The market is up, yet vigilance is still necessary. Be prepared for a full calendar year of continued economical & political changes and the financial ramifications that come with them. From September 4th to September 30th we are carefully watching major world events, like Brexit, for the next economical & political change that may alter the world as we know it. Countries around the world and the International Monetary Fund (IMF) have been, and are, preparing for these changes which have not received attention from the mainstream media. At the same time, major rule changes are on the horizon for many money market funds, which will no longer have the financial support they had in the past.
All of these calendared changes will have long term effects. The straw that breaks the camel’s back is no different from all the other straws, it simply represents the tipping point. As one snow flake can start an avalanche, one small event can trigger chaos. As I mentioned previously in Financial & Political Models Have Changed Forever, events (chaos) happen quickly but patterns and direction are revealed over longer periods of time and should be carefully observed. There has recently been a lot of major financial engineering, and that will continue into the future for the next six to twelve months.
It is so important in financial and retirement planning to understand the difference between normal and real rates of return. Why Active Financial and Investment Planning Reviews are Critical explains the difference between the two and shows how to calculate the real rate of return by adjusting for inflation. We always caution that any resemblance between the Consumer Price Index (CPI) and your own cost of living is purely coincidental.
Many general investors say to themselves, “I’m retired; I have worked hard all my life; I’ve got this amount of savings; and I’m counting on five, six, or seven percent returns from my portfolio to enjoy a comfortable retirement.” If this is you, you must read 3 Things: Take The Under, Bond Worries, Earnings Deception by Lance Roberts from August 4, 2016. This important article elaborates on the differences between compounded and average returns and compares how they actually grow over time. Take your time to really read and understand the differences: your life savings could depend on knowing how they work.
I hope you see why Goals Based Planning and quality asset diversification can help you “Live a Good Life” and help you achieve a return OF your principal AND interest.
I am starting to see for the first time since 2007 major top tier global money managers holding larger sums of their clients' cash versus investing it in stocks or bonds. The general public is chasing yield but managers are increasingly working to protect principal.
Charts below range from May 04th 2015 to Aug. 11th 2016.
Another straw to consider: U.S. annualized real growth for the past four quarters has been 2.0%, 0.9%, 0.8% and 1.2%, for an average growth of 1.23%. That’s a trend that will drive the U.S. into a sovereign debt crisis. Deficits are still running over 3% per year and set to skyrocket as baby boomers retire and claim Social Security and Medicare benefits. In effect, the U.S. economy has flat-lined at a level that cannot sustain our deficit spending.
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This is just for educational purposes, and I am not making any specific recommendations. This is simply a guide to assist you in thinking about your own personal position, how much risk you are willing to take, and what your expectations are.