Savings – TGIF 2 Minutes with Kerrie Debbs, CFP

Failure of a Bank

Quick trivia: Who is famous for the saying, “It’s only when the tide goes out that you learn who’s been swimming naked”?? Ironically just last week Warren Buffett’s 58th annual “Letter to Shareholders” was reviewed by TGIF 2 Minutes, and, yes, Warren E. Buffett first famously uttered these words back in 1992.

The timing of his utterance was, as CEO of the insurance conglomerate Berkshire Hathaway, just following Hurricane Andrew when the inadequacies of the insurance industry were negatively exposed. Buffett was describing “the rosy appearances that can mask financial recklessness until the good times end.”*

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Save, Spend, Review… Repeat

More and more lately, perhaps as a result of the post-pandemic world, I am being asked for basic financial advice – from both young people AND those in the over-55 crowd. By the way, the over-55 crowd who ask this question are typically wealthy with comfortable lifestyles. The basic financial advice they seek includes the question, “Are we OK financially?”

A handful of smart people ask for further definition of “OK” and then ask the same question, “Well then, are we OK financially?” The answer comes down to super-basic elements, and thus today’s short edition of TGIF 2 Minutes.

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Challenge: Teaching Inflation to Kids (& Adults)

“Mommy, Why are you buying our food at Walmart?”

…”Daddy, Why are we not eating my favorite fancy meals and brands of food?”

It is not quite Chef Boyardee and Ramen Noodles yet, but there is data reporting higher-end households shopping at lower-priced food stores (i.e. Walmart).* There is a lesson for kids and adults here. First a few more details.

Inflation is no joke; and can be the great equalizer. For even the highest-earning households, nearly everything is more expensive. Namely, food. In addition, during the pandemic households became accustomed to ordering out for food and meals, taking delivery, and cooking at home less. For those households who chose to cook at home more often, the ingredients were and are now often delivered or shopped for by a “shopper” and picked up curbside at the grocery store or delivered to the doorstep. Food and service costs have skyrocketed (partly the result of further increases in wages for basic hourly workers).

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Hurricane Season

Hurricanes can come in various forms. Whether they be the recent Ian and Nicole or the staggering Sandy of 2012 they tend to strike in the fall season. Also, in the fall come U.S. elections and historically a bit of stock market volatility. Like the weather, markets are anything but predictable. Elections can lend themselves to predictability but there are always surprises too.

This year has had a mix of all these factors. Currently amidst high inflation the stock and bond markets are trying to digest an environment of much higher and increasing interest rates – exactly how much higher is an unknown. Also unknown is the post-election reality of future policy making in Washington, DC. Interest rates are “driving the economic bus” for the time being, and government policy making will be an ongoing force running alongside. Both will affect the markets in positive and negative ways over time.

Getting through hurricane season can be a relief – but only if it is known that the storm is over. Is the storm over or getting close to being over, and where does all this leave investors and savers?

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Financial Advice & Family

The subject of family can apply to various aspects of financial planning. And although sensitive, there could be an entire TGIF 2 Minutes series on family and personal finance. On a positive note, and more specifically for this week’s edition: I hear often from financially comfortable – and confident – clients and friends about basic, treasured personal financial advice they received from a family member – most going back 20, 30, even 40 or more years ago!

Mixing family and money can get sensitive quickly. But over years of observing, there have been far more positives than negatives for those who were willing to step back, look at the bigger picture and accept solid, basic advice. Humility was involved. Patience is necessary. These are not my opinions but rather real pieces of feedback from people who are grateful they took certain, basic advice from a wise family member at some point earlier in life.

Financial advice from a wise Mom, Dad, Grandma, “Uncle Pete” or “Aunt Claire” can make a lifetime of difference.

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Making the Best of Down Markets

There is no sugar-coating it: investors in 2022 have experienced the biggest – and longest – down year for stock and bond markets since the 2007-2008 financial crisis. One of the only consolations is that over the past 13 years there have been tremendous gains overall, still with a few bumps along the way. Below I outline a few more consolations, or ways to make the best of down markets.

First a quick note: For newer, younger investors it may be difficult to not yet see long-term gains having accumulated in portfolios. Know that time horizon and future earnings potential are two huge positives working in your favor.

Here are a handful of ways to make the best of down markets – and to take advantage of higher interest rates (hint: there are more positives around higher interest rates than the media lets on).

For savers with healthy balances in pre-tax 401k and IRA accounts, use the opportunity to convert pre-tax IRA monies to Roth IRA monies.

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Crypto Quarterly – Vol. 3, Oct 2022

In this issue of TGIF 2 Minutes – Crypto Quarterly, a less rosy update with the bright spot being that fees to trade crypto have gone to “free” in some cases. Binance, a world leader in Bitcoin trading volume, introduced zero-fee trading back in June. (Note that as recently as July 2022, the “CEO” of Binance still says there is no headquarters for the company, as it is “decentralized”.)

Value-wise, in a year that has been unkind to stocks AND bonds, Crypto stands out as an even bigger loser relative to traditional asset classes – by over double in a number of cases. Take for example the price of Bitcoin which started the year at approximately $46,310 as measured in US Dollars. Most recent prices of Bitcoin are around $20,098, or down over 55%. Coinbase, not a cryptocurrency but a crypto trading marketplace (among other technology functions), went public in April 2021 and is down around 78% since then. Compare these crypto-related price declines to the painful year-to-date performance of -21% in the S&P 500, -29% in the Nasdaq and -21.5% in the Russell 2000 which tracks small company stocks.

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Series I Bonds, Yes 9.62%

From the Archives of TGIF 2 Minutes (original post May 13, 2022) to reflect my recent purchase of I-Bonds and continued questions received:

“What are I Bonds?” The “I” in I Bonds stands for Inflation, which is why these bonds are so HOT at the moment. (Note: inflation overall is clearly not a good thing; I Bond interest rates may be one of the only things that benefit from skyrocketing inflation.)

You can skip this entire post and simply go to www.TreasuryDirect.gov and click on “How to buy Series I” under the column, “Individuals”. The website is written – literally – as if a third grader could understand it. See the * and ** footnotes below.

The “I Bond phenomenon” has heated up in the past eighteen months with the spike in inflation. Their current, high interest rate warrants taking a look.

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Hard Landing Recession or Soft Landing?

It is fairly safe to say that the US has entered a recession, even if the backwards looking, narrowly focused, official “National Bureau of Economics Research”, or NBER, has not declared it yet. The NBER is a private, non-profit organization founded in 1920 that somehow came to possess the distinct “responsibility” of declaring recessions in the US. Seriously?

In the case that the US has entered a recession (not yet “declared” by the NBER) then what does that mean for savers and investors? A quick bit of background: typically, economic cool-downs come in two varieties: hard landings and soft landings.

The hard landing ends a period of economic expansion in recession,
The soft landing ends a period of expansion with a smoother period of mere economic slow-down.

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What’s Important NOW?

Lately it seems that reaching Friday is a goal in itself. In markets like these it is not easy to “keep calm and carry on” as if there is nothing different going on. There are, in fact, multiple very different things going on. The coming weeks and months may bring even more different events and uneasiness – with a bit of good mixed in.

So, then the question becomes, “What is important NOW?” It may be tempting to answer:

Federal Reserve policy on interest rates
the coming November elections
mortgage rates
the level of inflation
energy prices
the US and world economies.

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