Category: Retirement

How Long Does It Take to Tame Inflation?

  • Excerpts from a TGIF 2 Minutes written 11 1/2 months ago follow.
  • Today, the US Fed is not finished raising interest rates.
  • Inflation is still around for multiple reasons.
  • Note the emphasized comments in bold.

Wind back to October 2022: A question that may be on a number of people’s minds was, “How long will it take to tame inflation?” Unfortunately, there was very little telling. Part of the reason is that inflation is always part of a complicated economy. Predictions about the timing of inflation (and hard-landing/soft-landing) are nearly impossible.

To add to the confusion, emotions – specifically people’s expectations of inflation – are part of what keeps inflation around. In this inflationary cycle (as of October 2022), inflation had already stuck around longer than at almost any time in US history; long enough to increase people’s expectations that inflation would not go away quickly. The US Fed had stated one of its original intentions was to lower consumers’ inflationary expectations. But the Fed may have missed that boat late in 2021 due to forces out of its control, namely, the pandemic aftermath. Note that today in late September 2023 inflation is still running strong.

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A Little Paranoia Can Be OK

From the 2022 Archives of TGIF 2 Minutes with a few updates…

Record-breaking, big outlier events tend to move the needle to extremes in the economy and stock market. Note the word, “outlier”. Outlier events typically are surprises and are often unlikely. In his beyond excellent book The Psychology of Money* author Morgan Housel lists five events that were outliers over history in the US with world-changing consequences:

  • The Great Depression
  • World War II
  • The dot-com bubble
  • September 11th**
  • The housing crash of the mid-2000’s.

A conclusion could be drawn from the book’s chapter titled, “Surprise!” that surprises are perhaps the most reliable thing going. But the irony of the reliability of surprises is we do not know what the surprise is until after it has unfolded.

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Difficult Spending Realities

*Please see footnote below for a CORRECTION to last week’s edition, TGIF 2 Minutes – Tax & 401k Infor for ALL Ages. Thank you to my astute readers!

On to this week’s edition:
So far, 2023 has been a decent year, even slightly better than decent, for the stock market and the short-term end of the bond market (total return).

When times are mostly good it becomes easier to feel comfortable spending more money or making major purchases. BUT –

  • as we are still in a fairly dire inflationary environment,
  • with longer-term consumer price effects still to be seen (up or down, but most likely UP)
  • and following over 12 months of Federal Reserve interest rate increases,

currently it makes sense to thoroughly think through – and take more time (perhaps a couple of years) – making major spending decisions.

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Part 2 – Tax & 401k Info for ALL Ages

Part 2 of “under the radar” tax law changes. These changes lead to a needed discussion of current, related tax topics applying to ALL ages of savers with 401k accounts – and possibly IRA accounts too. There is still a decent amount of time remaining in 2023 to make a difference in 401k saving.

Remember that Roth 401k plans have slightly different income requirements than Roth IRA accounts:

  • Roth 401k accounts (which run alongside regular 401k accounts) have NO income limits.
  • Roth IRA accounts DO have income limits.
Roth 401k monies have NO RMDs under current tax law. Traditional, pre-tax 401k monies have RMDs and create taxable income in the future.

Continue reading “Part 2 – Tax & 401k Info for ALL Ages”

Under the Radar Tax Law Changes

Consider this edition of TGIF 2 Minutes an “automatic Part 1” in a 2-part series on changes to the taxation of 401k contributions.

Calling these tax changes “under the radar” may be underestimating the level of attention paid by the average TGIF 2 Minutes reader to tax news. But fear not! Missing these tax changes is common and mostly due to

  1. the IRS typically making substantial tax law changes overnight in the last two weeks of December (see: 2015, 2017, 2020, 2021, 2022 and prior) thus easily missed by the most attentive of savers amidst year-end and holiday activity,
  2. the complicated language used in the changes, confusing both savers and employers and their HR departments.

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2023 So Far So Good…

Superstition is not a strategy, although elite, professional athletes subscribe to superstitions all the time*. The reason for bringing up the topic is that talking about the stock market’s positive performance year-to-date in 2023 could warrant dialing back the optimism – for superstitious reasons! Hence, the “…” in the title “So Far So Good…”.

This said, the US stock market just finished a strong 2-month set of returns, in addition to an excellent January and stable returns in between. This positive performance has no guarantee of continuing but is evidence that staying in the stock market for the long-term – with a plan – can have positive long-term consequences.

  • The S&P 500 is up 16.4% year-to-date.
  • The Nasdaq over the same period is up over 31%.
  • The Russell 2000 Index of small companies is up 9.2%.
  • The Dow Jones is up 6.1%.

Continue reading “2023 So Far So Good…”

The Million Dollar House Down the Street

What happens when the house down the street suddenly sells for over $1 million dollars?! (And all the other very nice homes on the street were purchased for $550,000 or less within the past 10 years or so, maybe $700k for a couple of more recent sales?)

A couple of possible answers with explanation:

Real estate in desirable areas is still white hot. And while areas in the US northeast, California, and Florida (among other high-priced areas for homes) commonly see homes priced in the $3 million to $5 million+ range, homes nationally sell for an average of much less. Depending on which source or what inputs (new or existing, list price, sales price, or market price, etc.) the average home sale price in the US is between $391,000 and $507,000*. Therefore, in most neighborhoods when a home suddenly sells for $1.1 million (or $2.1 million) dollars it is consequential for the local market, especially the neighbors!

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Coffee Dilemma

TGIF 2 Minutes went on a summer break to the UK and is back in action. Thanks to all who checked in the last 2 Fridays!

Beware international – and ALL – travelers. Today’s edition poses a question, call it a coffee dilemma, if not a sort of moral dilemma.

How much is a “6-shot coffee” worth these days? Hint: in the airport, apparently nearly 45+ minutes plus a lot of hassle for fellow coffee and tea drinkers waiting on line.

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Be on Lookout for Small Caps

A short and punchy note today. Recent data speaks to money flows and trends favorable to small company stocks. 

Taking a step back, at most basic, small companies (when successful) become large companies – a good thing. Also, small company stocks are bought much cheaper (lower ratios of price to book value) in the marketplace. The caveat is that small companies typically have less of a track record and can be more volatile.

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Review: What Could Happen in 2023

Since it is approaching mid-year, it makes sense to look at a few data points from the start of 2023. Back in January, TGIF 2 Minutes took a look at two charts:

  1. How much more expensive growth stocks were (and are) versus value stocks (top chart)
  2. Average US stock returns following big downturns in markets (bottom chart)

Read on for the review from earlier in the year, followed by a June 2023 update. Continue reading “Review: What Could Happen in 2023”