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65-80 Year Olds … A New and Exciting Demography

Should today’s 70-year-old American be considered “old?” How do you define that term these days? Statistically, your average 70-year-old has just a 2% chance of dying within a year. The estimated upper limits of average life expectancy is now 97, and a rapidly growing number of 70-year-olds will live past age 100.

Perhaps more importantly, today’s 70-year-olds are in much better shape than their grandparents were at the same age. In most developed countries, healthy life expectancy from age 50 is growing faster than life expectancy itself, suggesting that the period of diminished vigor and ill health towards the end of life is being compressed.

A recent series of articles in the Economist magazine suggest that we need a new term for people age 65 to 80, who are generally healthy and hearty, capable of knowledge-based work on an equal footing with 25-year-olds, and who are increasingly being shunted out of the workforce as if they were invalids or, well, “old.” Indeed, the arti…
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Where Have All the U.S. Stocks Gone?

A recent Wall Street Journal article, citing a study by the Center for Research in Security Prices, tells us something remarkable about the times we are investing in: the number of stocks on the U.S. market has quietly diminished by more than half over the last 20 years. In November 1997, investors could choose from 7,355 U.S. stocks. Today, there are fewer than 3,600.  
Most of the decline has come from vanishing companies ranging from small to microcap — the sort of names you probably haven’t heard of. Small stocks have diminished from more than 2,500 in 1997 to fewer than 1,200 today. Microcap companies that are even smaller numbered nearly 4,000 in 1997, compared to 1,900 today. Some went out of business, while others were gobbled up by larger companies or private equity firms. Meanwhile, instead of new companies going public to replace those that have retired from the market, venture capital firms are allowing younger ventures to stay private for longer.  
The article talk…

Where Federal Tax Money Comes From and Goes To

The Committee for a Responsible Federal Budget recently published their annual study. There are some simple and telling charts that help people better understand the source of the US's tax revenue and where that revenue is spent.  On spending, for every $100 you pay in taxes:  $23.61 goes to Social Security payments and administration $15.26 goes to Medicare, the government health insurance program $9.55 to Medicaid, the health insurance program for the poor $19.82 goes to armed forces, including veterans benefits $6.25 interest on national debt In total, 50% went to Social Security and health programs. Include armed forces and interest payments, and we’re up to about 75%.   The 2016 federal budget fell $15.24 (out of every $100) short of revenues brought in, having improved from $35.70 in 2011. If a balanced budget were deemed the appropriate thing to do, where would you cut? On the source of tax revenue, you can see individual income taxes are the largest source but payroll t…

Investment Returns: What Can We Expect Over the Coming Years?

Having proper expectations is incredibly important in investing. Expectations will impact your investment allocation and may influence your ability to stay disciplined in adhering to your investment plan.

The video below reviews a 5-year expected return forecast as of January 2017 made by the world's largest asset manager Blackrock. It was done in conjunction with the 2017 Q1 market review by Kevin Kroskey, CFP, Senior Wealth Advisor at True Wealth Design, and is edited for brevity.

Note: To improve viewing quality on your player to HD video, select play and then the square icon to view in full screen mode.

Brexit Begins

You may recall that last summer the investment markets were panicked by the U.K. voting to exit the European Union. There were dire predictions about the impact on the U.K. economy, which never materialized, in part because the U.K. had not yet formally opted out of its Eurozone agreements. 
At the end of March 2017, the U.K. did pull the trigger, making the departure official. So that means those dire predictions will finally come true. Right?
Under the bylaws, the divorce will be negotiated over the next two years, meaning that any change in economic circumstances will be gradual and perhaps accommodated as they happen. How gradual? Over the next several weeks, the EU’s remaining 27 members will discuss their priorities in before the negotiations and then hold a summit on April 29. Only then will the European Commission have a mandate to negotiate with representatives from London. 
Items Negotiated in Brexit
What will the negotiations cover? Britain’s obligations to the EU f…

Biases Affecting Your Brain and Financial Decision Making, As Told By Real Vs. Imagined Crime

Crime in America is totally out of control these days, right? Every day you read about some new shooting, robbery, kidnapping etc., and the impression you get is that we live in an age where the streets are not safe and neither is your home. Some of this phenomenon is not crime-related at all. Rather, it is in part stemming from a cognitive bias our brains experience called the recency or availability bias. From Wikipedia, “The tendency to overestimate the likelihood of events with greater "availability" in memory, which can be influenced by how recent the memories are or how unusual or emotionally charged they may be.”  This bias shows may perpetrate your brain after being exposed to various emotionally charged stories and experiences. With money, for example, in the Great Recession in 2008, the recency bias may have caused you to think that the stock market is only going to continue to go down and not recover, given the recency, availability of information and media stori…

Fed Interest Rate Increases: The Tempest in the Teapot

Anybody who was surprised that the Federal Reserve Board decided to raise its benchmark interest rate in December 2016 probably wasn’t paying attention. The U.S. economy is humming along, the stock market doing well, the unemployment rate has fallen to a low level -- now considered to be 'full employment.' We are more recently seeing evidence of increasing wages as well.

The rate rise is extremely conservative: up 0.25%, to a targeted range from 0.50% to 0.75%—which, as you can see from the accompanying chart, is just a blip compared to where the Fed had its rates ten years ago when it was north of 5%. Keep in mind the prime rate -- more commonly used in consumer finance -- is the federal funds rate plus 3%. So prime was north of 8% in 2007.

The bigger news was the announced intention to raise rates three times next year, moving to a more “normal” 3% by the end of 2019. This is faster than prior market expectations, heading into the meeting, although still somewhat conserva…