A Few Quick Notes
I had originally intended to wait until next week to return to these posts, but here are a few random bits of information in the meantime.
First, a quick business note. I’ve been having some email issues that have impacted my ability to send to Gmail users. If you’re one of them and have been wondering why I haven’t responded to a recent email, check your junk folder. I’m slightly ashamed of not fully understanding how the tech functions but am working with someone to resolve the problem.
Next, you’ve likely heard or read about how Jerome Powell, head of the Federal Reserve, gave a pretty stern speech last week about fighting inflation. A big part of Powell’s job with his speeches is managing our inflation expectations. Arguably, after waffling a bit in recent months, Chair Powell used his speech to double down on inflation being the Fed’s #1 job (they have two – the other is enabling a healthy labor market). He said clearly, “Without price stability, the economy doesn’t work for anyone”.
While I don’t think we can argue with that, the main question on the minds of investors is how high he and the rest of his committee will raise interest rates to get back to the increasingly mythical land of stable prices. And how much would they sacrifice job #2 for job #1. Fed officials have indicated potentially raising the benchmark rate they control by another 1% or so this year with more increases likely in 2023, on top of raising 2.25% already this year. Chair Powell hopes to engineer a so-called soft landing, bringing inflation down to manageable levels without triggering a recession. The main tools he has for this are his public comments and raising interest rates. Not an easy job.
As we’ve discussed before, rate increases are a blunt tool that take time, often quite a while, for their full impact to be felt. We’ve already had several larger increases in a handful of months. Investors worry that the Fed won’t get its soft landing, that continued aggressive rate increases will push the economy into recession and, perhaps, that the Fed has to keep chasing inflation for a lot longer than anticipated.
These fears were brought to the surface during Powell’s sub-ten-minute speech last Friday and major market indexes fell quickly. This carried over to yesterday but, at least as I write, futures markets are indicating a bit of a bounce. We’ll see how the day unfolds. As always, I mention all this to help keep you informed of major developments in the markets.
It’s an uncertain time for just about everyone in a variety of ways, but good planning helps. Markets have had a tough go so far this year, but every client plan I’ve worked on lately is holding up fine amid all the chaotic news and market declines. I can’t claim credit for this, although I’d like to. Instead, your financial situation, financial outlook, etc, is probably in good shape because you’ve saved well, you don’t overspend, and you don’t freak out and overreact when other investors do. The old saying is true – If it were easy, everyone would do it. It’s definitely not easy but you find a way. I hope I help you on that journey.
Along these lines, here’s a recent article from The Wall Street Journal about deciding to retire during tumultuous times. The article references the so-called 4% Rule. I’ve participated in trainings with the person who originally came up with the “rule” and would offer that its best used for back-of-the-envelope planning, a guideline, and no substitute for more detailed work. Let me know if you get stopped by the WSJ’s pay wall and I can email you the story from my account.
https://www.wsj.com/articles/when-best-and-worst-times-for-retirement-11661816598?mod=hp_lead_pos10
Finally, I may post something more detailed about this in the near future but check out this article from Morningstar on I Bonds.
These bonds are sort of a fluke caused by high inflation and you buy them directly from the US Treasury via its antiquated website. The “initial” interest rate is a whopping 9.62% because the rate is indexed to inflation and can reset every six months (the guaranteed rate is currently zero). If inflation stays high for a long time these bonds would keep pace with it (while the rest of your finances suffer). If inflation comes back to earth reasonably fast, say over the next year or so, your 9.62% will average out to something less. There are annual investment maximum’s of $10,000 per social security number. And I Bonds are meant as a long-term investment, but you can get to the money early by paying a penalty.
The bottom line is that these are good investments for someone with idle cash outside of retirement accounts and who can let that cash sit for at least a few years. Okay, enough from me. Here’s the link to the Morningstar article and to the Treasury Direct page that covers the high points of I Bonds.
https://treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm#irate
Have questions? Ask me. I can help.
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