Archives for December 2016

Inflation has been unusually low for the past several years, but it can still have a big impact. Even if the inflation rate hovers around the Federal Reserve’s 2 percent target range, the buying power of a dollar would be reduced to 67 cents over a 20-year period.

To help offset the impact of inflation, some investors may consider buying TIPS — treasury inflation-protected securities. This is a form of U.S. Treasury bond that pays out in two ways:

• Fixed interest payout for the life of the bond
• A twice-yearly inflation adjustment added to the bond’s principal

Note that the interest payments are taxable as income in the year they are received and any inflation adjustments are taxable as income in the year they are applied.

The inflation adjustment is what makes this bond different, because it enables the bond’s value to increase with higher inflation. For example, if you take our 2 percent inflation scenario, a $1,000 bond would be revalued at $1,020 at the end of the first year. This, in turn, would increase the fixed-interest payout. Thus the investor actually benefits from higher inflation; even more so when the bond matures because the investor is paid back more than his initial investment.

TIPS may also benefit the investor in a deflationary environment, because in addition to the fixed interest payout, he or she will also receive the entire initial investment upon maturity. In this way, TIPS are similar to other bonds, but offer an inflation hedge. They are backed by the full faith and protection of the U.S. government, which makes them a relatively low-risk investment.

Since TIPS’ payouts are correlated to the inflation rate, they do not offer tremendous upside opportunity. Rather, they offer a way for an investor’s money to keep pace with inflation instead of losing buying power. Note, too, that when interest rates rise, the price of existing TIPS will fall. This means that, like other bonds, if the investor does not wish to hold the bond to maturity, he or she could lose principal in the resale market.

TIPS are offered through the government’s TreasuryDirect system in 5-, 10- and 30-year maturities, with a minimum purchase of $100. TIPS also can be traded on the secondary market through a bond broker or purchased as holdings in a mutual fund or exchange-traded fund.

Following the presidential election, investor expectations of a pro-business economy led to a sell-off of bonds, but TIPS received close to their biggest inflows since 2002, as investors were looking for a hedge against an increase in inflation. In fact, $1 billion of new money flowed into TIPS in the week following the election.

Please remember that investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. It’s important to consider any investment within the context of your own goals, risk tolerance, investment timeline and the composition of your overall portfolio. You should speak with a qualified financial advisor before making any decisions about your personal situation. 

Yogi Berra once said, “You’ve got to be very careful if you don’t know where you are going, because you might not get there.”

When it comes to retirement, plenty of people get there — but it may not be what they expected because they either didn’t plan, or their financial strategy didn’t help keep them on the path to their goals. The difference between a satisfying retirement and one with financial concerns may be correlated with how early and how well you plan.

In some ways, what you may hear about creating a financial strategy for retirement can sound similar to the advice high school graduates receive when applying to colleges: Develop a strategy for your dream retirement, one that you are most likely to achieve, as well as a fallback option or two. And remember that retirement planning is personal, so you’ve got to do what’s right for you.

That means taking into account all the people you’ll need to provide for, your assets, your income and savings rate from now until retirement, your investment goals, your timeline, your tolerance for market risk … there’s a whole spectrum of things to consider. That’s one reason why it’s  important to develop a relationship with a financial advisor who can help not just to develop a financial strategy, but to adapt that financial strategy as your circumstances may change. We can help you with that by creating a financial strategy utilizing both investment and insurance products that can help you work toward your long-term financial goals.

One of the first steps to retirement planning is figuring out how much income you’ll need once you stop earning a paycheck. Based on data gathered by the Bureau of Labor Statistics in 2014, the average retired household spends $40,938 per year.

 

Retirement planning is a complicated process because there are so many unknowns, like not knowing how long you’ll actually live. However, there are many tools available at your fingertips, and we are just a phone call away. Remember, it helps to figure out how much savings you may need to retire, so you can create a well-thought-out financial strategy.

One of the prominent media stories that emerged in the 2016 presidential election was the need for constant fact checking among the candidates. While many “untruths” are labeled as lies, often a case can be made that information was cherry picked, taken out of context, incomplete, misconstrued or misinterpreted.

However, that’s not to say that out-and-out lying is uncommon. One researcher asserts that 60 percent of people tell, on average, two to three fibs during a typical 10-minute conversation.

Why so common? A recent study found that dishonesty grows with repetition. Scientists posit that the first time a person tells a lie, he or she tends to feel guilty. That’s (human) nature’s way of curbing an implicitly incorrect behavior. However, over time, the more lies one tells, the less guilty he or she feels, indicating that the brain somehow adapts to this illicit behavior.

Research has demonstrated that lies appear to escalate more when there is an element of self-interest: The more an individual benefits from lying, the more likely he or she is to lie repeatedly. The lies get bigger, and that self-conscious feeling of guilt tends to get suppressed.

Despite its prevalence, we tend to feel guilty when we suspect someone of lying, which is one reason why we’re often duped. Men and women lie with equal regularity, but often for different reasons. Psychologist Robert Feldman says women are more likely to lie to make the person they are talking to feel good, while men lie most often to make themselves look better.