Financial

It’s been noted that 2020 reads like a Stephen King novel, and that doesn’t seem too far off base, Mr. King has even said as much.  It was tempting to write about the illogical and rapid rise of the stock market, which is very concerning, but the virus itself remains the biggest issue from a public health and economic perspective.

As the country begins to reopen it appears that we’re collectively ignoring what’s happening with the virus.  For example, in North Carolina where I happen to live, we’re averaging around 1,000 new cases each day.  The NC peak in April, at the height of “stay at home,” was around 350 new cases per day.  These numbers are heading off the charts as we attempt to quickly return to the old normal.  There are similar trends in other states such as Arizona, Florida, and Texas.

The national numbers are more challenging because the spike, and subsequent drop in New York City was so large it throws things off a bit, but not too much.  One source I’ve been following closely is the COVID-19 Simulator created by Harvard Medical School and Georgia Tech.  It allows you to look at state and national projections under a variety of scenarios.  The data is updated on a weekly basis.

Let’s look at North Carolina for example.  I’ve chosen their “Minimal Restrictions” scenario since that’s the curve our actual numbers are following, and we’re using the “log” scale, which means the axis on the left increases exponentially.

As you can see, this trend is not slowing down, and only gaining steam.  This implies that by July 4 we might see over 3,000 new cases per day in North Carolina, triple the current rate, and it keeps going up from there.

Let’s look at the national picture using the same settings.

The number of national cases is currently decreasing, largely due to New York City making great progress; however, two weeks from now we’ll be back to our past national peak, rapidly heading north.  By July 4^th we might see around 66,000 new cases per day, which is almost twice as high as the April peak.  This is the exponential growth that keeps doctors up at night.

While Harvard Medical School and Georgia Tech are no slouches, Columbia and Mount Sinai are independently coming to similar conclusions.

As you can see, they expect the daily number of new cases in the US to more than double by early July with 25,000 – 63,000 new cases per day around July 4^th.

I’ve provided links to both sources so you can play along at home.  The sites offer different views, and as you can imagine, the numbers related to things like ventilators and hospitals beds are even less reassuring.

These numbers will never capture the lives lost and shortened due to the economic stress and uncertainty that is surely playing out in the form of mental health issues, heart disease, and other systemic issues created by the toxic effects of stress.

It doesn’t seem like we were ever out of the woods despite our natural human desire to want to have it over with, and unfortunately this has all been over politicized.

I think the important takeaways are:

• Consider stocking up on the things that disappeared at the grocery store
• Consider the possibility of a second round of “stay at home orders” come late summer or early fall
• Expect the financial markets to become volatile once again, they won’t take this well
• Think about where we are now as the eye of a hurricane, or maybe halftime at a sporting event

From an investing perspective we are sticking to our mantras of staying with an appropriate allocation between stocks and bonds with a persistent long-term view.  The approach is boring, but it works, and gets the job done in the long run.

I would also warn you against the temptation to actively trade stocks, or other securities, for short term gains during this time.  There are very large, professional, institutional investors, who literally specialize in nothing but market volatility, they will happily eat your lunch, and maybe dinner.

Please stay well, and follow all guidance related to avoiding the virus, and we’re always here to help with your financial life.

Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. 

The markets call things like the coronavirus black swan events.  That thing with a very small chance of happening, but with a big impact in terms of humanity, markets, and our head space.  A lot of stocks have been sold in a very short period.  The world seems uncertain, and that uncertainty is growing.

Markets hate uncertainty, and we know that companies won’t make nearly as much as anticipated this year.  This naturally makes stocks worth less, but how much less?  Unfortunately, it’s likely to take months before we see the real impact of the virus reflected in the data, and this is the information the market needs to price stocks.  Until the actual impact to profits is known, the market will continue to wrestle with values.

Expect wild swings to continue in the coming weeks.  The Fed has already made one emergency rate cut to assure markets, and while this has provided a small boost, cutting the Fed Funds rate doesn’t really get to the core issue, which is the massive slowdown of business and trade.  The only long-term solution will be to wait for virus fears to fade, and for business to return to normal, which it will.

For long-term investors these things come and go. Long-term investors wouldn’t consider selling because they’ve seen the stock market return to normal following past black swan events after what always seems like a long time.

If you’re contributing to a retirement account that owns stocks, you’ll have the opportunity to buy throughout the dip, and enjoy more bang for your buck when markets return to normal at some point in the future.  This is called dollar cost averaging, and it’s a powerful tool.

This is usually not the time to make major changes to your mix between stocks and bonds.  If you own bond funds, they’ve enjoyed a nice run up as money has flowed into bonds from stocks. Bonds are typically where investors seek shelter during black swan events.

Selling a long-term portfolio only locks in losses.  If you continue to do what you’re doing anyway, holding for the long term, you’ll enjoy the return to normal in the coming months, and your dividend reinvestments will be buying shares at a nice discount along the way.  If you’re a long-term investor, you should consider dividend reinvestment, which is another powerful tool.

If you’re an active trader using margin and options to day trade stocks and industries you know little about, these are indeed tough times.  We believe in a diversified, long-term, buy and hold approach to investing.

We’re here to help if you have questions about investments, or the current market environment.

Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. 

Over the holidays many of us will spend some time curled up with our devices in a food coma, or using our devices to avoid an awkward conversation (introverts, I’m looking at you).  I wanted to close the year with a post offering some useful holiday reading.

Below are links to articles and sites I’ve found interesting throughout the year.  You might want to bookmark this page so you can come back to it when you’re growing weary of social media, or when that distant eggnog-laden family member wants to talk politics.

The Decade of the “Young Old” Begins

This article on Boomers appeared in a year end supplement from The Economist.  It’s a great read for any generation because Baby Boomers will change what retirement looks like.  Boomers are the largest generation to reach retirement, and are entering retirement healthier and wealthier than any prior generation.  They have a lot of options, and most won’t choose to “couch surf” or “get their rest.”

Protecting Our Digital Selves

Not wanting to put you to sleep, I resisted writing a data security blog, but wanted to offer something useful that can be quickly digested.  This was posted by a firm that caters to companies (this is not an endorsement, and I don’t do business with them); however, the article can be useful for everyone, and is something you can come back to.

The biggest thing I’ve been sharing with clients, friends, and family this year is: don’t use public wi-fi unless you absolutely have to.  If you end up on public wi-fi try not to login to anything sensitive like a bank account.  Most of us have data plans with our wireless carrier, and these are secure.  If you’re going to be on public wi-fi a lot, please purchase VPN software, and use it all of the time.  VPNs aren’t perfect, but it’s inexpensive insurance and much better than nothing.

The Stanford Center on Longevity

As you’re probably guessing, this site is from Stanford University, and I found it while doing some research early in the year.  It offers a lot of great articles and ideas.  This site is worth bookmarking, and checking from time to time.

Most of the content is in plain English, and runs the gamut from mental to physical to financial health.  Hope you check this one out!

A Random Walk

It’s no secret that a low cost, index-based approach to investing is far more successful than active management in the long run.  Research has backed this notion up time and again over the decades.  Active managers charge significantly higher fees, and while some may have a hot streak every once in a while, in the long run, after fees, an index, asset allocation-based approach wins the race.

This article by Bob Pisani gets to this very point.

When to Take Social Security: The Complete Guide

Everyone’s situation with Social Security is unique, so “the complete guide” might be a stretch, but this page does have helpful information, and answers a lot of basic questions.  The “go to” answer on Social Security is becoming: wait until 70, but that’s not always possible or necessary.

Please ignore the gratuitous ads from other financial firms on this page, and simply contact Buoyant Financial for all of your planning and investment needs. Sorry, couldn’t resist a shameless plug, and we always bring Social Security strategy into our planning process.

Money Isn’t Everything

That may sound strange coming from a financial firm, but your health, happiness, and wellbeing are far more important than money and investments!  The benefits of simple meditation recognized by medical professionals are too many to list here; however, this site from the Mayo Clinic offers a nice introduction on the why’s and how’s.

Start slowly over short periods of time.  Don’t worry about “being good at it,” there are no contests, judges, or prizes involved.

Wrapping Up

I hope you find something on this reading list helpful, and that you do come back to it.  Always here to help with your financial questions, please don’t hesitate to reach out.

Wishing you, your family, and friends a wonderful holiday season, and happy New Year!

Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. 

We’re seeing a rise in annuity or income products offered as “investment” options in 401(k) plans.  While investing with a guaranteed return may sound attractive, many of us should think twice before going this route.

The idea of an income annuity in a 401(k) may have some appeal at first blush because it may offer guaranteed retirement income, or some kind of downside protection on retirement income; however, there are a lot of caveats that you should consider before choosing this option.

The Offering

The annuity option in the 401(k) is not a generous perk offered by your employer, but rather an attempt by plan sponsors to keep your hard-earned retirement dollars invested with them for the remainder of your life and your spouse’s life.

Outside of 401(k) plans, annuities can offer some tax advantaged savings (along with high fees).  An annuity in a 401(k), however, is like buying a tax shelter inside of a tax shelter.  There is no additional tax benefit, since the contributions you, and your employer, have made to the 401(k) are already sheltered from taxes until withdrawal.

A 401(k) plan creates challenges for a lay person because they’re expected to be their own pension manager. This works for astute investors, and people who really enjoy this stuff, but it’s common for many to struggle with these decisions.  An annuity with a guarantee can seem like a welcome “silver bullet.”

What Does This Really Cost? 

While the actual costs depend on what is offered in the plan, let’s take a look at a typical scenario.

If you place some or all of your retirement savings in one of these products in exchange for monthly payments until death there is an implied rate of return that is difficult to calculate, but typically much lower than what you might be able to earn with an otherwise balanced portfolio.  In addition to the fees charged, it’s likely that the plan also makes money by investing your money in a portfolio that earns a higher rate of return for them in the long run than what they are on the hook for with you.

But wait you say, “my plan lets me invest in stocks and bonds within the annuity, and I get downside protection.”  Maybe, but if you read the fine print, you’ll quickly see this protection comes at a cost that’s difficult to calculate, but results in long term returns that will be lower than if you had invested in the same mix outside of the “annuity option.”

Wait, We’re Still Not Done with Fees

Let’s say that you choose this option, have been investing for years, and are now ready to take your monthly income from the annuity.  You’ll have some choices…

Would you like inflation protection?  Yes.  Ok, we’ll lower the initial monthly payment we quoted you, and adjust for inflation going forward.  That’s a fee.  If you die, do you want payments to continue to your spouse until their death?  Yes.  Ok, we’ll lower the initial monthly payment we quoted so that your spouse is covered. That’s a fee.  Wait, I’ve thought about this, and want out of this product.  Sorry, you’ve been in this long enough that you may have to pay a steep surrender fee.  And it goes on.

You Wanted to Leave Something After You’re Gone?

Annuities are ultimately insurance products.  Typically, any money “left” goes to the insurance company after you, and maybe your spouse, have left this world.  Of course, they used your life expectancy to help calculate what the monthly payment would be.  Once you select this option, you’ve exchanged the lump sum for the monthly payments.

To be fair, some plans may allow you an option to leave something to your estate under certain criteria (like you not living so long); however, you guessed it, that comes with a fee.

Better Options

Many people would do better in the long run by investing in the plain vanilla choices offered in the 401(k) by selecting an appropriate mix of stock and bond funds that align with your age and risk tolerance.  The plan should have information to help you make these selections.

If that is more investment stuff than you care to do, many plans also offer target date retirement funds, which naturally rotate from stocks to bonds as the target date approaches.  One small issue with target date funds is that they don’t take your risk tolerance into account, so they naturally tend to be more conservative.  But, if you were even considering the annuity options, the conservative side may not be so bad.

Another option is to work with a fee only investment advisor, acting as your fiduciary, to develop a financial plan that will create an appropriate allocation that also considers your retirement goals, Social Security, Medicare & ongoing medical costs, and what you might want to leave your heirs.

Please reach out if you have any questions about this topic, or any part of your financial life!

Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. 

Heading into fall, with the holidays right around the corner, many of us begin thinking about our year end charitable giving.  Changes to the tax code that went into effect last year made charitable deductions harder, or impossible, for some of us to find; however, there are still some basic and effective options available for investors.

In 2018 the Tax Cuts and Jobs Act increased the standard deduction for individuals and married couples, and as a result many are no longer itemizing deductions.  While these changes have impacted people in different ways, there was a big impact for those who lost the ability to deduct individual gifts to charities and nonprofits.

The real impact on charities is hard to measure at this point because there is a lot of big data and number crunching involved, but the bottom line is: the changes removed what had been a nice incentive to give, and that will take a toll on the good work of many organizations.

While you should give to worthy non-profits and charities regardless of tax implications, let’s look at two of the easiest ways to give and save on taxes too.  These strategies are: donating appreciated stock, and Qualified Charitable Distributions(“QCD”) from an IRA.  While they both involve investment accounts, donating stock applies to taxable accounts, and QCDs apply to certain IRA accounts.

Donating Appreciated Stock

Let’s say you want to contribute to a favorite charity, and also happen to own securities in a taxable account.  If you’ve owned a stock (or fund) for more than one year and the shares have appreciated you can often donate these shares directly to a charity, and avoid the Federal capital gains tax.

This beats selling shares, paying the capital gains tax, and then donating the cash.  You will have avoided the tax altogether!

This is a great strategy for long term investors (the best kind) who have been purchasing shares over long periods of time.  Your brokerage or custodian tracks the cost basis on your purchases for tax reporting. With this strategy, you typically select shares with the lowest cost basis because these shares would otherwise generate the highest capital gain and tax bill.

If you want to donate company stock received as part of an incentive plan the shares can only be donated after any required holding period has lapsed.

Qualified Charitable Distribution from an IRA

While many of us own stocks within our IRAs, you cannot donate these appreciated shares directly to a non-profit or charity.  The alternative here is to donate some or all of a “Required Mandatory Distribution.”

This strategy is limited to people 70 ½ and older, subject to mandatory distributions from traditional IRAs (as opposed to Roth IRAs).

With this approach you decide how much of your mandatory distribution to donate, and that amount is not subject to Federal withholding (State rules vary).

The amount donated is excluded from taxable income, which may reduce the impact to certain tax credits and deductions such as Social Security and Medicare in your favor.  If you do itemize you can’t claim a deduction for the donation, sorry, the IRS frowns on double dipping.

Wrapping Up (please read this too)

While there are other options available, these are two of the easiest and most practical for many investors.  Your investment advisor, accountant, or brokerage should be happy to help you make either of these happen as appropriate.

It’s important to note that this is a general overview.  Everyone’s situation is unique.  It’s important to consult with your CPA, tax preparer, or investment professional as you decide if either of these approaches may be appropriate for you.  The professional you work with may suggest a different approach, or find that these are not ideal or appropriate for your particular situation.

As always, I’m here to answer questions about this, or anything else related to your financial life.  Please don’t hesitate to reach out!

Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. 

While looking at some research on the Stanford Center on Longevity website, I came across an interesting white paper with the wordy title: Beyond Defaults:Using Behavioral Economics and Psychological Science to Improve Retirement and Health Outcomes.

The paper was published by the International Foundation of Employee Benefit Plans, and what really caught my attention was the admission in the introduction that the financial and health care education provided by many employers is essentially failing.  While this is something I’ve long suspected given lots of circumstantial evidence, it’s interesting to see the industry begin to acknowledge the issue.

Employers began moving from traditional pensions to 401(k) plans in the 1980’s and at the same time there has been a rapid shifting of healthcare costs and decisions to the employee as well. The issue is that most people aren’t, and never wanted to be, financial and medical experts.

The paper acknowledges that the retirement and benefits world assumes everyone will make: “decisions like the highly logical, highly rational Mr. Spock of Star Trek.”  It only took them 30 years to figure out that people behave like humans, and often make many decisions that are less than ideal.

The point of the paper is that a relatively new field called Behavioral Economics may help make things right. Somewhat ironically, this field has been used to help sell you things for some time, and we see this in advertising and how our electronic devices seem to know what we want.

The researchers go on to highlight five action steps based on a poll of members (employers).  These are:

• “Convince younger workers to save for retirement”
• “Help plan participants determine how much to save”
• “Help older workers decide when to retire, including when to start social security…”
• “Help participants become better consumers of health care”
• “Help participants adhere to medical treatments”

Nothing too surprising there.  Some of the suggested approaches vary from creative and fresh, to common wisdom, to downright scary.

An example of creative and fresh is dealing with “loss aversion”: people feel more strongly about losing $1 than gaining $1 when it comes to investing, creating investors that are too conservative. A common wisdom example is educating people on the advantages of delaying Social Security, nothing new there. And finally, the scary example: “consider eliminating copays on medicines that treat chronic conditions” … let’s face it, employers want to lower their costs.

I thought this paper was interesting because it offers a peek behind the curtain at what the employers who offer “financial and health care” information to many are wrestling with.  What caught my attention was the admission that what they have been doing, for decades, hasn’t worked, but many of us already knew this.

My takeaway for you: please don’t assume what’s offered through your employer’s benefits website is a silver bullet, or that you’re even interpreting it with 100% accuracy because they admittedly haven’t been getting it right.  Reducing things like how should I invest to a series of 3 or 4 questions doesn’t really capture your risk tolerance, or the realities of long-term investing.

Buoyant Financial was founded to provide expert planning and management with low fees that won’t create a drag on returns because most people don’t want to become experts, and bet their retirement on this new-found expertise.

We’re always happy to answer questions, and offer perspectives.  Please don’t hesitate to reach out!

Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. 

The March blog post offered a scenic tour of GDP, and why it’s an important economic measure for investors. Let’s continue the economics theme with inflation, which also gives us a chance to look at a conundrum that has been around for several years.  Why does inflation remain so low when it should have started spiking a long time ago? Let’s start with some inflation basics, and then we can look at the dilemma.

What is Inflation?

In the 1930’s the US abandoned the gold standard, which gave the Federal Reserve or “The Fed” the ability to create and destroy money.  This gives the Fed the ability to stimulate a weak economy, or slow a rapidly overheating economy.  In fact, the Fed only has two jobs: manage unemployment and inflation.  One of the downsides to this approach is that we’ll always have some persistent level of inflation over the long term.

Just a quick side note: the US should never return to the gold standard, never fall for that thinking.

Inflation is basically a sustained rise in the price of goods.  For example: what you can buy for $1 today may cost you $1.03 next year as prices rise. The purchasing power of your dollar erodes.  This isn’t as bad as it sounds because many employers will adjust wages with inflation to retain and attract employees, Social Security is adjusted for inflation, and some pension plans may adjust as well.

The Inflation Dilemma

During the “Great Recession” the Federal Reserve helped the US economy recover by keeping the basic market interest rate, that it controls, at near zero for years.  They also purchased lots of bonds, and paid for those bonds with what were essentially newly created dollars.  This was like “printing” trillions of dollars under the assumption that the Fed would need to remove this cash to prevent runaway inflation.

As the economy recovered markets expected to see inflation rise.  It never happened.  It has been ten years, unemployment is historically low, the Fed raised interest rates as the economy heated up, yet inflation has remained stubbornly and unexpectedly low.  The vast majority of that newly created money remains in circulation.

The punchline: nobody really understands why inflation continues to run so low.  This has left a lot of smart people scratching their heads and wondering what happened to inflation.  Some like to blame the Fed, some like to blame globalization, some people blame it on issues with economic theory, and the list goes on.

So, What?

For the average person this is not necessarily bad news.  While some people have felt price increases on certain things, overall the cost of living hasn’t been rising uncontrollably.  Welcome news for families on tight budgets, and retirees who may be on fixed incomes.

This does become a potential issue in the event of an economic downturn.  We’re currently at the top of a long-term economic expansion, the next part of the cycle would be a recession.  While predicting a recession is tricky business, when the time comes, the Fed will be forced to cut rates, and possibly create more new dollars, doing whatever it can to stimulate an ailing economy.

If inflation were to become deflation the economy would be in real trouble, fortunately, this is something that hasn’t happened in the United States since the Great Depression.

While deflation is highly unlikely, the fact that all known causes of inflation have occurred, and we still haven’t seen it, has economists and market watchers wondering what changed, which is rare, and makes this interesting.

So as this question of inflation gets tossed around, know that for every theory you hear, there are at least two or three others that could also be convincing.  The mystery may not be solved anytime soon, but hopefully, at some point in the future, researchers will be able to tell us what happened and why.

If you would like to understand more about anything in this post, or how inflation at any level impacts your investments please do not hesitate to reach out!

Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. 

This blog may help you not avoid this topic if it comes up at a cocktail party, and you may become a little more comfortable with a concept typically wrapped in weird jargon.

People tend to throw around economic terms they may, or may not understand, especially in the business media. We’re approaching the end of a long-term business cycle, and in the coming months pundits and professionals will begin obsessing about GDP.

GDP is the value of everything produced in the United States in a year (other countries have GDPs too, but that’s a different cocktail party).  They really do mean everything, from haircuts to cars to buildings, but nothing imported since it’s not produced in the US.  This is a huge number, right now around $19,000,000,000,000 per year…that’s $19 trillion.  Just calculating it is a massive undertaking, and there are all sorts of PhD level statistics involved!

One of the reasons GDP gets more attention on the downhill side of the business cycle is because when the economy is booming everyone is looking at stock market gains.  As the economy begins to soften and the dreaded R word, recession, comes into play, all of a sudden GDP is relevant.  But, what is it and how does it relate to a recession?

Typically, what we obsess about is the change to GDP since that’s how fast the economy is growing or shrinking. There is some math done on this number to remove the effects of inflation for an apples to apples comparison. So, this change in GDP with inflation removed is called Real GDP.  For the last three months of 2018 this change was an annual rate of 2.6%.  Now, let’s look at how this meets with the infamous R word.

The most commonly accepted definition of a recession is when the Real GDP number is negative for two quarters, or six months, in a row.  A private, non-profit called the National Bureau of Economic Research makes the official call on dating a recession, and there are many other factors they look at, but if GDP is negative for two quarters, we’re probably in a recession.

The good news is that in many cases we can be headed out of recession by the time we even knew we were in one since GDP always looks backwards at what happened during the prior three months. The bad news: when we’re at this point nobody needs to look at GDP to know the economy is in rough shape because unemployment will be up, people will spend less, businesses will earn less, there will be defaults on loans…anyway, I’m sure you get the picture.

So where are we now?  Over long periods of time the economy moves in waves, and as you can imagine we’re at the peak of a long period of expansion that came following the last recession.  Like watching a wave in the ocean that seems to hang frozen in the air, it’s hard to tell when the wave will crest and tumble.  In economic terms this would be the trough, contraction, or recession.

All of this is why I like to watch the GDP.  There is a lot of information available on GDP; because, given it’s importance, there are a lot of people in the industry who get paid to forecast and predict changes over longer periods.  Much like TV weatherpersons, many of these forecasts end up being wrong, but looking at the overall trend can be helpful.

If I’ve really captured your attention, one of my favorite places to look is here.  This is the Atlanta Fed’s “GDPNOW” forecast, which is nice because they track the evolution of the estimates of the next quarter’s GDP number, and also provide a range of estimates from the financial industry.

I hope this blog helped you gain a better understanding of GDP and why people like me talk about it a lot, and if it comes up at a cocktail party please jump into that discussion!

As always, please reach out if you have questions about this, or any other aspect of your financial life!

Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. 

When considering the big purchases in life, such as homes and cars, we typically spend time shopping, doing research, evaluating the pros and cons of different options, and carefully scrutinizing the costs of those options. Think about the last time you “locked in” a mortgage rate. You likely compared rates from various lenders, and got heartburn over the long-term financial impact of a fraction of a percentage point.

If you bought a car, you probably did some research and test drives, compared prices from different dealerships, and spent time haggling over a couple of hundred dollars.  You may have shopped for a car loan as well, focused on interest rates, and the payment.

When it comes to investment management, very few people take the same approach.  Let’s face it, when it comes to our portfolios we don’t see them as having the same comfort and beauty factors like we do with a car or home.

Obviously, I love investments and finance, or it wouldn’t be my chosen profession, but I’ve noticed many people would rather go to the dentist than really dig into their investments, even when they’re paying someone else to manage the portfolio.

If you step back, and look at the costs of investing over a lifetime, you’ll quickly see the amount at stake can be staggering.  Let’s look at a basic example:

If you’re paying an investment manager or broker 1% to manage a $300,000 retirement nest egg, over 25 years you might end up paying around $70,000 – $80,000 in fees.  Is this starting to look like a larger purchase than you might have assumed? And as we know, this is a low fee, sometimes fees can end up exceeding 2% with the client unaware of the actual “all in” costs. 

The next issue is quality of advice. Many firms typically charge as much as they can, and this is not to say that there aren’t excellent firms and professionals out there; however, many times what gets missed is how the slick sales process unfolds.

The dentist joke wasn’t all tongue in cheek.  When you walk into a big-name shop, you’re probably at a disadvantage.  They’re going to throw around concepts and terms you may not understand, while giving the appearance of being masterful at this stuff.  In reality, you may be dealing with someone of limited experience that just does sales, and the actual “product” is simply what the firm is trying to sell in bulk.

Somehow trust quickly develops because you just want to be done, and the idea of going through this with two or three firms seems impossibly tedious.  The process is also complicated because it often lacks transparency. While fees may be mentioned during the sales process, there is lots of fine print, and it’s set up so you don’t “feel” the fee. Rather than fees being clearly detailed like you might be familiar with in a mortgage or car loan statement, some fees are often buried, and the advisor may be hesitant to discuss what these fees add up to over time, even if you ask directly.

There are various types of search engines and websites that will make “recommendations,” but know that on the other side of those websites they’re selling leads to firms that pay subscription fees. These websites and services approach people like me constantly to sell you as a lead.  This can create an implied competence that’s simply not there, it’s in the fine print…

Managing investments is serious business, and the industry is full of firms that are just ok or worse.  People are often attracted to this profession because of the potential compensation.  You owe it to yourself to shop around, learn how these services are offered, and find someone that will take the best care of you possible.

The good part is that when you do find the right fit, you’ll probably be with that firm for a long time.  Nothing is set in stone, if you’re in a situation where you think you might be better served elsewhere, make the change!  Accounts are very easy to transfer, and firms are more than happy to make that happen.  This is all well worth the investment of your time.

If you have questions about this stuff please don’t hesitate to reach out.  I love to answer questions about the differences between brokerages, investment advisors, & insurance companies, how these firms charge you, and how to cut through the noise of the various types of credentials they often tout.

While I may or may not be the right professional for you, I’m happy to help you navigate these waters as an educated consumer, and we’ll keep it less painful than a root canal!

Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. 

It’s Been an “Interesting” Year!

Coming into 2018 the stock market was still chugging along with the momentum of a steady bull market bolstered by corporate tax cuts; however, the bliss began to fade quickly as a series of challenges piled up.

The Setup

In 2018 we’ve been able to observe, in real time, why our high school economics text books taught us that trade wars are bad.  This self-inflicted wound was not helpful by any measure, but it’s also not the entire story.  As I mentioned in a March blog post we were beginning to see signs that inflation was gaining momentum, and the Federal Reserve began to do it’s job by broadcasting an intention to continue increasing rates in order to keep inflation under control, and keep the economy from overheating.

As this point stock prices were already high relative to corporate earnings.  Trade wars and increasing rates helped trigger the beginning of this choppiness that we hadn’t seen in several years.  Fortunately, first quarter corporate earnings came in strong; however, by summer, and as noted in my July blog post, the stock market had already lost all gains for the year.  By the third quarter we began to see reports from analysts that companies had reached “peak earnings.”

This was not surprising since GDP growth had peaked by midyear.  Assumptions for stock prices are largely based on the expected strength of the economy, and as growth began to slow, stock prices had nowhere to go but down, especially as bond yields increased, creating further headwinds.

The Challenges

Looking at GDP forecasts going into 2019, there is no expectation that we’ll see the kind of growth observed in the first part of 2018.   For most of 2018 the expectation was for the Fed to increase rates three times in 2019. The Fed has already started backing away from that notion in public statements, and naturally, the bond market has backed away from that expectation as well.

Over the summer we began to see the investment banks and economists play the age-old game of guessing when the next recession will begin, which is never good for digestive health.  Right now, the estimates vary from the end of 2019 to the beginning of 2021 with 2020 conspicuously in the crosshairs.  The “R” word is a loaded term, it’s important to keep in mind that recessions are measured with such a lag that the economy is usually out of the recession before the official stamp is given that one occurred.

In practice we’ll know what’s happening because we’ll feel it as unemployment creeps up, corporate revenues decrease, and the Fed cuts rates in an attempt to bolster the economy by reducing borrowing costs.

The Good News

Despite my caution as we look forward; currently, the economy is healthy and strong by most measures.  Statements you may see in the media to that effect are absolutely true.

The economy continues to grow, just at a slower clip.  Unemployment is so low it has many economists scratching their heads.  The stock market has returned to a more reasonable price level, and with rates increasing, savers, who were left out in the cold for a long time, are finally seeing some returns.

Where to Now?

If you’ve followed my blog posts you know a key mantra at Buoyant Financial focuses on asset allocation. This means choosing a mix of stocks and bonds that reflect where you are in life, and your tolerance for risk, or the ups and downs of the market.  This is not something that changes based on market conditions.

As the stock market seemed to go nowhere but up coming out of “the Great Recession”, many people began to hold more stocks in their portfolios either by allocating more to stocks, or choosing not to rebalance, which would have resulted in selling stocks to buy bonds along the way.

If you chose to take that approach it’s important to note, you left the world of disciplined asset allocation and began to “trade the market.”  Even if it didn’t feel like you were trading, you began to make decisions based on the market, and not your age and risk tolerance.

Now is a great time to get back to a more disciplined approach.  Despite the challenges we’re seeing, you’re still probably enjoying returns from many years of market growth. Rebalancing is one simple step you can take, and if needed, step back and look at your overall allocation based on where you are in life.  You should never lose sleep over the financial markets!

If you have any questions, please don’t hesitate to reach out.  Even if you’re not looking for a financial advisor, I’m always happy to answer questions, and provide perspective.

Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request.