Robert Riedl Comments on Decision-Making to Simplify Debt Reduction for Retirement
On Tuesday, June 10, 2014, Robert Riedl CPA®, CFP®, AWMA®, Director of Wealth Management, at Endowment Wealth ManagementTM, was quoted in a Marketwatch.com article written by Cliff Goldstein.
Robert commented on the lifestyle decisions that impact the process of investing and what decisions can aid in decreasing the weight of debt while preparing for and living in retirement.
Rob’s contribution to the article included in the following paragraphs:
While much has been written about the impact of human behavior on the process of investing, emotions drive our spending habits as well. Robert Riedl, a wealth manager in Milwaukee, believes it’s a discussion well worth having—on a regular basis.
“It seems most debt options are lifestyle decisions which need to be revisited,” Riedl says. “Do I need the multiple vacation properties, cars and boats, or can I simplify my life and sell off some underutilized assets and reduce my debts? Identify your long-term needs versus wants, and determine what can you afford to maintain and will use in the future. Sell the assets that are too expensive to maintain and underutilized to reduce your retirement debt burden—and enjoy the rest.”
For more information or to set up a private, no-obligation wealth consultation, you can contact Rob directly at rob@endowmentwm.com.
Information presented is for educational purposes only and is not intended as an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies, nor shall it be construed to be the provision of investment advice. Investments involve risk and unless otherwise stated, are not insured or guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any investment strategies discussed herein. While the firms are related and share corporate offices, Endowment Wealth Management, Inc. and ETF Model Solutions, LLC are each individually registered as an investment adviser in the State of Wisconsin. A copy of Endowment Wealth Management’s disclosure document, Form ADV Brochure Part 2, is available upon request.
The above graph shows the bull and bear market durations. The bull market that ended with the financial crisis lasted 61 months, according to Morningstar’s chart, but the two prior runs were 153 months and 155 months long. In other words, stocks were in an uptrend for more than 12 years.
The chart also shows that bear markets are relatively quick, with the last two lasting 16 months and 25 months, respectively.
The latest Headline PCE price index year-over-year (YoY) rate of 1.62% is a relatively large increase the previous month’s 1.14% (a slight adjustment from 1.15%). The Core PCE index of 1.42% is up from 1.21% the previous month.
The general disinflationary trend in core PCE (the blue line in the charts below) must be quite troubling to the Fed. After years of ZIRP and waves of QE, this closely watched indicator consistently moved in the wrong direction. Since April of last year has hovered in a narrow YoY range of 1.21% to 1.10%, although the April data point has broken above the range. Is this the beginning of a major trend reversal? This will be a closely watched series by the ongoing inflation/deflation debate.
The adjacent thumbnail gives us a close-up of the trend in YoY Core PCE since January 2012. I’ve highlighted the narrow 12-month range that appears to have been breached to the upside in April.
The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I’ve also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed’s preferred indicator for gauging inflation. I’ve highlighted 2 to 2.5 percent range. Two percent had generally been understood to be the Fed’s target for core inflation. However, the December 2012 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place.
I’ve calculated the index data to two decimal points to highlight the change more accurately. It may seem trivial to focus such detail on numbers that will be revised again next month (the three previous months are subject to revision and the annual revision reaches back three years). But core PCE is such a key measure of inflation for the Federal Reserve that precision seems warranted.
For a long-term perspective, here are the same two metrics spanning five decades.
A monthly gauge of U.S. consumer sentiment fell in May as a gloomy view on income growth clouded an otherwise positive economic outlook, a survey released on Friday showed.
The Thomson Reuters/University of Michigan’s final May reading on the overall index on consumer sentiment came in at 81.9, down from 84.1 the month before.
It was also below the expectation of 82.5 among economists polled by Reuters. However it did show a slight increase from the preliminary reading issued on May 16.
Japan’s core consumer prices jumped 3.2 percent in April from a year earlier, government data showed on Friday, the fastest gain since February 1991 as an increase in Japan’s national sales tax boosted prices across the board.
The increase in the core consumer price index, which excludes volatile fresh food prices but includes oil products, compared with economists’ median estimate for a 3.1 percent rise, the Ministry of Internal Affairs and Communications said.
That followed a 1.3 percent increase in March, posting the 11th straight month of annual gains.
The Bank of Japan estimates that the sales tax hike – to 8 percent from 5 percent that took effect on April 1 – will add 1.7 percentage points to Japan’s annual consumer inflation in April, and 2.0 points from the following month. The internal affairs ministry does not provide official estimates.
The so-called core-core inflation index, which excludes food and energy prices and is similar to the core index used in the United States, rose 2.3 percent in April from a year earlier, the fastest annual gain since December 1997.
Core consumer prices in Tokyo, available a month before the nationwide data and seen as a leading indicator of nationwide inflation, rose 2.8 percent in May from a year earlier, posting the quickest rise since April 1992.
In the absence of any significant news, and with the Ukrainian situation easing somewhat, market volatility, as measured by the VIX has fallen to a 14 month low. Today VIX is trading just 0.65 above the March 14, 2013 low of 11.05, which was the low reached in this bull market. Many believe that a low VIX, which is sometimes called the “fear index,” indicates investor complacency, suggesting that the market is near its peak. Indeed the VIX hit a low of 9.36 in December 2006, 10 months before the peak of the stock market and the beginning of the greatest bear market in 75 years.
But the ability of the VIX to predict bear markets is spotty at best. The lowest level the VIX has ever reached since it was first computed in the mid 1980s, was 8.89 in December 1993. Although the onset of 1994 was rough because of the unexpected rate increase put in by Fed Chief Alan Greenspan, the secular bull market was still well intact. Another intermediate low for the VIX of 10.00 was reached on March 1995,
but that also did not mark a market peak. In fact the VIX continued to rise in the last five years of the great 1982-2000 bull market which peaked on March 2000.
The Chicago Board Options Exchange Volatility Index, or VIX, is widely considered to be stocks’ “fear gauge.” When things get wild, usually the VIX will increase in value. A portion of the investment community points to this as us being “lulled to sleep by complacency,” and the law of averages will bring us back to more volatile times. However, they may also have simply grown too accustomed to what could turn out to be a brief period in history when volatility was abnormally high. Whatever the case, the S&P 500 has traded in a tight range of only 4.5 percent since March 4, according to the Wall Street Journal. This calmness among stocks has been eerie to some, and surprising to almost everyone.
Is this the calm before the storm? Is Sell-In-May-And-Go-Away going to cause the VIX to go higher?
Note: The change in endowment value reflects investment returns, additions from donor gifts and other contributions, fee payments and university withdrawals during the fiscal year ended June 30, 2013.
Source: 2013 NACUBO-Commonfund Study of Endowments
Endowment Index™ now available as a benchmarking tool for investors that manage multi-asset portfolios comprised of both traditional (stocks and bonds) and alternative (private equity, real assets, hedge funds) asset classes.
Appleton, WI (PRWEB) May 22, 2014
Endowment Wealth Management, Inc. in collaboration with ETF Model Solutions, LLC have launched the Endowment Index™ (Symbol: ENDOW) as a benchmarking tool for investors in globally-diversified, multi-asset portfolios that include alternative investments. The Endowment Index, calculated by Nasdaq OMX® is an objective benchmark comprised of three major asset class building blocks: Global Equity, Global Fixed Income, and Alternatives which includes hedge funds, private equity and real assets. The Index is used for portfolio comparison, investment analysis, research and benchmarking purposes by fiduciaries such as trustees, portfolio managers, consultants and advisors to endowments, foundations, trusts, defined benefit/defined contribution plans, pension plans and individual investors. The Endowment Index™ is a total return index and all underlying components are comprised of exchange-traded funds or other investable securities.
“The proliferation of exchange-traded products and mutual funds that offer alternative strategies in liquid form is leading to the increasing adoption by investors outside of the institutional endowment universe,” said Prateek Mehrotra, Chief Investment Officer of Endowment Wealth Management. “Until now, they’ve had to use a proxy or a custom benchmark for those portfolios. The Endowment Index™ now provides an appropriate benchmarking solution for investors that embrace the Endowment Investment Philosophy™.”
The use of alternatives has broadened beyond endowments. Recent studies by Barclays Prime Brokers estimates that use of liquid alternatives grew 43% to $137 billion in 2013, and that by 2018, assets in this space could stretch to between $650 and $950 billion. Index data can be accessed through most major quote providers and websites under the symbol “ENDOW”. For more information visit http://www.EndowmentIndex.com
Endowment Wealth Management, Inc. is an independent Private Wealth Management Firm using a Multi-Client Family Office service model, whose sole mission is to provide wealth sustainability for individuals, families, retirement plans, endowments, foundations and other institutions through the utilization of the Endowment Investment Philosophy™.
ETF Model Solutions, LLC, is third party investment manager and ETF strategist that builds investment models for 401(k) plans, Investment Advisors within their practice, Family Offices, Endowments, Foundations, Trusts, and Individual Investors. The Firm is the fund manager for the Endowment Multi-Asset ETF Collective Investment Fund, available for use in 401(k) and other retirement plans.
Information presented is for educational purposes only and is not intended as an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies, nor shall it be construed to be the provision of investment advice. Investments involve risk and unless otherwise stated, are not insured or guaranteed. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any investment strategies discussed herein. While the firms are related and share corporate offices, Endowment Wealth Management, Inc. and ETF Model Solutions, LLC are each individually registered as an investment adviser in the State of Wisconsin. You cannot invest directly in an index. Indexes do not contain fees. A copy of each firm’s respective disclosure document, Form ADV Brochure Part 2, is available upon request.
The consumer-price index rose a seasonally adjusted 0.3% in April from the prior month, driven by increasing costs for staples such as gasoline, food and shelter, the Labor Department said Thursday. It was the strongest monthly gain since last June.
April consumer prices were up 2% from a year earlier, a marked pickup from October when annual inflation slipped to a four-year low of 1%.
Inflation is showing an early sign of picking up after years of dormancy, a shift that could reshape Federal Reserve policies forged during a period of persistently weak price pressures and widespread economic slack.
A slew of recent economic data illustrated a mixed economic picture. New claims for jobless benefits fell to a seven-year low last week, the Labor Department said Thursday, a pickup that followed April job growth that was among the strongest improvements since the recession ended.
But manufacturing output contracted last month, a separate Fed gauge showed Thursday. Other recent figures showed that retail sales grew very modestly, providing less pent-up demand following a winter in which overall economic output likely contracted.
Excluding volatile food and energy, prices climbed 1.8% in April from a year earlier. That was the fastest annual increase since last August, a sign that underlying price pressures may be gaining traction.
Fed officials have been debating the timing of their first increase in short-term interest rates, after they wind down later this year a bond-buying program meant to spur growth. If annual inflation nears the Fed’s 2% target, the central bank would have more leeway to raise rates.
But weakness elsewhere in the economy could restrain Fed officials who worry about slack across the economy, particularly in a labor market that has seen millions of Americans leave the labor force. Chairwoman Janet Yellen last week said the Fed would hold rates low for a “considerable time” after the bond-buying ends.
The Fed’s inflation target is based on a separate inflation gauge, the Commerce Department’s personal consumption expenditures price index, which rose 1.1% in March from a year earlier. The April figure, due later this month, will likely show an acceleration, though many economists expect it will remain below the CPI reading.
Higher inflation, even coming off a low level, could pose a headwind to consumers because wages have largely stagnated. On an inflation-adjusted basis, hourly wages fell 0.3% last month and are virtually flat from a year ago, a separate Labor Department report said Thursday.
Thursday’s consumer-prices report showed seasonally adjusted gasoline costs rose 2.3% in April, the first monthly gain since December.
Outside of volatile food and energy costs, prices rose from 0.2% last month. Shelter prices, which account for almost a third of the total index, also rose 0.2%.
Electricity costs fell 2.6% in April, the biggest one-month drop since 1986. The Labor Department said much of the decline can be attributed to “climate credits” distributed in California for the first time last month. The twice-yearly credits distribute pollution taxes on power generators to customers.
THINGS YOU ALWAYS WANTED TO KNOW ABOUT INFLATION STATISTICS
The Consumer Price Index has increased 2% in the past year, the strongest increase in nearly a year. So is inflation high or low or right at the Fed’s target or none of the above?
The U.S. government puts out a baffling array of inflation statistics, and Federal Reserve officials and economists casually bandy about terms like core inflation, a measure of prices that excludes food and energy. What good is a measure that excludes food prices? What are these different measures?
WHAT IS THE DIFFERENCE BETWEEN HEADLINE AND CORE INFLATION?
The best-known measure of inflation is the Consumer Price Index, produced by the Department of Labor. The measure is created by sending hundreds of Bureau of Labor Statisticsemployees out to stores, restaurants and shops across the country every single month to measure how much prices of specific items are changing. All those individual changes are added up to produce the overall metric.
Economists focus on two main measures, the first is headline inflation, which includes everything that people buy. The second measure is core inflation, which excludes food and energy. The focus on core inflation allows critics to charge that economists don’t care about the budgets of real people.
Actually, it’s because food and energy prices bounce around but tend to move back toward core.It may feel like food and energy prices are always rising way faster than everything else, but this isn’t true. Over the past 25 years, all prices have risen 2.7% a year. Core prices have risen 2.6% a year.
WHAT’S THE DIFFERENCE BETWEEN CPI AND THE PCE PRICE INDEX?
The Federal Reserve pays the most attention to a different inflation gauge, with a mouthful of a name: the personal consumption expenditures price index. The PCE price index is produced by the Department of Commerce. It uses different statistical techniques and makes differing assumptions about prices. For instance, the PCE includes the money employers spend on their employees’ health care. The CPI only includes the employees’ expenses. The PCE puts less weight on housing expenses.
Fed officials favor the PCE price index, believing it to better account for what’s happening in the economy. Former Fed Chairman Ben Bernanke addressed this in a January 2012 press conference. “You’re not going to have a situation where the CPI is 10% and the PCE is 2%,” he said. “There may be a few tenths difference, but, generally speaking, they move very closely together.”
The indexes hang together, but unlike core and headline inflation which converge over time, the PCE price index is consistently lower than the CPI. Over the past 25 years, PCE inflation has been about 0.5 percentage point lower per year.
DID WE JUST HIT THE FEDERAL RESERVE’S INFLATION TARGET?
No. Firstly, the Fed’s target is for 2% inflation on the personal consumption expenditures price index, and that measure has only climbed 1.2% in the year through March (April’s figure is not available yet). Secondly, the Fed’s target is for inflation in the longer-run. That means the central bank is inclined to look through brief periods of too high or too low inflation and focus on their forecasts in coming years. If PCE inflation hits 2% but the Fed expects it to soon decline again, they would be unlikely to react.
HOW CAN INFLATION BE LOW WHEN EVERYTHING IS SO EXPENSIVE?
Economists focus on the change in prices from year to year. That doesn’t mean prices are low. On the contrary, the CPI shows that prices are the highest they’ve ever been. The 2% change in inflation is the increase from exactly a year ago. Over time, that adds up. Prices have more than doubled since 1983, and even since the recession’s official end in June 2009, prices have risen by 10%. So if it feels like prices have risen more than 2%, they sure have. Just not within the past 12 months.
HAS THE GOVERNMENT CHANGED THE INFLATION STATISTICS OVER THE YEARS SO THAT THEY’RE LOWER?
Yes, it has. But this is not a massive conspiracy to hide runaway inflation. Changes to the CPI over the years, to adjust the statistical methods, have lowered the index by about 0.3 percentage point. So if the old methodology were still in place, the Department of Labor might be reporting inflation of about 2.3% instead of 2% right now.
The adjacent thumbnail gives us a close-up of the trend in YoY Core PCE since January 2012. I’ve highlighted the narrow 12-month range that appears to have been breached to the upside in April.
