Quote of the Week
“Our most valuable resources – creativity, communication, invention, and reinvention – are, in fact, unlimited.” – David Grinspoon
Last week the U.S. markets collectively were down about 1%, with the international markets being the outlier up +1.50%. For the last few weeks, we have been transitioning from Quad II (growth and inflation increasing) to Quad III (growth declining and inflation increasing). These transitions are always a disruptive process for the markets and for us going from the old Quad II allocation to the new Quad III allocation.
Quad III, otherwise known as Stagflation, historically is not a good Quad for small cap stocks, which we have exited. But large cap high quality stocks do better, which is where we have re-positioned the portfolio.
I hope you all had an opportunity to listen to the Frontline broadcast on the Fed and the history of the economy since the recession of 2008-2009 I discussed in last week’s letter. If not, you can access it here. I will be calling some of you to give you a pop quiz next week.
The U.S. economy continues to recover from the pandemic. The U.S. gross domestic product (GDP) rose +6.5% in the second quarter, which was a slight disappointment as most pundits thought the growth would be closer to +8.0%.
Inventories were the biggest detractor from GDP. Consumers and businesses are spending money, but companies aren’t producing new goods quickly enough to replace all those sold. Inventories dripped an annualized 1.1% in the second quarter after a larger 2.6% decline in the first quarter. Housing also shrank as higher prices and shortages of crucial inputs cut back on overall activity. Federal government spending dipped 0.4% from the previous quarter. Removing supply chain bottlenecks and expanding hiring is key to rebuilding inventories.
I came across the following article, and I believe it offers some good tips. Since I barely touched my travel budget this year, and since I do not expect to, I think my 401 (k) deposits will increase beginning with my next paycheck!
Mid-Year Is a Good Time for a Financial Checkup
The first half of 2021 is behind us. As life emerges from the pandemic to a “new normal,” a mid-year financial checkup may be more important than ever this year. Here are some ways to make sure that your financial situation is continuing on the right path.
Reassess your financial goals
At the beginning of the year, you may have set financial goals geared toward improving your financial situation. Perhaps you wanted to save more, spend less, or reduce your debt. How much progress have you made? If your income, expenses, and life circumstances have changed, you may need to rethink your priorities. Review your financial statements and account balances to determine whether you need to make any changes to keep your financial plan on track.
Take a look at your taxes
Completing a mid-year estimate of your tax liability may reveal new tax planning opportunities. You can use last year’s tax return as a basis, then factor in any anticipated adjustments to your income and deductions for this year. Check your withholding, especially if you owed taxes or received a large refund. Doing that now, rather than waiting until the end of the year, may help you avoid owing a big tax bill next year or overpaying taxes and giving Uncle Sam an interest-free loan. You can check your withholding by using the IRS Tax Withholding Estimator at irs.gov. If necessary, adjust the amount of federal or state income tax withheld from your paycheck by filing a new Form W-4 with your employer.
Check your retirement savings
If you’re still working, look for ways to increase retirement plan contributions. For example, if you receive a pay increase this year, you could contribute a higher percentage of your salary to your employer-sponsored retirement plan, such as a 401(k), 403(b), or 457(b)plan. For 2021, the contribution limit is $19,500, or $26,000 if you’re age 50 or older. If you are close to retirement or already retired, take another look at your retirement income needs and whether your current investment and distribution strategy will provide the income you will need.
Evaluate your insurance coverage
What are the deductibles and coverage limits of your homeowners/renters insurance policies? How much disability or life insurance coverage do you have? Your insurance needs can change over time. As a result, you’ll want to make sure your coverage has kept pace with your income and family/personal circumstances. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.
Finally, you should also ask yourself the following questions as part of your mid-year financial checkup:
- Do you have enough money in your emergency fund to cover unexpected expenses?
- Do you have money left in your flexible spending account?
- Are your beneficiary designations up-to-date?
- Have you checked your credit score recently?
- Do you need to create or update your will?
- When you review your portfolio, is your asset allocation still in line with your financial goals, time horizon, and tolerance for risk? Are any changes warranted?
Asset allocation is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss. All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
Copyright 2021 Broadridge Investor Communication Solutions, Inc
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These are Larry Lof’s opinions and not necessarily those of Cambridge, are for informational purposes only and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs.
The S&P 500 index of stocks compiled by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. The Index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Indices mentioned are unmanaged and cannot be invested into directly.
Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price, or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain. The allocation discussed herein is not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. Please consult an advisor to discuss your individual situation before making any investments decision. Investing in securities involves risk of loss. Further, depending on the different types of investments, there may be varying degrees of risk including loss of original principal.