Investments

The Future You

Posted on Nov 3, 2019 in Community, Health, Investments, Planning, Women

Research shows that one of the reasons we have a hard time planning and saving for the future is that we lack a connection to our future selves. We can’t – or won’t – picture ourselves as older. Our youth-obsessed culture draws the picture of an elder you as wrinkled, frail and infirm, rather than strong, experienced and powerful. Women in particular struggle with this and are continually fed statistics about how they’ll live the last years of their lives unneeded, unwanted and alone.

Who wants to plan for that kind of future? Can’t there be an alternate future of experience, community and engagement?

A Picture of Your Future Self
One of the best solutions to connecting Current You to Future You involves digitally aging your own portrait. A few years back, a major bank released an app that takes a current photo of you and digitally ages it. The tool was based on a series of experiments a research team at Stanford conducted, which found that people who view age-progressed photos of themselves often consider allocating more money to retirement accounts.

Published in the Journal of Marketing Research, this research brought together a heavyweight team as disparate as Bill Sharpe (Economist, inventor of the CAP-M asset pricing model, and winner of the Nobel Prize) and Laura Cartensen (Professor in Public Policy and professor of Psychology at Stanford, founding director of the Stanford Center on Longevity, and the principal investigator for the Stanford Life-span Development Laboratory).

In one of their studies, 50 people were shown either an age-progressed picture of themselves or a current one, and then asked to allocate $1,000 among four choices: a checking account, a fun and extravagant event, a retirement account, or buying a gift for someone special. Those who viewed the photo of their future self allocated more than twice the amount to the retirement account than those who viewed a current photo.

There are loads of blog series on advice to your younger self. What if we had known certain things earlier? What if we had done things differently? The gift of planning for Future You is that there is still time. You ARE the younger you. How can we connect who you are now with Future You?

What The Terminator Can Show You About Your Future
By now you all know I love movies. In part I love the way we use them to express human experiences and offer opportunities for empathy, as well as to entertain. In the Terminator film series (Terminator, Terminator 2 (T2) and Terminator Dark Fate (DF), skipping over the forgettable 3rd-4th-5th films in the series) we see the past, present and future visit and revisit each other, trying to alternately teach and learn the lessons to ensure human survival.

In the original film, protagonist Sarah Connor (Linda Hamilton) meets the cyborg “Terminator” when she is a college student waiting tables in Los Angeles. She is shown two futures. If she does nothing, she sees the grim fate she and her fellow humans share in a war against the machines. By the end of the film, she evolves from a damsel-in-distress to a damn-it-I-have-to-save-myself heroine, resolved to chart a different path than the harsh future she has seen.

Fast forward 10 years to T2, when we meet Sarah again, at 30. She is a mother now, and has grown into a warrior, having spent the last decade developing her skills and training to protect her son and his future. (She has also developed an enviable set of arms, and if like me, you can barely hang from a pull-up bar much less do a pull-up, you are probably covetous of them, too.) Choosing the future she wanted, and the Future Sarah she needed to be, she worked to prepare for it. She became something she couldn’t have envisioned as a college coed – until she saw herself in the future.

T2 shows Sarah fixated about the future, plotting and planning obsessively (which is not what I’d recommend for you). She couldn’t stay the rosy-cheeked college girl; she had to envision her future self as capable, strong, tough. She needed to start planning today for that version of herself, and may have lost part of herself in the process, at least for a time. But her future – and that of others – is at stake.

Your future is at stake, too. You don’t need to have nightmares about nuclear annihilation or be chased by cyborgs to appreciate that you need to plan for the future you want.  By acting today, you are rewarded not only with the future benefits of that action, but with a better life now.  Those actions aren’t depriving Current You as much as they are protecting and preparing Future You for who and what you want to be.  That’s peace of mind.

Envisioning Future You
We know that getting to know Future You — embracing her, admiring her, working to protect her — can incent you to act now.

Author and fellow Yale woman, Tara Mohr, wrote Playing Big: Practical Wisdom for Women Who Want to Speak Up, Create, and Lead to encourage women to live bigger lives, taking chances and going for what they really want. She devotes a chapter to summoning your “inner mentor,” that older, wiser, more knowing person we become over time. It’s not a question of looking back, but of looking into the future. The guided visualization she outlines to connect with your Inner Mentor involves conjuring the Future You:

Close your eyes and picture yourself many years in the future. This is you after a lifetime of experience. Imagine Future You in all your glory: what you are wearing, where you are living, what you are doing.  Take your time and take in every detail. Then think of a thread, a stream of light, a band of color flowing back to you, today. What did Future You do, what did she experience, to get from where you are now, to where you are in that future? How did you become that person? What does Current You need to do to manifest this future?

Your inner mentor is Future You. She is knowing and caring and full of a life well-lived. Taking the time to fully imagine what we want our future self to be – and to see in our mind’s eyes the vivid, enjoyable, rich life that self can have — helps connect us with the steps we need to take to make it happen.

A part of this exercise involves offering your future self love and kindness. It’s true that picturing Future You comes with giving up part of who you are now, maybe trading that smooth skin for a few wrinkles, a dark mop of hair for a paler (and possibly sparser) coif. You aren’t going to be the same in your future. But that doesn’t mean you haven’t exchanged some of what you feel you lose with what you might want to have: honed talent, cultivated career, curated hobbies, a ride-or-die circle of friends. A rich history, and ideally, a financially free life. Look at Future You with an admiring eye.

An Older, Experienced, Badass You
By the time we meet Sarah Connor again, in Dark Fate, 30 years have passed and she’s now 60-something. Take a look at this Sarah, Future Sarah: Her plans have achieved some success; other things have not gone well. That happens to us all. But we’re still here, and she’s a badass. While the flak jacket-wearing warrior image might not be your vision of yourself as an older person, I’d sign up for a Future Me that is as fit and fierce and purposeful as DF’s Sarah Connor.

That’s all well and good, but you know what I’m going to say next. Future Me takes shape based on what I do between Now and Then.

I know I’ve got to start hitting the gym to get those arms.  I also need to see myself in the future as a woman I care about, someone I value, for whom I would make sacrifices today in exchange for moving closer to becoming Future Me. She might have a few more wrinkles, but she’ll beat you arm wrestling. I’m not afraid of the picture of Future Me; I want that future, and I know I need to act today in order to become her tomorrow.

The future doesn’t have to be a frightening one full of circumstances we just want to avoid. One of the best ways to dodge some of the outcomes we don’t want is to start taking care of Future You. Don’t turn away from what Future You looks like – silver hair (or bald head) and all. Take a bold look into your future and start planning for your older, badass self.   #Badass #Future You #DarkFate

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Labor Day and Investing in YOU

Posted on Sep 2, 2019 in Community, Investments, Planning, Retirement, Women, Worklife

We’re in an era of constant change. As soon as you buy one thing, there’s a newer version. In the old I Love Lucy television show, Lucy asks the question: “If everything now is new and improved, what was it before? Old and lousy?”

In the same way store shelves are continually restocked with the “new and improved,” we need to think of our skills and talents this way, too. You have no doubt spend time and money on knowing what you know, doing what you do, and becoming who you are. This human capital – you – needs on-going investment and care to stay in top form.

Keeping your tools sharp helps you jump on a new opportunity or take on a new role, and it’s important because sometimes the decision to make a change may not be yours. As the prospect of a recession looms, you need to be able to recover quickly if a downturn affects your job, or company or your industry.

A career transition expert tells me that while this is good advice, you’re not likely to move on it now, even if you’re in a bad job. Like being in a dead-end relationship or on the brink of needing to think seriously about a long-term care plan, no one likes to think about the possibility of future misfortune — job loss, break-up, or broken hip. And yet, now is the best time, when you don’t have to make a reactive plan, but can craft a proactive one.

If you think you can skip this step if you’re retired, you might want to think again. Whether it’s serving in a volunteer role, re-entering the workforce, or keeping up with the grandkids, you’re still going to benefit from learning something new. (Your brain will thank you too – more on that in another post!).

Think FaceBook, Instagram, Slack, Evernote, the newest shiniest iPhone…Continual learning is a habit all of us need to develop, not only to recession-proof your income-generating capacity, but also because the way we live will continue to change at an ever-increasing pace.

Bill Burnett and Dave Evans, co-founders of the Life Design Lab at Stanford and recovering techies themselves, argue that much unhappiness comes from an unsatisfying work life, and by designing your life you move into a mindset to constantly evolve who you are and what you can do.

There is no better time to start than right now.

Make it Personal
If it sounds daunting to tackle “how to keep up with an ever-changing world,” literally take it personally: think about what you’d like to do that you’re not doing now, and identify how you can add to your tools and talents in those areas.

You can use this exploration to think about career or industry changes, in addition to getting to the next career step. Yes, you need to pay your bills, and you’ll spend 2,000 hours this year working that 40-hour a week job to do it – you may work more. Life is short, but workdays are way too long to not like what you’re doing. Thinking about what you’d like to learn next could take you in a satisfying new direction.

What’s the next step? Do you want to move to the next rung on your career ladder? Pivot into a new function? Make a move to a new organization? Attract a new opportunity? This might mean thinking big, and sometimes that means making big changes. But this is your life, after all. What skill, experience or quality lights you up when you think about adding it to your toolbox?

When you do this, your values and personal strengths naturally enter into the mix. And when you align what you’re doing at work to what you value, you do better work, are more likely to be inspired and happy.

Shifting your thinking from “what skill do I have to have to keep my job?” to “what can I learn that will help me do my best in my career?” changes your focus from thinking about working in a job to thinking about working on YOU.

Make it Portable
It’s not only about what your organization needs next, it’s about what you can learn that you can take with you. In the work world today, you want and need to be able to jump into a new role, or to a new company, when you want to – and even when you don’t.

In her book, Radical Careering, Sally Hogshead explains portable equity this way:

Portable Equity is personal capital that boosts your long-term career opportunity and market value far beyond your current job: your experience, skills, network, reputation.

The portable part of this is important. Many covet the equity compensation that comes from working someplace that pays employees in some form of company stock. But that kind of equity can dissolve overnight based on the fickle nature of financial markets, and it can get left behind if you don’t stay long enough. Portable equity moves with you. It IS you. As Hogshead rightfully points out, “You can be fired from a job, but you can never be fired from your career.”

When you develop a mindset of continual improvement in yourself- in all the things you know and can do and can offer the world – you’ve made the leap to thinking about building your portable equity. It’s not a machine you leave on the shop floor, it’s not a proprietary software system your company built for internal use. It’s the skill you have to use that machine in any shop, the knowledge of a system that is like many other systems.

The Three Pieces of Portable Equity
Your human capital consists of skills and experience, your network, and your reputation. Start by choosing one thing to work on next, and write it down. Plans that you write down have a 42% better chance of being achieved:

“I will learn python.”
“I will understand tax reporting for Americans overseas.”
“I will learn canine CPR.”

One: Skills and Experience
Picked a skill or experience to target? Once you have your target, research resources to help you get it:
Places – Classrooms, on-line learning, local workshops, your organization. Where can you find the resources to learn what you need to know or do? EdX, Coursera, your library, YouTube – there are more ways to connect with your interests than ever before.
Funding – Check to see whether your company offers financial assistance for what you’re planning, or if your boss will approve funds to pay for it. The thing about investing in your human capital is that while you’re going to benefit your company as long as you’re there, it doesn’t mean you can’t take it with you when you leave. Barring a corporate budget for development, think about setting aside your own reserve for career investment.
People – Who already has this skill you’re after? Who is doing the job you want? And how did they get it? Perfect questions for your network.

Two: Network
Decided to expand or engage your network? Just like getting a loan from a bank, it’s easier to connect with your network when you don’t need anything from it. A network, a real one, is not just 500-plus connections on LinkedIn. It is a living thing, and you need to participate. You are connected to these people for a reason.

Find a cohort – another person or small group of people you know who might be interested in the same thing. Early in my career, I wanted to learn SAS and gathered two other colleagues to take a weekend course.
Find an accountability partner and schedule regular coffee or lunch or exercise class. Even if you’re working on different next steps, you can encourage each other.
Don’t overlook the social part of your network. You never know what you’ll find when you speak from the heart about what you want next. A recently laid off woman in my book group found a connection to her next step, a career pivot, just by letting us know what was going on with her. Most people want to be helpful.
Update your connections – all of them – Keeping your network up-to-date isn’t about just asking for something. Your posse knows about your successes already; let your broader circle know what’s new. It might be as simple as turning on alerts in LinkedIn. Or when your brunch buddies are checking in since your last get-together, give yourself some snaps: “Things are good; had a few forgettable dates, still enjoying my yoga class, and took a class to learn python/taxes/canine CPR.” You never know who or where opportunities to use your new skills might pop up.

You don’t have to do this alone. And you shouldn’t. Find friends, colleagues, family who can help you. You don’t need a lot of people, but you do need people. They listen to your Big Idea if you have a major transition to work towards, they offer feedback, they refer you to others who can help, they are a shoulder to cry on. Sometimes just getting the word out to that first person can get the ball rolling.

A SPECIFIC CHALLENGE FOR WOMEN: Women are usually more than willing to offer help someone else. When you help another woman, and that woman asks “if there’s ever anything I can do for you,” ask her to pay it forward: when she has an opportunity to help another woman, ask her to commit to doing it. Imagine what we could accomplish if you knew that every woman you helped would help another, and that when you needed it, that huge network would be there to help you.

Three: Reputation
Want to ensure that your best self is what recruiters find when they go online? It’s super to have learned a new programming language, added another certificate in your field, completed a project that stretched your skills and knowledge. Don’t keep it to yourself.

Clean sweep your social – Whether you love social media or hate it, it has become a necessary tool of work life. A recent CareerBuilder Study found that 57 percent of hiring managers are less likely to interview a candidate they can’t find online, and 70 percent of employers use social media to screen candidates. More than half of managers have decided not to hire a candidate based on their social media profiles. Think about online complaints about your job, or photos from a late night out. Check your online reputation through the channels you manage yourself; do a Google search to see what else turns up about you. The rest of the world is going to see that too.
Update your “Atta Girl” file – We live in a culture that requires both competitive engagement and for women, modesty. Ladies, let’s get over that last part. If you can’t get comfortable using your own words, use someone else’s. You will need to sing your praises. On your resume, at your next performance review, at the interview. You need a file or e-folder where you keep track of every compliment, each piece of positive feedback, or stat showing successful outcomes that you receive or contributed to. And when a crap day rolls around, you have a secret weapon to remind yourself what you can do.
Update (or create) your LinkedIn profile – More than half of employers won’t hire a candidate without an online presence, and employers are increasingly looking online to check up on current employees. If you’re planning a career change, be smart about whether you want to advertise that you’re “looking for new opportunities”. Think about whether your online profiles reflect where you are – and where you might want to go next. If you’re enrolled in a class, add it to your profile. Your online profile becomes another accountability partner, and you’ll have another update for your circle once you complete your new thing.

Make It Happen
Other than a haircut, change doesn’t happen overnight. But it can look swift and feel effortless if it’s aligned with what you love to do.

Reframe how you look at your talents not as what you need to do for someone else, but with an eye to what really floats your boat. Pick one step or all three, and get to work. Vocation or avocation, you’ll invest the majority of your time in it. Make sure it’s serving you and what you want out of life – and make sure you can take it with you.

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Inverted Yield Curves, the Next Recession, and You

Posted on Aug 20, 2019 in Investments, Planning, Taxes

I initially started this post two weeks ago, after we woke up to the news of Dayton and El Paso, which made it feel like the world was falling apart. That shock was followed by China’s devaluation of its currency, a different kind of shock, and the financial world seemed like it was falling apart, too.

By the time I’d finished a first draft that Monday morning and guessed that China would be labeled a currency manipulator, markets rebounded. And China was labeled a currency manipulator. Then came this last week, when we saw an inverted yield curve, and markets tanked again. By the end of the week, markets had recovered, and you were probably throwing your hands up or wishing there was a nice pile of sand into which to stick your head.

Let’s look at what happened to the stock market over the first two weeks of August when all this was going on, then we can talk about what was behind it. The S&P 500 tracks the largest US companies, and we’ll use that index here:

The first dip in the chart is China’s devaluation of its currency. The next, leading up to the plunge on Friday, August 9th, was related to squabbling over name-calling between the US and China, increasing tensions in Hong Kong when anti-government protests over a proposed extradition law turned violent,  and the beginnings of investor flight from stocks to bonds. The sharp uptick of markets opening the following week on August 13th was a reaction to the Trump’s Administration’s announcement of a delay in implementing new tariffs on China from September until mid-December. News of the inverted yield curve came on the 14th, and markets collapsed. On Friday, Walmart’s quarterly earnings beat estimates, and that news along with other strong earnings numbers led to a rise in non-tech stocks.

So, yeah, if you’re feeling like following the ups and downs of the market is like playing whack-a-mole, you’d be right.

The big issues of a trade war with China and an overall flight to safety in financial markets are the two main things to watch, and we’ll take each in turn.

China’s Currency Devaluation
At the beginning of the month, the People’s Bank of China (PBOC) devalued the yuan, citing “unilateral and protectionist measures as well as the expectation of additional future tariffs on Chinese goods.” President Trump had threatened China with an additional 10% tariff on Chinese goods to go into effect in September, despite reported progress on trade.

When I was in grad school, even after studying economics in college and working in finance, taking an international investments class was like trying to think in an extra dimension. Supply and demand charts I understood. But now throw in the impact of multiple currencies? Until we all move to bitcoin, global commerce will still require an extra step: If I want to buy something made by someone using a different currency, first I have to buy some of their currency, then buy their product using their currency.

And let’s be clear: US importers and their US customers (i.e. you) pay the cost of the tariffs.  China “pays” in that their exports are more expensive to offshore buyers.

When the US puts a tariff on Chinese goods, it costs more to buyers here to import their products. So your Chinese-made clothes and electronics become more expensive to the stores here. Those stores have to buy their products in the local currency (yuan). By lowering the exchange rate with the US dollar, the Chinese have made their products cheaper for US stores to buy. By devaluing the yuan, China essentially canceled out the effect of the US tariffs for its buyers.

This doesn’t sound so bad, right? I can buy a new iPhone or a new sweater for the same price to me (and profit to the US company) than I would have before our current trade kerfuffle began.

Yes…and no. That China devalued the yuan to immunize their exports from US tariffs also means they are taking a hard line with regard to trade talks.

Currency manipulation
My guess on what would happen next was that the US would label China a currency manipulator (which is true) and the President would double-down on an ineffective trade policy. I was three-quarters right. We’re experts at name-calling these days, and so China was called out for manipulating its currency. Financial markets reacted. The market wasn’t expecting the devaluation of the yuan or the uncertainties that come with it. Turmoil ensued.

You could make the case that the US manipulated the US dollar when we implemented Quantitative Easing (QE) during the financial crisis. At that time, we (the US government) bought our own Treasury securities, pumping millions of dollars into the economy. This flood of dollars drove interest rates down, and drove down the value of the dollar. Sound familiar?

The Federal Reserve, China and Leverage
The Fed’s main job is to manage inflation. To do this it serves as the gatekeeper for the flow of dollars in and out of the economy by changing interest rates (the Fed Funds rate specifically). The Fed decided to lower rates by 0.25% at the end of July. This cut was the first in a decade, and many in the financial world saw this move as politically motivated, anathema to the tradition of the central bank as an independent inflation watchdog, not the political pawn of an administration wanting to stay in power. Typically, interest rate cuts are used to stimulate the economy. But wait – we’re told the economy is “tremendous.” Why does it need stimulating?

One factor that seems to be left out of the trade mix is the heavy investment of China in the US. We have been financing our growing deficits by selling Treasury securities – and outside of the US, the largest owner of US Treasuries is China. The “nuclear option” in the trade war would be for China to start dumping US Treasuries. The dollar would collapse and interest rates would spike. Everyone says this would never happen, as it would hurt China too.  Yet we live in unusual times, and brinkmanship can send both parties tumbling over a cliff. Our President is used to doing deals based on other people’s money, and he eventually will walk away from the Oval Office. What remains to be seen is whether the aftermath here will be similar to the multiple bankruptcies from which he has also walked away, leaving the mess for someone else.

And yet, we managed to wade through all that, with markets having recovered by the end of the first week of August. Then some fool noticed the inverted yield curve.

The Inverted Yield Curve
You think about yield curves even if you don’t realize it. When you’re deciding on a mortgage, you know that a 15-year loan comes with a lower interest rate than a 30-year loan: with the longer term mortgage, there is more risk to the lender that something might interfere with your ability to repay, and the money they’ll get back will be worth less with each passing year, thanks to inflation. What the lender is expecting to receive – the interest payments over the loan term – is the yield.

Each type of debt has its own yield curve, and a basic one for US Treasuries normally looks like this:

Normally, the longer you are asked to loan money, the more you’re going to expect in return. The yield curve typically shows how you need to pay more in interest the longer the period over which you borrow money. If you loan a friend $100 overnight, you might be fine with just getting the $100 the next day. If you loan them $100 for a year, you might be a little worried that you might not get it back. In addition, the $100 you get back in a year might not cover the cost of that bauble you’re planning to buy with it a year from now. You can’t be sure that the price of baubles won’t go up. Possible price increases equal inflation risk. And you want to be compensated for that risk, too.

The term structure of interest rates (the finance-fancy name for the chart above) shows how when you loan money, you want to be compensated for the decline in purchasing power of your loaned dollars (inflation), and for the risk that something will happen to interfere with repayment of the loan (default risk). Normally we expect short-term loans to have low interest rates, intermediate term loans higher rates, and long-term loans higher rates still.

But last week, the inverted yield curve showed the reverse: some longer-term loans had a lower interest rate than short-term loans:

How does that make sense?

To make it extra confusing, there is more than one reason why the yield curve might invert. When investors think a downturn is looming, they might want to hold longer-term bonds, and this demand causes the inversion. Another theory is that lenders have a reduced incentive to lend for the long term – they can make as much or more money lending in the short-term.

Even though the news reported that “this was the first time the yield curve inverted since 2007” (prior to the Financial Crisis), that’s not precisely true. Different parts of the yield curve have been inverted since then; in March the 10-year Treasury bond yield fell below the 3-month yield. What got everyone’s panties in a bunch this past week was that it was the two-month bond yield that pivoted higher than the 10-year bond yield.

Not many paid too much attention to the March inversion because the 3-month yield isn’t used as a benchmark in the same way as the 2-month. Going back to the mortgage example, most of us might note a change in the interest rate on 15-year or 30-year mortgages – those are industry benchmarks – but not care too much if the rate changed on a 20-year mortgage.

Does This Mean We’re Going to Have a Recession?
A yield curve shifts for a variety of reasons, but here the curve showed something akin to a herd phenomenon: investors wanted to move out of stocks (risk) and into bonds (safety). The reason an inverted yield curve is considered a sign of recession is because it signals an unwillingness to take risk, it shows a flight to safety. The media enthusiastically reported that “the yield curve has inverted before every U.S. recession since 1955”. But it tells us nothing about the timing of this next recession.

An inverted yield curve doesn’t “predict” recessions or downturns. It’s an indicator, a sign, that market participants watch. It’s important because markets are made up of people (and computers, but they are programmed by people). When people lose confidence, they choose safety over risk.

But remember, the same folks who look at “signs” to predict downturns completely missed this back in 2007 – and some of the same people also look at skirt hemlines and who wins the Super Bowl to predict future market behavior. An inverted yield curve might occur months or YEARS before a recession.

Which brings us back to what most economic forecasts have been saying (and which I relayed in my last Market Report to clients): it’s more likely than not that the US will move into a recessionary period sometime in the next year or two. With the uptick in trade tensions, we might be more on the short end of that range now.

Trade Tensions
As mentioned, when I started this post, the stock market had tanked on the news of the devaluation of the yuan.

Circling back to where we started the month, last week after the market downturn, President Trump decided to delay his now completely ineffective new tariffs – which he says don’t cost Americans anything – until after Christmas to help holiday shoppers. Markets responded favorably. Thanks, Santa.

What It Means for You
Between now and the Presidential Election, there will be noteworthy economic statistics and there will be bellowing and bluster. You need to listen for the noise in the numbers:

• The US unemployment rate is at a historic low – but not everyone is in a good job, with many taking on second jobs or “gigs” to make ends meet.

• Tax cuts were supposed to lift wages and stimulate the economy, but after an initial round of meager bonuses from a few big corporations, more individual taxpayers were left with a reduced tax refund – or tax due – in 2018.

• With the tax benefits to individual taxpayers skewed to the early years of the tax plan, you’ll likely see higher taxes in coming years – unless even more tax gimmicks are passed to prop up consumer spending today at a higher cost tomorrow.  The latest chatter is a payroll tax cut.

• While there is a new school of Modern Money Theory (MMT) that says deficits don’t matter (Democrats like this theory to fund proposed social programs, the Republicans have applied it to pay for the big tax breaks to corporations and the ultra-wealthy), some of us think running deficits while you have a booming economy is woeful mismanagement.

When a recession does come, we won’t have the capacity to stimulate the economy with monetary policy through more rate cuts (because we will have lowered rates as low as they can go) or fiscal policy through spending on infrastructure projects, keeping people employed and getting improved assets in the bargain (because we will have maxed out our collective credit card, aka the national debt).

What you can do is tidy up your finances:

• If you’ve run down your cash reserves, make it a priority to build them back up.

• If you are still in the workforce, spend a weekend updating your resume and professional online presence; watch for opportunities to add to your portable career equity – those projects and skills that would be valuable to another employer, not just your current one.

• If you’re retired, review your “buckets,” the portions of your savings that are allocated for near-term and intermediate-term spending. Most clients will have 5-7 years of savings set aside in these buckets.

• Working or retired, if you’ve taken on debt – credit card balances, no-interest-until-sometime-later deals, draws on home equity and the like – look hard at repaying it as soon as you can, both reduce your monthly spending and to clear out borrowing capacity if you need it later.

Remember that the stock market is NOT the economy. With a cash reserve and “buckets” for near-term spending if you’re in retirement, you can ride out stock market fluctuations.

The stock market is also NOT your personal economy. Your personal economy is your household, and your ability to pull in enough income to cover your expenses. If you’ve diversified your investments, you won’t be beholden to the performance of one company or one sector to finance your life in the event a stock market decline hits some industries more than others. And if you’re working, you’re keeping your tools sharp and skills current in the event a downturn affects your company and your job.

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Blind Spots and Seeing the Whole Picture

Posted on Jul 27, 2018 in Community, Family, Investments, Planning, Relationship

I’m a huge movie buff. In a different life, I would have been behind a camera, capturing people’s stories on film. One of the best stories I’ve seen on film is a movie making the festival circuit this year, Blindspotting. Daveed Diggs of Hamilton fame, along with longtime friend, poet and fellow actor Rafael Casal, have made a buddy movie like no other. It is smart, funny, painful, intense, and powerful. The writing is tight, the acting top-notch. The pair had been working on finding a way to produce the film for ten years, and its tone and subject matter could not be more pertinent today.

And why am I telling you about this in a personal finance blog? The power of the movie is in its exercise in asking the audience whether they can see more than one thing at the same time: Can you see the two people in profile AND the vase? Can you see a black ex-con and a thoughtful man reinventing himself? Can you see that the friend you’ve known your whole life has a different experience of the world because his skin color is different than yours? Can you see a rich person and someone struggling? Can you actively look to see past your blind spots? This is important because without the ability to do so, you can miss important information about your friends, your family, the people you work with, and the broader world around you, as well as about your finances.

What is “Blindspotting”? You’ll find that out when you go to see the movie. (And seriously, go see it.) We’ve all heard of blind spots: something in your range of vision that you should be able to see, but which is obstructed. The obstructions come from a variety of sources, but they can come straight from you: a blind spot is a predisposition, a prejudice. The most dangerous are the ones that you don’t know you have. Dangerous because you may think you are lighting candlesticks when you are lighting dynamite.

We all have them. We are all products of our own stories and experience: our upbringing, our families, and the shortcuts that help us make sense of the world. Sometimes those shortcuts don’t show us the whole picture and result in blind spots. Here are three common ones that might impact your personal financial life, and one additional that can cause you to negatively affect someone else’s:

Confirmation bias – You embrace information that supports your perspective and cultivate a blind spot to that which contradicts it. You buy a stock and when there is good news about the stock, you acknowledge that and feel you have made a wise investment. When there is negative information about the stock, you discount the news.

Recognizing that you’re likely to have a bias for the choices you make and being able to look past that blind spot and take in all relevant information about an investment will make you a better investor.

Over-confidence – What you’ve done in the past has been successful, so you are confident that you know what you’re doing. You have a blind spot to the role luck can play and to evidence itself, and in investment management, that’s one place where numbers don’t lie.

You invest in real estate and home prices soar. You feel like a brilliant investor. Real estate prices plunge, and you blame the market, not your strategy. The blind spot is your confidence in your ability versus the capriciousness of markets.  Why you were investing in real estate in the first place should be your benchmark: you needed a home and were buying for the long-term, or you wanted a long-term investment in rental property and could carry the on-going costs of the property during the periods you couldn’t rent it. That’s the measure you need to be using as a benchmark for success, not your ability to time a market. It’s hard not to get caught up in a frenzy, which also makes it the best time to go back to your desk and work through the numbers to see if an investment will meet your goals over your time horizon.

Note that the corollary of over-confidence exists as well: under-confidence. You invest in the S&P 500 and the market goes up. You consider yourself lucky. The market falls and you blame yourself for a bad investment. Your blind spot is self-confidence: without question, luck factors into timing of investing. But if you invested in the S&P 500 as a long-term strategy for growth, knowing that there will be market fluctuations, there is no luck or blame, that is a solid strategy.

Rationalizing: You overspend but explain how much you’re saving by buying things on sale. You desperately want to get out of debt but as soon as you’ve freed up some extra income, you’ve committed it to another loan or run up a balance on another credit card. You’ll start saving tomorrow.

We are creatures of habit. We are attached to our rituals, our patterns, our ways of doing things, and accepting that they may not be serving us – to say nothing of actually changing them – is hard to do. The blind spot is what you believe is really important and whether your actions support it. What is your goal? Looking at actions instead of hopes or dreams is where planning comes in. All of the above actions are rational in some way to the person making them. Seeing how the action (buying something you don’t expressly need because it’s on sale) impacts your stated goal (saving for a vacation to Italy) can help you release an old rationale and better align actions with what you really want.

And one more for the other people in your life:

Making an Assumption: This is the quickest shortcut we all use. You don’t give the plum project to the new parent because it involves travel and you assume they wouldn’t be interested in that now. You order a $90 bottle of wine at dinner with a friend, not realizing that her half of the price of the wine was what she was budgeting for the whole meal. You see your neighbor’s new Tesla, their designer shoes, the gardener at their house and you assume they are greedy and material people.

But are you making an assumption that interferes with seeing the whole picture? Your predisposition creates a blind spot. You won’t see the whole picture in each case until you ask questions and learn more. You’ll retain a prejudiced view of what a new parent wants at work, what your friend can afford, and what your neighbor is really like. The effort to see a blind spot takes time and attention and energy, all of which feel for most of us like increasingly scarce resources.

These decisions we make based on our biases, our assumptions, our blind spots, can have a very real impact on the lives – financial and otherwise – of other people. You limit the professional growth of an employee, you burden a friend with an unexpected expense, you fail to offer friendship to a neighbor because you are operating in a blind spot.

Are you seeing what you think you are seeing? Or could there be another way of looking at something? Can you step back and take in the whole picture objectively? Could there be more to the story? People and situations can be more than one thing. In developing an awareness of what we know for a fact, setting aside the shortcuts, expanding our view into blind spots, we get better information for action. Blind spots are not blindness – we can improve the completeness of what we see. It requires observation, attention, and sometimes confronting a limitation under which we’ve been operating.

Financial self-awareness is the first step. Learning to be aware of our blind spots can lead us to greater understanding, compassion, and better decision-making all around.

As for Blindspotting the movie, my experience at the SIFF screening was intense and very personal. There is an art to allowing us to laugh while we cry, something Shakespearean about giving us that release so that we can continue to watch, to engage, to care about these characters, flawed as they may be, in the short time we have with them. This is a powerful film, coming at a time when we are churning up some deeply held beliefs among us, which I continue to believe is the first part of healing. Right now it may not feel like we’re making progress, yet like any problem – or blind spot – you can’t do anything to change it until you recognize it’s there.

It is only a movie. But if it promotes a continued conversation about racial tension, police violence, gentrification, growing income inequality, and how we can promote empathy and compassion while tackling these issues, then it is so much more.  Blindspotting opens nationwide July 27th.

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Awakening From Slumber: Ten Years After The Financial Crisis

Posted on Jun 27, 2018 in Community, Investments, Philanthropy, Planning, Retirement

Ten years ago I was in Rome and passed a shop on Via del Corso that sold crystal balls.  If I Image result for crystal ball shop italycould have figured out how to bring one home without setting off airport security, I would have picked one up for the office. Then when you ask me what I think will happen in the market, I can point you to my little Roman souvenir and you will be able to see the future as well as I can.

One of the closest things I have to a crystal ball is my relationship with PIMCO. In addition to being the largest bond manager in the world, PIMCO has the biggest and most geographically widespread research team I know. Most of you who work with me hold at least one PIMCO fund in your portfolio. Even if you don’t, you have heard of their research: they were the folks who came up with The New Normal to describe economic and financial life after the Great Recession. (And which you are likely using to describe any number of new trends in your own life.)

Each year, PIMCO holds its Secular Forum, a gathering of its internal investment professionals along with guest speakers to discuss and debate the state of the global economy and markets over the next three to five years. Like much of PIMCO’s team, my background is in bonds as well, in markets for which critical to understand not only an individual issuer’s ability to repay a debt, but also the longer-term trends that will affect its ability to do so. As part of PIMCO’s investment process, its Secular Forum is designed to promote new ideas and differing points of view, to look into the future for the trends they believe will have important investment implications. They meet, then they publish their results for their advisory firm clients.

The title of this year’s look at 2018 and beyond is called “Rude Awakenings.” That gives you an idea of where we are headed.

The Great Recession: Ten Years Later
After The New Normal, PIMCO dubbed the last five years (2014-2018) the “New Neutral.” This moniker described the low growth, low interest rate environment we found ourselves in world-wide, chugging along without much economic change, with your savings accounts earning next to nothing, but overall slow and steady growth in the economy.

PIMCO predicts our economy will be more volatile over the next several years than this past New Neutral period, and the global political environment will be rockier as well. Nations which worked together to combat the aftermath of the Financial Crisis are showing nationalistic tendencies, meaning it may be every-nation-for-itself when the downturn comes. Neutral no longer, we will need to be prepared for Rude Awakenings. We will need to be flexible, to be able to respond to changing conditions, and to take advantage of opportunities in the investment landscape as they present themselves.

Here are four of the Rudest Awakenings we can expect:

Rude Awakening #1: You expect the same stock market growth in the next 10 years that we’ve had since the Financial Crisis. The big question many of us are struggling with is the state of the business cycle, and when we will shift from expansion and growth to contraction and recession. PIMCO’s research points to a good chance of recession in the next three to five years, most likely sooner rather than later. It’s surprised many of us that the stock market continues to be supported at its current level.

PIMCO forecasts a downturn in 2020, though they note it could be a little later due to government spending (fiscal stimulus) on infrastructure, which means more jobs and economic growth. But because this type of deficit-spending is coming at a time late in the economic cycle when we have very low unemployment, PIMCO calls this stimulus a “fiscal sugar rush.” The “sugar rush” is the artificial high that comes from spending money we don’t have (deficit spending, thanks to tax law changes) on roads, bridges, and the like and risking overheating the economy when unemployment is already so low. This type of stimulus tends to be an expansion-killer as debt levels become unsustainable, and spending that creates deficits increases uncertainty that PIMCO believes is not yet reflected in the stock market. Any of you with kids know how bad the crash can be after a sugar binge.

The things that most affect the timing of the recession are what the Federal Reserve does to manage inflation, whether we get a rise in worker productivity, and whether the current trade spat turns into a full-fledged war.

Rude Awakening #2: Growth in worker productivity is always good for the economy  Worker productivity has been below average since the Great Recession, and while gains in productivity are typically desired as a means of expanding the economy, productivity growth can have a dark side.

Technology-driven productivity growth could extend the current period of expansion, pushing out the recession to a later year. But technology can also be disruptive to markets and the economy. In the case of new technologies, these have an additional impact on legacy companies: think Amazon and every bookstore chain you’ve ever known. New technologies often disrupt industries and displace/replace workers. This higher “technological unemployment” can lead to a populist reaction, and we’ve seen a snippet of what populist sentiment can reap in a number of countries, the US included.

Rude Awakening #3: Populism doesn’t seem to have much impact on the economy Whatever you might think about the current US administration, the American version of populism has been well-liked by financial markets. But expect a different flavor of populism if we hit a recession: Expect a more radical populism that demands redistribution of wealth or income tax increases, nationalization of key industries, and/or a protectionist trade policy.  Italy is serving up an early 21st century version today, where we’re seeing a widespread populist reaction to world events.

Rude Awakening #4: Protectionist trade policy will level the playing field for US goods PIMCO considers China to be less of a risk to the global economy now than previously, as they have re-centralized power and are exerting more control over their economy; they are less of a loose cannon now. That said, tensions over the trade imbalance with the US and over intellectual property rights are growing. PIMCO sees the US-China smackdown as the Rising Power vs. Ruling Power WWF fight of our time: In ancient times, Athens challenged Sparta, in the last century, Germany challenged Britain. Neither of these bouts ended well for the challenger, but there was a whole lot of disruption to global economic systems. China’s challenge to the US as the world’s pre-eminent power is not expected to lead to armed conflict but could lead to rude awakenings on the geopolitical front. Not even a month after PIMCO’s Secular Forum, it appears this expectation of disruption is becoming reality with escalating trade tariffs.

What Will this Next Recession Look Like?
If the future plays out in these ways, what kind of recession will we be waking up to find? The expectation is that this time, the downturn will be shallower and longer than it was in the Great Recession (December 2007-June 2009). Two things that are different now are that (1) it’s hard to rely on central banks to ride to the rescue this time, and (2) we have much greater economic inequality worldwide. The first issue means we won’t have the same solutions we had during the last downturn to help avoid a global economic meltdown, and the second issue means that more people could be affected in this next time, with seriously frayed social safety nets and little protection against great economic harm.

What To Do?
So now that I’ve given you lots over which you can lose sleep, what are you supposed to do about it? How you can prepare? Consider the following:

Get serious about paying off debt. Whether it’s credit card balances, a home equity line of credit or other non-mortgage borrowing. The next year or two is the time to get serious about paying it down. It’s going to cost you more in interest as the months go by, and you might need that debt capacity if things hit the skids.

Build up your cash reserve. If you’re working with me, I’ve already bored you with the fat cash balance I think you should have in reserve. For the rest of you: plan on setting aside a minimum of six months’ worth of expenses (12 months if you are self-employed) in a savings account, or a couple of CDs.

Start setting aside funds for planned major purchases.  You could end up getting them for cheap. One of the things about a recession is that overcapacity as the economy winds down means many goods such as cars and other big ticket items go on sale, and start to come on the market at better prices. If you can, maybe wait to 2019 or 2020 to pick up a new car or major household appliances for less.

Work on pink slip-proofing your job. You know you are doing a great job at work, but you will need to make sure others know, too. No one is immune to job loss, and if you think you’re high enough up on the food chain to avoid being sent packing, remember from the company’s perspective, getting rid of you means getting rid of your big comp package too.

Retirees need to re-assess their asset allocation. -With the next recession expected to be shallower but longer than previous ones, that means arranging your resources so that you’re not having to liquidate anything at an inopportune time. If you’re working with me, we’re building “buckets” of assets to protect your retirement draws three to five years from now. Going forward, structuring this protection becomes even more important.

Consider stockpiling your resources for charitable giving.  Our social safety net is more frayed now than it has been before, and when the recession comes, more people will need help. Demand on charity will be greater, just at a time when donors are more strapped, too. If you are charitably inclined, using a donor-advised fund to accelerate the tax benefit of your contributions is one way to stockpile funds to donate when needed over the coming years.

Take this time to reflect on what’s really important to you. This is my standard refrain. When times are good, it’s often easy to drift towards all things bright and shiny and to forget about the warm and wonderful: the people you love, the things you like to do, the experiences you want to have. It’s also a hard time to put off gratification when it seems like the whole world is on a shopping spree (they are, but it will more than likely come to no good end.)

In our always-changing world, it should come as no surprise that the next ten years will look very different from the last ten. Best we can tell, you can expect more volatility, and be prepared for a recession in the near term. The timing of a downturn is always a confluence of events that are not hard to see but whose coming together is difficult to predict. In the meantime, be cautious about getting overextended — whether stretching financially to buy a new house or taking on other debt to finance spending — and be mindful about maintaining or stockpiling a cash reserve.

Remember that there are limits to the things you can control, and the trajectory of our global economy is not one of them. Consider what you can do on the list above, and then go out and enjoy the rest of life: take a walk, see friends, hug your dog, hang out with family. These things you can do something about, and ultimately they are what really matter as well.

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A Post-Election Note

Posted on Nov 9, 2016 in Community, Investments, Planning, Tax, Women

Like me, you may have felt that the world would look different this morning (if we even woke up at all) after the results of the presidential election. And yet, the sun rose, the day began, and here we are.

What we know after the election is that our country is seriously divided. As we saw when we elected Barack Obama, we want real change. The trouble as I see it is that the direction in which President Trump will lead us will be more of the same. Right now, markets — and the people who make them up — are orderly. There may come a time when the emotions that drove this election will react negatively to a lack of any real change.

Here are a few thoughts on what comes next:

Economics – We have limited specifics on Trump’s plans for “national growth and renewal” in the economy, but there are echoes of Reaganomics: lower taxes, relaxed regulation, big government spending. If the fiscal stimulus he plans repairs and expands our infrastructure, that’s a plus. Reduced regulation (such as repeal of the new DOL Rule (which requires advisors to your 401k to act in your best interest), repeal of Dodd-Frank (Wall Street reform), repeal of the Affordable Care Act) means you’ll be more on your own to protect your interests.

Taxes – We can expect lower taxes, at least on higher earners. I am doubtful Trump’s plan to bring overseas corporate earnings home; if he is able to do this, that’s again a plus for higher earners. Given the structure of our Federal budget, we can’t grow our way out of a deficit spending situation, so lower taxes means increasing deficits.

The World – We are more connected globally than ever, and building walls and reducing trade is likely to hurt us economically, as well as in our leadership role in the world. Bombastic rhetoric in discussions with other leaders and nations could have dire consequences.

The Rhetoric – The most difficult part of the campaign for me has been the vitriolic, threatening language that stirred up some of the ugliest facets of the American character. As a woman, I feel unheard, less safe and decidedly second-class. But I believe we can’t change what we don’t acknowledge, and we must admit this election cycle has revealed a dark side we have wanted to ignore. How we continue the conversation around these issues and change them is the real challenge.

Markets are mixed this morning, after some strong negative indications overnight. We can expect to see more volatility in the months and years ahead, and increasing economic inequality. What we can do is focus on what we can control: diversifying the risk in portfolios, organizing your accounts for tax diversification and to keep expenses as low as possible, saving more, and when we spend, spending with intent.

The table next to mine at the Election Watch Party I attended last night joked that at least here in California we also passed a recreational marijuana law, which we’ll need all the more after this election. (To be clear: I don’t recommend that as a personal financial strategy.)

In the meantime, we need to continue the conversation, and fighting for what we believe: “Let us not lose heart in doing good, for in due time we will reap if we do not grow weary.”

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