Financial Insights- July 30, 2021

Inflation Is On Everyone’s Mind 

Over the past few months, inflation has caused many investors to worry. There is a great debate going on about whether inflation is transitory due to the supply chain issues, rising wages, food supplies, etc. or is it something more permanent that could cripple the economy again? The answer lies somewhere in between with wage increases most likely being permanent and the others likely to moderate. There is very little risk at the moment to support the type of inflation that existed in the 1970s. In 2021, inflation is expected to run at about 5.5% year over year. This is high given the past decade or so of relatively low inflation, but when you average 2020 with 1.25% inflation with the anticipated number for this year, you come up with about 3.25% which isn’t as scary. We will likely see an inflation rate next year of 2.75 to 3% mainly due to wage increases as businesses try to entice workers back to work and the $15 hourly wage rate being implemented in many states. On the plus side, Social Security beneficiaries are likely to see a 6% increase in 2022.

Time For A Change At The Top?

With everything else going on in Washington, DC, and Congress, little attention is being paid to an important decision that needs to be made by President Biden and that decision will likely be made in the next few months. In February 2022, Jerome Powell’s term as Chair of the Federal Reserve Board will come to an end. You may recall that Powell was appointed by President Trump to the four-year term when the then president chose not to reappoint Janet Yellen, who is now the Secretary of the Treasury. That creates an ironic twist as she will obviously have significant input into whoever the next chair will be. It may come as a surprise to many that Powell enjoys wide support amongst Democrats, including Yellen. Traditionally, it is sometime in the late summer or early fall when the president announces his choice. It is argued, with great substance, that the Chair of the Federal Reserve Board is the second most important and powerful person in Washington, DC. The choice is an important one for Biden as the next Chair will serve for the remaining three years of his term.

What Is The Big Deal Over A 700 Point Drop?

On Monday, July 19th, the Dow Jones Industrial Average dropped 700 points or 1.6% which was the largest point drop since October 2020 and many thought it was the beginning of a correction. However, before the week was over, the Dow was up 1% and set a new all-time high. Quite a turnaround in only four days. But as big as 700 points are, it was only a 1.6% drop. That led us to think about the other big drops percentagewise. Here are the top ten:

10) July 21, 1933 – 7.84% as banks failed;

  9) October 15, 2008 – 7.87%, the beginning of the Great Recession;

 8) October 26, 1987 – 8.04%, continuation of investor uneasiness over Black

Monday;

  7) March 14, 1907 – 8.29%, sparking the Panic of 1907 in October;

  6) December 8, 1933 – 8.49%, during the Great Depression;

  5) December 18, 1899 – 8.72%, caused by a drop in the silver reserves;

  4) November 6, 1929 – 9.92%, a follow up to the market crash a few days

earlier;

  3) October 29, 1929 – 11.73%, a continuation from the day before;

  2) October 28, 1929 – 12.82%, the beginning of the Great Depression; and

  1) October 19, 1987 – 22.61%, Black Monday.

A Mid-Summer Thought 

Do you have a child or grandchild that is working this summer? If so, you have a great opportunity to help them save towards retirement. Whatever money they are earning, the last thing on their minds is retirement. That is as it should be. Ah, but you are older and wiser. They can put 100% of their earnings into a Roth IRA up to $6,000. Let them keep the money they earn but give them a gift and have it deposited into a Roth IRA. The money will grow tax-free if left alone until at least 59½, although some of it might be used to fund a college education. Suppose they are 15 years old and invest $6,000 earning a hypothetical return of 6% per year. At age 65, 50 years from now, it will be worth $110,000.

Don’t Owe The IRS Penalty and Interest

For those that are working, it is easy to have money coming out of their paycheck for taxes. No matter when, where, or how the money is withheld, the IRS assumes it was paid timely throughout the year. But what if you have income from savings, investments, rent, capital gains, etc. where the taxes are not withheld. You are required to file on a quarterly basis – April 15, June 15, September 15, and January 15 of the following year. If not done timely, it could create penalties and will cost interest. So, if you missed the first two dates this year is it too late? Not necessarily. You can increase withholding from Social Security, pension, or annuity payments and it will be looked at as if it was paid evenly throughout the year. The biggest opportunity exists when you withdraw money from an IRA at the end of the year. Have a large amount withheld and sent to the IRS and they will look at it as if the payment was received throughout the year.

Women and The “Engagement Gap” 

The “Women and Wealth – an Insights Study” asked 3,000 men and women with investable assets ranging between $25,000 to over $1,000,000 about their hopes and fears regarding money as well as their emotions in managing their finances. The researchers were surprised to find that women do not engage with money as much as men labeling it the “engagement gap”.

Why do women face an “engagement gap?” Historically, girls and women have not been exposed to financial literacy either through school or family. Today, many women control their finances and live independently but cultural norms and family structure have deep roots sometimes taking generations to change. For many women, this leads to stress and anxiety about financial matters, especially maintaining their lifestyle in retirement. 

The study asked women about the emotions they associated with financial planning. Women identified the following emotions:

1) self-confidence, 2) pride, and 3) stress and anxiety.

On the other hand, men across all age ranges identified: 1) self-confidence, 2) excitement, and 3) happiness. 

When men and women start engaging early with their finances, they are more confident over the long-term. Do you know a friend or family member who needs to start engaging with their finances? 

(Source: U.S. Bank Wealth Management and Investment Services)

ProVise Recognized by Financial Advisor Rankings 

ProVise Management Group, LLC has been recognized as one of the largest financial planning and investment management firms by Financial Advisor Magazine based on assets under management as of the end of 2020. With over $1.5 billion of assets under management, ProVise is the 251st ranked firm in the nation, the 11th largest in Florida and the second largest in the greater Tampa Bay area. We want to thank all our clients for the confidence they have placed in us to assist them with their financial planning and investment management needs.

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