The Markets
With gas hovering
around $2 a gallon in many parts of the country, chances are you’re smiling
every time you fill up the tank.
The oil price drop,
which is one of the biggest stories of 2014, is a twist on a familiar tale. Rising
supply (production in non-OPEC countries, like the United States, increased)
and falling demand (in Europe, Japan, and China) caused prices to move lower. In
this case, they’ve moved a lot lower. Last summer, the price of crude oil was
about $107 a barrel. Last week, it finished below $55 a barrel.
Overall, according
to the International Monetary Fund (IMF),
lower oil prices are expected to be good news for the global economy. They’re
expected to have economic benefits for countries that import a lot of oil, like
China and India. They also are a boon for U.S. consumers who have more money in
their pockets when they pay less at the pump.
However, low oil
prices aren’t good for everyone. In the United States, oil-producing states
like Texas, Louisiana, Wyoming, Oklahoma, and North Dakota may lose jobs and
tax revenues. Outside the United States, oil exporters like Russia, Iran,
Nigeria, and Venezuela are likely to suffer adverse consequences as a result of
falling prices, including domestic unrest, according to MarketWatch.com. The International
Energy Agency (IEA) said,
“…For producer
countries, lower prices are a negative: the more dependent on oil
revenues they are and the lower their financial reserves, the more adverse the
impact on the economy and domestic demand. Russia, along with other
oil-dependent but cash-constrained economies, will not only produce less but is
likely to consume less next year.”
The supply and demand
equation isn’t likely to change soon. The IEA
forecasts global demand growth will be relatively weak during 2015. Meanwhile,
the Organization of the Petroleum Exporting Countries (OPEC) has done nothing
to reduce supply, largely because of Saudi Arabia which is the second largest oil
producer in the world. Saudi has reserves that make it better able to absorb
the oil price shock than other oil exporters. It also has political motivations
to keep oil prices low. These include punishing Iran and Russia for supporting
Bashar Assad in the Syrian Civil War, according to the International Business Times.
If you want to know
where oil prices may go, keep an eye on Saudi Arabia.
Data as
of 12/26/14
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard
& Poor's 500 (Domestic Stocks)
|
0.9%
|
13.0%
|
18.2%
|
19.8%
|
13.1%
|
5.7%
|
|
10-year
Treasury Note (Yield Only)
|
2.3
|
NA
|
3.0
|
2.0
|
3.8
|
4.3
|
|
Gold
(per ounce)
|
-1.6
|
-2.0
|
-3.1
|
-9.2
|
1.3
|
10.3
|
|
Bloomberg
Commodity Index
|
-2.0
|
-15.3
|
-16.5
|
-9.2
|
-5.3
|
-3.0
|
|
DJ Equity
All REIT Total Return Index
|
1.3
|
29.6
|
29.5
|
16.5
|
16.2
|
8.5
|
S&P 500,
Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does
not pay a dividend) and the three-, five-, and 10-year returns are annualized;
the DJ Equity All REIT Total Return Index does include reinvested dividends and
the three-, five-, and 10-year returns are annualized; and the 10-year Treasury
Note is simply the yield at the close of the day on each of the historical time
periods.
Sources: Yahoo!
Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance
is no guarantee of future results. Indices are unmanaged and cannot be invested
into directly. N/A means not applicable.
It’s not the 1 percent, it’s the 0.1
percent. They say history repeats itself. That seems to jibe with
the findings of a brand new paper by Emmanuel Saez of the University of
California, Berkeley, and Gabriel Zucman of the London School of Economics.
“Wealth concentration has followed a U-shaped
evolution over the last 100 years: It was high in the beginning of the
twentieth century, fell from 1929 to 1978, and has continuously increased since
then. The rise of wealth inequality is almost entirely due to the rise of the
top 0.1% wealth share, from 7% in 1979 to 22% in 2012—a level almost as high as
in 1929… The increase in wealth concentration is due to the surge of top
incomes combined with an increase in saving rate inequality.”
The pair found that the average real growth
rate of wealth for the 160,000 families that comprise the top 0.1 percent was
1.9 percent from 1986 to 2012. As it turns out, income inequality has a
snowballing effect on wealth distribution. The wealthiest people earn top
incomes and save at high rates, which helps concentrate greater wealth in the
hands of a few. It’s interesting to note that top wealth-holders are younger
today than they were in the 1960s.
In contrast, the riches of the bottom 90
percent did not grow at all from 1986 to 2012. Historically, the share of
wealth divvied up among this group grew from 20 percent in the 1920s to 35
percent in the 1980s. However, by 2012, it had fallen to 23 percent. Pension
wealth grew during the period, but not enough to offset the rapid growth of
mortgage, consumer credit, and student loan debt.
Weekly Focus – Think About It
Value
vs. Growth Investing (12/26/14)
|
|
|
|
|
|
|
|
|
|
|
0.97
|
14.36
|
0.87
|
5.89
|
14.81
|
20.73
|
15.75
|
|
|
0.88
|
15.19
|
0.83
|
5.69
|
15.60
|
20.55
|
15.24
|
|
|
1.03
|
18.95
|
1.80
|
8.89
|
19.31
|
23.20
|
16.82
|
|
|
0.58
|
15.94
|
-0.01
|
5.27
|
16.28
|
21.79
|
15.59
|
|
|
1.04
|
10.74
|
0.74
|
2.92
|
11.27
|
16.97
|
13.34
|
|
|
1.15
|
13.59
|
0.88
|
6.03
|
14.19
|
21.64
|
17.21
|
|
|
1.09
|
17.21
|
1.26
|
7.03
|
17.83
|
22.18
|
18.47
|
|
|
0.70
|
11.01
|
-0.28
|
5.74
|
11.49
|
19.56
|
16.28
|
|
|
1.67
|
12.79
|
1.69
|
5.26
|
13.51
|
23.27
|
16.84
|
|
|
1.53
|
7.83
|
1.25
|
7.64
|
8.20
|
19.77
|
16.32
|
|
|
1.46
|
9.16
|
0.85
|
7.14
|
9.48
|
19.85
|
15.72
|
|
|
1.51
|
3.55
|
1.36
|
7.20
|
3.80
|
18.63
|
16.66
|
|
|
1.62
|
10.73
|
1.54
|
8.59
|
11.28
|
20.81
|
16.56
|
|
|
1.07
|
17.89
|
1.63
|
8.40
|
18.30
|
22.75
|
17.13
|
|
|
0.66
|
14.12
|
0.02
|
5.48
|
14.48
|
21.12
|
15.87
|
|
|
1.21
|
11.16
|
0.98
|
3.76
|
11.73
|
18.51
|
14.27
|
©2004 Morningstar, Inc. All Rights Reserved.
The information contained herein: (1) is proprietary to Morningstar; (2) is not
warranted to be accurate, complete or timely. Morningstar is not responsible
for any damages or losses arising from any use of this information and has not
granted its consent to be considered or deemed an “expert” under the Securities
Act of 1933. Past performance is no guarantee of future results. Indices are unmanaged and while these indices
can be invested in directly, this is neither a recommendation nor an offer to
purchase. This can only be done by
prospectus and should be on the recommendation of a licensed professional.
Office Happenings
New Year’s Financial Health
As we get ready
to begin the upcoming New Year later this week, I hope you are having a happy
holiday season and are doing well with planning your New Year’s resolutions.
I wanted to share
some information with you on developing a financial plan, which I have included
below. The document goes over seven steps, from establishing financial goals,
to implementing them. It is important to have a plan because failure to plan is
planning to fail, as I’m sure you have all heard before.
I wanted to wish
you and your family a happy New Year and a prosperous 2015
Your
Financial Health: Developing a Financial Plan
It takes more than
luck to get what you want out of life. It takes careful planning. The most
effective tool for your financial well being is a sound plan. Think of a sound
plan as a road map to help you get where you want to go.
Financial plans
help individuals live within their means, identify their financial goals, and
accumulate the savings needed to meet those goals. A good plan also helps
individuals to be prepared for financial emergencies as well as to reduce
credit use. Having a financial plan in place can allow an individual a sense of
financial security, and control over their financial future.
In order for a
financial plan to be successful, one must take the time to gather relevant and
realistic information, make some crucial decisions, prioritize their financial
goals, put the plan into action, and continuously evaluate the plan.
The following steps
can be used when developing an ongoing financial plan:
1. Establish Financial Goals
The first step in
designing a financial plan is to identify what it is you want out of life—your
goals. Take the time to put your goals
in writing; not only will that reinforce the significance of the goals, but it
will help you be able to organize them as well.
One way to organize
your goals is to group them into short-term and long-term. Short-term goals are
those to be reached within a year or less. Examples include an emergency fund,
a new sofa, paying off a charge card, or building a holiday gift fund. Long-term
goals are those to be reached in more than a year, perhaps five or more years.
Examples of long-term goals include a new home, children’s college education,
and retirement. (Saving methods may vary for short and long-term goals. This
will be addressed in a later feature.)
In establishing
goals you also need to ask the following questions: What do I need to do to
accomplish each goal? When do I want to accomplish it? What will it cost? What
money have I set aside already? How much
more money will I need to save each month to reach the goal?
Look at the
priority of your goals. How hard are you willing to work and save to achieve a
particular goal? Would you work extra hours for example? How realistic is a
goal when compared with other goals? Reorganize their priority if necessary.
2. Determine Net Worth
Determining your
net worth is not as difficult as it may seem. Your net worth is simply the
total value of what you own (assets) minus what you owe (liabilities). It is a
snapshot of your financial health.
To determine your
net worth, start by adding up the approximate value of all your assets. Your
assets include such items as your home, vehicle(s), checking and saving
accounts and the cash value of any life insurance policies you may have,
excluding any death benefits. Assets also include the current value of
investments, such as stocks, real estate, certificates of deposit, retirement
accounts, IRAs, and the current value of any pensions you have. You may have
other assets that are also of value. Use
particular caution and realistic market values when evaluating their worth.
Next, add up the
approximate value of all your liabilities. Liabilities may include the
remaining mortgage on your home, auto loans, student loans, credit card debt,
income taxes due, taxes due on the profits of your investments (if you cashed
them in), and any other outstanding bills.
Subtract your
liabilities from your assets. Do you have more assets than liabilities (a
positive net worth), or more liabilities than assets (a negative net worth)?
The goal is to produce a positive net worth and to build upon it.
Plan to review and
update your net worth annually. Your net worth is a way to monitor your
financial health since the goal is for it to increase each year. Compare annual
net worth statements to determine if you need to modify your financial behavior
and/or your goals to meet your changing financial conditions. If you expect
significant changes in your liabilities such as college expenses, you may want
to project what your conditions will be in the coming year to help prepare and
plan.
3. Estimate and Balance Income and Expenses
By estimating your
income and expenses you can obtain a picture of your current financial
situation. Understanding how your income is being used for expenses can help
you develop a realistic plan to reach your financial goals.
Begin the process
by totaling all of the income you expect to receive during a given period of
time (one month is a good place to start). Include regular income such as
wages, Social Security benefits, public assistance, child support payments,
gifts, allowances, interest, and dividends.
Next, keep detailed
records for one month to record all expenses. Based on this information as well
as old records, receipts, bills, and cancelled checks, estimate future
expenses. Calculate estimated expenses for the same time period that you used
for your income estimation.
Compare your income
to the total estimated expenses. Are income and expenses balanced? Are you paying more in expenses than you have
in income? If so, where are you overspending? Which expenditures can be
postponed? How can you increase your income? Or does your income exceed your
expenses, in which case do you have an established savings plan in place for
your goals?
Now is the time to
consider which expenses can be cut back or where money should be reallocated.
For instance, in order to meet your goals you may decide to cut back on
spending (such as golf and dancing) and apply the money towards savings
(perhaps for a new car).
4. Review Personal Debt Situation
Credit is a
powerful personal finance tool that can make it possible for you to have and
enjoy things now and pay for them later. But purchasing on credit costs
additional money and can tempt us to overspend. Before purchasing with credit,
ask yourself the following questions: Do I really need it? Can I really afford
it? Why exactly do I want it? What other things will I have to do without? What
happens if I can’t pay this off?
How much debt can
you afford? A general rule of thumb is that no more than ten percent of a
household’s take-home pay should be committed to consumer installment and
credit card debt. If your current personal debt situation exceeds this amount
you should seriously consider reducing your financial debt as your top
priority.
While paying cash
is almost always less expensive than using credit, there are times when using
credit is necessary. When you do use credit, it is in your best interest to
borrow as little as possible, seek the lowest finance charge, and pay off the
loan as soon as possible.
5. Allocate Savings to Reach Goals
If you want to
successfully accomplish your goals you need to actively save money. When
developing a financial plan, many financial advisors will suggest that you pay
yourself first. Paying yourself first means establishing a set amount to save
each payday and putting that money into savings rather than spending it on
current consumption. In developing a habit of regular savings for future goals
you are making a commitment to successfully accomplish your goals. For
instance, if your place of employment offers a retirement plan by choosing to
participate not only will you have a plan to meet your retirement goal, but you
may be able to do so with tax advantages and by paying yourself first.
When developing a
financial plan you may initially find it difficult to save money because
current income is needed for current living expenses, but even a few dollars a
month can grow and contribute to financial independence. For instance, saving a
mere $10.00 a week for five years, at an average return of 10%, will give you
$3,327.81. Saving the same $10.00 a week for 10 years will give you $8,687.29
(at 10% average rate of return). This is called compounding interest. The money
you save is actually making you more money. And the longer the savings have to
make money, the more it will make.
6. Implement the Plan
The mistake that
most people make is that they fail to implement the financial plan that they
have taken the time to create. The implementation of your financial plan is
essential to its success. Set a date to implement your plan (the sooner the
better) and stick to that date. Plan a schedule to pay the bills, balance the
checkbook, review the monthly financial statements, and set up a savings
account. Make the success of your financial plan a top priority. By doing so,
you will better ensure your financial security and the successful
accomplishment of your goals.
7. Review and Modify the Financial Plan
And lastly, a financial
plan cannot remain the same for the duration of one’s life. A financial plan is
a tool to help you reach your financial goals. As your financial goals change
so should your financial plan. Constant review and modification of your
financial plan helps to ensure its long-term success.
Regards,
,
Michael L. Schwartz, RFC®, CWS®, CFS
P.S. Please feel
free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list,
please reply to this email with their email address and we will ask for their
permission to be added.
Michael
L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and
advisory services through Independent Financial Group, LLC., a registered
broker-dealer and investment advisor.
Member FINRA-SIPC. Schwartz Financial and Independent Financial Group
are unaffiliated entities.
This
information is provided for informational purposes only and is not a
solicitation or recommendation that any particular investor should purchase or
sell any security. The information contained herein is obtained from sources
believed to be reliable but its accuracy or completeness is not
guaranteed. Any opinions expressed
herein are subject to change without notice.
An Index is a composite of securities that provides a performance
benchmark. Returns are presented for
illustrative purposes only and are not intended to project the performance of
any specific investment. Indexes are
unmanaged, do not incur management fees, costs and expenses and cannot be
invested in directly. Past
performance is not a guarantee of
future results.
* The Standard &
Poor's 500 (S&P 500) is an unmanaged group of securities considered to be
representative of the stock market in general.
* The DJ Global ex US
is an unmanaged group of non-U.S. securities designed to reflect the
performance of the global equity securities that have readily available
prices.
* The 10-year Treasury
Note represents debt owed by the United States Treasury to the public. Since
the U.S. Government is seen as a risk-free borrower, investors use the 10-year
Treasury Note as a benchmark for the long-term bond market.
* Gold represents the
London afternoon gold price fix as reported by the London Bullion Market Association.
* The DJ Commodity
Index is designed to be a highly liquid and diversified benchmark for the
commodity futures market. The Index is composed of futures contracts on 19
physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT
TR Index measures the total return performance of the equity subcategory of the
Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the
source for any reference to the performance of an index between two specific
periods.
* Opinions expressed
are subject to change without notice and are not intended as investment advice
or to predict future performance.
* Past performance does
not guarantee future results.
* You cannot invest
directly in an index.
* Consult your
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