Financial advisors in Troy NY

The Open Market Committee of the Federal Reserve (FOMC), the body that determines monetary policy, to include the direction of interest rates, concluded a regularly scheduled two-day meeting this past Wednesday during which they decided that a 0.75% increase in the Federal Funds rate was necessary to combat the recent surge in inflation. This can be defined as the rate charged between member FDIC banks for overnight loans of excess reserves and is the foundation from which many other rates of interest are predicated upon.

The latest marks the third consecutive increase. At the conclusion of the March 15-16, May 3-4 and June 15-16, 2022 meetings the Fed announced rate hikes of 0.25%, 0.50% and 0.75%, respectively. The latter marks the largest hike since 1994. Of interest is the fact that 1994, a year in which the Fed hiked the fed funds rate six times and in which the S&P 500 dropped 1.54%, set the stage for the second half of the 1990s. During this five year stretch the S&P 500’s worst year was one in which it increased a little over 20% and had a compounded annualized growth rate of 26.18%.

The official Federal Reserve Press Release noted the obvious, that “inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”

The statement also made reference to its statutory dual mandate which is to pursue maximum employment along with price stability, the latter of which is defined as an annual inflation rate of two percent.

To nobody’s surprise, it is price stability that has the Fed in a bind. As is measured by the Consumer and Producer Price Indexes, retail and wholesale inflation increased by 1.0% and 0.8% during May and by 8.6% and 10.8% over the trailing twelve months. In addition, housing prices have surged by more than twenty percent over that same time frame, five times the historic average.

Several months ago, prior to the invasion of Ukraine by Russia or China’s imposition of its “zero tolerance” policy in regard to addressing COVID in the country, we coined the word “seculatory” to describe our take on the nature of the inflationary pressures impacting the consumer. We believed then that some of these would be somewhat temporary while others would be longer lasting. Given the two unforeseen events noted at the head of this paragraph, we are currently of the belief that inflation will be somewhat longer lasting than we initially foresaw, but ultimately at less than half its current pace. We also believe that barring an additional black swan event, inflation will be peaking within the third quarter as the drag resulting from higher interest rates along with Quantitative Tightening begins to take hold.

A case for this can be illustrated by taking a look at mortgage rates. According to Bankrate, the average rate on a 30-year conventional fixed mortgage is hovering near 6%. Assuming a mortgage of $350,000, the monthly payment would have increased $622 or by $7,464/year as compared to one year ago when the interest rates charged on that same mortgage was averaging 3%.

Although we sincerely applaud the Fed’s recent stance on fighting inflation, in our opinion the Fed has to be careful to not tighten too much as monetary policy works with a lag. In addition, higher interest rates will do little to correct the disruptions in the supply chain other than through demand destruction. Too much of which will prevent the Fed’s much sought after soft landing. The Fed next meets on July 26-27 and then again on September 20-21. At this time we expect increases in the Fed Funds rate of 0.50% at each, but are hopeful that between now and September enough evidence of economic softening will have accumulated to necessitate only a 0.25% hike during that meeting.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

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A client recently called and asked if one of his children might be able to meet with us concerning their financial future. His son had finished his education this past May and taken a position with a local company. The client went on to say that his son was not that well versed in the financial world and asked us to provide some ideas or rules that might help him accumulate wealth. We certainly have had these requests before but thought it timely to put our thoughts into writing. So we put our heads together, consulted with the youngest of our group and came up with the following advice.

After much discussion we discovered that whatever you determine success to be will ultimately be achieved by having created and then followed habits that produce positive results, all the while modifying them as life progresses and keeping in mind that you will periodically fail but it is always important to recognize that failure is something from which to learn.

For the next two months keep track of every dime you spend. This will help you identify areas where the expense of something exceeds the satisfaction of the purchase. Along the same line, take more steps toward your goal than away from it. For example, if you discover that you are spending more days dining out than eating at home make a resolution to eat at home more often than not; or bring coffee from home more often than you buy it on the way to work; or to bring a bag lunch to work more often than you go out for lunch. This is a simple habit that can save you hundreds of dollars per year.

In this day and age, it is easy to get caught up in subscription services. Eliminate the subscription dinner delivery services, the monthly clothing choices delivered to your front door or the pick-up laundry and/or dry cleaning services. Mow your own lawn, do your own laundry and clean your own house. After all, you’re not Thurston Howell, III.

Consolidate your 401k, 403b or 457 plan from prior employers. Today, the average American changes jobs twelve times. By consolidating your former plans into your current one, you will have a better chance to maintain a cohesiveness investment strategy, one that will most likely result in better overall performance.

In conjunction with the above, when contributing to one of these plans, at least maximize the company match. Otherwise, you are leaving free money on the table.

Watch your pennies and the dollars will take care of themselves. Keep your investment expenses in line. Have a piece of your portfolio invested into index funds that have low internal management fees but are nonetheless still highly correlated to the underlying asset class. Furthermore, at a young age invest in broad based equity index funds with approximately 80% domestic with the balance invested internationally. Ignore the noise. Focus on the long-term.

Spend using cash or a debit card. Most credit cards charge usury rates above 15% and even if the rate is much lower if you can’t afford to make relatively small purchases from your budget than you probably shouldn’t purchase it anyway. It is also very helpful to work on immediately establishing and funding an emergency fund to use on EMERGENCIES so that you don’t have to replace your refrigerator by paying via high interest installment loans at the big box store or on your credit card.

Make purchasing decisions using both sides of your brain. The left side of your brain controls the logic (can I afford it) while the right has more to do with your imagination or desires. Generally speaking, you desire with your right and logically decide whether or not you pursue that desire (purchase) or not.

Steve Jobs once said that “simple can be harder than complex. You have to work hard to get your thinking clean to make it simple. But it’s worth it in the end because once you get there, you can move mountains.”

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

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Just as it pays to establish an escape route from your home in case of a fire, it pays to establish a disciplined plan of action pertaining to your investments, all the while keeping in mind that panic is not a strategy. It is with this in mind that we thought it was timely to provide a ten step program that might help you navigate these turbulent investment waters.

Step number one. Assess your current financial situation. Items to include your income, perceived job security, details of your pension plan, projected Social Security benefits, insurances (life, health, disability, property and casualty), real estate values, mortgage information and other debt.

Step number two. Get an historical perspective on this period in history. Is it really different this time or are in a phase in our history that will pass? Keep in mind that the stock market generally moves up over full economic cycle (five to ten-year period) with mini bulls and bears contained within and then moves sideways over the next period with mini bulls and bears in between. Until further notice and most likely until monetary policy becomes substantially more restrictive, despite the dramatic pullback during March and April, we believe that the equity market remains in an upward trend.

Step number three. Given the above, begin to determine your appropriate asset allocation. Some rules of thumb include the older you are, the more fixed income (bonds) you should include in your portfolio. The more guaranteed your pension plan, the closer you are to realizing the benefits of that plan, and to what extent that pension plan along with Social Security will meet your income needs during retirement, the more equities (stocks) one should include in their portfolio. The more prone you are to making emotional investment decisions, the more you should include fixed income investments. Keep in mind that the opposites of the above also hold true and that we are speaking in generalizations only.

Step number four. Sell the peripheral holdings. Get out of investments you don’t understand or investments that contain volatility that exceeds your temperament. These may include but are not limited to emerging market funds, aggressive growth funds, non-investment grade (junk) bonds, and small cap stocks. If a lack of risk tolerance is an issue, sell so that you can sleep at night.

Step number five. Hold some cash. Depending upon your situation, we believe that anywhere from zero to twenty-five percent of your account is appropriate. Too little and you may sell in panic. Too much and you are not moving toward your long-term goals.

Step number six. Buy some dividend paying stocks. Do you realize that the ten-year U.S. Treasury Note yields approximately 1.62% and that Proctor and Gamble stock yields 2.56%? Moreover, interest rates are near fifty year lows and P&G has not only paid, but increased its dividend every year for the past sixty years. With this in mind and assuming that P&G does NOT increase or decrease their dividend over the next ten years, should the stock decline twenty-five percent over this time frame you will still make a little money. A pool of these stocks sounds like a better alternative for long-term investors than money sitting at zero percent in your bank account.

Step number seven. Recognize that too many investors have their fingers on the sell trigger and too many investors have guns – in the form of their computer. Try to determine if perhaps you are one of those individuals that does not have the temperament or time to invest on your own. There is an old adage that says, “just because you can afford the ticket doesn’t mean you can fly the plane.” Simply put, yes, it is your money, but perhaps your time, talent and temperament are better spent elsewhere.

Step number eight. Be disciplined. Don’t chase the stock market on up days thinking that you have missed the boat. There will be many more boats to come around. The volatility will continue. Be patient and let the stock market come to you. What a novel idea, buying on the down days.

Step number nine. Gain some perspective. We’re in our fifties. If statistics hold true, that means we have only about twenty summers to enjoy. All that you can do is do your best and work toward reaching your goals. It is kind of like dieting and exercising, it is your best shot, but doesn’t promise anything.

Step number ten. Become an investor, not a day trader. The media wants you to act, act, act, by always yelling fire in a crowded room. Think of the preceding nine steps to gain perspective. Buy low, sell high. Sounds easy but is rarely accomplished by the retail crowd because they are often scared out of their investments at the wrong time. If history is any guide whatsoever, this is truly what will prevent you from reaching your goals.

Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.

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