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The RFG Weekly Wealth Report

April 12, 2016
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We all learned a thing or two about Panama last week.

The country is not the home of the Panama hat, which is made in Ecuador. However, it is the only place in the world where you can watch the sun rise on the Pacific Ocean and set on the Atlantic Ocean.

It's also home to a lot of offshore companies, according to the millions of records leaked from the world's fourth largest offshore law firm. The Guardian reported 12 national leaders were among 143 politicians, athletes, and wealthy individuals (including family members and associates) who were participating in offshore tax havens.

It's not illegal to hold money in an offshore company, unless the company facilitates tax evasion or money laundering, reported The New York Times. Further investigation will be required to know whether that was the case. CNBC suggested financial markets could be affected if the findings lead to greater regulation of foreign banks or prosecutorial action against them.

While the Panama scandal captured a lot of attention, it didn't have much of an impact on markets. News that the U.S. Treasury was cracking down on corporate inversions, along with indications the U.S. Federal Reserve may raise rates twice during 2016, caused stocks to dip late in the week. Some major U.S. indices finished the week lower. (Corporate inversions are mergers that give U.S. companies a foreign address and lower their tax rates.)

We may be in for another round of market volatility. Corporate earnings season is here. That's the period when publicly traded companies report how well they performed during the previous quarter. CNBC said, "Over the past 10 years, the emergence of first-quarter earnings reports has generally corresponded with a rise in volatility."

AS CARLY SIMON USED TO SING, "WE CAN NEVER KNOW ABOUT THE DAYS TO COME..." However, that doesn't stop anyone from making educated guesses about the future of companies, financial markets, and economies. As we enter the second quarter, investment and business professionals have been offering their insights:

  • McKinsey & Company's March Economic Conditions Snapshot indicated 80 percent of surveyed executives "...expect demand for their companies' products and services will grow or stay the same in the coming months, and a majority believe (as they have in every survey since 2011) their companies' profits will increase." However, they are not as optimistic about the global economy as they were in December. About one-half of executives in developed and emerging markets said economic conditions globally are worse than they were six months ago.
  • The Wall Street Journal's April 2016 Economic Forecasting Survey, which queries 60 economists, reported three-of-four survey participants expect a Fed rate hike in June. Few expect a recession during the next 12 months, putting the odds at 19 percent. Almost one-half stated global risks were the greatest threat to the U.S. economy, followed by financial conditions, a slowdown in consumer spending, falling corporate profits, and U.S. politics.
  • PIMCO's Cyclical Outlook predicts China's gross domestic product (GDP) growth may be in the 5.5 to 6.5 percent range. The target is 6.5 percent. In addition, a gradual devaluation of the yuan is possible, although China's currency policy often produces unexpected twists and turns.
  • BlackRock Investment Institute's second quarter outlook centered on three themes. First, returns are likely to remain muted in the future. Second, monetary policies appear to be less divergent, which could be a positive for some markets. Third, volatility may persist as the Federal Reserve normalizes monetary policy. Diversity and careful asset selection are likely to be critical in this environment.

While it's interesting to read experts' predictions and expectations for coming months and years, it's important to remember forecasts are not always accurate. An organization that tracked forecasting results through 2012 found forecasts were correct about 47 percent of the time.

 

Quote of the Week

"Do the right thing. It will gratify some people and astonish the rest."

--Mark Twain, American author

 

Golf Tip of the Week

Recoil to Get Out of a Bunker

If you're facing a buried shot with a bad lie, you might be used to hitting it steeply and taking a lot of sand with you. However, if you're looking at a shot with a short pin or a downhill slope out of the bunker, you may need less topspin on the ball on the way out.

Instead of keeping the face closed or square, keep the face open. Set up with the ball in the middle of your stance and get ready to hit the ball steeply. However, instead of scooping under the ball and driving through it, you want to recoil at the moment of impact, sending your club back toward your shoulder. This recoil shot will send your ball up steep and soft, giving you more control on the green.

 

Financial Question of the Week

Why should I run a retirement projection?

In a recent Financial Finesse study on the State of U.S. Employees' Retirement Preparedness, fifty-seven percent of employees at pre-retirement age, between 55 and 64, said they had not run a calculation to estimate whether or not they were on track to achieve their income goals in retirement. According to the study, after evaluating those who did not know if they are on track, an average wellness score of only 4.7 out of 10 was realized.

Planning for retirement today poses challenges past generations did not have, making retirement a more difficult goal to reach. These challenges include:

  • Decreased Social Security and other government benefits
  • Lower market returns and interest rates on investments
  • Lower home equity to rely on due to the mortgage crisis
  • Higher healthcare costs and longer life spans to plan for

Determining if you are currently on track to meet your goals is one of the first steps to developing a sound retirement plan. The sooner you take control of your financial situation, the greater your odds of a successful retirement.  Please contact my office if you would like help evaluating your progress toward your financial goals.