Broker Check

The RFG Weekly Wealth Report

March 02, 2020
Share |

The Week on Wall Street

Stocks fell sharply last week as Wall Street considered how the coronavirus outbreak might influence global business activity and household spending. The selloff became a correction for the U.S. markets.

FACT OF THE WEEK

The original Department of Education was created in 1867 to collect information on schools and teaching that would help the States establish effective school systems. World War II led to a significant expansion of federal support for education. The Lanham Act in 1941 and the Impact Aid laws of 1950 eased the burden on communities affected by the presence of the military. And in 1944, the "GI Bill" authorized assistance that would ultimately send nearly 8 million World War II veterans to college.

MARKET MINUTE

The S&P 500 retreated 11.49%; the Dow Jones Industrial Average, 12.36%; the Nasdaq Composite, 10.54%. The MSCI EAFE, tracking developed stock markets outside North America, had fallen 6.75% week-over-week by Friday’s closing bell.

On Friday afternoon, Federal Reserve Chair Jerome Powell stated that central bank officials were willing to “use our tools and act as appropriate to support the economy.”

Strong Consumer Confidence, Plus a Boost for Incomes

A trio of economic indicators pertaining to U.S. households looked solid last week. The Conference Board’s Consumer Confidence Index notched consecutive months above 130 for the first time since July-August 2019, posting a 130.7 February mark. The University of Michigan’s final February Consumer Sentiment Index came in at 101.0, ticking up from a preliminary 100.9.

Friday, the Department of Commerce reported that Americans increased their spending by 0.2% in January, while personal incomes improved by 0.6%.

Buyers Have Flocked to New Homes

New home sales, according to the Census Bureau, improved 7.9% in January; the annualized pace of new home buying was the best seen since July 2007. Year-over-year, sales were up 18.6%. Housing market analysts cited a favorable economy and favorable weather as factors.

Final Thought

Right now, there is no forecast for how the coronavirus outbreak may affect consumer demand or supply chains. The impact may not be known for months. But remember, your investment strategy should reflect your risk tolerance, time horizon, and goals, and it also should take into consideration periods of market volatility. Fear is driving decisions in the financial markets. Nobody would blame you if this uncertainty gave you a bit of anxiety as well.

FINANCIAL STRATEGY OF THE WEEK

YOUR EMERGENCY FUND: HOW MUCH IS ENOUGH?

Have you ever had one of those months? The water heater stops heating, the dishwasher stops washing, and your family ends up on a first-name basis with the nurse at urgent care. Then, as you’re driving to work, you see smoke coming from under your hood.

Bad things happen to the best of us, and sometimes it seems like they come in waves. That’s when an emergency cash fund can come in handy.

A 2019 Bankrate survey found that 28% of Americans had no emergency savings. Another 25% of respondents said that the cash they had on hand would last less than three months in a financial crisis.

How much is enough? There is no “one-size-fits-all” answer. The ideal amount may depend on your financial situation and lifestyle. For example, if you own a home or have dependents, you may be more likely to face financial emergencies. And if a job loss affects your income, you may need emergency funds for months.

Coming Up with Cash

If saving several months of income seems unreasonable, don’t despair. Start with a more modest goal, such as saving $1,000, and build your savings a bit at a time. Consider setting up automatic monthly transfers into the fund.

When your savings begin to build, it is essential to avoid using those funds for something other than an emergency. Instead, budget and prepare separately for more significant expenses you know are coming.

Where Do I Put It?

Many people open traditional savings accounts to hold emergency funds. They typically offer modest rates of return. A certificate of deposit (CD) may provide slightly higher returns, but your money will be locked away until the CD matures, and that could take several months to several years.

The Federal Deposit Insurance Corporation (FDIC) insures bank accounts and certificates of deposit up to $250,000 per depositor, per institution, in principal and interest. CDs are time deposits offered by banks, thrift institutions, and credit unions. While CDs offer a slightly higher return than a traditional bank savings account, they also may require a higher deposit amount. If you sell before the CD reaches maturity, you may be subject to penalties.

Others turn to money market accounts or money market funds in emergencies. While money market accounts are savings accounts, money market funds are considered low-risk securities. Depending on your particular goals and the amount you have saved, some combination of lower-risk investments may be your best choice.

Money held in money market funds is not insured or guaranteed by the FDIC or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund.

Money market mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Please read it carefully before you invest or send money.

The only thing you can know about unexpected expenses is that they’re coming. Having an emergency fund may help to alleviate stress and worry that can go with them. If you lack emergency savings now, consider taking steps to create a cushion for the future.

As always, please contact my office with any questions or financial concerns you may have.

Have a great week!