Change provokes fear and vulnerability for both parents and caregivers alike. The year 2018 is marked by change from many directions. Some of the changes we are experiencing this year are:

• Rising interest rates. Rising interest rates hurt bond portfolio values immediately, equity portfolios eventually and real estate values in the long run. On the flip side, we are now earning a bit more interest income on our money market accounts each month and when our CDs mature we can look forward to higher yields.
• Volatility in the stock market. 2017 was an unusually calm year in the U.S. stock market.  We only had eight days when the market went up or down more than one percent. That is the second calmest year in the past fifty years and could not continue. We have already experienced more than eight days of more than 1% in daily change in 2018 and we are just one-third through the year. Volatility is scary if you look at your portfolio value every day, but in the long run volatility is an investor’s friend. It reminds investors that all investments have risk. Investors get into trouble, and markets experience bubbles, when investors take on too much risk. Volatility brings cautiousness back and, with it, prudence for the wise investor.
• Income tax laws have changed this year. While many people are expecting, or hoping, for a reduction in their income tax obligation, we really won’t know how we fared until next April when our tax returns are due. Many taxpayers in states like California and New York will be disappointed when they may end up paying more in taxes because many of their deductions have been lost. Furthermore, it will be interesting to see what happens to charitable giving since for many taxpayers those deductions will also be worth less than in the past — if worth any tax savings at all.
• “Headline Risk” is the risk of making emotionally-driven decisions due to the constant fear promoted by traditional and social media sources. We need to remember those sources are not motivated to help you enjoy a peaceful retirement. Their motivation is to create so much fear in us that we become dependent (like a news junkie) on following them. That is how they get advertisers to support them, which drives them to scare us even more.
• Inflation is back in consideration. After ten years of benign inflation (and even worries of deflation), several factors are igniting inflation.
  1. A very strong labor market. As the employment market strengthens employees can demand higher wages and benefits.
  2. Trade wars. Global free trade (if there really is such a pure thing) means every company, country and person competes globally. Having so many people competing keeps prices down. If you decrease competition, by putting trade tariffs in place, you ultimately allow for inflation.
  3. The aforementioned tax law changes mean less dollars going to the government and more for people to spend. Increased spending means more demand for goods and services, which puts upward pressure on prices.
  4. Interest rates, while rising, are still low by historical standards. Homebuyers can still get 30-year mortgages for less than 4.5%.

Staying Focused on Retirement Needs

In times of such change, particularly when you are retired and living on a fixed income, it is crucial to stay focused on your needs and goals rather than watching the financial headlines. Late last year we encouraged you to review your situation:

• Your will, trusts, health directives and other estate plans.
• Insurance coverages such as Medicare supplemental plans, life insurance, homeowners policy (including personal property such as art, jewelry, etc.), auto coverage and liability insurance.
• Hopefully you reviewed and adjusted your investment portfolio early in the year, which would have helped you avoid the volatility we have experienced in the markets since February.
• A budget. Do you REALLY know where your money is going?

While change brings a sense of vulnerability and possibly fear, we are more resilient than we give ourselves credit.  Keep in mind the Serenity Prayer:

“God grant me the Serenity to accept the things I cannot change,
the Courage to change the things I can, and
the Wisdom to know the difference!”