savings Last

The statistics are troubling…
10,000 Americans begin their retirement every day.

The Social Security Administration has said the SS Trust Fund will become exhausted by 2035, unless benefits are reduced, the retirement age is raised, or other solutions are put into action. (1)

76% of Baby Boomers are not confident they have saved enough for retirement. (2)

One third of retirees retire with mortgage debt. (2)

Only 18% have more than $200,000 saved. (2)

56% have less than $10,000 saved. (2)

Women live substantially longer than men and yet have much less saved for retirement. (3)

About 25% of non-retired adults have no retirement savings (4)

Many Americans have experienced reductions in pay and not been able to save as much as they would have liked since the Great Recession of 2008/2009. (5)

In addition, the Great Recession resulted in many workers in their 50s and 60s getting laid off, not being able to find comparable employment and choosing early retirement.

55% of seniors working during retirement say they do so because they need extra money. (4)

It’s not an optimal situation for many people. Adding to the stress on finances is the fact that people are living longer.

So, the question is how can we improve our retirement situation with the resources we have at our disposal?
Listed below are 5 strategies you can implement today to make the most of your retirement savings…

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AI, economy, entrepreneurship, new economy, retirement

“Morning in America…”

I was driving into work today and a Chevy Volt sped by me. Yesterday a Tesla Model S was parked in front of my office. In Q2 of 2019 Tesla produced over 72,000 cars, including the mass production version Model3. By Q3 of 2021 Tesla had produced 240,000 cars. (1)

Technology is bringing a renaissance to American manufacturing. (2) New industries and new job descriptions are being created, even as “old economy” jobs become antiquated and outsourced to robots. (3)

Technology is allowing people to use their existing assets in order to bring in more income, such as Uber and Lyft (using the car) and AirBnB (using the house). Websites such as Amazon, Ebay, Shopify and Etsy allow people to open their own virtual shops, without the need for brick and mortar retail space. The internet allows more and more people to connect to influencers and decision-makers, allowing people to earn money as consultants and contractors.

I remember when I was in middle school in the 1970’s, times were hard for my parents… I remember thinking as a teenager ‘I want a simple government job where I don’t have to worry about things like pink slips, bankruptcy, or how are we going to afford presents for Christmas.’

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economy, income, interest rates, retirement, risk management

Economic Fears and Managing Risks

In the Fall of 2021, the economy continues to slow, and it is having an effect on markets.

I wrote this article originally just before COVID hit… some of the observations were in 2019, as you will see.

In 2019, the economy was already slowing…

It is interesting how the comments in the original article are appropriate for today’s economic environment.

In 2019, incoming ECB President Christine Lagarde stated the US trade war with China had “dented global economic growth.”

“You can’t adjust to the unknown. So, what do you do? You build buffers. You build savings. You wonder what comes next. That’s not propitious to economic development,” said Lagarde.

“It means less investment, less jobs, more unemployment, reduced growth. So of course, it has an impact,” she said. Lagarde led the International Monetary Fund for 8 years prior to moving on to the ECB. (1)

Recent surveys by the NFIB strike a similar note by US businesses that in 2021 are constrained by supply chain delays, increasing prices, and labor difficulties. (2)

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economy, income, interest rates, retirement, risk management

Negative Yielding Bonds and Risk

Bonds are traditionally used within investment portfolios to reduce equity risk and generate income through the yields they carry. For example, a 10-year bond with a face value of $10,000 with a 5% yield generates $500 in income. Most recently the US 10-year yield was 1.5%.

However, over the past few years central banks in Europe and Japan have experimented with Quantitative Easing and driven rates below zero%. In August 2021, the amount of negative yielding bonds reached over $16.5 trillion. In May 2019 that amount stood at $12 trillion. Yields in Europe continue to fall as the ECB in June indicated its plans to set up a new bond buying program in upcoming meetings. A slow-down in the European economy, spiking energy prices and rising inflation has left businesses and economists frustrated. (1)(2)

What is a negative yielding bond? It is a bond with an inflated value and a yield of less than zero%. An example of a negative yielding bond is one with a face value of $10,000 but a market value $11,000. The purchaser of such a bond literally pays more than the bond worth for the right to own the bond. As bond yields move down the value of a bond increases. As bond yields move up the value of a bond decreases.

As energy prices and inflation has risen, bond yields have quickly moved higher. As a result, the amount of negative yielding debt has decreased, and the value of bonds held by central banks and institutional investors has plummeted.

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Climate change, environment, ESG, new economy, retirement, risk management, Socially Responsible Investing, SRI

What Role Do Moral Values Play in Investment Selection?

As a financial advisor, I am constantly approached by mutual fund and ETF wholesalers who are selling their investment vehicles. Yesterday I was approached by a representative who offered a vehicle that invested and looked at company fundamentals in a way that I believe is important. Before we talked, I asked if these were funds that invest based on sustainable or ESG (environmental, social, and governance) criteria.

He said, “These funds rank very highly based on ESG ratings.” And when I looked at the Morningstar ratings, they did. However, when I dug deeper several red flags jumped out at me. First, nowhere on the fund prospectus do they mention using screening for sustainability or ESG concerns. The second red flag was when I looked at existing holdings… their top holding is one of the largest US oil companies.

This to me is non-negotiable.

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economy, income, interest rates, retirement, risk management

How to Guarantee Retirement?

Several years ago, I read a post on LinkedIn which sounded the alarm bells that the “time is running out” for your retirement account.

I found it offensive and in poor taste, playing on the fears of the public at large. Throughout most of 2021 there has been a palatable undercurrent of fear in the market… on the part of investors, on the part of money managers, on the part of economists… Inflation rocketing higher, talk of asset bubbles left and right, issues around hiring and employment, falling consumer sentiment, and all of these leading to a slowing in the economy

The 5% pullback in September 2021 in the market reinforced that fear for some.

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economy, interest rates, retirement, risk management, Taxes

Trick or Treat? Revisiting The Potential Downside of Tax Reform for Investors

There is an old story that goes “beware what you wish for…” Things don’t always turn out as expected. In 2017, President Trump proposed and Congress approved a huge tax cut plan… the Tax Cuts and Jobs Act (TCJA). The results have been controversial.

Along those lines I watched a fascinating interview of Tom Lee, head of research at Fundstrat, on Bloomberg four years ago. His insight proved very valuable and accurate. (1)

His feeling is that a Tax cut, as it was being discussed, could be negative for investors long term. “There’s two reasons; First, when cutting tax rate you raise the after tax cost of debt. Leverage becomes a problem for a lot of businesses. Second, because you are cutting tax rates you are effectively giving cash to all businesses, even businesses where you want to reduce allocation.“

His observation was that companies that are currently struggling with cash flow will have a temporary life preserver tossed to them, but it will not change the fundamental issues facing a lot of industries. It will distort markets.

In fact, that is exactly what happened. Companies that were not profitable and not healthy continued to borrow and live off of debt instead of reforming their business models.

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