The Personal Financial Satisfaction Index (PFSi), reported by the AICPA (American Institute of Certified Public Accountants) is at an all-time high. This quarterly economic indicator measures the financial situation of average Americans. PFSI is the difference between (1) the Personal Financial Pleasure Index, measuring the growth of assets and opportunities, and (2) the Personal Financial Pain Index, which is based on lost assets and opportunities. The most recent report had a Pleasure Index 68.1 in contrast to a Pain Index of 42.1, resulting in a positive reading of 25.9, the highest since 1994.
While the stock market is high, unemployment is declining, and inflation is low, remember the economy is cyclical. Be sure to consider and plan for your long-term goals. Stay aware and position your financial plan appropriately to safeguard finances when the economy is in a downturn. Also, analyze your cash flow to an attempt to increase savings, including an appropriate emergency fund.
For additional information on financial satisfaction, click here.
Have students create an action plan for situations that might be encountered in times of economic difficulty.
Have students create a team presentation with suggestions to take when faced with economic difficulties.
What are examples of opportunities that create increased personal financial satisfaction?
Describe actions a person might take when faced with economic difficulties.
Collectible coins have some historic or aesthetic value to collectors. The value of many collector coins exceeds their melt value because the precious metal content is so small. Coin collectors refer to this collectible value as numismatic value, and it is determined by factors such as the type of coin, the year it was minted, the place it was minted, and its condition—or “grade.”
Dealers who sell collectible coins often have valuable coins graded by professional services. A grader examines the coin’s condition based on a set of criteria. Then the grader assigns it a numerical grade from one to 70, and places it in a plastic cover for protection. But factors like “overall appearance” and “eye appeal” are subjective, and the grade assigned to a particular coin can vary among dealers.
Expect to hold your investment for at least 10 years before possibly realizing a profit. That’s because dealers usually sell collectible coins at a markup. In addition, the market for numismatic coins may not be the same as the market for precious metals or bullion coins. It’s possible that the price of gold can increase while the value of a gold numismatic coin decreases.
“Advisors and investors are increasingly focused more on lower fee products amid expectations that finding consistently strong performing active funds is hard.”
Passive investing (index funds and exchange traded funds) has been a trend on Wall Street for years. So, what’s different? The answer: The trend is increasing at an alarming rate and investors are now retreating from actively managed funds that are beating their benchmark index. According to data from Morningstar, investors pulled $99 billion from the actively managed funds that beat their benchmarks over a 12-month period ending January 31, 2017. This is a remarkable trend given that most investors typically chase funds with high performance and high returns.
The reasons are many, and certainly lower fees is part of the reason, but not the only factor for this dramatic trend. Another very important factor is that the number of managed funds that consistently beat the index over a long period of time is small. According to data from Charles Schwab, the number of funds that score in the top 25% for at least two years is 1,098. The number of funds drops to 702 at the end of three years, and to 33 funds at six years. Only 4 funds score in the top 25% for at least seven years, and none stay in the top 25% for eight years.
The article goes on to say that this trend may encourage more actively managed funds to focus on bringing down the fees for their investment products in order to compete with the expense ratios for index funds and exchange traded funds.
“The Dow’s ongoing flirtation with the 20,000 market milestone is the talk of Wall Street.”
The 120-year-old Dow Jones Industrial Average consists of 30-blue chip stocks that make up arguably the world’s best-known stock index. At the time of this article and this blog post, the average is trading at near record levels and threatening the break the 20,000 mark. So how important is breaking the 20,000 barrier? Consider the following five questions.
Why, with the Dow so Close to 20,000, can’t it get over the hump?
Is Dow 20,000 a big deal?
Does a new milestone mark a new stage of the bull run we’ve seen?
Will Dow 20,000 improve the mood of investors?
Is Dow 20,000 a reason to buy?
Adam Shell, in this USA Today article, provides some answers to the above 5 questions that can help investors keep a more balanced perspective on what a Dow 20,000 really means for both individual investors and the economy.
You may want to use the information in this blog post and the original article to
With so much in the news about the stock market, record high values, a possible correction or pullback in market values, the Federal Reserve’s interest rate changes, and other economic factors, you may want to use this article and this blog post to explain why the Dow Jones Industrial Average is just one of many factors that affect investors, the market, and the economy.
Since the Dow Jones Industrial Average is in record territory, is this a good time to invest in the stock market? Explain your answer.
At the time you answer this question, what is the current Dow Jones Industrial Average? Has it gone up or down in the last six months, and what affect has the change had on the stock market and the economy?
“The sky is falling! If my chosen candidate doesn’t win, the markets are doomed and so are my investments.”
In this article, Bijan Golkar points out that a presidential election can cause excitement or despair depending on if you are a Republican or a Democrat and who the major parties nominate for the highest and most powerful office in the world.
The article discusses market returns both before and after a presidential election year and some of the underlying reasons for market volatility. Then the article stresses the importance of a person’s long-term goals and a plan for long-term growth as opposed to “emotional investing.” Finally, the article discusses the pros and cons of our economy that could affect investment values.
“Interest rate changes are among the most significant factors affecting bond return.”
When it comes to how interest rates affect bond prices, there are three cardinal rules.
When interest rates rise–bond prices generally fall.
When interest rates fall–bond prices generally rise.
Every bond carries interest rate risk.
This article describes how each of the “3 cardinal rules” described above affects a bond investment. It also explains the role the Federal Reserve plays in determining interest rates in the economy. Specifically it describes the federal funds rate, the discount rate, and basis points for bond investments.
Finally, this article provides information on where to find economic indicators that measure not only changes in interest rates but also other economic indicators for the nation’s economy.
Automated investment services are expanding. Many financial service companies are offering “robo advice,” in which investors complete an online questionnaire and a computer program generates and monitors a portfolio of funds. Robo-advisers are also designed to automatically rebalance a portfolio based on changes in the market as well as any changes in the amounts allocated to certain investments.
With many investors already making their own trades online, investment companies believe that robo advisors have these additional benefits:
lower costs for obtaining advice and conducting transactions.
an ability to adjust the portfolio for tax purposes by selling shares that have declined to offset gains.
an easier investment approach for younger clients with less-complicated financial lives.
Some will be concerned about automated portfolio management. Human advisors will still be available to address issues about mortgages, insurance, estate planning, retirement income, and other topics that robo-advisers are not yet equipped to answer.
For additional information on robo advice, click on the following articles:
SBLOCs are loans that are often marketed to investors as an easy and inexpensive way to access extra cash by borrowing against the assets in your investment portfolio without having to liquidate these securities. They do, however, carry a number of risks, among them potential unintended tax consequences and the possibility that you may, in fact have to sell your holdings, which could have a significant impact on your long-term investment goals.
Set up as a revolving line of credit, an SBLOC allows you to borrow money using securities held in your investment accounts as collateral. You can continue to trade and buy and sell securities in your pledged accounts. An SBLOC requires you to make monthly interest-only payments, and the loan remains outstanding until you repay it. You can repay some (or all) of the outstanding principal at any time, then borrow again later. Some investors like the flexibility of an SBLOC as compared to a term loan, which has a stated maturity date and a fixed repayment schedule. In some ways, SBLOC are reminiscent of home equity lines of credit, except of course that, among other things, they involve the use of your securities rather than your home as collateral.
The Financial Industry Regulatory Authority (FINRA) and the SEC’s Office of Investor Education and Advocacy (OIEA) have issued an investor alert to provide information about the basics of SBLOC, how they may be marketed to you, and what risks you should consider before posting your investment portfolio as collateral. SBLOCs may seem like an attractive way to access extra capital when markets are producing positive returns, but market volatility can magnify you potential losses, placing your financial future at greater risks.
“Investors may wade into unknown territory next month as the Federal Reserve readies the first rate hike in nearly a decade amid a corporate earnings recession.”
In this Reuters article, Rodrigo Campos explores the following factors that can be used to predict what could happen in the financial markets in the near future. Consider the following
The Federal Reserve may raise interest rates in December–the first increase in nearly a decade.
Earnings for the third quarter of 2015 for 90 percent of the corporations listed in the Standard & Poor 500 are lower than expected.
The decline in corporate revenues has been steeper than the drop in earnings.
As pointed out in this article, rising interest rates are always a negative factor for stocks. Since 2013, every time the Fed has indicated a rate hike is on the horizon, the stock market throws a tantrum, and the Fed decides not to raise rates. At the time of this blog, it is impossible to know if the Fed will raise interest rates in December–especially with corporate earnings on the decline. Even the experts are not sure what will happen between now and the end of the year.
You may want to use the information in this blog post and the original article to
Discuss the relationship between corporate revenues, earnings, and stock prices.
Explain the affect an increase in interest rates could have on the financial markets and consumers.
Explore possible investments for a down market and a market on the upswing.
What is the relationship between corporate revenues, corporate earnings, and stock prices?
What affect would a Fed decision to raise or lower interest rates have on the financial markets? On consumers?
Assume you have $375,000 invested in a diversified retirement portfolio. Corporate stocks in your portfolio include utilities, technology, energy, and consumer stables–some of which have reported lower earnings for the last two quarters. You also assume the Fed will raise interest rates in December. Would you sell some or all of your holdings? If you decide to sell, how would you determine which securities to sell? Explain your answer.