The Yield Curve
The biggest news to hit the financial media outlets this year is the “inverted yield curve.” The inversion has not only created uncertainty in the financial markets but has caused economic worries globally.
What is the Inverted Yield Curve?
The “yield curve” typically refers to the ten-year U.S. treasury yield minus the three-month U.S. treasury bill yield. As expected, the longer maturity treasury would offer more yield, or return, to investors than a shorter maturity treasury because there is a requirement to hold money for a longer period of time. However, sometimes the ten-year yield reduces and becomes less than the three-month yield. When the ten-year treasury offers less yield than the three-month treasury, the yield curve becomes inverted, and is labeled as an “inverted yield curve.”
Why is the Inverted Yield Curve Important?
Though uncommon, the inversion of the yield curve does happen. Historically, these occurrences are prior to economic recessions. Basically, the inverted yield curve has occurred prior to every recession since 1967. The market data shows that before every recession, there is an inversion, but the time before the recession can vary.
Considering that the inverted yield curve has occurred prior to every recession, there is a common misconception that it is an economic indicator of a recession.
Although the inverted yield curve occurs prior to recessions, they are not perceived to be the cause of recessions. The recession in early 2001 was a result of the overvaluation of the technology sector (dot-com bubble) and later exacerbated by the September 11th attacks. The recession labeled as the Great Recession was a result of sub-prime mortgage loans that eventually created a global financial crisis. Neither one of these recessions were directly or indirectly a result of the ten-year treasure yield.
Furthermore, the period between the inversion of the yield curve and the beginning of the last two recession varied from a few months to over a year.
What Will Happen Next?
The fact that the inverted yield curve has occurred prior to each recession since 1967 is irrefutable. Because of this, it is still generally interpreted as a market signal of slowed economic growth and an indicator of an economic cycle nearing a recessionary stage.
There remains considerable uncertainty about the global and U.S. economic outlook regardless of the recent news of the inverted yield curve.
The only certainty is that a well-diversified portfolio can help navigate the future months and years. It is as important as ever to focus on long-term retirement planning objectives.
“It’s a Jungle out There!”
Client Referral Rewards Program
At Beneficent Financial, we dare to be different in the financial world. We are advocates, and our job is to lead you out of the financial jungle into financial freedom. Therefore, we are excited to announce that our Referral Rewards Program this year will include a unique outdoor experience. Refer someone in 2019 who becomes a client and receive an invite to embark on a safari adventure with us in Malibu! From Malibu Wine Safaris, this open-aired tour of Saddle Rock Ranch & Vineyards includes a meet and greet with exotic animals, and a tasting of local area wines. Thanks to you, we were able to help 40 of your friends and family in 2018. In an effort to reach as many people as possible, we encourage you to keep spreading the word. Tell them to mention your name so we can include you in this celebration.
As always, thank you for not keeping us a secret!
Beneficent Financial Summer Women’s Day
On Sunday, August 11th, we hosted our Summer Women’s Day and potluck at the Ranch. This time around, our theme was focused on choosing happiness and making vision boards that reminded us of what makes us happy. Our instructor for the day, Mindfulness Coach Shannon Nicole Bobo created a beautiful nature Mandala on the lawn as a centerpiece for the guided meditation she led us through. Shannon helped us focus our minds on what happiness means to us, individually. The meditation served as an inspiration for the collages we made afterward. We ended by sharing and interpreting each other’s creations.
Meditation and mindfulness greatly improve one’s concentration and attention span. It has also been proven to reduce the rate of memory loss. Because of its effectiveness of reducing overall stress, meditation has been said to have anti-aging benefits. At Beneficent Financial, we take a holistic approach to improving our clients’ lives. That’s why we regularly host client events which allow us to socialize and get to know each other better.
We hope to see you at the next Women’s Day in the Fall on Sunday, November 17th.
Handing Over the Keys
Nothing strikes fear in the hearts of parents like handing over the car keys to their teenager for the first time. Not only is there concern about the teen’s safety, but also about how the new driver will affect their auto insurance. The most common question is how to minimize insurance premiums when adding the new teen driver to the parents’ auto policies.
Most major insurers offer discounts to teens who retain a minimum GPA or who complete a recognized safe-driving course. Another consideration is to increase the deductible while the new driver is gaining experience behind the wheel. If he/she maintains a clean driving record, the additional premium may decrease as they gain driving experience, and the parent can choose to lower the deductible later on. This may be a double-edged sword, considering that the possibility of an accident involving insurance is higher for a new, inexperienced driver. Even away at college, if the teen utilizes a car for school whether or not he/she is actively driving, an uninsured or underinsured driver can create a liability for damages or injuries incurred. Even if they drive only when they come home to visit, there may be a need to discuss the insurance needs for the proper coverage before a situation occurs that would cost more than the cost of the premiums.
Retirement Pitfall #24: Playing with Risk
The current market volatility is a good reminder to investors that a risky portfolio can create uncertainty in the months or years to come. This uncertainty becomes more of a concern when planning for retirement. As the source of an individual’s income shifts from employment to retirement assets, there is more of a reliance on those retirement assets and risk can play a huge part.
Large fluctuations in investment holdings, whether up or down, translates to less predictability when planning for retirement. Many retirees fail to reassess their risk tolerance and continue with the same investment strategy as when they were employed.
According to Morningstar® the S&P 500 experienced a 29.7% drop in just a three-month period between September 2008 and November 2008 and a 43.3% drop in a twelve-month period between March 2008 and February 2009.
Considering this occurred over ten years ago, some investors have forgotten the potential for such a devastating drop in their retirement investments. It seems unimaginable to lose nearly half of an individual’s hard-earned savings in just one year or almost a third in just three months.
When an individual’s dependence on retirement savings increases, managing risk and volatility is essential. Sound investors understand the need to reduce risk in their retirement portfolio. These retirees understand the key to retirement planning is not only diversifying investment holdings but also reducing risk.
A well-diversified portfolio with an appropriate level of risk can keep in line with inflation while growing in value to keep up with the needs of the retirement plan.
FALL WOMEN’S DAY NOVEMBER 17TH, 2019
We are hosting another exciting client appreciation day at the ranch. This fall we will have a chance to channel our inner rock star with a full body cardio-jam session.
Instead of just listening to music, we will become the music in this exhilarating workout which combines cardio, conditioning, and strength training with yoga and pilates-inspired movements. Designed for all fitness levels, POUND® provides the perfect atmosphere for letting loose, getting energized, toning up and rockin’ out!
This is another way we, at Beneficent Financial, show all our clients how much we value them. Not only is this a fitness event, but will be a great time, as all of our client appreciation events are, to allow clients time to share with one another. We invite all women to attend and enjoy another opportunity to connect with other like minded women.
We look forward to seeing you November 17th at the Ranch.
