The Constant Negative News is riddled with mixed messages. Governments around the world are pulling out all of the stops to cause you to spend, baby spend! Many consumers, however, have figured out that works well for the economy but it doesn’t work at all for families who have yet to set aside enough funds to make work optional. GoBankingRates conducted a survey released on October 5, 2015 finding that 62% of Americans have under $1,000 in their savings. “The survey findings also reveal that most Americans’ savings account balances are falling far short of where they should be.” Cameron Huddleston, a personal finance expert and columnist for GoBankingRates goes on to say, “It suggests that they likely don’t have cash reserves to cover an emergency and will have to rely on credit, friends, and family, or even their retirement accounts to cover unexpected expenses.” Savvy investors are not taking the bait, they understand now is the time to save baby, save!
What to Make of the Mixed Messages
Speaking of governments, when China catches a cold, the rest of the world may catch the flu. The China National Bureau of Statisticsis going to great lengths to instill confidence, assuring investors around the world that the government has, “adopted scientific measures to stabilize economic growth, promote reforms, enhance restructuring, benefit people and control risks.”
So far the financial markets have responded positively to the propaganda and investors seemed to breathe a sigh of relief as prices stabilized in September. Here at home, the Federal Reserve appears too scared to raise rates, citing, “financial market turbulence, modest global growth and macro imbalances” as reasons for delaying a rate increase. As Chief Investment Analyst for Dent Research, Adam O’Dell stated on 10/19/15, “What concerns me more is how markets are being driven by these narratives; stories told by central banks, CEOs and nearly anyone with a vested interest in talking the masses into a bullish (or bearish) view.” One day the market gets high on blue sky promises and rosy expectations, the next day it gets talked lower due to skepticism and warning signs. Meanwhile we are doing our best to help you separate the news from the noise. Because we all know, it’s never the bus you see when crossing the street that can disrupt your day, it’s always the bus you don’t see.
I became insurance licensed in 1978 and passed my first securities license in 1979. So I am qualified to say that I apologize for my peers. What concerns me most is that many wealth managers don’t seem to have a grasp on the long view. The 30,000 foot level or the big picture. Too many of us haven’t demonstrated we have learned anything over our tenures. We may have been in the business for thirty years or more, but we generally repeat the first year for the rest of our careers.
Let’s start with one example. You may have seen a chart like this before. Unfortunately the analysts, economists, and wealth managers often misinterpret one of the most meaningless charts in all of economics. Well intentioned and well educated people are quick to jump to faulty conclusions. The chart doesn’t mean what they say it does.
At first blush, you get the impression this is all bad news. Our US Dollar had dropped in value 97%. So we should look to invest in almost anything but the dollar, right? Try again. This chart has about as much meaning as a blank piece of paper. It is true that overtime the so-called “value” of the dollar has decreased as we have created more of them, much like microchips. Harry Dent on 10/13/15 noted, “Since 1900 we have dramatically increased our standard of living. Yet many continue to whine and complain that, collectively, our wealth has been devoured by evil inflation.” Too many of us have been conditioned to believe that inflation is bad news. The gold bugs and fiscal hawks want us to believe there is irrefutable proof that the dollar is going down like the Titanic.
Reflect on how life was in the early 80’s. The truth is, inflation is actually a good thing, when held in moderation. In sharp contrast, it is deflation that scares governments the most as they have no tools to counterbalance deflation. Think of it this way, if you notice that the new iPhone, for example, is less costly every month, what do you do? You wait to buy it. Because you believe the cost may go lower. In fact, if that is the trend you observe, other than food you may wait to buy everything you can. In the early 1900s, the US was emerging as the up and coming new global leader. At that time, it wasn’t the government proclaiming this as much as it was ordinary people using their resources to become productive. That is fundamentally sound. As Harry Dent notes on 10/13/15, “Life expectancy was low, and the quality of life was even lower. There were no microwaves dinners or takeout menus. Families largely built their homes with their own bare hands, and fished and farmed for most of their food. All it took was one bad season to threaten your life and livelihood. It was dirty, dangerous, and back-breakingly hard. By comparison today, we practically live like royalty.” All thanks to inflation. “Over the long-term, inflation correlates with a rising standard of living. Inflation rises as populations grow, empires are built, and new technologies advance,” says Dent. You may recall that in the 70s inflation got to an extreme and hurt the economy. But that is the exception, not the rule. Still it is the case that rising costs encourage new innovations that pay off handsomely for decades.
Rather than being the adult leader in the room, here are some other ways that financial advisors and economists act like brain-dead drones.
1. We sound like sales people or product pushers. Instead of helping investor first see how much money they might need to make work optional, we talk about where to put the money. When you decide to go on vacation, you don’t start with how you are going to get there. You start with answering the questions, When and where are we going? Planners should start with planning, where to put the money is a different question.
2. It appears we haven’t learned anything since we started the business. For example, we don’t go back to our clients in 2003 and 2009 to tell them what we learned when investment accounts may have been off -50% or more. Clients appreciate it when we are the leader to say, “We didn’t see that one coming either, but here’s what we have learned that may help manage volatility the next time the markets react viciously negative.”
3. We don’t take advantage of new technology. New cars often have 15 or more computers to help keep you safe on the road. Have there been no technological advancements when it comes to investing to help us stay retired 24/7? There have been some very valuable advancements like ETFs, diversification strategies, and separately managed accounts.
4. We still believe Buy & Hold is the only option. Especially when withdrawals are needed for income, many of us are repeating the mantra, “Buy & Hold no matter what!” “Hold & hope!” “Stocks for the long haul!” As income becomes more important, we should be focusing on volatility tactics and income over long term growth strategies.
5. We don’t take advantage of diversification. Just as realtors and mortgage bankers would have you believe today is the best time to buy another home, too many financial advisors now is the best time to invest in stocks. There are now many ways to diversify assets that are not just stocks bonds and cash.
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Investors Advantage, and NPC are separate and unrelated companies. The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual's goals, time horizon, and tolerance for risk. There are no guarantees that any managed portfolio will meet its intended objective. Neither asset allocation nor diversification can ensure a profit or prevention of loss in times of declining values.