Sign up with your email address to be the first to know about new products, VIP offers, blog features & more.

You are viewing Economy

Forced Retirement Savings Coming to Connecticut

Connecticut is becoming the second state in the country to mandate retirement savings. The controversial bill will force most employers (not currently offering a retirement plan) to offer automatic enrollment for employees in a state sponsored plan. Details and specifics are still emerging. If you’re interested in reading more, here are three articles that cover the topic:

Hartford Courant
CT News Junkie
CT Mirror

Negative Interest Rates: A Grand Experiment

Frustrated by the fact that your savings account isn’t paying you any interest? It could be worse. Imagine putting $10,000 into your savings account, getting no interest and you have to pay the bank $60 per year in addition to any bank fees. No longer does the bank pay you, rather you pay the bank for the privilege of lending them your money.

It’s called negative interest rates and the concept is catching on in other parts of the world as an extreme attempt to grow their economy. Over 7 trillion dollars worth of government bonds have been sold worldwide with yields below zero. This is a new tool for central banks to shore up their struggling economy. The problem is that it’s unproven. There aren’t many, if any, cases of negative interest rates being used by world economies up until now. No one knows what the unintended consequences will be from using this kind of policy. At $7 trillion, this is one giant global experiment!

These aren’t small emerging markets experimenting with this policy. Denmark, Switzerland, Sweden, and Japan currently have negative interest rates. So does the European Central Bank. Janet Yellen, the US Fed Chair, has not ruled out the use of negative interest rates in the future and several other countries are in the process of making interest rates negative.

So what’s the appeal? Imagine being paid to borrow money. Would you rather pay $10,000 upfront for a new roof or pay $9,500 for a new roof spread over several years? If you thought 0% loans to buy a new car was enticing, imagine how many cars would be sold if it became cheaper to take out a loan than to pay upfront. The purpose is to punish savers and encourage spending and investing, by both consumers and businesses

A grand and global experiment is occurring right now, one that every economist in the world is trying to understand.

A Problem In My Industry and What I’m Doing To Fix It

There is a growing problem among Financial Advisors and Financial Planners – one that many industry veterans don’t want to talk about. Just like baby-boomers, most advisors are approaching retirement and may begin slowing down soon. More than half of all advisors are over the age of 50 and about a third of all advisors will retire in less than ten years. (source)

The concern is that advisors will be retiring in droves just as their clients enter the most difficult stage of their financial life – retirement. There couldn’t be a worse time to start looking for a new financial advisor. Finding a new financial advisor to guide you through the complicated retirement process can be time intensive and stressful especially when you have to make important decisions in the near future.

Fortunately for our clients, we operate as a team. I have been working closely with my father for years now and we have several staff members that work behind the scenes to help clients.

But our current approach is not the norm. To complicate matters, younger advisors are no longer entering the business like they once did. The training programs at many of the big firms have been scaled back significantly.

Over the last few months, I have worked with the local chapter of the Financial Planning Association to launch a NexGen community. It’s a group for financial advisors and financial planners under the age of 40 in the Hartford region to meet and learn from each other. The purpose of the group is to foster involvement of younger advisors and to improve their skill sets and to match younger advisors with older advisors.

Based on attendance from the first event – we’re on to something.

The Experts And Their Conflicting Predictions

It’s become comical to see and watch the supposed experts lay out such convincing rationales explaining what the future holds. In the reading of the tea leaves, some are seeing some pretty dark days ahead, while others think all of the market volatility is a normal correction. This became especially clear when I recently attended the InsideETF conference in Florida. None of the economists and experts were wishy-washy – They were either very bullish or very bearish. Their charts and arguments were very strong and they would even take shots at each other to try to poke holes in their arguments. It was like watching a presidential debate!

The final speaker, Liz Ann Sonders of Schwab, put up a chart that really stood out to me:
Investor Sentiment

Liz asked “Have investors ever felt thrilled or Euphoric about the performance of the market at any point since the depths of the 2008 and 2009 recession? The answer is “No”. Despite some pretty impressive rates of return, investors have remained in the Hope and Optimism stage (maybe excitement). Every time the market corrects, investors are quick to move to safety. That’s a good thing! When the market becomes so hot that investors expect it to go up, then a problem is about to occur.

If you want to read the rest of her points, here is a good summary