As this is Thanksgiving week, I wanted to take a moment to express gratitude for all you have done and continue to do in support of those affected by the recent fires. Whether the deeds were large or small, within your inner circle or for complete strangers, the acts of kindness and generosity being reported lately are inspiring. It's great to see the best of us during times of tragedy.
Every so often we have to make the decision to raise our level of play. As you know, a big part of why I left the brokerage firm environment a few years ago was to work solely in the best interest of my clients. I had grown weary of needing to constantly serve the corporate master and instead wanted to provide financial planning an investment management services without the conflicts of interest that are so pervasive within the industry.
With the recent fires being 90+% contained as of this morning, let's review some of the important announcements by the Social Security Administration and the IRS in the last couple of weeks.
Social Security benefits for more than 66 million beneficiaries will increase by 2% in 2018. As a refresher, the Social Security Administration (SSA) reviews Consumer Price Index data for the third quarter (which ended in September) and compares this versus a year ago. Since the index, specifically the CPI-W, or Consumer Price Index for Urban Wage Earners and Clerical Workers, increased by 2% during the period, this sets the increase amount for beneficiaries the following year.
With the S&P 500 and the Dow up this year 17% and 20%, respectively, individual investors are finally getting more bullish about growth prospects. Usually late to the party, these investors are often looked at by the institutional folks as a contrarian indicator.
After many months of quiet gains in the stock market it's natural that some investors start assuming this will last forever, that we've entered a new low volatility growth paradigm, or something like that. But markets don't go up in a straight line indefinitely. It's during the good times that we need to remind ourselves of market fundamentals, and sometimes even of Newton's law of universal gravitation.
Behavioral finance has been a big topic in financial circles lately. Occupying a branch of the economics tree, a "behaviorist" studies the effects that psychological, social, and emotional issues have on the financial decisions people make.
Most economic models tend to focus on people as completely rational actors who would make the correct financial decision at every opportunity. This makes for simpler math and cleaner outcomes, but we are people, of course, and not financial robots. Accordingly, the decisions we make are often irrational and fundamentally at odds with the view of traditional economics.
As the fires continued to wreak havoc in our area this past week, I kept wondering what this upcoming blog post should be about. The loss of life. The loss of property. Lives upended but a community coming together to support neighbors and strangers alike. What we've witnessed during this tragedy is too hard to put into words. People more talented than I will come later and put all of this into beautiful prose and poetry. But as a financial planner I keep coming back to the financial impacts associated with this disaster.
