This 4th Week of August 2022: Work your Plan
Fed Fund Watch: Monday’s sell-off was because investors are “newly worried that the Fed Rate hikes may not end as soon as hoped.” Are you kidding me? I was NOT kidding when I made these estimates: the Fed is expected to raise rates by ANOTHER 1.25% by the end of 2022. We have 3 more hikes by spring 2023…all the way to a Fed Funds rate of 3.75%!
10-Year Yield: 2.68% last week, 2.04% this week. Time to buy bonds.
RATE WATCH: Schwab Value Advantage 7 Day-Yield is 1.47%. Expect a lag as rates move higher.
Fund Focus: Freedom
You cannot set and forget your financial plan: it needs to be reviewed annually and the many inputs that go into our software need to be adjusted to ensure your plan lines up with the future. Until this year, inflation was barely 2%: whether it will come down in a year or two, we need to update Right Capital’s Capital Market Assumptions. Just think…if we used 2% as the increase in your household expenses…and reality is 3% or more, your purchasing power would be totally out of whack.
Today, economic conditions are unstable: inflation, continuing pandemic-related volatility and supply chain issues are impacting stock and bond market returns. Inflation is more than 3 times higher than 2 years ago, as are interest rates. Tax laws “sunset” in 2025 and assuming / hoping they will be extended is not enough.
What other reasons should we update your financial plan, using a sophisticated piece of software, like Right Capital?
1. Inflation eats away at your purchasing power: a visit to the gas station or grocery store is a real wake-up call. This in one of Right Capital’s inputs.
2. As a result of inflation or other factors, your withdrawal rate or spending plan may need to be adjusted. This is one of Right Capital’s inputs.
3. Investment returns may differ from what was projected: maybe a lot. This is one of Right Capital’s inputs.
4. Stocks and bonds may be in a bubble. Yep: this is one of Right Capital’s inputs.
5. Longevity may be increasing: your Vegan or Plant Based diet might pay off! Cutting the Diet Coke might be working. 😊This is one of Right Capital’s inputs.
6. Are you still on track? Need to save / spend / less / more? A Right Capital input.
7. Interest rates fluctuate and affect the real estate market: is your house worth more than we estimated? Could you sell it today? This is a Right Capital Input.
8. How could tax law changes, Roth Conversions, RMDs and Charitable Contributions affect your plan? Yes, you can assume: this is a Right Capital input.
I will share something with you: most clients worry they are spending too much, or that they will run out of money. They spend precious time worrying…when we have a piece of software at our fingertips that could answer their questions…and banish their fears.
What if the reality is that you could spend more? What if you could take nicer vacations or enjoy seeing your kids and grand-kids enjoy some extra cash? Let’s find out.
And know…it will not cost one penny more in fees that you pay for portfolio management! Take advantage of it: it is here for you.
ESG Thoughts – What is the Bond Market Telling Us?
Today, signals from the bond market show a remarkably optimistic inflation outlook and the chart below tells us that next year’s inflation rate will be 3.5%. Furthermore, it is “estimating” that in 2024 the rate will be 2.7%, and by 2027, it will be close to 2.3%. The Fed has a target of 2%...so here we are. July’s consumer price index showed a decline in year-over-year headline inflation, but still came in at 5.9%.
Why does this Matter to you? MSCI looked at three scenarios for U.S. inflation and Fed policy based on assumptions of macroeconomic shocks and Fed-policy strength and credibility and called them these scenarios “Soft landing,” “Slamming the brakes” and “Stagflation.” If the scenario above comes to pass, we need to build out your bond portfolio before the end of 2022. As MSCI enigmatically put it: “Investors may want to scrutinize more carefully the implications to their portfolios resulting from either the “Soft landing” or “Slamming the brakes” scenarios.” Note: I’m doing this already. 😊
For decades, China was synonymous with fast growth and “everyone” predicted that China would be the largest, most powerful economy in the world someday…eclipsing the United States. Multinational companies invested billions in supply chains and production hubs and catered to millions of Chinese who climbed out of poverty into a growing middle class. Investors reaped robust returns. No longer is this true.
Why does this Matter to you? Once upon a time, Hong Kong was a country based on its rule of law and economic freedom. When China took over Hong Kong in 1997, it pledged “one country, two systems,” and that Hong Kong would retain many freedoms absent in China, including free speech. The autonomy of Hong Kong was supposed to last 50 years, but after 25 years, China inflicted the stifling un-freedom that rules the rest of the country. Last year, before Russia invaded Ukraine, this same shadow was settling over Taiwan and I believed that while we needed Emerging Market stock exposure, we did not need to invest in State Owned Enterprises (SOE) like China; Russia and Saudi Arabia. My premise was that over the long run, investing in free people and free markets would be not just the morally right decision, but it would be the profitable one. I presented the facts about why I was recommending clients divest from SOE’s and not one client wanted to continue to own companies that did not support the rights to life; liberty and property. How right does this decision feel, today? 😊
Required Disclosures: Always read the fine print! This content reflects the opinions of Julie Skye and is subject to change without notice and is for informational and entertainment purposes. It is not a recommendation regarding the purchase or sale of any security. There is no guarantee that any statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Securities investing involves risk, including the potential for loss of principal. There is no assurance any investment plan or strategy will be successful.
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