Author: production

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.

We all have annual rituals – from New Year’s resolutions to spring cleaning. This year, add one more: a midyear financial checkup. And what better time to do it than summer, when other obligations often ease?

We recommend evaluating the following areas to determine whether your financial health needs improvement:

Budget. How much are you spending? Can you trim costs by eliminating unnecessary expenditures?

Emergency fund. You should have liquid and accessible reserves that will cover three to six months of living expenses.

Retirement savings. Look at what you’re contributing to retirement plans – such as 401(k)s and IRAs – and consider how your funds are invested. Are changes needed?

Benefits. If you’re employed, determine when your company offers its annual open enrollment window, then review coverage in advance to decide whether you want to make changes.

Taxes. Did you owe money this year or get a refund? Adjust your W-4 accordingly. Remember, while a refund is nice, it really means you’re loaning money to Uncle Sam interest-free.

Insurance. Review your home, auto, and umbrella insurance coverage and determine whether changes are required. Do you need more coverage? Can you afford the deductibles?

Beneficiaries. Ensure the beneficiaries are correctly named on your bank accounts, retirement plans, and life insurance so that your assets transfer to the correct person in the event of your death.

Probate. If you haven’t already, consider setting up your bank accounts as transfer on death (TOD) to avoid probate.

Credit. Review your credit reports from TransUnion, Equifax, and Experian annually. All offer one free report each year; however, you may want to arrange for one every four months throughout the year to ensure you have regularly updated information.

Financial advisor. Be sure you have one.

Is your portfolio ready for summer?

This time of year, most of us are in vacation mode – and the same can be said for the people who drive the financial markets. Investment analysts, traders, brokers, and money managers take vacations, too. And as a result, the summer season is generally a slow time for financial markets, leading to what finance professionals call “the summer doldrums.” It’s an important concept to understand, because it can affect your portfolio.

When financial professionals are out of the office, they aren’t buying and selling stocks and bonds. That leads to reduced activity in the financial markets, and is sometimes referred to as “low volume.”

Interestingly, low volume means greater volatility. Why? Because the few purchases and sales that are completed have a bigger impact on the price of the stock or bond. Think about it: if you sell 1,000 shares of a stock that trades, on average, 100,000 shares a day, your sale is only 1% of the total sales volume. But during the summer doldrums, if you sell 1,000 shares of the same stock that now trades, on average, 10,000 shares a day, your sale has become 10% of the total sales volume.

You may want to keep that in mind as you review your account statements over the summer. Don’t panic and decide to sell just because your investments decline; be sure you have a portfolio that is allocated appropriately for your goals, and then ride the wave. And take heart: the summer doldrums end after Labor Day.

Sometimes we get lucky through an inheritance, a tax refund, a gift, or even winning a lottery or pool. The downside is that we have to figure out what to do with the cash. In such a situation, where do you start?

Understanding how to prioritize your financial goals is important. You might be inclined to splurge on a luxury, invest in a new home, pay down debt, or save up a cushion of cash for future emergencies. Which is the best option?

In most cases, you’ll want to save first to ensure you have an emergency stash of cash in place.

After all, having paid down your student loans isn’t going to provide much comfort when you lose your job and can’t afford your rent.

Beyond a minimum level of essential savings, priorities will differ depending on your life and your goals. Luckily, there are questions you can ask yourself to ensure that you’re doing the right thing with your windfall.

For example, is your debt load worrisome because of its level or interest rate?

If so, you may want to apply the spare cash to paying more than the monthly minimum payments. Just be sure to think about how best to eliminate debt among various sources.

For example, do you pay off one credit card or pay a little on all?

Also consider whether the cash would be best used to invest more in your 401(k) plan. If your employer offers a match and you’re not getting all of it, you may want to take advantage of the “free” money by contributing more.

It may also be wise to think about whether you have enough insurance, meaning health insurance, life insurance, long-term disability insurance, and liability insurance, in case something goes wrong.

Finally, remember there may not be a “best” decision. It’s not a one-size-fits-all situation; however, professional advice can help.

The 2016 Retirement Confidence Survey report, based on interviews with 1,000 workers and 505 retirees and recently released by Employee Benefit Research Institute (EBRI), contains some surprising information.

According to Jack VanDerhei, EBRI research director and coauthor of the study, many Americans who haven’t been saving enough are taking a “particularly risky gamble.”

That’s because almost 40% of workers say they need to save at least a fifth of their current income to retire comfortably. But workers aren’t saving much; the retirement savings percentage peaked in 2009, and today fewer than two-thirds of workers save for retirement. Perhaps worse still, 42% of workers (and 27% of those age 55 or older) have less than $10,000 in savings and investments.

And many underestimate their future retirement expenses, such as food, taxes, and health care. How will these workers plan for tomorrow? Some 20% say they’ll save more later, 15% say they’ll work in retirement, 14% say they’ll retire later, and 13% just “don’t know.” As VanDerhei notes: “Better than one in four either [has] no idea what they’ll do or they’re just hoping they can, in essence, defer the pain.”

VanDerhei is particularly concerned about workers who believe they’ll work longer. According to the survey, 67% said they expect to work for pay after they retire; but in fact, only 27% of retirees do. The EBRI survey found that 50% of retirees had to retire earlier than expected, usually because of their health or their spouse’s health. “I view that,” he says, “as a particularly risky gamble.”

The oil industry is experiencing its deepest downturn since the 1990s: the price of a barrel of oil has fallen by more than 70 percent since June 2014, and that’s affecting oil companies.

Their earnings are down, so they’re cutting back on exploration and production. Many have gone bankrupt, and an estimated 250,000 oil workers have lost their jobs. Globally, whole economies are impacted, such as Ukraine, which was relying on a now-canceled $10 billion Chevron project to help stimulate its troubled economy.

When are oil prices likely to recover? Many say not to expect a recovery anytime soon. Oil production is not declining fast enough in the U.S. and other countries to drive up prices. So it could be years before prices return to $90 or $100 a barrel-the norm over the past decade. So what does that mean for you as a consumer?

Gasoline, heating oil, and natural gas prices have fallen. Airline and shipping costs may follow. That means more money in your pocket, and benefits for the economy. According to the International Monetary Fund, a 10 percent decline in the oil price is associated with around a 0.2 percent increase in global gross domestic product as consumers spend their gains.

On the downside, the financial markets are rattled, and that can hurt your portfolio.

In times like these, it’s important to remember that investing is about taking the appropriate view for your particular time horizon. And if you’re saving for a distant retirement, that means adopting a long-term perspective.

Crude oil prices have plunged from more than $100 per barrel in 2014 to under $30 in early 2016. And with the decline, the financial markets around the world have been shaken.

But something else has happened: after falling to a six-year low in December 2015, gold rose by 12 percent in the first two months of 2016.

That’s a bit unusual, because historically oil prices and gold prices have gone up and down together-for good reason. Rising oil prices can lead to inflation, and gold is a store of value.

What’s different this time? One thought is that oil prices have fallen far enough that investors are now worried that companies will go bankrupt, leading to major market declines. So they’re turning to gold for its perceived safety.

Historically, gold has been considered a “safe haven” in times of economic, financial, and geopolitical instability. Unlike financial assets and currency, gold cannot be printed at will.

So should you consider investing in gold now? It does have room to rise.

And gold tends to perform differently from other assets, which is why many advisors recommend gold stocks as a method of diversifying in a portfolio of stocks, bonds, and real estate.

On the other hand, virtually no investment should be considered a sure thing, and gold is no exception. Its price can fluctuate widely. For example, it was priced at around $250 an ounce in the 1990s and is now $1,200 an ounce.

Because of this, it’s a good idea to consult a financial advisor if you want to invest in gold.

It can be a complex undertaking: there are many ways to go, including purchasing gold stocks and/or buying index funds that track gold investment companies or the spot price of gold.

Your advisor, who knows your financial situation, is best able to advise you on how (and whether) to invest in gold.

When it comes to earning and investing, studies have shown that women tend to lag behind men – often because of family responsibilities that take them fully or partially out of the workforce during key earning years. But according to a 2015 study by Fidelity Investments, they may also lack confidence; many women simply haven’t the time or inclination to build up their financial confidence (FC) levels.

The Fidelity study found that most women want to learn more about financial planning (92 percent) and be more involved in their finances (83 percent), but are uncomfortable discussing money, whether it’s with spouses or investment professionals.

That’s problematic, because at some point in their lives, most women will be the sole financial decision makers in their families. And women thrust into this role experience significant stress. According to a 2014 American Psychological Association study, about half of women surveyed were so stressed about money they couldn’t sleep (compared to 32 percent of men).

Fortunately, there are ways to boost women’s financial confidence that are readily available and often free or inexpensive. Here are five:

1. Employer-sponsored programs. Many employers have workplace programs that offer financial guidance, yet 65 percent of women don’t take advantage of them, according to Fidelity.
2. Books. There are many books designed to help women gain FC.
3. Seminars. Many financial institutions offer workshops for women. While the emphasis may be on investing, many also offer a chance to share experiences, which can be inspiring to everyone.
4. Networking. Four in five women avoid talking about finances with someone they’re close to because the topic feels uncomfortable, according to Fidelity. But while it may feel awkward at first, discussing money issues with trusted friends can be empowering.
5. Advisors. Working with a financial professional offers women a chance to develop confidence with the guidance of a pro. Select your advisor carefully and feel comfortable asking questions.

The headlines aren’t very comforting: A collapse in Chinese stocks has pushed the Dow Jones Industrial Average down by triple digits several times recently, even forcing Chinese regulators to halt trading. And, also recently, the International Monetary Fund (IMF) cut its 2016 global growth forecast from 3.6 percent to 3.4 percent, citing challenges such as falling commodity prices and rising interest rates in the U.S. as well as slower growth in emerging markets. China, for example, grew by only 6.9 percent in 2015, its slowest pace of economic expansion since 1990.

One might conclude that there are a host of unforeseen instabilities that will play havoc with our investments in the future. But we may be drawing the wrong conclusions. True, we can’t predict the future, but it’s important not to assume the worst when events like these occur.

First, we’ve seen similar events before. For example, last summer, in July and August, the Shanghai Composite Index fell 30 percent, sending the Dow down 11 percent. But Chinese and U.S. stocks rebounded.

And while the stock market – one of 10 components of the Conference Board Leading Economic Index – is definitely a leading indicator, not all corrections signal a looming recession.

Still, investors are prone to panic when corrections arise. It’s like the first big snowstorm of the year, one analyst suggests: people forget how to drive in the snow.

So how should you drive in these snowstorms? Simple: don’t panic. Speak to your advisor, ensure you have a solid plan in place, and decide to stay the course.