Broker Check

September 24, 2018

| October 01, 2018
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Did you hear the news last week? A tech company introduced a microwave you can turn on using Wi-Fi, as long as, you have one of the company’s voice assistants at home, reported Kaitlyn Tiffany of Vox. Soon, the voice assistants will be built with neural networks that will formulate hunches about whether their owners might like to be reminded to lock the door or turn off a device.

Some people love the idea. Others don’t. Many global stock markets moved higher, however, many are still in negative territory for 2018 and some in bear markets. Ben Levisohn of Barron’s reported:

“One need only look overseas for a sign that investors are feeling better about the state of the world – or at least better enough to do some bargain-hunting. China’s Shanghai Composite rose 4.3 percent this past week, though it is still down 21 percent from its January high…”

The news in a FactSetInsight written by John Butters may dampen some investors’ enthusiasm.  With the third quarter earnings season ahead, Butters reported 98 of the companies in the Standard & Poor’s 500 Index have issued guidance. The majority (76 percent) issued negative guidance, meaning they anticipate earnings will be lower than analysts’ mean earnings per share estimates.

It’s important to remember that, historically, the U.S. economy has moved in cycles. We may be in the latter stages of this expansion. The next stage is contraction and no one can predict exactly when it may occur or how long it may last.

This week, the Federal Reserve met and decided to raise rates by another 0.25%.

The most important news released this week was the Trump administration’s decision to add 10 percent tariffs on $200 billion worth of Chinese goods. When the trade news has been negative, U.S.-based small companies have tended to outperform and international stocks have tended to lag. The global implications of a trade dispute between the two largest economies are generally negative, but expectations are international markets will be affected the most.

 

Markets had feared a 25 percent tariff would be implemented instead of a 10 percent levy and the Chinese response would be very strong. Instead, the tariffs implemented on Chinese goods went into effect on September 24 starting at 10 percent and then rising to 25 percent on January 1. China announced a 10 percent tariff on $60 billion in U.S. goods as a response. The news being better than expected contributed to the stronger performance in global stocks relative to U.S. markets. Small-cap U.S. stocks, as measured by the Russell 2000 Index, dropped last week.

White House officials said China could expel the tariffs by agreeing to trade demands, which include: U.S. companies gaining greater access to the Chinese market and dropping the requirement for U.S. companies to hand over valuable technology to their Chinese partners.

This round of tariffs is different from the previous $50 billion worth as those were geared toward goods that wouldn’t impact the American consumer. The new tariffs, however, are on goods ranging from electronics to food. Walmart and Target have already warned customers price increases will be coming.

Over the weekend, China put talks on hold in response to U.S. negotiating tactics. We continue to expect a resolution sometime this year, while acknowledging the risk of a significant trade dispute continues to edge higher.

 

Key points for the week

  • U.S. stocks increased 0.8 percent, pushing the S&P 500 to a new high.
  • The United States implemented tariffs on an additional $200 billion worth of Chinese goods.
  • The Federal Reserve is moved forward with raising short-term interest rates this week.

 

Women and the Retirement Crisis

By 2050, the retirement savings shortfall in eight of the world’s largest economies is expected to reach $400 trillion, according to estimates from the World Economic Forum (WEF). The shortfall is the difference between the amounts of money retirees may receive from government and/or employer pensions and individual savings. The amount they need to replace 70 percent of their pre-retirement income is also factored in.

Retirees in the United States are expected to have the biggest shortfall, coming up at about $137 trillion short.

There are many reasons why countries and individuals are poorly prepared to meet the challenges of retirement, including:

  • Longer life expectancies
  • Disappearing corporate pensions
  • Persistent, low-growth economic environment
  • Low savings rates
  • High financial illiteracy

Additionally, in the United States, government support systems like Social Security and Medicare are at risk of running short of funding. This is due, in part, to gains in longevity and reluctance on the part of elected officials to take unpopular actions that might include raising the current retirement age, cutting benefits, or modifying the FICA tax that funds the programs.

The retirement crisis affects women disproportionately

While a retirement shortfall isn’t news, few people recognize it does not affect everyone equally. Women are 80 percent more likely than men to be impoverished early in retirement, reported the National Institute on Retirement Security (NIRS). The likelihood of financial distress increases with age:

“For women age 65 and older, the data indicates that their typical income is 25 percent lower than men. As men and women age, men’s income advantage widens to 44 percent by age 80 and older. Consequently, women were 80 percent more likely than men to be impoverished at age 65 and older, while women age 75 to 79 were three times more likely to fall below the poverty level as compared to their male counterparts.”

 

One of the reasons older women’s incomes are lower than men’s during retirement is because women’s incomes were lower during their working years. According to WEF, women’s lower salaries, along with work interruptions, negatively affect their retirement savings:

 

“Lower salaries have a direct impact as individual contributions [to workplace retirement plans] are often by default a percentage of salaries, but lower salaries and lower contributions are compounded by women receiving lower employer-matching contributions than their male colleagues. On average, women also have longer life expectancies and will have to spread their savings across more years in retirement.”

 

In addition, women tend to have higher rates of part-time employment and shorter job tenure. As a result, it may be more difficult to meet a retirement plan’s eligibility requirements, reported NIRS.

How can women meet the retirement challenge?

While every woman has unique life circumstances, and distinct personal and financial goals, all women can improve their retirement readiness. For many, the first step is reordering financial priorities.

A Willis Towers Watson survey found less than one-half (44 percent) of women ranked ‘saving for retirement’ as a top priority. In fact, setting aside funds for retirement was fifth on the list of financial priorities for most women.

It’s not unusual for young men or young women to feel little urgency about saving for retirement. Typically, retirement doesn’t become a financial priority until people reach their 40s or 50s. Unfortunately, for many women, saving needs to begin at a relatively early age if they want to live comfortably throughout retirement.

As a result, it’s important for women and anyone else whose goal is to live comfortably in retirement to do the following:

  • Start saving for retirement early. Make it a habit to regularly contribute to a retirement account. Saving small amounts at a young age can result in a bigger nest egg than saving bigger amounts at an older age.
  • Save in your workplace retirement plan, if possible. If you’re not eligible, open an IRA and contribute to it every pay period.
  • Take advantage of the IRS Saver’s Credit. Depending on your adjusted gross income and tax filing status, you may be able to claim the credit for 50 percent, 20 percent, or 10 percent of the first $2,000 you contribute during the year to a retirement account.
  • Learn more about saving and investing. The 2017 Retirement Income Literacy Report found retirement literacy rates were affected by gender, education, and wealth. However, few men (35 percent) and fewer women (17 percent) were able to pass a retirement income test.
  • Calculate how much you may need to live comfortably in retirement and how much you should save to reach that goal. Do this every year. The amount you need to save is a moving target because your income and circumstances may change over time.

Although retirement may seem far into the future, it’s important to begin saving as early as possible. The alternative, reaching retirement age without enough savings to live comfortably, is one no one wants to experience.

If you would like to learn more about retirement planning and saving, please give us a call. We can help you get started and offer insights along the way.

 

What are we reading

Below are some articles we paid particularly close attention to this week. We encourage our readers to follow the links.

A Primer on QCDs

With changes in the tax code due to the 2017 Tax Cuts and Jobs Act, planning for where to take funds from to make contributions to charities has changed. Since 2006, there has been times where individuals were able to make charitable contributions from their pre-tax IRAs and have the contributions count towards their required minimum distribution for that year. The ability to make qualified charitable distributions has been made permanent, at least until Congress passes a law changing it.

 

A Plan to Eliminate Malaria

The World Health Organization estimates approximately 200 million cases of malaria annually. Roughly, 627,000 people die from Malaria each year ranking 5th in the list of deadliest contagious diseases. Researchers are now using Crispr, a genetic editing tool, to plant a deadly gene in mosquito DNA. The mosquito with the deadline gene would then propagate through reproduction and would eventually kill the mosquito population.

 

‘Talk Like A Pirate Day’ still gets an ‘aye’ vote in Lake Worth

September 19 was “International Talk Like a Pirate Day.” Although celebrated in many cities around the world, city councilors in Lake Worth, Florida, have taken the faux holiday a little further than most. Since 2012, councilors have dressed and talked like pirates during their public meetings. Mayor Pam Triolo recounted the time when talking like a pirate was passed as a city proclamation. She said she didn’t expect her first bout of national attention to be about Pirate Day.

 

Millennials don’t exist

Gen Xers and the Silent Generation get a lot less press than Millennials, but all three generations have one thing in common. According to comedian Adam Conover, “Generations in general don't exist. They're not real things that exist in nature. We made them up…Here's what really exists: People who are alive at the same time.”

He may have a point.

The only generation that has been recognized officially by the U.S. government is the Baby Boom generation. At least, that’s what a U.S. Census Bureau spokesperson told Philip Bump of The Atlantic. The Baby Boom generation was recognized because its members were part of a demographic event. Encyclopedia Britannica explained the baby boom as:

“…the U.S. increase in the birth rate between 1946 and 1964; also, the generation born in the U.S. during that period. The hardships and uncertainties of the Great Depression and World War II led many unmarried couples to delay marriage and many married couples to delay having children. The war’s end, followed by a sustained period of economic prosperity (the 1950s and early 1960s), was accompanied by a surge in population. The sheer size of the baby-boom generation (some 75 million) magnified its impact on society…”

So, where did other generations originate?

Sarah Laskow of The Atlantic reported, until the 19th century, generations were thought of as biological relationships within families. For example, grandparents would be one generation, their children the next, and their grandchildren the next, and so on.

The idea of societal generations, people who live at the same time and experience the same things, came from European intellectuals in the 1800s and early 1900s who advised, “people do not react to their particular historical conundrums as a monolithic group.”

Every person is unique and individual.

 

Weekly Focus

“The power of youth is the common wealth for the entire world. The faces of young people are the faces of our past, our present, and our future. No segment in the society can match with the power, idealism, enthusiasm, and courage of the young people.”

~ Kailash Satyarthi, Nobel Prize winner and activist

"In basketball - as in life - true joy comes from being fully present in each and every moment."

~ Phil Jackson, Basketball coach

"What would life with be we had no courage to attempt anything?"~ Vincent Van Gogh, Painter

"If you want to succeed, you should strike out on new paths rather than travel the worn paths of accepted success."

~ John D. Rockefeller, Oil Magnate

 

Links & Disclaimers

RJFS and SPC do not offer or provide legal or tax advice. Tax services and analysis are provided by the related firm, S&M through a separate engagement letter with clients. Portions of this newsletter were prepared by Carson Group Coaching. Carson Group Coaching is not affiliated with RJFS, SPC or S&M.  The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.  The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  This information is not intended as a solicitation of an offer to buy, hold or sell any security referred to herein.  There is no assurance any of the trends mentioned will continue in the future.  Any opinions are those of the author and not necessarily those of RJFS.  Any expression of opinion is as of this date and is subject to change without notice.

Opinions expressed are not intended as investment advice or to predict future performance.  Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.  Past performance does not guarantee future results.  Investing involves risk, including loss of principal.  Consult your financial professional before making any investment decision.  Stock investing involves risk including loss of principal.  The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.  The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock companies maintained and reviewed by the editors of the Wall Street Journal.  Please note direct investment in any index is not possible.

The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks.  Investing in emerging markets can be riskier than investing in well-established foreign markets.

Links are being provided for information purposes only.  RJFS, SPC and S&M are not affiliated with and do not endorse, authorize or sponsor any of the listed websites or their respective sponsors, and they are not responsible for the content of any website, or the collection or use of information regarding any website's users and/or members.

http://www3.weforum.org/docs/WEF_White_Paper_We_Will_Live_to_100.pdf (Pages 7, 8, 12, and 22)

http://www.crfb.org/papers/analysis-2018-social-security-trustees-report

https://www.nirsonline.org/reports/shortchanged-in-retirement-continuing-challenges-to-womens-financial-future/

https://www.willistowerswatson.com/en/press/2018/03/gender-differences-on-saving-for-retirement-linked-to-financial-needs

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit

http://retirement.theamericancollege.edu/sites/retirement/files/Gender_Differences_in_Retirement_Income_Literacy_Report.pdf

https://www.vox.com/the-goods/2018/9/21/17886682/amazon-new-smart-home-microwave-speakers-internet-of-things

https://www.barrons.com/articles/dow-hits-record-amid-global-stock-rally-1537577592

https://www.barrons.com/articles/the-dow-hits-a-record-high-as-tech-sits-it-out-1537580378

https://insight.factset.com/highest-percentage-of-negative-eps-preannouncements-for-sp-500-since-q1-2016

https://www.youtube.com/watch?v=-HFwok9SlQQ (4:28 minute-mark)

https://www.theatlantic.com/national/archive/2014/03/here-is-when-each-generation-begins-and-ends-according-to-facts/359589/

https://www.britannica.com/science/baby-boom

https://www.theatlantic.com/technology/archive/2014/09/the-generation-of-generations/379989/

https://www.brainyquote.com/quotes/kailash_satyarthi_751646?src=t_youth

 

RJ Approval # 2260607

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