Feeling Anxious About the Market? Focus on What You Can Control
Market volatility can feel nerve-wracking, and it's completely normal to feel uneasy during downturns. But remember this: market fluctuations are a normal part of the economic cycle. Instead of feeling helpless, let's focus on actionable strategies you can control to weather the storm, manage your emotions effectively, and avoid panic decisions driven by fear or uncertainty.
It's understandable that market volatility causes anxiety. Whether it's driven by economic news, geopolitical events, or trade tensions, the market's ups and downs can feel unpredictable and unsettling. However, history provides a valuable perspective: market downturns aren't anomalies; they are a recurring feature of the economic landscape. We've seen this play out in the past with significant events like the COVID-19 downturn in 2020, the Global Financial Crisis in 2008, and the Dot-com bubble in 2000.
Here's a crucial point to consider: missing just a few of the market's best days can significantly reduce your long-term returns. This is why letting emotions dictate your investment decisions can be so detrimental. The chart below illustrates the potential impact on your growth if you missed some of the best trading days.
Mastering Your Emotions
One of the biggest challenges during volatile periods is managing our own emotions. Fear can lead to panic selling at market lows, while greed might tempt us to chase fleeting gains. Often, controlling these emotional responses is the most significant factor within our control and can have a profound impact on our investment outcomes.
It's helpful to be aware of common behavioral biases. Loss aversion, the tendency to feel the pain of losses more strongly than the pleasure of gains, can drive poor decisions. Similarly, herd mentality, following the crowd without considering your own individual circumstances, can lead to buying high and selling low.
Here are some practical tips to help manage your emotions during market volatility:
Focus on your long-term investment plan. Remember the goals you set and the reasons behind your investment strategy.
Limit how frequently you check your investment accounts. Constant monitoring can amplify short-term market noise and trigger emotional reactions.
Educate yourself about market cycles. Understanding that downturns are a normal part of the process can help reduce anxiety.
Consider seeking advice from a financial advisor. Advisors play a crucial role in providing emotional support and guiding you through challenging times. They can act as an "emotional circuit breaker" to help you avoid impulsive decisions that could harm your long-term financial health.
Controllable Investment Strategies
While market movements are outside our direct control, there are several investment strategies you can utilize to navigate volatility.
Dollar-Cost Averaging: This strategy involves investing a fixed amount of money at regular intervals, regardless of the market price. When prices are low, your fixed investment buys more shares, and when prices are high, it buys fewer. Over time, this can help reduce the risk of buying high and potentially lower your average cost per share, especially during downturns. Consistency is key to the effectiveness of dollar-cost averaging.
Account Rebalancing: Maintaining your target asset allocation (the mix of assets like stocks and bonds based on your risk tolerance and time horizon) is crucial. Market downturns can cause your portfolio to become skewed, with some asset classes potentially becoming overweighted or underweighted. Rebalancing involves selling some assets that have performed well and buying those that have underperformed to bring your portfolio back to its target allocation. This strategy can help you buy low and sell high over time and stay aligned with your intended risk level.
Roth Conversions: A Roth conversion involves moving funds from a traditional IRA or 401(k) to a Roth account. While you'll pay taxes on the converted amount in the current year, future withdrawals in retirement can be tax-free. A market downturn, when asset values are lower, can be a potentially opportune time for a Roth conversion, as the tax bill on the conversion may be lower. However, it's essential to carefully consider the tax implications and your future tax rates before making this decision.
Tax-Loss Harvesting: Tax-loss harvesting is a strategy of selling investments that have lost value to offset capital gains taxes you may owe on other investments. The proceeds from the sale can then be reinvested in a substantially different security to maintain your desired asset allocation, being mindful of the wash-sale rule, which prohibits repurchasing the same or substantially identical security 30 days before and 30 days after. This strategy can potentially reduce your current tax burden.
Staying Invested and Reviewing Your Long-Term Plan: It's crucial to remember that historically, the market has recovered from previous downturns. Selling out of your investments during a downturn can lead to missing out on potential rebounds. Downturns can also be a good time to revisit your overall financial goals and ensure your investment strategy still aligns with them.
“The four most dangerous words in investing are: This time it’s different.”
Historical Perspective
Looking back at historical events like the COVID downturn in 2020, the 2008 Global Financial Crisis, and the 2000 Dot-com bubble, we can see a common pattern. While these periods were marked by significant market declines and uncertainty, the market eventually recovered and continued its long-term growth trajectory. This historical context reinforces the importance of a long-term investment perspective. Here is what the positive and negative years have looked like since 1926.
Staying the Course for Long-Term Success
Market volatility is an inherent part of investing, but by focusing on controllable strategies and maintaining a long-term perspective, you can navigate these periods effectively. Stay disciplined, stick to your long-term financial plan, and avoid making impulsive decisions based on short-term market fluctuations.
If you don’t have a long-term financial plan, then now is the time to create one. If you would like help, feel free to reach out and connect.
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
A Prescription for Raising Financially Savvy Children
Just as we prioritize early intervention in healthcare, teaching your kids about money early sets them up for a healthy financial future. Children develop money habits from a young age, so it's crucial to guide them toward smart financial decisions. Here are some ideas to nurture your children’s financial literacy, broken down by age group.
Young Children (Ages 3-7): Building a Strong Foundation
Save, Spend, Give: Make it visual! Use three jars labeled "Saving," "Spending," and "Giving." This helps young children grasp the concept of balancing different financial goals. For example, they could save for a coveted toy, spend some on an ice cream treat, and donate to a cause they care about, like an animal shelter.
Needs vs. Wants: Explain the difference between needs (things we must have to survive, like food and shelter) and wants (things we'd like to have, like toys and candy). Involve them in grocery shopping and explain how you prioritize needs and stick to a budget.
Delayed Gratification: Teach patience! Help them set small savings goals. "If you save your allowance for two weeks, you can buy that awesome robot!"
Fun and Games: Make learning about money enjoyable! Play money-themed board games like Monopoly Jr. or Life.
Middle Childhood (Ages 8-12): Developing Key Skills
Money = Time: Connect effort to earnings by offering paid chores or an allowance. Help your children understand that buying a video game requires a certain number of chore hours. This reinforces the value of hard work and mindful spending. Want to dive deeper? Check out my full blog post on this topic.
Budgeting 101: Introduce the concept of budgeting. Give your child a small allowance and help them create a simple budget, perhaps using a whiteboard or spreadsheet to track income and expenses.
Savvy Shopper: Turn shopping into a learning experience. Teach comparison shopping, looking for deals, and using coupons. They'll feel empowered seeing their money go further!
Banking Basics: Open a savings account for your child and explain how interest works (and the magic of compound growth!). Encourage them to deposit a portion of their allowance regularly. To make it exciting, find a bank with a good new account promotion or help them compare interest rates to find the best deal.
Teenagers (Ages 13-18): Preparing for Adulthood
Credit and Debt: The Good and the Bad: Explain the responsible use of credit cards and the dangers of high-interest debt. Discuss credit scores and how they can impact getting a loan for a car or a house in the future.
Real-World Experience: Encourage your teen to get a part-time job. This provides valuable experience with earning, managing money, and developing essential workplace skills.
Investing for the Future: Introduce basic investment concepts like stocks, bonds, ETFs, and mutual funds. If they have earned income, consider opening a custodial Roth IRA to help them start investing for their future with tax-free growth!
Setting Financial Goals: Help your teen set realistic financial goals, such as saving for college, a car, or a down payment on a house. Discuss the costs and benefits of different choices, like whether a pricey college is worth the investment. “Price is what you pay, value is what you get.” -Warren Buffett
Essential Principles for All Ages:
Open and Honest Communication: Create a safe environment for money conversations. Encourage your child to ask questions without fear of judgment.
Be a Role Model: Your kids are watching! Model good financial habits and be open about your own financial journey (within appropriate boundaries).
Personalized Approach: Every child is different. Tailor your teaching to their interests and learning styles. If your child loves sports, use sports analogies to explain financial concepts.
Tech-Savvy Tools: Utilize apps like Greenlight to give your child hands-on experience with budgeting and managing money in today's digital world.
Mastering Money Emotions: Help your child understand how emotions can drive spending decisions. Teach them strategies to manage impulsive spending and stay calm when the stock market takes a dip.
By investing time and effort in your children's financial education, you're empowering them to make sound financial decisions and achieve lifelong financial well-being.
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
Nourishing Your Body and Bank Account: Recipes for Busy Healthcare Professionals
As healthcare professionals, you know that staying healthy is more than just the occasional workout or salad—it’s about consistent habits that lead to long-term well-being. The same is true for managing your finances. Whether investing for retirement or planning your meals for the week, both areas require thoughtful strategies that can compound into significant benefits and savings over time.
Just like a balanced diet, a well-rounded financial plan helps you build resilience and stability. Think of budgeting as meal planning: you wouldn’t eat junk food every day and expect to feel great and wouldn’t spend impulsively without considering how it affects your financial future. Both require discipline and foresight.
In both finances and health, consistency is key. Saving a portion of your income each month may seem small at first, but over time, those savings can grow through compound interest. Similarly, making healthier food choices daily—like adding more vegetables or reducing processed foods— can compound into a healthier you. The smarter choices you make today, the more you set yourself up for success tomorrow.
I’m excited to have partnered with Bre Bock on this blog post. She has provided 10 simple suggestions on how to easily add additional nutritional value to recipes you may already be making for you and your family.
She is a Registered Dietitian and owner of Revived Nutrition Counseling. Her focuses are gut health, heart health, and general health management for her clients. She is also an HAES aligned dietitian and approaches sessions with her clients within an intuitive eating framework.
If you have been thinking about meeting with a Registered Dietitian feel free to schedule a meeting with her or follow her on Instagram @revivednutritionrd.
Let me know what your favorite recipe tip is, I know I plan on trying all of them.
1. Cowboy Caviar
A nutritional vegetarian powerhouse with legumes, bell peppers, cilantro, canned corn, and red onion - add a few seasonings like cumin, smoked paprika, chili powder, and lime juice for a very quick, and inexpensive meal.
I like to pair mine with a whole grain tortilla chip for some crunch and usually will serve with diced avocado, and a side of fresh fruit.
2. Mac & Cheese 3 Ways
What kid (us big kids too) doesn't love cheesy mac? This easy staple can be improved upon with several quick and easy add-ons.
-Tuna & peas (canned tuna in water and frozen peas work great here!) I usually steam the peas separately. You can also boil them with the noodles to save time. Stir in the tuna after the mac is made.
-Add in a steamable bag of broccoli or California blend.
-Switch it up with a box of white cheddar mac and add in pre-shelled frozen edamame. You can throw the edamame in about halfway through boiling the noodles as they only need about 4 min to cook from frozen. Edamame is a great way to amp up your fiber and protein intake!
3. Red Beans & Rice
This is a meal that makes great leftovers and there is always plenty to share! This is my own version below.
Directions
1. Start by steaming brown rice on stove top or rice cooker according to directions on packaging.
2. In a large skillet, start by heating oil over medium heat.
3. Add in onion and cook until translucent, then add garlic and cook for another 1 minute.
4. Add in bell peppers and saute until peppers start to soften.
5. Add in the kidney beans and stir together, cook for about 5 minutes.
5. add in the seasonings (chili powder, smoked paprika, and cumin) and mix to incorporate.
6. Add in the brown rice once cooked and stir in the salsa and lime juice.
7. Turn off the heat and mix in the cheese.
8. Serve with diced avocado and/or sour cream if desired.
Ingredients
1 cup brown rice
1 can red kidney beans (rinsed and drained)
1 Tbsp avocado oil
1/2 large onion, diced
1/2 cup yellow bell pepper, diced
1/2 cup green bell pepper diced
2 Tbsp minced garlic
1/2 cup jarred salsa
1 cup cheddar or monterey jack cheese
1 tsp chili powder
1 tsp smoked paprika
1/2 tsp cumin
2 Tbsp lime juice
1 avocado, diced
4. Salmon Patties with Sweet Potato and Cauliflower Rice
This is a great option if you're short on time and are willing to use your microwave. You can use a frozen steam bag of cauliflower rice which cooks in about 4.5 minutes. You can also cook a sweet potato/regular potato (or multiple) in the microwave in a bowl for about 8 minutes with a few inches of water, just pierce the potato with a fork a few times. The salmon patties go in the skillet cooking for about 10-12 minutes while the potato and cauliflower cook in the microwave - so you've got the whole meal done in about 15 minutes.
If you want to make your salmon patties from scratch vs picking up frozen ones, that does take a bit longer, but if you're OK with using a frozen option (the ones from Aldi (Fremont Wild Caught Salmon Burgers) are $1.32 a patty - which feels pretty reasonable to me).
5. Protein Pancakes
The Kodiak pancake mix is a great choice as it's whole grain (high fiber) and high protein. You can increase the protein count by adding an egg and/or swapping milk for water. I like to add in a little cinnamon and applesauce to increase the nutrient factor. Adding in blueberries or peaches are also favorites, for a fruity pancake. Serve with turkey or chicken breakfast sausage.
6. Egg Bites with Veggies
This is an easy recipe to bulk prep. It also allows you to make several varieties at a time. The basics are 6 eggs, a little black pepper, and 3/4 cup of cottage cheese - put it in a blender and blend until smooth.
To boost nutrient value, add whatever vegetables (spinach, peppers, onion, mushroom, etc) you'd like. Saute the veggies and add a little on the bottom of 12 muffin cups, pour your egg evenly over the cups. Finish by adding a little more of the veggies on top. Feel free to sprinkle with a little cheese as well! Bake for 18-22 minutes.
7. One-Pan Zucchini Skillet
This is an oldie but a goodie (a childhood favorite!) Very easy and quick! :)
Directions
1. Place avocado oil in a skillet and heat over medium.
2. Add onion and cook for 1-2 minutes.
3. Add ground turkey.
4. Add steak seasoning and cook meat until brown.
4. Drain any excess fat if needed.
5. Add zucchini and cook until softened.
6. Mix in cheese and serve with whole grain bread or over brown rice/quinoa (bonus points if you’ve cooked extra rice or quinoa from another meal!)
Ingredients
1 Tbsp avocado oil
1/2 onion, diced
1 lb ground turkey
1 Tbsp Steak Seasoning (low sodium steak seasoning)
1 large zucchini, sliced into 1" pieces
1 cup part-skim mozzarella cheese
8. Warm Salad Kits
This next one may sound weird, but hear me out! Take a salad kit, perhaps a Thai or Asian-inspired option, saute with a little olive oil, and add some diced chicken breast/ground turkey/or shrimp. You can use the salad dressing as a sauce. Consider adding extras like cashews, slivered almonds, or canned (in their own juice) mandarin oranges. Serve it over a carb like brown rice, quinoa, or a brown rice noodle.
9. Sausage and Veggie One-Pan Meal
This is a great way to clean out your fridge, no one likes to waste money throwing produce away! Whatever leftover vegetables you may have lurking around (onion, sweet potato, broccoli, cherry tomatoes, carrots), toss with 1-2 Tbsp avocado oil. Slice and add a package of chicken sausage (I love the apple chicken sausage from Aldi or Costco).
Roast at 400 for 20-30 minutes depending on what vegetables you end up using - you'll need more time for things like carrots/potatoes and less time for things like onions, cherry tomatoes, and broccoli.
10. Marinara Chicken Bake
Take a few fresh chicken breasts and spread some marinara or pesto sauce over top, add a slice of mozzarella cheese and sliced tomato on top, and bake at 350 for 20-30 minutes or until internal temp reaches 165 degrees. Broil for 2 minutes so the cheese is nice and bubbly/golden. If you’re short on time, serve with a steamable bag of green beans/red potatoes (Birds Eye has a good option).
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
Next Avenue Feature: Degrees of Difficulty
Ben Lex was recently featured in a Next Avenue article titled “Degrees of Difficulty.”
In it, he discusses smart financial strategies for approaching a spouse returning to school. Check out Ben’s insights—they’re great tips for navigating your financial life with advanced education.
MarketWatch Feature: Before your teen starts a summer job, have ‘the talk’ about taxes
Ben Lex was recently featured in a MarketWatch article titled “Before your teen starts a summer job, have ‘the talk’ about taxes”.
In it, he dives into ways to teach your kids about personal finance. Check out Ben’s insights - they’re golden nuggets for teaching your kids the foundations of personal finance.
Financial Planning Feature: Americans' top 5 financial regrets - and how to avoid them
Ben Lex was recently featured in a Financial Planning article titled “Americans' top 5 financial regrets — and how to avoid them”.
In it, he dives into retirement savings and the high interest rates of 2023. Check out Ben’s insights - they’re golden nuggets for leveling up financially.
Cruisin' or Bruisin'? Why I'm Pumping the Brakes on an Electric Whip...for now
To Buy or Not to Buy an Electric Vehicle
If you're here due to the catchy title, a big shout-out to Chat GPT for helping me craft it. Electric vehicles (EVs) have stolen the spotlight in recent years, with increasing popularity, advancing technology, extended range, and expanding infrastructure. While the perks of owning an EV have grown, let me share why I'm holding off on buying one for now.
The Charging Conundrum
Charging a vehicle differs from a quick gas fill-up. Though I have an attached garage for convenient overnight charging, Michigan needs more charging stations for me to feel at ease. I prefer a quick stop for gas; waiting 30 minutes for a full charge doesn't align with my lifestyle. As a single, one-car family, my decision becomes more nuanced. With two vehicles, an EV for local trips and a gas-powered one for longer journeys might be a consideration.
Solid-State Battery Technology on the Horizon
Current EVs boast a range of 200-400 miles, but Toyota's upcoming solid-state battery tech, expected by 2028, promises a staggering 745-mile range. While 200-400 miles may seem like a lot, weather conditions can significantly impact the range of EVs. Consumer Reports notes that cold weather can sap 25% of the range, and warm weather can sap 31%. (Source: Consumer Reports; link below)
Living in Michigan, where winters are harsh, a 25% drop would mean a range of only 150-300 miles. With future solid-state battery technology, a 25% decrease would still offer a substantial 559-mile range. The new technology is expected to improve performance in cold/warm temperatures and have faster charging capabilities.
Financial Implications
As a financial advisor, numbers matter. In July 2023, the average price of a new EV was $53,469, compared to $48,334 for a gas-powered vehicle. (Source: Kelley Blue Book; link below) The $5,135 difference could cover a lot of gas at $3.00/gallon—1,712 gallons, to be precise. Factoring in electricity costs, the payoff might not kick in until after 4.28 years, assuming you currently drive 10,000 miles a year at 25mpg.
Anticipating a potential drop in used EV prices when the new solid-state battery technology arrives, concerns arise about the long-term value of today's EVs. Battery replacement costs and additional tire wear are also negative factors; the absence of an engine, no oil changes, and fewer moving parts are positives when comparing EVs to traditional vehicles.
Reliability
Reliability is a crucial factor when I am choosing a vehicle. According to Consumer Reports, EVs have shown 79% more problems than gas vehicles, while plug-in hybrids have 146% more issues.
In contrast, hybrids have had 26% fewer problems than gas vehicles over the last three model years. (Source: Consumer Reports; link below) Better reliability gives me hope for less time and money getting things fixed in the future.
Hybrid Appeal
I currently drive a hybrid with an impressive 45-50 mpg, I find it to be the sweet spot between EVs and traditional gas vehicles. Slightly pricier than gas-powered vehicles, hybrids offer superior gas mileage, fewer gas station visits, better reliability, and no range anxiety. Their smaller, lighter, and less expensive batteries add to their appeal.
While EVs have made strides, a massive leap forward is anticipated in the next four years. From a financial perspective, sticking to a regular or hybrid vehicle for now, and re-evaluating the EV landscape when the new battery technology becomes available seems like a sensible choice.
References:
Consumer Reports https://www.consumerreports.org/cars/hybrids-evs/how-much-do-cold-temperatures-affect-an-evs-driving-range-a5751769461/
Kelley Blue Book https://www.kbb.com/car-advice/how-much-electric-car-cost/#:~:text=According%20to%20data%20from%20Cox,gas%2Dpowered%20vehicles%20at%20%2448%2C334.
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third-party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
YahooFinance Feature: 13 Key Signs You’ll Always Be Middle Class
Ben Lex recently got a shout-out in a Yahoo! Finance article titled “13 Key Signs You’ll Always Be Middle Class”.
In it, he dives into the major signals holding people back from growing their wealth. Check out Ben’s insights - they’re golden nuggets for leveling up financially.
Mastering Your Money: Budgeting Essentials and When You Need Them
The findings of a recent survey done by The Harris Poll found that 74% of Americans have a monthly budget. It’s a significant number, and one might assume that budgeting is the key to financial well-being. However, it raises questions about why consumer debt remains on the rise despite so many people budgeting. It’s a fair question to ask. Let’s explore the purpose of a budget, how to create it, and find out if everyone should be following one.
Why Budget?
A budget is a strategic plan to evaluate your income and expenses. People create budgets for various reasons, but they all boil down to effective money management. You might be saving for a vacation, working to pay off debt, or hoping to gain a better understanding of where your money is going. All of these are great outcomes we see from budgeting, and easier said than done. If we had to boil it down to one main reason, I’d say that you work too hard for your money to be unintentional with where your money goes.
How to Budget?
Budgeting can take shape in multiple ways, and there are a few steps to take regardless of your preferred method.
Collect your spending and income: Ideally, your income would exceed your spending. If this is not the case, now is the time to find areas where you can cut expenses to make sure you are living within your means. You can create your budget in a spreadsheet where you are in charge of tracking each expense or utilize an app that tracks everything for you.
Include goals: Once you have a good handle on your baseline budget, integrate any goals you have such as debt pay down, saving for large expenses, or retirement.
Track and Adjust: Your budget should be fluid, and will likely change every month. Give yourself the flexibility to make these changes as unforeseen expenses arise.
Stay Consistent: The true benefit of budgeting comes when you stay consistent over the long haul. Find an approach that suits you, and stick with it. As one goal is accomplished, start on your next one.
Do I Need to Budget?
While the benefits of budgeting are evident, not everyone will choose to implement one. If you're not going to budget, at the very least, consider tracking your income, expenses, and investments every month. For your financial health, it is necessary to know that your income is more than your expenses and that you are investing in your retirement.
Final Thoughts
In the second quarter of 2023, we saw credit card balances grow by $45 billion, consumer loans increased by $15 billion, and auto loans by $20 billion according to the Center for Microeconomic Data. The persistently growing consumer debt underscores the importance of budgeting for each household. While implementing a budget may not lead to overnight transformation, it can set you on a path to a better financial future and provide increased peace of mind.
References:
https://www.bls.gov/news.release/cesan.nr0.htm
https://www.bankrate.com/banking/create-a-home-budget/
https://www.newyorkfed.org/microeconomics/hhdc.html
OpenAI. (2023). ChatGPT [Large language model]. https://chat.openai.com
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
Inflation Is MUCH Lower Than You Think
The media and the average person misunderstand and misinterpret inflation for two important reasons:
They focus on the ANNUAL reported inflation number which tells you what has happened over the past year but not where inflation is headed.
The SHELTER component of inflation which measures rents and home prices makes up about one third of overall inflation but lags real-time housing data by up to 12 months.
The most recent inflation report that was published on 12/13/2022 makes an excellent illustration of these two points. Understanding the nuance of inflation reports and where we are headed rather than where we have been is key for setting expectations for how much further and how quickly the Fed will continue to raise interest rates as well as how long rates will remain elevated.
The media and the average person misunderstand and misinterpret inflation for two important reasons:
They focus on the ANNUAL reported inflation number which tells you what has happened over the past year but not where inflation is headed.
The SHELTER component of inflation which measures rents and home prices makes up about one third of overall inflation but lags real-time housing data by up to 12 months.
The most recent inflation report that was published on 12/13/2022 makes an excellent illustration of these two points. Understanding the nuance of inflation reports and where we are headed rather than where we have been is key for setting expectations for how much further and how quickly the Fed will continue to raise interest rates as well as how long rates will remain elevated.
Annual CPI (consumer price index) tells us how much prices have gone up over the past year as a whole.
This is the figure most often reported by the media. As shown in the line chart below, this figure peaked in June of 2022 at just over 9% and has been trending downward ever since to its current level of 7.1% (as of November 2022). This annual figure is calculated by taking all of the monthly increases for the past year (each of the bars in the bar chart below) and adding them together. For example, if you take all of the bars in the bar chart and add them together, you get that 7.1% current ANNUAL inflation.
This is great for telling us what happened over the past 12 months, but it’s a very bad way to measure what is happening right now. On the way up, the annual figure lags the real-time situation making it harder to see inflation heating up, and on the way down it lags the real-time situation making it hard to see inflation cooling down. Later we’ll see how the lag in rent and home price data makes this problem even worse.
A better way to understand what is happening right now is to ignore the ANNUAL number and instead ANNUALIZE the most recent 3-6 months of data. A couple of examples. If you take the most recent 6 months of data (June through November) you get a 4.5% annualized inflation rate. That’s much lower than the 7.1% figure for the past 12 months. If you take 5 months of inflation data (July through November) you get a 2.4% annual inflation rate. If you take the last 3 months of data you get a 3.6% annualized rate. These examples tell us that for the past 3 to 6 months we have been MUCH closer to the Feds official target of 2% annual inflation than most people believe.
It works the other way too - if you had taken the last four months of data when inflation peaked in June, you would have had an annualized inflation rate of 11.4%! This is much higher than the reported 9.1% annual figure.
Chart of annual cpi from bls cpi bulletin december 2022
chart of monthly cpi from bls cpi bulletin december 2022
Looking through this lens and understanding how annual inflation data lags what is happening right now shifts the narrative surrounding inflation. It didn’t just burst onto the scene a year ago and it hasn’t remained “stubbornly high” as the Fed has taken measures to push it back down to an acceptable range. According to the data, what actually happened was:
Inflation accelerated quickly as our economy reopened following the pandemic, particularly after the vaccine rollout in early 2021. The 3 month annualized rate (red line below) reached its first peak at 9.2% in June of 2021 while the annual rate that is broadly reported (blue line below) had just surpassed 5%. The Fed and many economists believed inflation would be transitory and inflation was not yet a “mainstream” topic.
Inflation remained elevated through it’s eventual peak in June 2022 but it wasn’t resisting the Fed’s efforts, the Fed just wasn’t doing anything. As the annual inflation rate caught up to the 3-month figure and gas prices spiked in January 2022, inflation became a hot mainstream topic (as evidenced by google search data).
As the Fed began to raise interest rates (yellow line below) in earnest with it’s first 0.75% increase in July 2022, the 3-month annualized inflation rate plunged into the range of 3% to 4% while the annual rate has lagged substantially in the 8% to 9% range. Ignoring this dramatic near-term decline and focusing on the much higher annual number would lead you to believe the Fed has “a lot of work left to do” when in reality the work may be nearly finished and the (lagged) data just hasn’t caught up yet.
chart was created using data from bls cpi bulletins dec 2018 - dec 2022, fed funds rate data from st louis fed
Home and rent prices accounts for a massive one third of CPI - but the way they are measured lags reality by UP TO 12 MONTHS
This is according to a paper written by the Bureau of Labor Statistics in conjunction with the Cleveland Federal Reserve Bank. An excerpt from their paper explains how large of an impact this has and why it’s such a big deal:
“Shelter is by far the largest component of the Consumer Price Index (CPI), accounting for 32 percent of the index. Accurate inflation measurement therefore depends critically on accurate rent inflation measurement, which is the primary input to both tenant and owner equivalent rent. It is therefore concerning that rent indices differ so greatly. For example, in 2022 q1 inflation rates in the Zillow Observed Rent Index (ZORI; see Clark (2020)) and the Marginal Rent Index (Ambrose et al. (2022)) reached an annualized 15 percent and 12 percent, respectively, while the official CPI for rent read 5.5 percent. If the Zillow reading were to replace the official rent measure in the CPI, then the 12- month headline May 2022 CPI reading of 8.6 percent would have read more than 3 percentage points higher.” (emphasis mine)
As the authors explain, if CPI had accurately reflected real-time data on home and rent prices, inflation would have peaked near 12%! Piling this huge lag for such a major component of CPI on top of a focus on the annual vs. near-term inflation rate puts policy makers and investors very out of sync with economic reality. Had the Fed paid more attention to the shorter-term trend and real-time data on rent and home prices sky-rocketing in the spring of 2021, they may have moved to raise interest rates 6 to 9 months sooner and curbed inflation at a rate of 5% to 6% rather than the near 10% rate we ultimately suffered.
This home and rent price lag is now working in reverse to create the illusion of higher inflation.
chart from st louis “Fred” website - data is published with a lag - sep 2022 most recent reported
Taking the principle above and applying it to our current situation, the rent & home price component of CPI today largely reflects the economic condition one year ago. At that time, the Fed had not even begun to increase rates and the average 30 year mortgage was around 3%. From June of 2021 through June of 2022, US home prices shot up by nearly 20% per the Case Schiller Index. That massive increase (which in reality happened in the past) will continue to feed through into CPI data making the rate of inflation look much higher than it really is. The reality is that From June 2022 through September 2022, home prices dropped by 2.6% or an annualized rate of 10.4% (September is the most recent data published by the Fed - the irony of this lag is not lost on me). So while home prices in reality are dropping, CPI data will continue to show robust price increases for its hugely important “shelter” component.
If you adjust the annualized 3-month inflation rate using CURRENT home price data, you see that inflation has slowed much more than official CPI data indicates.
If you replace the high growth rates the official CPI data use with zero growth in home prices over the past 3 months, the 3.6% annualized CPI rate we discussed earlier drops to just 0.85%. If you include the drop in home prices that the Case Schiller Index shows, the 3 month annualized rate of inflation drops even further to 0.2%! Both of these are well below the Fed’s target inflation rate of 2%.
Even if you strip out the recent price decreases for gas, energy, and used cars… without the lagged shelter component you’re still at just a 2.4% annualized inflation rate. All of this tells us that while some contributors to inflation like food, transportation, and some service industries may prove stickier and harder to bring back below 2%, if the current trend continues and no major geopolitical event occurs REAL inflation (ignoring that pesky lagged real estate component) is likely to remain in the 2% to 4% range.
The economists at the Fed aren’t stupid, they’re aware of the lag and impact of the real estate component. Heck, their own team wrote a paper on it! This should mean they factor it into their policy decisions and look through the noise in the data to the REAL economy. If they do, I’d expect the upcoming 0.5% increase to be the last large hike with the “final” rate topping out around 4.5%. Coincidentally, this is what the bond market is also predicting based on the current yield curve (12/13/2022).
MORE TO COME - I’ll be following this post shortly with another breaking down what this could mean for stock and bond markets in the coming year. In the meantime, I hope you enjoyed this trip down the rabbit hole of Inflation and CPI. Always remember, the media is a business. They are out for clicks and traffic, not to educate you. Scary headlines and political narrative sell. I encourage everyone to seek out the data and let it speak for itself or rely on trusted advisors who do the digging for you.
Footnotes
All CPI data is from official Bureau of Labor Statistics bulletins
Case Schiller home price data and Fed funds rate data is from the St. Louis Federal Reserve website
My own calculations of annualized data modified by adding/removing/adjusting specific components is based on archived CPI bulletins published by the Bureau of Labor Statistics from 2018 through November 2022.
Current 3-month and 6-month annualized calculations were based on the November 2022 bulletin detailed categories data from the BLS.
Home Renovations & How to Get the Biggest Return on Your Investment
How to decide what to renovate, how much renovations cost, cash versus home equity loans, your realistic investment return, and so. much. more.
Shauna Speet, owner of Shauna Speet Interiors, and Leanne Rahn, Financial Advisor with Fiduciary Financial, have teamed up to tackle some of the most burning questions when it comes to your house renos and their corresponding investment returns.
Shauna and Leanne fill you in on all the things like how to decide what to renovate, how much renovations cost, cash versus home equity loans, your realistic investment return, and so. much. more.
Jump into the conversation with them and leave feeling informed, educated, and motivated (with just maybe, a demo hammer in hand).
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How do I decide what to renovate in my home?
Shauna recommends making a master list - every house project that will require either time or money goes on the list. Then prioritize that list based on need vs. want, and the space that is functioning the poorest/or with the most worn-out materials gets the very top priority.
Other factors to consider when deciding what you want to renovate are:
How long do you plan to stay in the house?
What is the top value your house could be worth? You don’t want to out-renovate your neighborhood.
What are some tell-tale signs that I should renovate my space?
First, is it a want or a need? Does the space need to be renovated due to worn-out materials or poor function? If so, it would get top priority on Shauna’s list.
If the space functions well and the materials are in good shape overall, Shauna would recommend a purely cosmetic update and save the renovation budget for a more pressing area.
What if I don’t know if I’m going to stay in my house long-term? Does it still make sense to renovate?
If you aren’t planning on staying in your home for the long term, Shauna’s opinion is this: she does not think it’s worth the cost/life disruption to renovate if you plan to move in 5 years or less.
UNLESS - you can do a lot of the work yourself. If you need to hire out 90% of the labor, there goes your profit margin along with it! Sweat equity is what you can count on getting back.
Realistically, what is the return I can actually receive from renovating?
In Shauna’s experience, less than in the past. Things are more expensive now, and homes are selling for record highs even without the updates. So talk to your realtor before renovating the kitchen just to sell the home, it is probably not worth it. (BUT - if you are thinking of removing a wall to open up the kitchen, or ADDING a bathroom, those improvements yield a significant return.)
Is putting money into my home considered a good investment?
Leanne challenges you to ask yourself this: what are you after? Is it renovating to stay in the home longer? If yes, what is your current mortgage interest rate? It might make sense to renovate and stay in the home longer than to sell and buy a home with a higher interest rate.
Maybe is it renovating to add more value to your home to be able to sell it? If that is the case, how much will it add to the selling price? What is the market like?
These are just a couple of scenarios. This answer is definitely very situational. Investing in your home can be a very good investment! It really depends on what your goal is.
How can I estimate how much the renovation will cost?
Google! Google the average square footage of everything you can. Things like the Flooring/tile/counters/backsplash you want and then multiply that by the surface area of each material. That will get you a ballpark for materials.
Once you have that number, add 75% - 100% of the cost of materials for the labor to install all those items (if you plan to have a builder manage the project for you).
Lastly, add in the cost of the appliances/bathroom fixtures you want, as well as an approximate cost for cabinetry (also by googling!), and that gives you a rough preliminary budget.
Should I save up the full amount prior to starting a renovation or should I take out a home equity loan/HELOC?
This is a very situational answer and depends on what the alternative is. Maybe you have been in the home a few years and built up some equity, your mortgage rate is good, and renovating by utilizing a home equity loan/HELOC would allow you to stay in the home for a few years. Looking at today’s rates, Leanne might say it may make more sense to take out a home equity loan/HELOC and keep your current mortgage rate rather than go out and buy a home (which has a good chance of being priced higher) at a higher interest rate.
Maybe you are debt adverse and you have the extra cashflow plus your renovating timeline isn’t a rush. Then it may make sense to just aggressively save up for your renovations.
Overall, the main variables Leanne thinks affect this answer would be your timeline, your mortgage rate, the current housing market, the home equity loan/HELOC rates, your cashflow, your feelings toward debt, how much equity you have in your home, and your renovation estimated costs.
What are the steps to start saving for a renovation?
Know a rough estimate of costs (like Shauna mentioned, Google!).
Get on the same page as your spouse and be transparent about the all-in costs and your realistic savings timeline. Take a look at your budget and cashflow - are there ways to cut expenses to reach your goal sooner? If there aren’t ways, take that into consideration when determining your realistic timeline or be creative on how you can earn extra income to throw at your savings goal.
If you have a timeline longer than 3 months, consider chatting with Leanne about ways you can give your savings a chance to grow. If you have a more immediate timeline, look to utilize high-interest-earning checking accounts (think LMCU and Consumers Credit Union to name a few).
Stay motivated! A big savings amount can feel daunting and you may feel impatient with the thought of saving. Write out your goals and hang them on your fridge, create a mood board and hang it up in your office, schedule “money dates” with your spouse to go over your budget and get an update on your savings. Being intentional about this is key!
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Maybe your demo hammer is staying in the garage a little bit longer or maybe it’s in hand right now. Either way, Shauna and Leanne are here to support you and give you guidance.
Be sure to check out shaunaspeet.com for renovation guides that walk you through the whole planning and hiring process of a renovation as well as a Custom Home Analysis. Shauna personally analyzes your answers you provide to a questionnaire she sends, as well as images of your home and your Pinterest boards. She then provides you with a custom report on your personal design style and the architectural style of your home.
Leanne is ready to build new relationships by giving you personal, tailored guidance on cash savings, home equity loans/HELOC, helping you grow your savings, and preparing for the short AND long term.
What are you waiting for? Dream like Joanna. Demo like Chip.
Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.
About Shauna…
Shauna Speet, owner of Shauna SpeetInteriors, is an interior designer focused on studying and educating homeowners on the function of a home. She has devoted her focus to identifying functional pain points and creating solutions to solve them.
Shauna lives in the lakeside town of Holland Michigan with her husband, two children, and their energetic golden retriever Coby. They all enjoy being on the sandy shores of Lake Michigan in any season - especially Coby! 🐶
About Leanne…
Leanne Rahn is a Fiduciary Financial Advisor working with clients all over the US. If you don’t know what a Fiduciary is, Leanne encourages you to look it up (or even better - check out her website!). She swears you won’t regret it. Women entrepreneurs, newlyweds & engaged couples, and families who have special needs children are Leanne's specialties.
She loves a good glass of merlot, spending time with her hubs and baby boy, and all things Lake Michigan. She could listen to the band Elevation Worship all day long and is a sucker for live music.
Here, at Fiduciary Financial Advisors, we take our fiduciary oath seriously. We hold these five principles:
I will always put your best interests first
I will avoid conflicts of interest
I will act with prudence; that is, with the skill, care, diligence, and good judgment of a professional
I will not mislead you, and I will provide conspicuous, full, and fair disclosure of all important facts.
I will fully disclose, and fairly manage, in your favor, any unavoidable conflicts
How Travel Nurses Qualify for a Mortgage
Advice From A Mortgage Loan Officer
Macatawa Bank’s Mortgage team welcomed Alex to the team in 2016. Before joining the Mortgage team she served as a Commercial Credit Analyst. Prior to her work at Macatawa Bank, Merz was a Customer Service Representative at Chemical Bank. Alex holds her Bachelor's degree from Davenport University, where she double majored in Marketing and Finance, and played both basketball and golf. When she’s not fitting her customers with the perfect mortgage, Alex cheers on the Detroit Lions, no matter how bad they might be playing.
616.502.8044 akiel@macatawabank.com Website
H: I’ve heard travel nurses say they haven’t been able to get approved for a mortgage loan. What is a bank looking for to qualify travel nurses to obtain a mortgage?
A: Ideally, an underwriter is looking for a 2+ year history of being a traveling nurse with back-to-back contracts. If the potential borrowers are able to save up for a down payment during this time and build their credit, they will end up most likely with a better interest rate and lower monthly payments once they do qualify.
H: What if the travel nurse is looking to buy a house before that 2+ year limit? Does the amount of time they worked as a full-time employee at a hospital before they started travel nursing count at all?
A: If they are not able to wait 2 years to buy, they could consider a co-borrower and then refinance the loan into their own name solely once they have the two-year history. A bank may consider an income exception if the borrower has excellent credit, a good down payment, and a low debt-to-income ratio. They would need to see at least a one-year history of income being a traveling nurse though. This is not guaranteed, but the borrowers could apply for a pre-qualification after at least one year of income and have the bank take a look at the application. The exceptions would be on a case-by-case basis, and a strong co-borrower usually helps.
H: You mentioned back-to-back contracts. It can be hard to start another travel contract the very next week so a lot of nurses take a few weeks off in-between contracts. Would that still count as back-to-back? Any recommendations in the timeframe between contracts if someone is looking to obtain a mortgage?
A: A few weeks off would likely still be considered back-to-back. It’s understood that the industry norm could have a week or two in between contracts. Once a nurse starts approaching a month between each contract, there may be an explanation required for the gap in employment. Since the time in between each contract could vary, that’s another reason a two-year history is helpful to see the average income and the average amount of time worked year over year.
H: A decent chunk of travel nurse income comes in the form of tax-free stipends for housing and food. Does the bank consider this when evaluating the debt-to-income ratio?
A: The stipend would have to be documented and consistent to be considered income. The structure of income needs to remain the same year over year to be calculated as an average. If not every contract has a stipend, it may be difficult to consider it as income. However, when calculating the debt-to-income ratio, items like food expenses are not necessarily counted against the borrower. For example, the total debt considered in that ratio are items like loans from the credit report, property taxes, homeowners insurance, the proposed new loan, and HOA payments if applicable. Items like food expenses, gas, utilities, etc. are not counted as a debt payment each month. So the stipend portion of payment could go towards personal expenses and not necessarily considered to help with the loan repayment.
H: What percent would you recommend for a down payment?
A: Most of our loan options require at least a 5% down payment. If you don’t have 20% down, that is okay, but there will be PMI payments required. PMI stands for private mortgage insurance and is an extra portion of the monthly payment that does not go toward the principal balance of the loan. The more one puts down, the lower the PMI payment will be. I would never recommend someone use all of their liquid funds towards the down payment in case a large expense comes up unexpectedly. If someone can’t come up with 20% down, it shouldn’t necessarily stop them from buying a home.
H: I’ve heard it is not good to take out a new credit card or loan before applying to get a mortgage. Any other things that nurses should try not to do?
A: That is true, if the loan can wait, don’t apply for it until after the home purchase. Also, don’t apply for these things during the loan process either. If one does, the new loans have to be counted in the debt-to-income ratio on the mortgage application. Try not to save your down payment in cash under your bed. We cannot accept funds for a mortgage in cash because we have to source where those funds came from. Have the funds deposited in a savings, checking, or money-market account.
H: How soon would you recommend a travel nurse start talking with a mortgage broker when they want to start the process of getting a home mortgage loan?
Each scenario is different for each person. If someone is serious about trying to buy a home in the future, they can truly reach out to a mortgage lender at any time. The lender can explain if they couldn’t get approval now, what it would take to get approval and what the borrower should be working on. The lender could also go through options that would involve a co-borrower if the income of the traveling nurse can’t be considered at that time. They can also review how much income would be required based on the purchase price desired.
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
How to Beat Inflation
What is Inflation?
Recently inflation has been a hot topic, but what exactly is inflation and why does it matter so much? Inflation is the rate of increase in prices over a given period of time caused by an increase in the money supply. Since this causes more money to chase after the same amount of goods and services in our economy, prices increase. Our money then has less purchasing power because we end up paying more for things than before. Inflation is not a new phenomenon but hasn’t been a big issue since the early 1980s.
If we look at the M2 money supply data below, which is how the Federal Reserve broadly measures the money supply, you will notice the large increase that happened during the COVID pandemic to try and help stimulate the economy. People can debate back and forth if that was the right or wrong thing for politicians and the Federal Reserve to do. I would like to instead focus on some practical tips to help weather the “inflation storm” and potentially come out on the other side unscathed or even better than before!
Have an Emergency Fund!
Having money sitting in an emergency fund is not the most exciting tip, and inflation will indeed decrease that purchasing power. However, the purpose of an emergency fund is not to make a high return. It is to have a liquid supply of money available in an emergency. Going without one could lead to more serious financial issues if something unexpected happens and you don’t have enough cash to cover it. Since the Federal Reserve has started to increase interest rates, we should see that translate into higher yields on savings accounts soon!
Typically, I’d recommend 3-6 months of living expenses in your emergency fund, but you may want more or less depending on your situation.
Are you single?
Do you have children?
Are you a one-income or two-income household?
Is your job in a high-demand sector?
Could you easily find another job quickly if needed?
These are some questions you should consider when deciding how much money you should keep in your emergency fund.
Own Assets!
Owning assets that produce income could help during high inflation and protect your purchasing power. As inflation increases, these income-producing assets should be able to increase their rates to help soften the blow felt by inflation. Real estate properties can command higher rents as inflation increases. If you can’t afford to purchase an entire property then REITs (Real Estate Investment Trusts) are the other potential option to gain access to that asset class with smaller capital amounts.
Owning businesses is similar. The money the business receives as income may become less valuable due to inflation. If the business can increase the prices charged for goods and services, then the greater amount of income could offset the money being worth less. If you can’t afford to purchase an entire business, then consider owning parts of businesses through stocks, mutual funds, or index funds.
Own Debt?
I wouldn’t encourage anyone to go out and accumulate more debt. If you already have a fixed low-interest debt such as a mortgage, it may make sense to delay paying it off early. If inflation remains high, the money you use to pay back that debt will be worth a lot less in the future than the money you originally received. Using that money to invest in other assets could be a much better option.
Review Your Expenses
With inflation running high it’s the perfect time to look at your expenses. Review what you are spending your money on to figure out if it aligns with your long-term goals. Do you need five different streaming services? Is it time to stop eating out as often and start cooking more at home? Is it time to start carpooling to save on gas prices? Incorporating some of these ideas to help reduce your expenses is another potential way to decrease the effect felt by high inflation.
Invest in Yourself
I saved the best for last! Investing in yourself is one of the best ways to deal with inflation. Learn a new skill, read a new book, take a new class/certification program, and grow your knowledge base. By making yourself more marketable to your current/future employer and providing more value for them, you should be able to command a higher salary. That can help make inflation not sting quite as much. Even though things will cost you more, earning more money to help offset those costs can be a difference-maker.
James Clear, the author of Atomic Habits, shared a powerful principle: a 1% improvement every day leads to you being 37x better at the end of the year. And I’m confident you can get 1% better at something every day! Inflation does not prevent you from improving yourself.
“Whatever abilities you have can’t be taken away from you. They can’t actually be inflated away from you. The best investment by far is anything that develops yourself, and it’s not taxed at all.”
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
Michigan's NEW First Time Home Buyer Savings Account
Have you heard about Michigan's NEW First Time Home Buyer Savings Account???
If you haven't, you'll for sure want to be in the know. In February of this year, Governor Whitmer signed a bill allowing first time home buyers to save and grow their savings TAX-FREE (if used for a qualifying expense)!
You can learn all the deets below. This is an amazing opportunity if you and your spouse are saving for a home or will be in the upcoming years.
The Current Housing Market & What To Know
Get a pulse on the market from local real estate agents, Aubree Boerman & Jim Lambert with the Heart in Home Group, and I'll share some financial tips to take with you as you start this process.
You can sign up for our First Time Home Buyer Workshop here!
We are teaming up with Madison B, Massage Therapist to give you a chance to win a $100 gift card toward her services!
