Fed Holds Interest Rates Steady
Not surprisingly, the Federal Reserve did not change interest rates at its meeting on Wednesday. Jerome Powell indicated at his last meeting as Fed Chair that the employment numbers were holding albeit a little weaker, but the main concern was inflation of roughly 3% recently, well above the 2% goal. Should the war/confrontation with Iran end soon, we might see energy prices come down dramatically which may give the new Fed Chair, expected to be Kevin Warsh, the opening to lower rates sometime this summer. We do not anticipate a rate decrease when the Fed meets in June as things likely will not have changed enough to justify it.
Saving for Retirement or Not?
According to Guardian Life, the average American household with retirement accounts has roughly $334,000 saved, but the median savings—a more accurate representation for most—is significantly lower, often cited around $87,000. Retirement savings vary sharply by age, with 65 to 74-year-olds having a median of $200,000 and 46% of all households having no retirement savings at all.
Now we learn from Dayforce that savings to 401(k) and other retirement accounts declined to 8.9% from 9.2% as many employees struggle with increased costs, mainly caused by inflation. Twenty-six percent of participants reduced their retirement contributions. Additionally, among participants with incomes under $50,000, only 58% contributed to their plans, compared to 80% of those with greater incomes.
Perhaps even more concerning is that loans from retirement plans were up 20% last year. This means that employees are borrowing from the future to pay bills today. Our concern is that many of these loans, paid with future earnings, will not be repaid within the five-year time frame, thus causing the loan to become taxable with possible penalties.
Which Worries Your More? Dying or Running Out of Money
According to a recent study by the Allianz Center for the Future of Retirement, 67% of us worry more about running out of money. Not surprisingly, the older you are the more you think about dying — Baby Boomers fear death over financial ruin at 41%, compared to 31% for Millennials and just 27% for Gen Xers. While Social Security stability, taxes and economic uncertainty were on the list, the top two major concerns were inflation and health care costs. Amazingly, when it came to having a written financial plan only 48% of those surveyed had a plan. While one can be successful without a plan, the odds of success are significantly improved with a plan.
Women Living Longer, But So Are The Guys
When we started writing financial plans back in the late 80s, we thought we were taking a conservative approach by assuming a couple would both be gone by age 90. But today that number should probably be closer to age 95 or 100. Women were living significantly longer than men back then. At age 65, a woman was expected to live another 18 years while a male was projected to live only another 15 years. In addition, the male cohort of the Greatest Generation was much smaller because of World War II.
Even though men have now closed the gap (they still lag), the old perception that women will live much longer than men remains. A woman’s life expectancy at age 65 has now increased to 20 years, while a 65-year-old male can expect to live another 18 years. Thus, the gap is only about 2 years instead of 3 years. Looking at it another way, in 2001 there were only 70 men for every 100 women, but now it is 80 for every 100 at age 65.
The implications of this longer life are dramatic in several ways: 1) money to support the lifestyle for retirees, and 2) more money for health care costs, especially as long-term care becomes a greater probability. Heirs have to wait longer for a potentially smaller inheritance because of mom/dad living longer.
What is the Younger Generation Putting in Their Prenups?
As prenuptial agreements continue to rise in popularity, couples are rethinking what belongs in them, and the clauses are increasingly reflective of modern life. In 2023, one in every five Americans entered marriage with a prenuptial agreement, and notably, 40 percent of those agreements involved members of Gen Z. As prenups skew younger, the preferences shaping their contents are evolving as well.
One emerging focus is cryptocurrency. Many couples are choosing to specify that any cryptocurrency acquired before marriage remains the sole property of the individual who purchased it. With the long-term future of digital assets still uncertain, these clauses offer a sense of security, ensuring personal investments remain protected regardless of how the market or marriage unfolds.
Another increasingly common and sensitive topic is embryo ownership. Currently, there are an estimated one million embryos in storage at fertility facilities across the United States. This raises a critical question for couples: if a divorce occurs before the embryos are used, who has the right to decide their fate? Prenuptial agreements are now frequently outlining clear terms, such as prohibiting the use of embryos without the written consent of both parties, or agreeing to jointly discard them after a specified period of time.
Together, these evolving clauses reflect a broader shift: prenuptial agreements are no longer just about preparing for divorce; they are becoming tools for navigating the complexities of modern relationships, technology, and generational wealth.
You Only Live Once
On several occasions, we have written about the propensity of some younger investors who invest in a wild, willy nilly way. Just harken back to the early days of meme stocks AMC, Reddit (RDDT) and Robinhood (HOOD). Generally, traders in these stocks have smaller accounts with the goal of making a fast buck.
To “protect” those folks, the SEC (back in September 2001) put into place a limit of three trades per day in the same security and within a five-day window for those with an account of $25,000 or less. On April 14th of this year, the SEC approved a proposal to eliminate this restriction. The elimination of this provision is likely to increase the volatility of the market with these meme stocks and perhaps in more mainstream stocks, especially tech stocks.
Of bigger concern to us is the willingness of these traders to make big bets, not realizing that with every trade, there is a winner and a loser. This, of course, has now spilled over into the predictions market, which we see as more like gambling than investing. While the Baby Boomers grew up being the “young and the restless”, some are now referring to the younger generation as the “young and the reckless”.
Yes, there will be winners that we will hear about, like the soldier who purportedly made $400,000 betting on the capture of Maduro by the U.S., but someone else lost on the other side. What we do know is that the only ones winning in the prediction markets every time are the platforms that promote this type of activity. Quoting from the movie Forrest Gump, “Stupid is as stupid does,” or perhaps we should turn to a quote attributed to Robert J. Hanlon, “Never attribute to malice that which is adequately explained by stupidity.”
Unpacking the Asset Classes: Currencies
We’ve made it to the end of Unpacking the Asset Classes, where we explored the characteristics of the major asset classes and how investors use them to construct a diversified portfolio. In this final edition, we will cover currencies – a unique asset class influenced by global economic trends. At its core, currencies are the money used in countries to buy, sell, or exchange goods and services.
Typically, investors do not invest directly in currencies as a standalone part of their portfolios because they add a layer of complexity. Still, some use them as a tool for managing unexpected movements in exchange rates. Investors who hedge against this risk often do so using currency derivatives such as futures and forward contracts.
Since foreign exchange rate movements can affect the return on international investments when translated back into U.S. dollars, some investors prefer to use currency derivatives to help mitigate this impact. If you look back to 2025, international developed markets – as represented by the MSCI EAFE index – were up roughly 32% in U.S. dollar terms versus only 21% in local currency terms, reflecting the impact of a weaker U.S. dollar.
Ultimately, currencies can be used within a portfolio to hedge foreign exchange risk. That said, they are not widely used in investors’ portfolios, as exchange rate movements may offset each other over the long term and add complexity.
Up Your Assets™ Podcast
Episode 30 – Roth IRA Conversions: When It Makes Sense and When It Doesn’t
This episode features podcast host, Ray Ferrara, CFP® exploring the strategic considerations of converting traditional IRAs to Roth IRAs, including benefits, drawbacks, and timing tips to optimize retirement planning. Ray does not have a “Crystal Ball” and this is not a prognostication… however he provides some poignant and thought-provoking concepts on how to hedge potential tax changes in THE FUTURE.
Acknowledgements and Important Disclosures
From the Up Your Assets website
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