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The Effect of Debt on the Global Economy

The national debt is a measurement of how much the federal government owes creditors, most commonly depicted as a percentage of gross domestic product (GDP). A high debt-to-GDP ratio is considered viable when the economy is expanding, because that growth allows the government to generate higher tax revenues to help pay down the debt. However, it’s not good when the economy is in decline, which is the current status not only in the U.S., but in many countries throughout the world.1

For context, the stimulus efforts and tax cuts that allowed the U.S. to emerge from the Great Recession significantly increased the national public debt. In 2010, the debt ratio was 52% of GDP, but by the end of 2019, it had risen to 79%, the largest increase in any decade since the post-WWII 1940s.2 But now, according to the Congressional Budget Office, the U.S. debt ratio is estimated to reach 98% by the end of the year.3

Speaking of debt, how has your household fared in the wake of this year’s economic decline? Has your debt-to-income ratio increased substantially, or do you have it under control with plenty of income to cover your expenses? It can be a challenge to balance your need to pay off debt with your need to invest for the future. It’s a good idea to maintain a balance so you can continue reducing debt while saving for the long-term. It’s also important to regularly evaluate your financial strategy to ensure it reflects your current goals and objectives, so please keep us in mind any time you’re considering making changes to your strategy.

At the recent Bloomberg New Economy Forum, there were calls for more government stimulus  support to boost consumer spending and keep the economy running, and not just in the U.S. Christine Lagarde, the president of the European Central Bank, warned that stimulus needs to continue playing a role until the virus is contained. Like many countries across the globe, Southeast Asia took a hit during the second quarter, rebounded in the third and has braced for increased outbreaks occurring in the final quarter of 2020.4

Wall Street analysts warn that it won’t take much for the U.S., Europe and Japan economies to contract again in the next two quarters, despite the bounce back last summer.5 Overall, economists expect the global economy to shrink by 5% in 2020, in part due to the 20% reduction in world trade.6

One idea to help rebuild economies is to retrain workers who have lost jobs during the pandemic in fields, such as cybersecurity, software programming and other technology positions.7

1 John Letzing. World Economic Forum. Nov. 5, 2020. “Countries are piling on record amounts of debt amid COVID-19. Here’s what that means.” https://www.weforum.org/agenda/2020/11/covid-19-has-countries-borrowing-money-just-about-as-quickly-as-they-can-print-it/. Accessed Nov. 24, 2020.

2 Peter G. Peterson Foundation. Dec. 19, 2019. “Nine trillion added to the national debt over the last decade.”; https://www.pgpf.org/blog/2019/12/9-trillion-added-to-the-national-debt-over-the-last-decade. Accessed Nov. 24, 2020.

3 Investopedia. Sept. 23, 2020. “The National Debt Explained”; https://www.investopedia.com/updates/usa-national-debt/. Accessed Nov. 24, 2020.

4 Bloomberg. Nov. 23, 2020. “World Leaders Urge Pressing the Pedal on Stimulus.” https://www.bloomberg.com/news/articles/2020-11-18/tokyo-bolsters-push-to-lure-business-from-hong-kong-nef-update. Accessed Nov. 24, 2020.

5 Enda Curran and Jeff Black. BloombergQuint. Nov. 17, 2020. “World Economy Teeters Near New Slump, Defying Vaccine Optimism.” https://www.bloombergquint.com/global-economics/world-economy-risks-buckling-into-2021-despite-vaccine-nearing. Accessed Nov. 24, 2020.

6 Dr. Dan Steinbock. The Street. Nov. 23, 2020. “World’s Largest Free-Trade Pact Inspiration for Global Recovery.” https://www.thestreet.com/economonitor/news/from-rcep-and-brics-to-apec-and-g20-summits-worlds-largest-free-trade-pact-inspiration-for-global-recovery. Accessed Nov. 24, 2020.

7 Rory Heilakka. World Economic Forum. Nov. 24, 2020. “How upskilling could help cities rebuild after Coronavirus.” https://www.weforum.org/agenda/2020/11/how-upskilling-could-help-cities-rebuild-after-coronavirus/. Accessed Nov. 24, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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China’s Rebound

In mid-November, China signed an important and symbolic free-trade agreement with 14 countries, including Japan, South Korea, New Zealand and Australia. The deal, which represents 30% of the world’s population, eliminates tariffs and quotas on 65% of goods traded in the Asia-Pacific region. Global economists say the deal is further evidence of Asia’s growing power, particularly considering China’s feuding tariffs with the U.S. throughout the past four years.1

According to data from the International Monetary Fund, in 2019, China represented 40% of global economic growth – more than the global growth contributions of the U.S., Europe and Japan combined. This year, China’s economy has proven quite resilient, particularly when compared to other developed countries in the wake of the global financial crisis, Trump tariffs and even the coronavirus.2

How about you? Has your household proven to be as resilient in the wake of this global crisis as your friends, family and colleagues? If so, what was the key? Perhaps it is because you were able to maintain your level of income. What makes your job or source of income more reliable than others during an economic crisis that has affected so many industries? Consider whether your spending levels as the same as before. Perhaps not the same types of expenses, but has your solid financial status given you confidence to spend without interruption? It’s important to ask these questions because we don’t want our success to be a matter of haphazard good luck.

We should continue to engage in intentional, goal-driven financial planning to keep our household on track and secure. If you have survived the financial effects of the COVID outbreak to date, congratulations. Keep doing what you’re doing. If you’ve slipped a bit, assess your financial weaknesses and devise a plan to shore them up. As always, we are here to help enhance your portfolio, realize investment opportunities and secure your family’s financial future.

In China, the coronavirus is largely under control. Consequently, the economic recovery has been V-shaped, led by strong domestic consumer demand. This trendline demonstrates a direct correlation between “flattening the curve” and economic recovery. Chinese revenues continue to trend upward in auto sales, residential real estate, and even restaurants and bars – although the latter are not fully restored to pre-pandemic levels due to continued caution with large indoor gatherings.3

The obvious lesson here is that containing COVID-19 is the key to any country’s economic recovery. The evidence doesn’t lie solely with China. Other countries that have successfully controlled the spread of the virus, such as Taiwan, South Korea and Lithuania, also experienced lessened economic effects.4

Like every other country in the world, the Chinese economy will not be able to recover completely until a safe and effective vaccine is widely available. However, because it acted quickly and aggressively to contain the virus within its boundaries, the country is expected to continue being a driver of global growth, even being called “the world’s best consumer story in 2021.”5

1 Jill Disis and Laura He. CNN. Nov. 17, 2020. “China signs huge Asia Pacific trade deal with 14 countries.” https://www.cnn.com/2020/11/16/economy/rcep-trade-agreement-intl-hnk/index.html. Accessed Nov. 17, 2020.

2 Andy Rothman. Matthews Asia. July 16, 2020. “China’s Economic resilience.” https://global.matthewsasia.com/resources/docs/global.matthewsasia.com/pdf/Sinology/071620-Sinology.pdf. Accessed Nov. 16, 2020.

3 Andy Rothman. Matthews Asia. Aug. 14, 2020. “Four China Trends.” https://global.matthewsasia.com/resources/docs/global.matthewsasia.com/pdf/Sinology/081420-Sinology.pdf. Accessed Nov. 16, 2020.

4 Joe Hasell. Our World in Data. Sept. 1, 2020. “Which countries have protected both health and the economy in the pandemic?” https://ourworldindata.org/covid-health-economy. Accessed Nov. 16, 2020.

5 Andy Rothman. Matthews Asia. Oct. 19, 2020. “China After COVID.” https://us.matthewsasia.com/perspectives-on-asia/sinology/default.fs. Accessed Nov. 16, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives.

The information contained in this material is provided by third parties and has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.

If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Open Enrollment: Health Care Insurance Takes Priority

The Patient Protection and Affordable Care Act (ACA) – passed in 2010 and known colloquially as “Obamacare” – has experienced quite a ride. Initially, it was embraced by millions of Americans for whom it afforded tax-subsidized health insurance without access to employer-sponsored coverage. At the same time, it was derided for increasing government sharing costs to provide that coverage.

However, throughout the years, the ACA has become more embraced by a wider audience. As workers lost jobs, they discovered an affordable insurance option and, today, most know someone who has benefited from health reform legislation. Perhaps the most popular benefit is banning insurance companies from declining coverage – or charging more – for pre-existing conditions.

One of the more challenging provisions has been the individual mandate that requires everyone to purchase health insurance or pay a penalty. This particular clause has been challenged all the way to the U.S. Supreme Court (SCOTUS) three times, most recently in November. Even if the mandate is found unconstitutional, it’s unlikely the Supreme Court will strike down the entire ACA.1

Regardless of the popularity or fate of Obamacare, it still doesn’t fully meet the nation’s needs. To date, 43.4% of the nation’s adults ages 19 to 64 are underinsured and 12.5% of adults remain altogether uninsured.2

This fall, Americans have engaged in yet another open enrollment period amid the backdrop of the SCOTUS hearing and the presidential election. For many, health care was a primary issue on the ballot. The enrollment period affects nearly everyone, including workers who select employer-sponsored insurance3, those in the individual market4, and individuals who can continue or change their Medicare plan.5 Health care insurance options can be confusing, mainly because they don’t always cover all of your needs. If you are looking for ways to help pay for possible uncovered health care expenses, we may be able to help. Some insurance products, such as life insurance and annuities, provide various options you may want to consider. We’d be happy to discuss your options based on your unique situation.

Because of the many jobs lost due to the coronavirus, employer-sponsored benefits are more appreciated than ever before. And because of the pandemic, benefits experts say employees are more aware of options they may not have paid attention to in the past – such as sufficient life and long-term disability insurance.6

With a new presidential administration taking office, it will be interesting to see how new health care reforms play out in Congress. According to a new report on the current state of our health care system, the numbers aren’t good. Presently:

  • Americans are living shorter lives than they did in 2014.
  • African-Americans are twice as likely as whites to die from treatable conditions.
  • Health coverage gains have stalled rather than increased.
  • Insurance coverage rates vary widely from state-to-state.
  • Health insurance affordability and out-of-pocket costs have gotten worse.

Another insight evidenced by the coronavirus is that the U.S. health care system is far less prepared than other wealthy nations to adequately deal with a pandemic situation.7

Content prepared by Kara Stefan Communications

1 Nina Totenburg. NPR. Nov. 10, 2020. “Will Supreme Court Invalidate Obamacare A Decade After It Was Enacted?” https://www.npr.org/2020/11/10/932441334/will-supreme-court-invalidate-obamacare-a-decade-after-it-was-enacted. Accessed Nov. 13, 2020.

2 Sara R. Collins, Munira Z. Gunja, and Gabriella N. Aboulafia. Commonwealth Fund. Aug. 19, 2020. “U.S. Health Insurance Coverage in 2020: A Looming Crisis in Affordability.” https://www.commonwealthfund.org/publications/issue-briefs/2020/aug/looming-crisis-health-coverage-2020-biennial. Accessed Nov. 13, 2020.

3 Maggie Germano. Forbes. Nov. 13, 2020. “Half Of Employees Believe Open Enrollment Is More Important In 2020 Than It Was In 2019.” https://www.forbes.com/sites/maggiegermano/2020/11/13/half-of-employees-believe-open-enrollment-is-more-important-in-2020-than-it-was-in-2019/?sh=21b01f6e74d5. Accessed Nov. 13, 2020.

4 Julie Appleby. NPR. Oct. 20, 2020. “The Affordable Care Act’s Fate Is In Flux But 2021 Health Plan Prices Are Stable.” https://www.npr.org/sections/health-shots/2020/10/20/925596125/the-affordable-care-acts-fate-is-in-flux-but-2021-health-plan-prices-are-stable. Accessed Nov. 13, 2020.

5 Sarah O’Brien. CNBC. Nov. 4, 2020. “Here are tips for getting your 2021 Medicare drug coverage right during open enrollment.” https://www.cnbc.com/2020/11/04/here-are-tips-for-getting-your-2021-medicare-drug-coverage-right-.html. Accessed Nov. 3, 2020.

6 Jessica Dickler. CNBC. Nov. 2, 2020. “Open enrollment is underway — here are 5 tips for maximizing your benefits during a public health crisis.” https://www.cnbc.com/2020/11/02/5-things-to-watch-out-for-during-open-enrollment-amid-coronavirus.html. Accessed Nov. 13, 2020.

7 Dan Cook. BenefitsPro. Sept. 12, 2020. “U.S. health care system on life support, say test results from new study.” https://www.benefitspro.com/2020/09/14/u-s-health-care-system-on-life-support-say-test-results-from-new-study/. Accessed Nov. 13, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Advantages of Gender-Lens Investing

Gender-lens investing is the tactic of screening companies through female-centric filters. According to analysis by the Wharton School of Business, these filters include:

  • Advancing women in finance
  • Advancing women in leadership
  • Advancing products and services that improve the lives of women
  • Advancing companies that have a positive effect on their female employees
  • Advancing companies that improve the lives of women in their ecosystem (e.g., suppliers, distributors, customers)

While female business founders currently receive less than 3% of all venture capital in the U.S., there has been a significant rise in gender-lens investing throughout the past few years.1

Some people make detached and largely performance-based investment decisions. They seek returns to help them meet their financial goals, wanting only the best opportunities to meet that objective. But for others, investing can be more personal. After all, they give companies money and trust that those organizations will pursue best practices in terms of corporate governance, growth and expansion, as well environmental and employment responsibility.

Gender-lens investing helps promote gender equality and can help level the playing field when it comes to compensation, business funding and management practices — factors known to improve overall economic growth.2 Whatever your investment philosophy and financial goals, we want to help you achieve them.

Part of this trend has to do with the stronger role women have taken in managing their own money — a wave energized by young adults. A recent study by Merrill Lynch found that more women today enter marriage with their own money and manage their investments separately from their spouse. Also, younger married women are more than twice as likely to claim the role of primary decision maker than older married women. In fact, 75% of women under age 45 manage their own finances, compared to 50% of those over age 55.3

Some economists have estimated the gap caused by gender-based inequality costs the economy about 15% of GDP. Companies with high levels of employment and leadership opportunities for women have been found to have higher organizational effectiveness and growth.4 Moreover, those that enforce policies promoting gender equality may provide better returns and less risk for investors.5

Social justice and gender equality filters have been embraced by many female investors — who are projected to control about two-thirds of all wealth within the next decade. Venture capital is a particular focus for infusing gender-lens investments. On average, female CEOs are generating more revenue per dollar invested and delivering investor returns faster than their all-male counterparts.6

Content prepared by Kara Stefan Communications.

1 Knowledge@Wharton. Oct. 2, 2020. “How Gender Lens Investing Is Gaining Ground.” https://knowledge.wharton.upenn.edu/article/how-gender-lens-investing-is-gaining-ground/. Accessed Nov. 3, 2020.

2 Adi Gaskell. Forbes. May 14, 2020. “How Workplace Equality Can Drive The Economy (With A Little Help From AI).” https://www.forbes.com/sites/adigaskell/2020/05/14/how-workplace-equality-can-drive-the-economy-with-a-little-help-from-ai/?sh=2e2cda662c35. Accessed Nov. 3, 2020.

3 Merrill Lynch. Aug. 21, 2020. “Creating a better financial future for women.” https://www.ml.com/women-research.html. Accessed Nov. 3, 2020.

4 UN Women. July 2018. “Facts and Figures: Economic Empowerment.” https://www.unwomen.org/en/what-we-do/economic-empowerment/facts-and-figures. Accessed Nov. 3, 2020.

5 Kristen Beckman. BenefitsPro. Oct. 16, 2020. “Gender lens investing highlights corporate progress, challenges.” https://www.benefitspro.com/2020/10/16/gender-lens-investing-highlights-corporate-progress-challenges/. Accessed Nov. 3, 2020.

6 Jenny Abramson. CIO Review. 2020. “What Does RGB’s Death Mean for the Investing World?” https://tech-startup.cioreview.com/cxoinsight/what-does-rbgs-death-mean-for-the-investing-world-nid-32220-cid-213.html. Accessed Nov. 3, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Let’s Talk About … the 401(k)

The 401(k) originally began as a company profit-sharing plan. Companies had been funding defined benefit pensions for years, but as their annual profits and stock prices experienced volatility, they looked for ways to share that burden with employees. Through profit sharing, workers made money when the company did and made less during down years. While the actual section 401(k) tax law provision came later, this plan allowed employees to defer salary contributions into a retirement account before deducting taxes and established rules to ensure the plan was available to all employees, not just executives.1

Once the 401(k)-style plan was established, it could be used to invest in more than just company stock. Instead, it was a way to put investment control into workers’ hands without limiting their retirement income prospects based on their company’s performance. By contributing to their retirement portfolio and customizing how it was invested, employees had the opportunity to out-earn previous pension benefit levels and live a fuller retirement lifestyle.2

That hasn’t proven to be the case for many workers. The shift to personal savings and investment money management hasn’t led to high levels of reliable income as pensions did.3 After all, your average worker doesn’t have in-depth investment knowledge or the time to follow the markets closely. And, unless they were willing to pay an advisor for advice, they wouldn’t get much help in this area.

This is one reason to work with a financial advisor who is willing to help you manage your entire financial picture. It’s important to ensure that any individual investment portfolio doesn’t overlap too much with 401(k) holdings so you stay properly diversified. By the same token, you should consider all of your holdings when establishing an asset allocation to help you meet your financial goals. We’re happy to evaluate your portfolio, including your 401(k) investment options. Just give us a call.

In recent years, more employers have started offering “financial wellness benefits” to help employees manage their 401(k) investments. These may involve online resources or actual advisors with whom you can consult regarding your 401(k) plan.4 However, your employer-sponsored advisor may not be able to advise you on your entire investment portfolio.

Employers used to absorb the cost of managing a pension fund, but today employees have to pay individual fees for a wealth manager to manage their 401(k), and it’s not cheap. The average fee to manage a 401(k) account is around 0.5 percent a year. Over a 40-year time span, those fees can really add up and impact total earnings.5

Despite any drawbacks, 401(k) plans often offer a benefit unlike no other investment: free money. Many employers will match worker contributions up to a certain percentage. This allows them to still contribute to their employees’ retirement savings even though they are not providing a pension plan. Recently, the IRS announced 401(k) plan contribution limits for next year. While the salary deferral amount remains the same at $19,500 ($6,500 catch-up for age 50-plus), it raised the overall contribution limit from $57,000 to $58,000 in 2021. This helps if your employer plan permits special after-tax salary deferrals, and it can benefit self-employed workers who have a solo or individual 401(k) or SEP retirement plan.6

Content prepared by Kara Stefan Communications.

1 Elizabeth Bauer. Forbes. March 7, 2020. “Fact Check: Were 401(k)s Really An ‘Accident Of History’?” https://www.forbes.com/sites/ebauer/2020/03/07/fact-check-were-401ks-really-an-accident-of-history/#7f70362f6110. Accessed Oct. 28, 2020.

2 Maryalene LaPonsie. U.S. News & World Report. July 22, 2020. “What’s the Difference Between a Pension Plan and a 401(k)?” https://money.usnews.com/money/retirement/401ks/articles/pension-vs-401-k. Accessed Oct. 28, 2020.

3 Monique Morrissey. Economic Policy Institute. Dec. 10, 2019. “The State of American Retirement Savings.” https://www.epi.org/publication/the-state-of-american-retirement-savings/. Accessed Oct. 28, 2020.

4 James Mahaney. Pension Research Council. Feb. 20, 2020. “What’s Behind the Growth of Financial Wellness Programs.” https://pensionresearchcouncil.wharton.upenn.edu/blog/whats-behind-the-growth-of-financial-wellness-programs/. Accessed Oct. 28, 2020.

5 Ethan Schwartz. Bloomberg. Oct. 8, 2020. “401(k) Fees Are Eating Your Retirement Savings.” https://www.bloomberg.com/opinion/articles/2020-10-08/401-k-fees-are-eating-your-retirement-savings. Accessed Oct. 28, 2020.

6 Ashlea Ebeling. Forbes. Oct. 26, 2020. “IRS Announces 2021 Retirement Plan Contribution Limits For 401(k)s And More.” https://www.forbes.com/sites/ashleaebeling/2020/10/26/irs-announces-2021-retirement-plan-contribution-limits-for-401ks-and-more/#76dc757f215f. Accessed Oct. 28, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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America’s Need for Better “Infloodstructure”

In February, Spirit Airlines decided to transfer a portion of its operations from Miramar, Florida, to Nashville, Tennessee. The key driver of this decision was recurring hurricane and tropical storm risk. This means a loss of 240 jobs for the Panhandle area.1

By mid-September of the 2020 hurricane season, mainland U.S. had already been hit by nine named storms — the most on record since 1916. Meteorologists say that record could be broken by the end of the 2020 season.2

Have you experienced damage in recent years due to extreme weather conditions? In many cases, homeowners can purchase other types of insurance to supplement gaps in a homeowner’s policy. These may include flood insurance, a personal umbrella policy and special riders for things like valuables (jewelry, furs, fine arts, musical instruments, silver), antique and collector cars, watercraft/yachts or ATVs. If you’re interested in having a household budget review to see where you stand financially and discuss insurance options to help shore up any gaps, please contact us.

While nearly every area of the country experiences some type of natural disaster — from earthquakes to crippling snowstorms to wildfires — there are ways to mitigate some of the adverse effects. For example, greater investment in infrastructure can help prevent damages caused by storm surges and flooding. According to the National Oceanic and Atmospheric Administration, our most prevalent and expensive natural disasters involve flooding, with losses totaling well over $750 billion since the turn of this century. Experts say that the damage caused by inland flooding is generally compounded by the nation’s widespread outdated infrastructure.3

In September of this year, the House of Representatives introduced new legislation designed to adopt design and building codes based on current flood risks for all major construction of facilities and infrastructure. Legislators believe that investing in new and upgraded flood mitigation projects involving roads, bridges and railways, water and wastewater facilities, and electric and telecommunications substations would be cost-effective. In other words, investing in new infrastructure would be cheaper than paying for the fallout and economic losses due to disruption (e.g., closed schools, shuttered businesses and blocked access to medical facilities).4

The economic piece of this is important. While cities and towns may receive federal funding to rebuild after flood damage, the financial toll on individual households can be devastating. This is particularly true in flood-prone rural areas such as Lake Charles, Louisiana. Low-income parts of the country tend to be disproportionately affected and the slowest to recover.5 Because they were already poor before the disaster, they often lack insurance, access to credit and/or the resources necessary to apply for government aid — such as a computer or a car.

Some of the nation’s water and wastewater infrastructure is more than 100 years old, and much of it is near the end of its effective service life. The American Water Works Association estimates that the country needs to invest about $1 trillion in upgrades, repair and addition of new pipelines to meet the demand for drinking water service alone throughout the next 25 years.6

Content prepared by Kara Stefan Communications.

1 David Lyon. South Florida SunSentinel. Feb. 14, 2020. “Spirit Airlines has seen enough hurricanes; it’s moving https://www.sun-sentinel.com/business/fl-bz-spirit-moving-operations-center-20200214-puggqeofnneqxks7ici5y4pnny-story.html. Accessed Oct. 21, 2020.

2 Kathryn Prociv and Phil Helsel. NBC News. Sept. 21, 2020. “Beta becomes 9th landfall storm of 2020 in a record-shattering season.” https://www.nbcnews.com/news/weather/beta-be-9th-landfall-storm-2020-record-shattering-season-n1240603. Accessed Oct. 21, 2020.

3 Laura Lightbody The Pew Charitable Trusts. Jan. 2018. “Modern, Flood-Ready Approach Needed for Building and Rebuilding.” https://www.pewtrusts.org/en/research-and-analysis/articles/2018/01/modern-flood-ready-approach-needed-for-building-and-rebuilding. Accessed Oct. 21, 2020.

4 Laura Lightbody. The Pew Charitable Trusts. Sept. 30, 2020. “New Bill Aims to Make Communities and Infrastructure More Flood-Ready.” https://www.pewtrusts.org/en/research-and-analysis/articles/2020/09/30/new-bill-aims-to-make-communities-and-infrastructure-more-flood-ready. Accessed Oct. 21, 2020.

5 Knowledge@Wharton. Oct. 5, 2020. “Disaster Relief: Why the Poor Need Higher Priority.” https://knowledge.wharton.upenn.edu/article/disaster-relief-why-the-poor-need-higher-priority/. Accessed Oct. 21, 2020.

6 Zacks Equity Research. Oct. 21, 2020. “American Water’s Unit to Invest $4.1M to Replace Water Mains.” https://finance.yahoo.com/news/american-waters-unit-invest-4-114111403.html. Accessed Oct. 21, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Fixed Income vs. Stock Portfolio

Early this year, many stopped spending and began saving money. This wasn’t difficult as many areas of the economy were — and possibly still are — shut down. For some, vacation plans were canceled, and the normal level of entertainment activities and dining out have been curbed. If you’ve remained employed, chances are good you’ve been able to step up your level of savings this year. However, with current interest rates, it can feel like savings accounts are stagnating. Should you take the risk of investing for higher returns amid today’s continuing market uncertainty?1

It’s worth noting that by mid-August, the S&P 500 had fully recovered from the 34% pandemic-induced plunge that occurred between February and March earlier this year.2 Of course, this is great news for equity investors who stayed in the market, but stock portfolios continue to be worrisome. You may wonder if financial rewards are truly commensurate given the level of anxiety associated with market declines, but there are ways to help reduce your risks and still have the opportunity for growth. If you’d like to discuss various options, please feel free to contact us.

Traditionally, stocks have yielded higher long-term gains than bond portfolios, but the tradeoff is more volatility. A recent analysis by a Wharton professor shows that historical dynamic has shifted somewhat throughout the past five decades. In fact, fixed-income portfolios have performed as well, if not better, than the U.S. stock market during this time frame. Perhaps even more surprising, fixed income has exhibited similar or more volatility than comparably performing stock portfolios.3

According to the Capital Group, investors may want to consider four strategies for deploying a fixed-income portfolio during this current period of investment uncertainty:4

  • Look at short-term bond funds that focus on high-quality and liquid investments.
  • Consider high-quality core bond funds for capital preservation to help diversify equity holdings.
  • Be prepared for defaults and downgrades at the high yield, low end of the investment-grade spectrum.
  • Reconsider municipal bonds, which offer pockets of compelling value relative to U.S. Treasurys.

The interest rate environment is another casualty of the pandemic. Low rates may keep debt payments low, but they also spell lower returns for retirement accounts and pension funds. The recent Federal Reserve announcement that it expects to hold interest rates near zero at least until 2023 does not bode well for retirees or those approaching retirement.5

Content prepared by Kara Stefan Communications.

1 Jill Cornfield. CNBC. June 22, 2020. “You saved a lot of money during the shutdown. Here’s one reason you may not feel like you’re ahead.” https://www.cnbc.com/2020/06/22/why-you-dont-feel-better-about-the-money-you-saved-amid-the-pandemic.html. Accessed Oct. 5, 2020.

2 Stan Choe, Alex Veiga and Christopher Rugaber. Associated Press. Aug. 12, 2020. “How can Wall Street be so healthy when Main Street isn’t?” https://apnews.com/article/6cadd78335fd98926ffb1e5d6ecb2916. Accessed Oct. 5, 2020.

3 Knowledge@Wharton. Aug. 11, 2020. “How Fixed-income Portfolios Match or Beat Stocks in the Long Run.” https://knowledge.wharton.upenn.edu/article/fixed-income-portfolios-match-beat-stocks-long-run/. Accessed Oct. 5, 2020.

4 Mike Gitlin, Pramod Atluri and Karl Zeile. Capital Group. June 17, 2020. “Four actions to take in bond portfolios.”

https://www.capitalgroup.com/advisor/insights/articles/fixed-income-midyear-outlook-2020.html. Accessed Oct. 5, 2020.

5 Knowledge@Wharton. Oct. 6, 2020. “Why Low Interest Rates Hurt Retirees.” https://knowledge.wharton.upenn.edu/article/why-low-interest-rates-hurt-retirees/. Accessed Oct. 6, 2020.

Bond obligations are subject to the financial strength of the bond issuer and its ability to pay. Before investing, consult your financial adviser to understand the risks involved with purchasing bonds.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.10/20-1366227C

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Is the Economy Slowly, Silently Sliding?

Prospects for stock market growth have remained resiliently and optimistically cheerful this year, despite the nine-month-long pandemic. Unfortunately, the time may be at hand for a stock market price correction that better reflects the state of the global economy.

The lack of ongoing fiscal stimulus which, even if passed, may not feasibly be able to distribute funds before the election or even before the end of the year, may have a greater effect on the economy than just individual households. Federal Reserve officials continue to call for more government stimulus, warning that the economy remains in a “deep hole.” However, this close to the highly anticipated and contentious election, government efforts are more focused on politics and judicial branch activities than the economy. As a result, some market analysts are questioning whether their initial year-end projections are overpriced based on an expected rebound that may not materialize.1

As we approach year end, you should schedule a time with your financial advisor to review your investment portfolio. While we do not typically recommend dramatic changes based on the current state of the economy, the stock market or even the outcome of a presidential election, we do encourage our clients to regularly evaluate their portfolio to ensure it is aligned to their goals and risk tolerance. Now more than ever, we believe it’s important to have an asset allocation strategy designed to weather volatile times.

There is a group of people who may be able to anticipate market trends even more quickly than Wall Street analysts — the corporate executives and officers of S&P 500 companies with firsthand knowledge of their businesses. If actions speak louder than words, prospects look pessimistic. Throughout September, these executives began selling personal shares of their own company stock at a rate not seen since 2012.2

The problem is that the damage of this economic decline has not been universal. Many office workers and their companies have adapted to a work-from-home model, enabling white collar employees to maintain their level of income despite the pandemic. The same is not true for workers in a wide range of industries, from travel to food and beverage to personal services, like hair salons and fitness instructors. Recent research has found that lower-income workers have borne the brunt of the COVID recession. In fact, by mid-summer the recession had effectively ended for high-income individuals, while the bottom half of Americans represented the bulk of the unemployed.3

Meanwhile, the initial boost to the labor market that accompanied reopening the economy this past summer is slowing down again. At the same time, oil prices have dipped due to sustained reduced demand. There is only so much that government leaders can do to stimulate the economy; they cannot force people to leave their homes and buy goods and services. Much of this realization is coming to a head just prior to the election.4

The news isn’t much better globally. Asian and Australian stocks slid toward the end of September amid fears that more countries are seeing outbreaks with the arrival of cooler weather.5 In countries where the virus remains uncontained, government stimulus efforts are drained and the year-long effect is slowly emerging. As infection rates rise again, many countries are reintroducing stricter rules to help curb the virus. This, in turn, will also curb economic growth.

A recent poll of economists concluded that a return to pre-pandemic economic levels is not expected until at least the end of 2022.6 Given that the direction of the economy appears aligned with the rise and fall of infection rates, it’s becoming more clear to both Wall Street and Main Street that the top priority in getting domestic and world growth back on track is to prioritize containment of COVID-19 once and for all.

Content prepared by Kara Stefan Communications.

1 Simon Jessop & Andrew Galbraith. The Edge Markets. Sept. 24, 2020. “Shares slide, US dollar up as hopes of economic recovery fade.” https://www.theedgemarkets.com/article/shares-slide-us-dollar-hopes-economic-recovery-fade. Accessed Sept. 28, 2020.

2 Vildana Hajric and Lu Wang. Yahoo Finance. Sept. 23, 2020. “Insiders Sell Stock at Fastest Pace Since 2012 in Market Dip.” https://finance.yahoo.com/news/insiders-sell-stock-fastest-pace-214631545.html. Accessed Sept. 28, 2020.

3 Ben Steverman. Bloomberg. Sept. 24, 2020. “Harvard’s Chetty Finds Economic Carnage in Wealthiest ZIP Codes.” https://www.bloomberg.com/news/features/2020-09-24/harvard-economist-raj-chetty-creates-god-s-eye-view-of-pandemic-damage?sref=AhQQoPzF. Accessed Sept. 28, 2020.

4 Rodrigo Campos. Reuters. Sept. 24, 2020. “GLOBAL MARKETS-Shares slide, dollar up as hopes of economic recovery fade.” https://www.reuters.com/article/global-markets/global-markets-shares-slide-dollar-up-as-hopes-of-economic-recovery-fade-idUSL2N2GL0OD. Accessed Sept. 28, 2020.

5 Gina Lee. Yahoo Finance. Sept. 23, 2020. “Asian Stocks Slide, With Investors Losing Faith in COVID-19 Economic Recovery.” https://finance.yahoo.com/news/asian-stocks-slide-investors-losing-233533523.html. Accessed Sept. 28, 2020.

6 Jonathan Cable. Reuters. Sept. 23, 2020. “Euro zone economic recovery in danger as services slide.” https://www.reuters.com/article/us-eurozone-economy-pmi/euro-zone-economic-recovery-in-danger-as-services-slide-idUSKCN26E17Z?il=0. Accessed Sept. 28, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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How Climate Change Could Affect the Economy

Some people believe that climate change is exacerbated by human intervention, while others argue that humans are not a factor. Regardless of what may or may not influence extreme weather events, economists are predicting that the long-term results of climate change could affect more than just our homes and possessions.

In fact, the Congressional Budget Office (CBO) recently reported that the effects of climate change will have a dampening effect on U.S. economic growth in the near future. The agency’s research ranged from evaluating the effects of colder climate growing seasons, to crop losses due to drought, to factory storm damage. The combination of climate change and the coronavirus has reduced the CBO’s projected level of real GDP output in 2050 by 1%.1

While the current administration is focused on investing in fossil fuels, it’s important for individual investors to remember the investment adage: Don’t put all your eggs in one basket. By diversifying energy sector assets among a variety of industries — such as oil, fracking, solar, hydropower and wind — investors may be less impacted by which way the political winds are blowing. If you’d like to find out more about diversified investing opportunities in the energy sector, we’d love to have that discussion.

The recent pandemic has revealed more holes in our business and government “safety nets” than simply an overwrought health care system. Since the first coronavirus case hit the nation in January, we have witnessed problems stemming from inadequate paid sick leave, unemployment benefits and unequal broadband access for students. Scientists claim these same vulnerabilities will surface in the future as we face escalating and simultaneous climate disasters on a regular basis. For example, we are now seeing hurricanes hit the Gulf Coast in August and September while, at the same time, massive wildfires overtake the West Coast and the Northeast is stifled by heatwaves.2

Recent research from Oxford University has identified policies boasting a high potential for addressing climate change metrics in concert with economic growth. They include new physical infrastructure and improved efficiency retrofits, investment in education and training, natural capital investment, and clean energy research and development.3

Denmark has a reputation as one of the most progressive green energy economies with some of the most ambitious environmental targets — including reducing carbon emissions by 70% by 2030. While it has an impressive list of climate-friendly energy accomplishments, the country has found a way to market its capabilities to help other countries that are behind the green curve. For example, a partnership between Denmark and the U.K. has resulted in the current construction of the world’s longest high-voltage, direct-current connection. This will allow millions of British people to receive their electricity from Denmark.4

In the U.S., fossil fuels still account for more than 80% of total energy consumption. While

nuclear power is widely considered the most inexpensive and effective substitute to challenge fossil fuels for future energy consumption — and produces almost negligible adverse climate effects — the U.S. and many other countries have stopped nuclear expansion due to public safety concerns.5 In the meantime, green technologies are projected to represent 49% of global energy consumption by 2050.6

Content prepared by Kara Stefan Communications.

1 David Lawder. Reuters. Sept. 21, 2020. “Climate change since 2000 will cut U.S. growth over next 30 years – CBO.” https://www.reuters.com/article/uk-climatechange-growth-cbo/climate-change-since-2000-will-cut-u-s-growth-over-next-30-years-cbo-idUKKCN26C37S. Accessed Sept. 22, 2020.

2 Todd E. Vachon. NJ.com. July 1, 2020. “The pandemic may be a preview of our climate future.” https://www.nj.com/opinion/2020/07/the-pandemic-may-be-a-preview-of-our-climate-future-opinion.html. Accessed Sept. 22, 2020.

3 Cameron Hepburn, Brian O’Callaghan, Nicholas Stern, Joseph Stiglitz and Dimitri Zenghelis. Oxford Smith School of Enterprise and the Environment. May 4, 2020. “Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?” https://www.smithschool.ox.ac.uk/publications/wpapers/workingpaper20-02.pdf. Accessed Sept. 22, 2020.

4 Sean Fleming. World Economic Forum. July 16, 2020. “An underwater cable will connect Danish wind power to over a million UK homes.” https://www.weforum.org/agenda/2020/07/denmark-uk-renewable-energy-electricity-cable. Accessed Sept. 22, 2020.

5 Sean Ross. Investopedia. April 5, 2020. “What Are the Main Substitutes for Oil and Gas Energy?” https://www.investopedia.com/ask/answers/060415/what-are-main-substitutes-oil-and-gas-energy.asp. Accessed Sept. 22, 2020.

6 Will Marshall. Global Risk Insights. Sept. 20, 2020. “Geopolitics and the Energy Transition: Competition or Cooperation?” https://globalriskinsights.com/2020/09/geopolitics-and-the-energy-transition-competition-or-cooperation/. Accessed Sept. 22, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Preparing for Potential Pandemics

If you think the economic decline due to the pandemic has been difficult for you personally, the big picture numbers may be even worse. Analysts project that the total economic disruption could eventually cost between $9 trillion and $33 trillion. Many economists are advocating that the U.S. — and the world — make a concerted effort to prevent future pandemics.1 Much like individual health care, the cost for prevention is significantly less than the cost of treatment.

In fact, the coronavirus has exposed many weaknesses in our infectious-disease surveillance and ability to respond quickly and effectively. While state governments continue to work on their current response, many in the private sector are looking toward the future.2

We advise our clients to retain that same perspective. If your retirement portfolio is built to weather an economic decline, you likely have financial vehicles that can help supplement your household income during financial difficulties. By keeping your investments focused on the long term, they can help you ride out market volatility and give your money the opportunity to continue growing.[BC1] [RC2] If you’d like advice in this area, we are here for you.

Government attempts to revive the economy have been mixed. The quick efforts to roll out stimulus legislation to benefit consumers and small business ran into headwinds. Many states’ unemployment programs were not built to handle so many claims at once, resulting in delays and confusion. The application system for small business loans led to haphazard benefits, wherein many small employers lost out while large corporations, such as Shake Shack and the Los Angeles Lakers, received millions (although both companies returned the money).3

The pandemic has impacted nearly every household, business, organization and government agency in some way. At this point, it makes sense to evaluate how we’ve been affected and devise plans to help reduce the risks from similar situations moving forward. Even the Pentagon admits there are flaws in its system for protecting Americans. It recently began the process of rewriting its pandemic playbook for faster and more efficacious response efforts for this type of crisis in the future.4

It just goes to show that even the best-laid plans may not work when stress-tested in a real-life situation. It’s time we all take a deep breath, look at our current position, and determine where we want to be in the future. To some extent, we can rely on the investment markets to enhance our long-term financial futures, but we should set goals and make sure our portfolios remain well-diversified. Merrill[RC3]  recently re-assessed its portfolio models with guidance to actively rebalance back to original asset allocation targets. The wealth manager cautioned that markets tend to be more volatile during a presidential election, recommending a diversified approach and using rebalanced funds to add more global equity exposure.5

Content prepared by Kara Stefan Communications.

1 Matt Craven, Adam Sabow, Lieven Van der Veken and Matt Wilson. McKinsey & Company. July 13, 2020. “Not the last pandemic: Investing now to reimagine public-health systems.” https://www.mckinsey.com/industries/public-and-social-sector/our-insights/not-the-last-pandemic-investing-now-to-reimagine-public-health-systems. Accessed Sept. 18, 2020.

2 Ibid.

3 Zachary B. Wolf. CNN. April 28, 2020. “What Matters: This is what coronavirus capitalism looks like.” https://www.msn.com/en-us/money/markets/what-matters-this-is-what-coronavirus-capitalism-looks-like/ar-BB13ieZ6?ocid=msn360. Accessed Sept. 18, 2020.

4 Bryan Bender. Politico. Sept. 21, 2020. “Pentagon rewrites pandemic plans.” https://www.politico.com/newsletters/morning-defense/2020/09/21/pentagon-rewrites-pandemic-plans-790511. Accessed Sept. 21, 2020.

5 Merrill. Aug. 2020. “The Grinding Recovery.” https://olui2.fs.ml.com/Publish/Content/application/pdf/GWMOL/Viewpoint_August_2020_Merrill.pdf. Accessed Sept. 18, 2020.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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 [BC1]This article is advisor-facing. We should avoid using advisor-facing articles for client-facing materials. This statement does not really need a citation.

 [RC2]Since we don’t need a citation here, I’ve left it as is without the advisor-facing article.

 [RC3]Compliance: I read that “Merrill Lynch” is now referred to as “Merrill.” Since people are used to “Merrill Lynch,” I’m not sure what would be most appropriate from your perspective!