Category Archives: long term growth

Economic Growth Does Not Kill People – The Opposite is the Case

Brian Wesbury, Chief Economist at First Trust, noted that members of the elite press are telling the people that they had better get used to slow growth.  That economic growth actually kills people.

Two weekend articles, in major US newspapers, left us shaking our heads. The Washington Post wrote that “economic growth actually kills people,” while The Wall Street Journal published a piece saying, ironically, we should get used to slow growth – it’s normal.

Both are ridiculous.

First, The Washington Post cited statistical studies that blame premature death on economic growth (more pollution, more work and more risk).

The statisticians found that pollution and alcohol were the #1 and #2 causes of death as economic growth accelerated. We couldn’t help but think about the Soviet Union, where pollution and alcoholism were rampant in the 1970s and 1980s, but economic growth was non-existent. Economic growth does not cause pollution; to say it does is a red herring. The air in Boston was much worse in the 1800s when wood-burning fireplaces were used to heat homes. Public health was a serious problem before sewage systems and water purification.

 

 The articles in the Post and the Wall Street Journal try to make the case that Americans need to forget about growth.  Rather, the government should focus on making the social safety net bigger, on rule-making, and making everyone more “equal.”  In fact, we are told that growth is a killer.

Evidence of the opposite exists.  Stagnating wages and loss of jobs in this country has been followed by alcoholism and rampant use of heavy-duty drugs like heroin, leading to an increase in premature deaths in America’s heartland.

There is no reason why the American economic engine cannot be revved up to the benefit of all.

Roughly 70% of the US economy depends on consumer spending.  The return of good paying jobs to communities thoroughly the country would result in a significant surge of economic growth.  And by good paying jobs we are not referring to the jobs created by the internet economy on the East or West Coasts.  The jobs produced by companies like Google, Facebook, Twitter and other Internet based “infotainment” companies produce great wealth for their creators but no actual consumer product.  What has surprised many economists – but should not have – is that they have not produced nearly the number of jobs that were predicted.  Meanwhile, industries that produce actual goods that people need to live – food, clothing, housing, fuel, medicine, cars – industries that once produced good paying jobs – are being outsourced or automated.

The country needs to focus on this issue or face increasing unrest among people who feel disrespected and marginalized.  Reviving American industries – in America – can be the spark that leads to a better future for everyone.

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Taking Advantage of a Declining Stock Market Might Actually Help Your Retirement

savings questions

Saving for retirement is like a long journey.  On this journey, a declining stock market can work to your advantage if you take the opportunity.

A declining stock market is a chance to buy cheap; a time when stocks go “on sale.”  If the stock of a great company drops in price by half, you can buy twice the number of shares.  When it eventually recovers, you have twice the wealth.

“Dollar cost averaging” is an old technique that has been used by patient investors who put a fixed amount of money into their portfolios in good markets and bad.  It allows them to buy more shares when the market is cheap and fewer shares when the market’s expensive.

When workers put a fixed amount of money into their 401(k) plan this is exactly what they are doing.

Even people who are no longer adding money to their portfolios can take advantage of market fluctuations.  By rebalancing their portfolios regularly they buy more of what’s cheap and sell some of what’s expensive.

Taking advantage of these opportunities requires three things:

  1. Patience to view your goals from a long-term perspective.
  2. Keeping the emotions of greed and fear out of your investment decisions.
  3. Adding to your portfolio with regular contributions and strategic rebalancing.

Millions of people are using this approach to achieve their long-term savings strategy.  Using market declines to buy allows people to accumulate more money for retirement.  If you need help with patience, emotions, or investment strategies contact an RIA like Korving & Company.

Send for our free brochure: “Are You Ready for Retirement?”

 

 

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Preventive maintenance.

Most of us know that we should see a doctor for regular check-ups. But did you know that it actually took a while for the medical community to educate people that staying healthy was a better approach than waiting until they got sick? An entire industry – Health Maintenance Organizations (HMOs) – is built around the principle of making sure that people are staying healthy with regular check-ups. This not only ends up saving people money, it also saves lives.

The same thing also changed the way that dentists do business. In the old days you saw a dentist when your toothache got too bad to ignore. Today you get our teeth cleaned twice a year and, instead of dentures, people maintain healthy teeth throughout their lives.

Financial wellness is equally important. Your finances often have as much impact on your quality of life as your health. In fact, your financial wellbeing often helps determine the quality of the health care you receive.

Like a doctor or dentist prescribing preventive care, a financial advisor will prescribe the best way for you to stay financially healthy, will chart your path to financial security and help you avoid those activities that lead to a financial breakdown.

The best time to get financial guidance is when you’re young. However many people believe that they don’t have enough money saved to interest a good financial advisor. Many advisors are willing to work with beginning investors as a way of developing a long-term relationship that will pay off for both parties. Many of our younger clients were referred to us by their parents who knew the value of good financial guidance.

We welcome the opportunity to provide you with a financial check-up.

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This Simple Tip Could Make a Big Difference in Your Retirement Account

You can make a 2016 contribution to your IRA or Roth IRA as early as January 1, 2016 and as late as April 15, 2017.  It would seem obvious that the sooner you contribute to your retirement account and invest the money, the more money you’ll have by the time you retire.

However, according to research from Vanguard, people are more than twice as likely to fund their IRAs at the last minute as opposed to the first opportunity!  When Vanguard looked back at the IRA contributions of its clients from 2007 to 2012, only 10% of the contributions were made at the optimum point in January, and over 20% were made at the very last month possible.

IRA Contribution Month

To demonstrate the type of real, monetary impact this can have on someone’s retirement savings, take the following hypothetical example.  On January 1 each year, “Early Bird” contributes $5,500, while “Last Minute” makes their $5,500 contribution on April 1 of the following year.  Assume that each investor does this for 30 years and earns 4% annually, after inflation.  Early Bird ends up with $15,500 more than Last Minute.  Put another way, Last Minute has incurred a $15,500 “procrastination penalty” by waiting to make his contribution until the last possible month.

Procrastination Penalty

At the beginning of every year, make fully funding your IRA contributions a habit. (And if you’re the type of person who works better when things are automated, look into setting up an automatic savings & investment plan from your paycheck or bank account to your IRA to save on a monthly or per-paycheck basis.)

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What the tortoise knows about financial security.

Remember the race between the tortoise and the hare? The tortoise won because he kept plugging along while the hare took a nap. Everyone would like to get rich quick; it’s the reason that people buy lottery tickets. But the chances of actually striking it rich are astronomical.

The way to get financially well-off is within the reach of almost anyone, even people who start out poor. What it takes is following a few simple rules.

  • Avoid destructive behavior.
  • Get an education and acquire a skill.
  • Spend less than you earn.
  • Start saving early.

The temptation to parlay a small bundle of cash into a fortune is what gets most people into trouble. Consistent saving over time is much more likely to pay off than strategies such as timing the market. Risk-the-farm investing strategies have a high probability of failure, but saving and prudent investing always wins.

Getting rich slowly is the primary way that most people achieve their financial dreams. The advantage of saving 10% or more of your income cannot be overemphasized. Do that and then let compounding go to work for you.

Compounding does a lot of the heavy lifting for investors. But it needs time to work. That means starting the process as early as possible and staying with it as long as possible. Waiting until you’re in your 40s or 50s means that you have given up twenty to thirty years of financial growth that you will never get back.

Want to have a million dollars by the time you’re 65? If you begin when you’re 25 with $25,000, save $3000 a year and invest the money to get a 7% return you’ll have $1 million when you’re 65. Of course as you get older and make more money you’ll be able to increase your savings rate, and end up with more than a million.

Finally, control your emotions or – better yet – hire an investment manager who will help control your emotions for you. Markets don’t go in one direction forever and that’s a good thing to keep in mind when the inevitable correction happens. An investment portfolio that lets you sleep well at night helps to cushion the blow of a decline and avoid the temptation to “bail out” at exactly the wrong time. In fact, investing more when the market’s “on sale” is a way to increase your wealth.

This is New Year‘s Eve; 2016 starts at midnight. It’s a great time to start if you have not done so already.

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Bull and Bear Markets – A History

Following the “Great Recession” of 2008 not a day goes by without a prediction of another Bear Market. It’s often useful to remind ourselves of market history. While we need to remember that past performance is no guarantee of future results, we received the this fascinating chart which shows the historical performance of the S&P 500 stock market index since 1926. It’s quite dramatic.

Bull and Bear Markets

Bull and Bear markets follow each other.

What’s a Bear Market? It’s often defined as a drop of at least 20% from the previous high.

A Bull Market is measured from the point where the market stops dropping until it reaches a new peak.

What’s obvious from the chart is that historically, Bear Markets are relatively short and Bull Markets last a much longer time. A large part of this is driven by investor psychology. When markets begin to decline, the typical investor becomes concerned. As the value of their portfolio continues to go down they reach a point where fear of further losses forces them to sell. This selling contributes to a further decline. However, at some point all the fearful investors are out of the market. The decline stops, setting the stage for the next Bull Market.

  • The average Bull Market period lasted 8.8 years with an average cumulative total return of 461%.
  • The average Bear Market period lasted 1.3 years with an average cumulative loss of -41%.

Of course retirees on a fixed income have to be cautious because a major loss of retirement assets, even if a Bear Market is relatively short, can have a major impact on their lifestyle. For this reason it’s important to create portfolios that are going to participate in Bull Markets but are also robust enough to survive Bear Markets.

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Setting Realistic Goals

How realistic are your goals?  Some people work hard and exceeded the goals they had when they were young.  Others find their goals forever out of reach.  For example, most people want to retire in their mid-sixties.  That’s a goal, but is it realistic?  Are they going to have a pension when they retire and, if so, how much is it?  When are they going to apply for Social Security, and how much are they going to get?  Will they need a retirement nest egg, and how much will be in it?

Career choices will have a big impact on these answers.  A financial plan will also provide many of these answers.  But a plan is only as good as the assumptions we put into it.  As the old saying goes: “Garbage in, garbage out.”

The rate of return you get on the money you put aside has a huge impact on whether you reach your goals.  Studies have shown that many people have an unrealistic expectation of the returns they can expect on their savings and investments.  With interest rates near zero percent, putting your money in the bank is actually a losing proposition after taxes and inflation.  Investing in the stock and bond markets may lead to higher returns.  But the long-term returns that many people assume they can get often leads to taking unreasonable risks.

There is nothing wrong with having high goals.  The best way to check to see if your goals are high, but attainable, is to talk to a fee only financial advisor.  Preferably one that is a CERTIFIED FINANCIAL PLANNER™.  They have the experience and the expertise to let you know if your goals are reasonable and what you can do to reach them.

Contact us for a “reality check” today.

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The right time to invest?

time to invest

Is this the right time to invest?  Good question.

Here’s another good question:  when is the best time to plant a tree?
The answer:  “Now.”
Here’s a better answer:  “When you were a child.”

Time is our most precious resource.  A wasted moment is lost forever.  Trees take time to grow.  The same is true for wealth.

We are often asked “is this a good time to get into the market?”  The answer is that there is no better time.

Here’s why.

If you put your money in a savings account you might get about 1%.

At that interest rate it takes 70 years to turn $100 into $200.

If you could grow your money an average of 5% per year, that $100 would grow to $200 in 15 years.
If you can get 6%, it would take 12 years to grow to $200.
If you can get 7%, 11 years would get you to $200.
If you can get 8%, 10 years would get you to $200.

At 15% your money doubles every 5 years.

We are big advocates of people working hard for their money.  But we are just as insistent that money should work hard for them.  Why be a hard worker with lazy money?

Investing is one of those things that people put off.  But doing so wastes their most valuable resource:  time.

If you’re not happy with the way your money’s working for you, check out our website or give us a call.

No sales pitch, no pressure. Just good advice. That’s the reason we won the 2015 Suffolk Small Business of the Year award from the Hampton Roads Chamber of Commerce.

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