The Ricks Report
July 17, 2017
Fixed Indexed Annuities used in the appropriate way can be wonderful additions to a well-rounded retirement plan. These tools give their owners opportunity to capture positive gains in market indexes while having protection from market downturns. I am including in this email a brochure for such a product from Nationwide to give you all a better understanding on how these contracts work. I want to show you these brochures because I believe they clearly display the power of a Fixed Indexed Annuity, when compared to the old “buy and hold” style of investing in the market, during great and terrible periods. I want to be clear in that I am not recommending this specific annuity to the reader, as an in-depth conversation is needed to determine what type of portfolio setup is appropriate for each individual client, but this should give you all a good starting point to understand the basics of how an annuity may benefit your retirement planning. Please give my office a call if you are interested in learning more about how these tools work and how one may benefit you.
Numbers of $ignificance
- TWO DECADES FROM NOW – Social Security trustees announced on 7/13/17 that the trust fund backing the payment of Social Security benefits (OASI retirement benefits) would be zero in 2035. A zero trust fund does not mean the payment of Social Security benefits would also go to zero, but rather would drop to 77% of their originally promised levels through the year 2091. When the trustees released their report in 2007 (i.e., 10 years ago), the Social Security Trust Fund was projected to be depleted in 2042 (source: Social Security Trustees 2017 Report).
- INCREASE TAXES OR REDUCE BENEFITS?– The estimated Social Security shortfall today (i.e., a present value number) between the future taxes anticipated being collected and the future benefits expected to be paid out over the next 75 years is $12.5 trillion. The entire $12.5 trillion deficit could be eliminated by either an immediate 2.76 percentage point increase in the combined Social Security payroll tax rate (from 12.40% to 15.16%) or an immediate 17% reduction in benefits that are paid out to current and future beneficiaries (source: Social Security Trustees).
Winning at Life with Gregory Ricks
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It was a good week for a lot of stocks but not bank stocks.
The Standard & Poor’s 500 (S&P 500) Index and the Dow Jones Industrial Average (DJIA) both finished at record highs last week. Barron’s indicated investors owe Federal Reserve Chair Janet Yellen a debt of gratitude:
“The main force behind the rally was the dovish performance by Federal Reserve Chair Janet Yellen in Congress on Wednesday and Thursday when she reiterated that rate hikes would most likely be gradual. On balance, her remarks were interpreted as evidence of continued accommodative monetary policy and, from there, stocks were off to the races. The ignition of the rally can almost be time-stamped to her appearance. Before her speech, the market was down for the week.”
Of course, some sectors of the stock market did better than others last week. In the S&P 500, Real Estate, Information Technology, and Consumer Staples stocks had the highest percentage gains at the close on Friday, while Financials, Telecommunications, and Consumer Discretionary stocks lagged, according to Fidelity.
In the Financials sector, banks were the weakest performers, finishing Friday almost a full percent lower. It was a bit of a mystery, wrote Financial Times (FT), since several banks beat earnings expectations. FT reported:
“Perhaps the most important factor that weighed on bank stock prices, however, had nothing to do with the comments from executives nor the quarterly financial results. Macroeconomic data published on Friday showed U.S. inflation at the consumer level cooled last month while retail sales fell short of estimates, pushing Treasury bond yields lower. Lower interest rates are bad news for banks, which make more money if they can charge borrowers more.”
Investors appear to believe there is smooth sailing ahead. The CBOE Volatility Index remained below 10.
|Data as of 7/14/17||1-Week||Y-T-D||1-Year||3-Year||5-Year||10-Year|
|Standard & Poor’s 500 (Domestic Stocks)||1.4%||9.9%||13.7%||7.6%||12.7%||4.7%|
|Dow Jones Global ex-U.S.||2.8||15.1||16.3||-0.4||5.9||-1.3|
|10-year Treasury Note (Yield Only)||2.3||NA||1.5||2.6||1.5||5.0|
|Gold (per ounce)||1.2||6.1||-7.8||-2.0||-5.0||6.3|
|Bloomberg Commodity Index||1.1||-5.5||-5.1||-14.0||-10.2||-7.0|
|DJ Equity All REIT Total Return Index||1.4||5.1||-1.3||8.6||9.5||6.0|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
Merriam webster defines ‘disrupt’ as ‘To break apart,’ and ‘to throw into disorder.’ While disruption doesn’t sound like something anyone would enjoy much, it has the potential to create investment opportunities for those who share a vision and are willing to take risks.
Morgan Stanley recently wrote, “It’s hard to think of an industry that won’t be touched in some way by technological disruption over the next decade.” Here are a few of the trends that may really stir things up during the next few decades:
- Machine learning. “The transportation and medical industries are likely to be first in line for disruption,” Morgan Stanley A disruptive change researcher wrote, “If we think about what machine learning really is, it’s pattern recognition. We might see radiology and scans detecting cancers earlier than they’re detected today. And it’s possible that in the future we can also use machine learning to scan for genes that might predispose us to certain kinds of diseases.”
- Autonomous vehicles. The auto industry, as we know it, is likely to change in some significant ways when self-driving vehicles become more prevalent. Other industries will be affected, too. For instance, insurance could change dramatically. After all, who do you insure when software is driving?
In addition, cities may lose a source of revenue if there is less need for parking. CNBC wrote, “Reports estimate self-driving vehicles have the potential to reduce parking space by about 61 billion square feet, which is about the size of Connecticut and Vermont combined.” This may be a boon for the real estate market.
The responsibilities of law enforcement may change, too, and crash test dummies may be out of work.
- Augmented reality. Imagine a surgeon being able to practice a surgery, a rigger learning their craft without scaling heights to lift heavy objects, or a teacher making students’ textbooks come alive. Augmented reality has the potential to help professionals refine their skills, make dangerous training safer, and fascinate students at all levels of learning.
Morgan Stanley also pointed out that Blockchain, which enables electronic contracts and custody, may change the financial industry, and Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR) may help cure disease at the genetic level.
We live in interesting times!
Weekly Focus – Think About It
“Companies don’t have ideas. Only people do. And what motivates people are the bonds of loyalty and trust they develop around each other.”
–Margaret Heffernan, International businesswoman and author
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Gregory Ricks & Associates is a Registered Investment Advisor which offers services and charges fees as set forth in Form ADV, a copy of which you should obtain prior to investment. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Past performance does not guarantee future results.
* You cannot invest directly in an index
http://www.barrons.com/articles/dovish-yellen-spurs-markets-to-soar-1500094950?mod=BOL_hp_we_columns (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-17-17_Barrons-Dovish_Yellen_Spurs_Markets_to_Soar-Footnote_2.pdf)
https://eresearch.fidelity.com/eresearch/markets_sectors/sectors/sectors_in_market.jhtml (Click + sign next to Financials to expand)
https://www.ft.com/content/4ad6fe30-689a-11e7-9a66-93fb352ba1fe (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/07-17-17_FinancialTimes-If_Earnings_Were_So_Good_Why_Did_Bank_Shares_Fall-Footnote_4.pdf)