Everyone wants to know if a crash is looming. We will look at that question, but I must tell you it is not the most important subject on which to focus. Allow me to help you address your number 1 priority; what does it take to make work optional?
We’ll begin with a recap of 2017 followed by what it takes to get your financial house in order. For the year ending the day after Christmas 2017 “the Dow Jones Industrial Average shot up 25%, the S&P 500 surged by 20%, and the tech-heavy Nasdaq outshined them all with a stunning 29% gain,” according to CNN Money, December 27, 2017. Those are all great numbers and investors could have done even better if they had invested in some countries outside the USA. As you can see in the chart below, Argentina’s Merval index surged 73%, the Nigerian All-Share index closed with a gain of 43%, matched by Turkey’s benchmark gain of 43%, and the Hang Seng rose by nearly 35%. So greater diversification could have afforded investors even more money to celebrate the New Year.
Where do we go from here? “2018 and 2019 should be strong years, because a deficit financed tax cut is fuel to the fire,” Mark Zandi chief economist, Moody’s Analytics told Yahoo Finance, December 28. 2017. Zandi went on to say, “It’s raw fiscal stimulus that’s going to juice things up.” Moody’s Analytics asserts that as result of the tax cuts the GDP will grow “by 0.4 percentage in 2018 and 0.2 points in 2019. That should push overall growth close to 3%. But the boost will probably be temporary.”
To pay for the tax cuts Washington will borrow approximately $1.5 trillion over the next ten years, which will affect the economy in more than one way. For example, a federal debt increase may cause interest rates to rise. Now in its ninth year the economy began to grow in 2009, which is a long time. Yahoo Finance notes “the longest expansion since World War II lasted only 10 year, from 1991 to 2001.” Zandi said, “This expansion should beat that one.” The stimulus effect of the tax cuts could well be abated in a couple of years if there is inflation just as the Federal Reserve raises interest rates in response.
“If I had to pinpoint when the next recession would occur, it would be sometime in 2020,” Zandi predicts. As you know, recessions typically don’t trumpet their arrival in advance and it often takes months before the data reflects an expansion end and the beginning of a contraction.
Stop arguing about the economy. Stop shopping using credit. Start planning your financial success. Put your phone down, turn off the flat screen and pick up a piece of paper and a pen. Put My 2018 Financial Plan at the top of the page. Many Americans get preoccupied with reducing weight as a New Year’s resolution, but it’s the best time to get your financial house in order. It’s worthy of note 12 percent of gym members join in January and the other months of the year get smaller percentage signups, according to Credit Donkey, December 29, 2014. From the same source we 80 percent who joined a gym in January 2012 quit within five months.
A 2017 GoBankingRates survey found 57 percent of Americans have less than $1,000 in a savings account. Chris Whitlow, chief executive officer, Edukate submits, “60% of Americans don’t have enough money in savings to cover an unexpected $500 expense. Expect the unexpected and budget for it. A simple way to achieve this is to set up an automatic withdrawal of $10 per week. Over the course of a year, you’ll save $520 and not become part of that statistic,” said Whitlock at Fox Business, December 27, 2017.
Let’s say your goal in a year was to provide $40,000 (blue below) income from your portfolio. Assuming a 4% withdrawal rate you would need to invest $1,000,000 today. If your goal in 2018 is to produce the equivalent income assuming 3% inflation in ten years you can see that you need $1,304,773 in 2028 and in twenty years your goal is to start 2038 with $1,753,506.
The red line here is based on producing $80,000 income in a year, which makes the starting balance $2,000,000. In ten years the goal becomes $2,609,546 and in twenty years $3,507.012 is the goal to produce the equivalent 2018 income of $80,000.
You may be surprised to know that investors with $5,000,000 do not consider themselves to be rich (green line). They believe they are well to do and they do not have a problem with the word budget. With $5m invested and their 4% withdrawal limit one retired couple asserts the $200,000 income provides precisely what they need to live the way they choose. By the way, this couple’s vacation budget is $21, 500 every year. Each of them understands what they are doing and they pay attention to their spending patterns. As the allotted amount gets depleted they simply start packing to come home. If $200,000 annual income in 2018 dollars is your goal, in ten years you will need $6,523,866. If you are planning on the same income in twenty years your goal becomes $8,767,530 to maintain your lifestyle. Living is not cheap.
You may or may not be in the top 1%, but by finishing your assignment here, you can be in the top 19%. Just 19% of more than 1,000 household decision-makers have “made a comprehensive financial plan that goes beyond a simple household budget to cover things like retirement savings and insurance,” according to the September 18,2013 Household Financial Planning Survey and Index commissioned by the Certified Financial Planner Board of Standard, Inc. and the Consumer Federation of America.
The study found that comprehensive planners reported higher confidence and satisfaction, regardless of their income bracket which is proof positive that written financial plans are not exclusive luxuries of the rich and famous. I know it’s math. But so what? Instead of talking politics or about the stock market, Do the math. After all, thanks to my firm’s late 2017 approval from the U.S. Patent and Trademark Office I can say to you, ‘The proof is in the planning®’
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