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The RFG Weekly Wealth Report

March 20, 2017
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For the fifth time in six weeks, domestic stock indexes ended last week in positive territory. Over the week, we received a series of economic updates that gave a mostly positive view of the economy's progression, including the following data for February:

  • The Producer Price Index beat expectations and rose 0.3%.
  • The Consumer Price Index beat expectations and rose 0.1%.
  • Retail Sales met expectations and rose 0.1%.
  • Housing Starts beat expectations to reach 1.29 million - including the highest measure for single-family home construction since 2007.

In addition, the most recent data indicated that fewer people filed for unemployment benefits the week of March 11. We have now experienced 106 straight weeks of unemployment claims staying below 300,000 people, which is a healthy labor market indicator.

Given this information - and the wealth of economic data released recently - the markets expected the Federal Reserve's March 15 decision to raise benchmark interest rates. Last week's 0.25% increase is only the third jump since the Great Recession, but the pace of hikes is quickening. The Fed has now raised rates in December 2015, December 2016, and March 2017 and expects at least two more increases this year.

Like with all economic data, understanding the context is critical. While interest rates are on the rise, they are still low.

How will rising rates affect your financial life?

When the Fed raises rates, they are demonstrating a belief in the economy's strength. As with all changes to monetary policy, the outcomes can be complex and interconnected. While no one can predict the future, here are a few places where interest rates may affect your finances:

  • Stocks
    Stocks rose following the Fed's announcement, with the S&P 500 gaining 0.84% on Wednesday. A strong economy is good for stocks; but anticipating exactly what lies ahead is impossible because so many outside forces impact equities. Right now, however, the markets are performing well and responding positively to increasing rates.

  • Bonds
    Generally speaking, as interest rates rise, bond yields go up and their prices go down - with long-term bonds suffering the most. However, those are not hard-and-fast rules for how to move forward. Your specific needs and strategies will determine the best way to move forward with bonds in a rising interest rate environment.

  • Revolving Debt
    If you have revolving debt - credit cards, home equity line of credit, etc. - and your interest rates are variable, you will likely see a difference in your payments very soon. In fact, a 0.25% increase like we experienced last week may cost consumers an additional $1.6 billion in credit-card finance charges in 2017 alone.

  • Cash
    When revolving debt interest rates go up, banks may quickly adjust the interest rates they charge, but they often wait to increase the interest rates they pay. Right now, the average savings account pays 0.11% interest, but some institutions offer rates up to 1.25%. Finding opportunities to capture a larger return on your cash is possible.

If you have questions about why the Fed is raising rates and how their choices may affect your life, we are always here to talk. Our goal is to give you the insight you need to feel informed and in control of your financial future.

Quote of the Week

"Chance is a word void of sense; nothing can exist without cause."


Golf Tip of the Week

Move Your Hips for a More Powerful Swing

A powerful swing can make the difference between hitting under or above par. When moving from backswing to downswing, golfers often lose their power. Here's a quick reminder on how to keep strength in your swing and maximize your game.

Don't: When swinging, take care to not unwind your upper body too quickly from the top. When this happens, you will overuse your arms and shoulders and slow down your clubhead.

Do: Engage your hips more on the downswing. This move will add speed and help you hit an additional 15 to 20 yards.

To add more power to your swing:

  1. Hold your original address posture throughout your backswing.
  2. Turn your shoulders to the top as far as you're able.
  3. Begin your downswing by turning your hips hard to the left (if you're a righty) as your back faces the target.

By leading with your hips - and separating your upper and lower body - you will naturally follow through with your shoulders, chest, arms, hands, and clubhead. If the shaft appears to bisect your right forearm when the club is parallel, you'll know your downswing is positioning the clubhead to approach the correct inside path.

Financial Question of the Week

Why do I need an estate plan?

The biggest reason to have an estate plan is to make sure that your personal values about both medical and financial matters are honored in the event that death or incapacity prevents you from acting for yourself. In addition, tax minimization is a further and very important goal of estate planning for persons with taxable estates. To create an estate plan for yourself or update an existing plan, you will most likely need the services of an estate planning attorney.

When you consult with an estate planning attorney, the attorney considers how you want assets distributed to heirs, what taxes your estate might be liable for and whether there are tax-minimization strategies that would be appropriate and appealing; what your preferences and values are with respect to the management of medical and financial affairs in the event of incapacity; and any complicating family issues. To deal with these issues, we often work with you and your attorney to help provide full and accurate information about you.

When an estate plan is formulated, be sure you understand what the attorney is saying. Estate planning ideas can be elusive, but strive for a working knowledge of the material presented for your consideration.

Please contact my office if you or someone you know would like help getting the estate planning process underway.