Month: August 2016

Many of us who lived through the financial crisis of 2008 believe another stock market crash is on the horizon. Consider billionaire investor Carl Icahn, for example, who had a net equity position that was 150 percent short as of the end of March. That indicates at least one investor thinks the stock market will tank. He isn’t alone. According to a 2016 study by the National Bureau of Economic Research titled “Crash Beliefs From Investor Surveys,” the average investor believes there is a 20 percent plus chance of a 1987-magnitude crash (when the Dow Jones Industrial Average dropped 22.6 percent in a single session) or 1929-magnitude crash (when the Dow dropped 12.8 percent in a single session). These were the worst single-day plunges since the Dow’s inception in 1896. The study is based on periodic surveys conducted since 1989 that ask investors to assess the risk of a 1987 or 1929-magnitude crash over the next six months. Over the past three decades, the perceived risk averaged 19 percent. In the most recent survey, it was 22.2 percent. That doesn’t mean a crash will happen. According to the study authors, investors tend to believe crash probabilities are higher during bear markets. And crash probabilities tend to rise after an increase in the number of references to a “crash” in the media. Still, when markets are volatile, it’s a good idea to review your portfolio with your financial advisor. He or she can tell you if you’re set up in a way that meets your investing goals and your risk tolerance over the long term.

Almost everyone has debt, but no one wants to talk about it. It’s time we do, however, if we’re ever going to get out of it.

According to the New York Federal Reserve, in the first quarter of 2016, the total U.S. consumer debt (including mortgages, auto loans, student loans, and credit cards) stood at $12.25 trillion.

As important, we’ve reached the largest increase in mortgage debt since the beginning of the Great Recession.

In 2015, the average household debt totaled $130,922, and pays a total of $6,658 in interest per year, that is 9 percent of their average household income ($75,591), according to a recent study by NerdWallet.

Its American Household Credit Card Debt Study analyzed data from several sources, including the New York Federal Reserve and the U.S. Census Bureau, then commissioned an online survey of more than 2,000 adults.

One reason debt has grown so dramatically is that the growth in the cost of living now outpaces the growth in our household incomes.

In the last 12 years, the growth in median household income was up by 26 percent, while our cost of living increased by 29 percent, according to the study.

There’s also been a change in the way we think about debt. In the past, people bought cars, and sometimes houses, for cash.

Today, credit is king. In U.S. households that carry credit card debt, the average amount of that debt is $15,762.

And many of those households don’t even realize the extent of their debt.

Debt isn’t always bad. A student loan can lead to a higher-paying job, for example. But credit card debt, with its high interest rates, can prove very costly over the long term.

Debt should be paid off as quickly as possible. And while that will require many of us to adopt a new perspective, the end result can be life-changing, in a good way.