Trump’s economic policies will affect wealth management, financial and retirement planning, average incomes, tax and trade policies, employment, and the quality of the labor market.

Here is the video.

Risk is an inherent part of any investment.

Since there is always the possibility an investment will decline in value, investors must identify the risks that can degrade returns and then develop a plan to minimize the effects of risk on their overall portfolio.

The key to controlling risk and portfolio volatility is asset allocation.

Asset allocation is a critical investment decision that can help you become wealthy but also help you keep your money by reducing risk.  Based on your time frame, needs, and risk tolerance, portfolio allocations are made by dividing your money between assets, such as stocks, bonds, commodities, and real estate.

This allocation process is critically important because one expert predicted that no matter what investment you pick, during your lifetime, any investment will fall in price by 50% to 70%.  For instance, in two recessions in the 1990s, each downturn caused a 50% stock market decline.

Risk, or the variability of achieving a specific investment return, relies on various factors, such as those related to one particular investment and the overall economy.

Economic risk comes from such factors as news about inflation, industrial production, Fed monetary policy, employment, consumer sentiment, and international events.

All of these factors influence the stock and bond markets in different ways.  By diversifying across asset classes, you can reduce investment risks affecting the variability of returns.  Investors who diversify but limit themselves to a single type of asset class, such as small-cap stocks, assume more risk than those who invest across different asset classes.  It’s also important to note that cryptocurrencies are not an asset class and have no functional role in diversification.

Since behavioral finance has found that most people fear losses more than gains, investors should divide their investments into more secure ones or potentially deliver more significant growth accompanied by higher risk.  This includes stocks and bonds but, surprisingly, not real estate.  That’s because home prices (adjusted for inflation) have not increased for about 100 years, except in market bubbles.  The caveat is that homes deliver tax advantages and, potentially, rental income.

Modern Portfolio Theory and Risk

Risk management today has its origins in Modern Portfolio Theory (MPT).  This Theory traces its roots to a paper written in 1952 by Harry Markowitz, who used statistical techniques to describe the efficient frontier concept.  It is considered so important that the paper earned him the Nobel Prize in Economics nearly four decades later.

In his short paper, as well as in other works, Markowitz proposed that the overall risk in any investment portfolio can be identified and managed by examining the risk relationships between combinations of investments.  The risk could be spread, or diversified by looking at these relationships throughout the portfolio.

In short, he proved that rather than looking at the risk of each asset, he showed that a diversified portfolio is less volatile than the total sum of its parts.  The entire portfolio’s volatility can be low, even though each asset might be pretty volatile and riskier.

This was a landmark concept.  By the early 1960s, Markowitz’s ideas were largely credited as the basis for MPT.  An essential part of this Theory is that risk can be managed through diversification and that a better risk-adjusted performing portfolio can be built using combinations of different assets.

One landmark study by Roger Ibbotson and Rex Sinquefield found that asset allocation policy is so vital that it determines more than 90% of a portfolio’s performance variability over time. (Copies of these important academic investment papers are contained in the book, The Handbook of Corporate Earnings Analysis.)  

Implementing a Diversification Plan

Portfolio diversification is achieved in numerous ways:

• Within an asset class, such as bonds (that include long-term, medium-term, government, municipal, and junk) and stocks (that include internal, large, small, and medium cap, dividend-paying, and international), and
• Between asset classes, such as a portfolio comprised of bonds, equities, ETFs, options, real estate, and precious metals, and;
• By using different strategies or exposures involving mutual funds and ETFs.

Identifying Risk

Thanks to MPT, several different ETFs and mutual funds today can deliver a diversified portfolio of investments, usually within a single asset class in a single fund and in a single purchase.

While Markowitz’s idea of MPT is over 50 years old, his Theory of linking risk to return has helped create an entire industry devoted to risk management.  For investors, this has made it possible to quantify a portfolio’s risk level, so investors should expect to get a higher return if they assume more risk.  That simple idea has re-shaped investing.

Asset allocation should be considered a risk-growth proposition.  This is because no asset class appreciates continuously, and since markets run in cycles, it’s possible to lose all gains without adjusting the portfolio.

Asset allocation is done by investing in the seven main asset classes–stocks (including ETFs), high-yield bonds, real estate, commodities, currencies, collectibles, and structured notes–across markets and in different time frames.  Many experts, such as John Bogle, the founder of Vanguard Funds, said the easiest way to get diversification is by investing in low-cost index funds, which provide a tax advantage and broad equity exposure.  That same strategy can be used via ETFs.

Building a Portfolio That Mirrors Your Risk Level

Each investor has to know their risk level before considering what type of portfolio to own or build.  The basic rule of thumb is that risk levels depend on age and comfort level.  Younger investors can take more risks because they will live longer and have more time in the market.  If younger people suffer a loss, they will have more time to recoup the decline.

Older investors do not have the luxury of time, plus they may be soon exiting out of the workforce.  This means they must preserve their investment principal since any losses will take longer to recover.  Time is not on the side of older investors in this situation.

So, with that in mind, here are some basic outlines of different risk-level portfolios for investors to consider.

What is a Conservative Portfolio?

The purpose of a conservative portfolio is to preserve capital and minimize the risk of loss.  In this example, portfolios are over-weighted with fixed-income instruments (including tax-free bonds) and money market funds, supplemented by large-cap stocks.  Conservative portfolios do not suffer the same price fluctuations as portfolios with riskier assets.  Investors with a short-term time horizon who want to preserve capital, are retired, or are approaching retirement often choose conservative portfolios.

What Is a Moderately Conservative Portfolio?

This portfolio is designed to generate income through dividends and bond coupon payments while preserving capital.  It can also include Treasury Insured Protection Notes (TIPs) that provide inflation protection.

What Is a Moderately Aggressive Portfolio?

Also known as a “balanced portfolio” with a near-equal mix of stocks and bonds, this portfolio is commonly known as the 60%-40% portfolio and has a mix between growth stocks and income-producing bonds and cash.  It is best suited for investors with moderate risk tolerance and a longer (more significant than five-year) time horizon.

What Is an Aggressive Portfolio?

To achieve more significant growth and capital appreciation, this portfolio has greater exposure to equities, especially small-cap and international equities with higher risk exposures.  This portfolio is better suited to younger investors early in their careers and can withstand any short-term losses that can be rebuilt over time.

What Is a Very Aggressive Portfolio?

This portfolio is for investors with the most prolonged time before retirement and more incredible risk appetites.  It includes the highest percentage of equities and more volatile instruments, such as leveraged instruments, and exposure to more exotic asset classes via ETFs with exposure to emerging markets, small-cap stocks, and international bonds.  The goal here is to generate the highest possible capital appreciation over time.  It is best suited for people with solid risk tolerances who can accept the risk of losing some of their money.

Managing Risk in a Fixed Income Portfolio

Fixed-income portions of portfolios are subject to different market situations which affect prices.  In a rising interest rate environment, investors in bond funds of all maturities will see their principal decrease while their yields remain at their current low historical levels.  For instance, 30-year bonds may yield about 4.3%, but investors have to assume more risk to get that yield.  If investors want bond yields in the 6% to 7% range, bondholders should shorten their maturities to three months.

While bonds are less volatile than stocks, the push into bonds is not risk-free.  In the past, fixed-income investors should recognize that a bond fund’s total return is attributable to capital appreciation and yield.  But today, yields on the 30-year bond range are around 4%.  This has made capital appreciation the main engine for propelling bond funds higher in price.

However, betting on appreciation carries risks related to capital losses versus the current yield.  Individual investors often pursue under-valued assets, or higher-risk assets, such as high-yield bond funds, to generate income.  However, the problem is that bond funds sell bonds as they reach maturity and replace them with similar bonds that will mature later.  The better choice is for investors to buy individual bonds, not bond funds, and hold them to maturity when they return their face dollar amount.

However, since many individual investors do not buy individual bonds, they should diversify across the fixed-income investment category to include high-yield, corporate, municipal, and international bond funds.  This type of exposure is available in mutual funds (Franklin Total Return Fund and the JP Morgan Income Fund) and ETFs (Vanguard Total Bond Market ETF (BND) and the Invesco Total Return Bond ETF).

“Soft” retirement means “I’ll never have enough money to retire or buy a house, so why bother.”

As someone who has been writing about retirement since the late 1970s, I can safely say that I have never written a positive story in about 50 years that says older Americans will be more financially secure in their retirement.

If anything, the decades-long downward trend shows that retirement will be more financially insecure for more Americans than ever in the years ahead.

Numerous studies show the following:

• The long-term trend is that Americans are saving less for retirement than in previous years;
• Americans score low in financial and political literacy tests, so they are not making the right decisions to prepare for retirement;
• Despite meager efforts by employers to educate employees about their 401(k) retirement plans, many employees continue to over-trade their accounts, which decreases their values.
• Even for employees who are diligent about saving for retirement, inflation and other life events (divorce, COVID, automation, student loan repayments, inflation, reduced hours) are causing them to withdraw (loans) from their retirement accounts. This further reduces long-term returns.
• The 20-year trend of replacing employer pension plans with self-directed 401(k) plans results in smaller retirement accounts and amateurs making lousy investment decisions. All of this only increases financial insecurity.
• Federal efforts to make future retirees more secure have been limited and are built on offering tax benefits to contributors. Still, too often, these benefits only affect those with the disposable income to make retirement plan contributions.
• Republicans have systematically eroded agencies and programs that help average consumers and investors. This includes efforts to defund the Consumer Finance Protection Board and cut the SEC, CFTC, IRS, and DOL budgets.

The Wealth Gap Widens

What the investment industry cannot confront is that the wealth gap between rich and poor has only increased in the past few decades.

This has raised questions about how well the capitalist system works, the role of money in politics, and how long an oligopoly can dominate American society before the democratic experiments accelerate its descent.

Recent developments have also shown how unregulated capitalism works against average investors, eroding job security and even the quality of life through real estate overdevelopment.

The reason why the financial services industry (banks, investment firms, fund companies, insurance firms, derivatives, hedge funds, private equity, and real estate firms) cannot address the fundamental issues that affect the ability of Americans to have a secure financial future stems from a few reasons:

• The financial industry is bifurcated; select firms only want wealthy clients (those with investments of at least $2 million), while other advisory services are aimed at the masses.
• Since it would antagonize their ultra-wealth management departments, the investment industry does not want to address the wealth gap and the need for higher taxes on the wealthy (their most profitable clients. The financial services industry uses fees taken from their small account investors. It uses that money to support lobbying groups pushing for regulations and legislation, making average Americans poorer and more disadvantaged.  In short, the financial services industry lobbies against its customers.  This is done through about 20 major lobbying groups, including the Securities Industry and Financial Markets Association, American Bankers Association, Bond Dealers of America, Financial Services Institute, Financial Services Roundtable, and the Investment Company Institute.  Right-wing think tanks about push for more deregulation.
• Financial literacy programs have fallen short of improving the ability of average investors to make positive, long-term investment decisions. The market is too complicated; advice from the media and social media sources are tainted, short-term, and come from non-qualified sources.  This is why Americans rank low in global financial and political literacy studies.
• American minorities are facing an unrelenting inability to close the wealth gap with white citizens. According to the Institute for Policy Studies, “If average Black family wealth continues to grow at the same pace it has over the past three decades, it would take Black families 228 years to amass the same amount of wealth White families [had in 2013].  That’s just 17 years shorter than the 245-year span of slavery in this country.  For the average Latino family, it would take 84 years to amass the same amount of wealth White families [had in 2013]—that’s the year 2097.
• The financial services industry has an untenable PR problem: it advertises that it wants to help average investors plan for their financial future. However, its lobbying efforts have the exact opposite effect.  The net result is total gridlock of economic reform. This includes the ERISA conflict-of-interest regulations, which the industry opposed in a multi-million lobbying campaign for about a decade.  The industry’s opposition to any federal or state agency that protects consumers from predatory financial practices is also evident.

In short, well-meaning, naïve small investors are being victimized by the lobbying groups of their investment firms, insurance companies, and mutual fund companies.

Younger People Want a Different Financial Future

With these trends clearly evident, younger Americans have seen the writing on the wall and do not like it.  They are adopting a new investment planning outlook.

This outlook means they are jumping off the Puritanical “save for the future” treadmill and opting for “soft savings.”

In a new study by Intuit, “soft savings” is being done by people aged ages 18 to 25 (so-called Generation Z) who “embrace comfort and low stress, prioritizing personal growth and mental wellness.”  Every report tries to create its jargon to be a little different, and in this one, “soft savings” has a subtext to it that young investors are questioning the future of the American Dream. 

The study omits that this age group has realized that they will probably never have enough money for retirement or possibly to buy a house in the near future, so they better put their delayed gratification off of the delay mode and enjoy life today.  This means more money spent on bobbies and travel, the study found, even though most Gen Zers live within their means.

The report said “soft savings” found that 75%of this group would rather have a better life today than money in the bank.

The report quotes people from significant investment firms (Fidelity, Blackrock).  Still, as expected, they never address the widening wealth gap situation or any of the political factors that have reshaped the ability of younger people to save.  Instead, the study found that Gen Z people want to invest in Environmental, Social, and Governance (ESG) types of ETFs and mutual funds, which is what the sponsors of the study offer.

Like scores of other financial studies sponsored by the industry, this study has a very myopic scope.  It does not address any political-economy issues that are the driving force behind this change in attitude by Gen Z. It does not address the widening wealth gap, tax loopholes, gig economy risks, and the inability of Gen Z to become homeowners realistically.  This last action—buying a home—is the most significant contributor to long-term wealth creation in American life, but it is not mentioned as a significant reason for financial insecurity among younger investors.

The Bottom Line: Nothing Has Changed

The more it changes, the more it’s the same as an old saying, which is true for the new “soft savings” behavior.

Gen Z has recognized, and this study does not include, that elected officials, top investment management, and industry lobbyists control the investing industry.  It’s a system geared to the wealthy.

Average, small account investors are the small fish in the water.  They will have increased access to their smaller accounts via chatbots, AI, and robotic investment analysis for portfolio allocations.  These are adequate for smaller accounts, but they do not address the larger political and economic decisions that can erode annual gains and the ability to accumulate wealth over time via unfavorable tax rates, job insecurity, and less regulation.

One of the essential decisions that the average American should make in 2024 is to protect their financial assets and join a credit union.

Credit unions are member-owned non-profits that are locally focused and offer many of the same services that large national banks provide. Because they are non-profits, they share any profits among their member-depositors.

Credit unions are not publicly traded, and because of their non-profit structure, they offer members lower rates than for-profit banks. They have fewer physical branches to keep costs down and rely more on ATMs locally and nationwide. Since they are not publicly traded, credit unions only have to make enough money to continue daily operations. 

While they are not as well publicized as other massive, global financial and investment institutions, credit unions are designed for average citizens and focus on their essential individual and business investment needs, unlike multinational banks.

Global banks make a large percentage of profits from trading, making international finance deals, mergers and acquisitions, and financial engineering deals that have nothing to do with advancing the financial needs of average Americans.

Today, about 5,000 credit unions operate in every state and many large metropolitan areas. Various sources rank credit unions in terms of their scope of services and competitive rates, so check to see which is right for you. Click here to see a complete list of credit unions nationally.

Membership in Credit Unions

While credit unions often have titles from a partnership or professional group, many are open to anyone. For instance, BECU (the Boeing Employees Credit Union, one of the largest in the US) is open to anyone.

To open an account at a credit union, you must first open an account, often for a nominal amount. When you do, you become a member and a partial owner. However, unlike publicly traded banks, where voting depends on how many shares you own, everyone in a credit union has one vote in determining the board of directors and other actions that affect the credit union. 

According to the National Credit Union Association (NCUA), about 122 million Americans will be credit union members in 2022. The NCUA is federally insured, similar to the Federal Deposit Insurance Corporation (FDIC), which governs for-profit banks.

Credit Unions are Scandal Free

By design, credit unions are more aligned with their members. This is the opposite of for-profit, global banks that pursue profits to generate more income quarterly for their shareholders.

Most importantly, credit unions have avoided the scandals and huge fines levied against national banks by federal and state regulators because they do not have to meet quarterly financial goals for their investors. This is why significant banks, such as Chase, Wells Fargo, and Citibank, make headlines for the huge fines levied against them. Worse, fines were imposed because the central banks were victimizing their customers.

Here are the fines made by federal regulators against US banks in 2022 by the Biden administration:

The institutions that were hit with the most significant penalties are as follows:

• Bank of America: $225 million
• Citigroup: $200 million
• Goldman Sachs: $200 million
• Morgan Stanley: $200 million
• Credit Suisse: $200 million
• Barclays: $200 million
• Deutsche Bank: $200 million
• Nomura: $100 million

Consider These Fines on Financial Crimes

Many major banks that have been the subject of huge fines from regulators are repeat offenders. Their DNA prevents them from acting in the best interests of individual customers because they do not generate profits from investment banks, trading, deal-making, bond activities, IPOs, and the like.

That’s why this short list of fines shows the lengths global banks will go to to meet corporate profitability benchmarks, including victimizing their customers.

• In 2022, Wells Fargo’s years-long mistreatment of its customers resulted in another record-breaking fine and a warning that more restrictions on its ability to do business could soon follow.

In December 2022, “the bank agreed to pay $1.7 billion in penalties and another $2 billion in damages to settle claims that it engaged in an array of banking violations over the last decade that harmed millions of consumers, the Consumer Financial Protection Bureau said, according to the New York Times.

Wells Fargo is a repeat offender. In 2016, Wells Fargo admitted to selling insurance policies to unsuspecting customers, forcing the bank to pay $185 million in fines. The policies were “sold predominantly to individuals with Hispanic-sounding last names concentrated in Southern California, southern Texas, southern Arizona, and southern Florida,” the lawsuit states. According to the bank’s disclosures, those four states also accounted for most of the sham accounts created by Wells Fargo’s employees.

• In 2011, Citigroup Inc. and Deutsche Bank deceived credit unions about the dangers of buying risky credit derivatives tied to subprime mortgages. After the banks were convicted, they agreed to pay $165.5 million to settle federal regulators’ claims that they misled five failed credit unions about the risk of mortgage securities.

Citigroup will pay $20.5 million, and Deutsche Bank will pay $145 million. Neither admit nor deny wrongdoing.

• In 2021, the SEC and CFTC fined JPMorgan Chase $200 million last year for various financial violations.

Rage Against the Machine: Join a Credit Union in 2023

Suppose you are an individual consumer or small business owner. In that case, you can do a minimum of research and find that credit unions’ goals and business operations align better with yours. If you have an account with a significant nationwide bank that has paid millions in fines over the last decade, it’s clear their interests do not favor individuals. So, make the break and join a credit union.

That’s one of the conclusions of a new survey conducted by the Travis Credit Union, Pleasant Hill, California, of 2,052 Americans. The survey’s goal was to learn more about the retail trading boom, their favorite financial apps, and how they fund their trading accounts. It also tried to determine their overall knowledge about investment strategies.

The survey adds more evidence that the financial literacy level of the Americans in this survey group, at least, is a little confused, subject to advertising and media hype, and focused on short-term trading rather than long-term funding of retirement.

The survey results also have bad news for professional investment advisors: This survey group largely ignores this group of non-media, more experienced financial advisors.  Instead, they rely on media personalities, such as Dave Ramsey, Suze Orman, and Jim Cramer, who were named by 37% of respondents. Traditional investment advisors should also note that this survey group received their investment advice equally from social media, traditional media, friends, and family.

The survey also found that 25% of day traders had little or no education about investment strategies.

Among the other survey results are:

• 57% of respondents said they feel the retail trading boom is excellent, only 10% find it problematic, and 33% have no strong opinion.
• 80% of users say they feel empowered by no-fee trading apps.
• 57% of people using trading apps say they’ve started within the past year.
• The favorite trading apps (in this order) were Robinhood, E*TRADE, WeBull, Fidelity, TD Ameritrade, Charles Schwab, and SoFi.
• Many respondents are not making significant investments via these apps. One in four have invested less than $500, and another 44% have invested less than $5,000.

Since the recent fintech trading boom coincided with the historic COVID pandemic, it is unsurprising that most people surveyed funded their accounts with “extra spending money,” and over 50% invested “some or all of their savings in the market” using fintech apps.

As an indication of the survey group’s demographics and financial situation, most investments made via apps were small:  25% invested less than $500, and another 44% invested less than $5,000. 

Federal COVID-related stimulus checks funded some of this activity. When asked how these checks were used, 34% said they paid bills, 31% put the money in savings, 19% invested in the stock market, and about 1% gave money to charity.

Financial security and insecurity are also critical issues among those surveyed, especially noting the impact of social media. When asked about their financial health and wellness, the survey found that “people are sensitive to perceptions of others’ wealth and how they measure up.”

The survey then asked people how social media impacts their self-perceptions about wealth. The American tradition of “keeping up with the Jones” is still alive. Social media made respondents feel insecure about how much money they have,” so 54% of millennials and 64% of Gen Z said they felt insecure about money because of social media.

Americans Have Poor Financial Literacy for a Reason

Americans of all ages have a shallow level of financial literacy. This means they were susceptible to hype about SPACs, IPOs, and individual stock performance and unaware of the impact of leverage in options and buying on margin.

While the U.S. is the world’s largest economy, the Standard & Poor’s Global Financial Literacy Survey ranked the U.S. 14th (tied with Switzerland) when measuring the proportion of financially literate adults. “To put that into perspective: the U.S. adult financial literacy level, at 57%, is only slightly higher than that of Botswana, whose economy is 1,127% smaller,” according to an article in Investment News.

A 2016 Financial Industry Regulatory Authority Investor Education Foundation study found that risk management was one of the lowest areas of financial knowledge. An invezz.com survey also found that Americans who want to invest in stocks are being held back by their own financial illiteracy. The study found that about 72% of Americans who want to invest say they lack the financial knowledge to make an intelligent investment.

Worse, some unethical financial websites promote SPACs and IPOs with poor long-term returns for most average investors.

All this was happening against a backdrop that showed these new investors, many Millennials, were not conducting any risk analysis. Worse, when they saw profits, they were confusing temporarily good returns for long-term wealth creation.  The two are not the same.

…the U.S. adult financial literacy level, at 57%, is only slightly higher than that of Botswana, whose economy is 1,127% smaller.

Under the existing financial literacy teaching curriculum, when available, average investors are taught that their wealth creation abilities depend on their ability to understand the stock and bond markets and manage portfolios and expenses. However, as any investment professional knows, this is only a tiny part of any wealth creation process.

The key to wealth creation is wage growth (based on gains in productivity and human capital) accompanied by expense management and homeownership. Conversely, the most significant detriment to wealth creation has been neoliberal policies, including wage stagnation, accompanied to a lesser degree by globalization, technology, and a global rise of a more competitive and cheaper workforce.

Is Financial Illiteracy Intentional?

Since political economy deals with wealth, power, labor, and capital, it is a highly charged topic. Wealth, power, labor, and capital are not terms you’ll hear on CNBC, MSNBC, and FOX. Today, the political economy centers on the highly unequal distribution of wealth and power, topics not conducive to discussions in the corporate cafeteria or cubicle land.

This intentional avoidance happens because the vortex of the anti-retiree and anti-individual investor political philosophy is directly tied to neoliberalism.

The reason why investors don’t have enough money in their retirement accounts after decades of work is primarily not due to poor budgeting or frivolous spending (although that is encouraged in a consumer society.) It’s because people don’t have enough money coming in after working years on the job.

As cited in the paper, “The Neoliberal Political Economy and Erosion of Retirement Security,” by Larry Polivka and Luo Baozhen (The Gerontologist. April 1, 2015; 55(2):190)

“Neoliberalism is fundamentally designed to reduce costs to the corporate sector, including a reduction in labor costs (wages, pensions, and health care benefits) and to enhance profits. Neoliberal priorities also include low tax rates on income and wealth, which limits fiscal options for ensuring the solvency of the Social Security and Medicare programs, even as their importance grows. In short, understanding the challenges confronting our retirement security programs requires an analysis of the shift in the U.S. political economy towards neoliberalism and its differential impact on workers, retirees, investors, and corporate management.”

If this sounds familiar, it should. While primary financial education is essential, it is deficient if it is not paired with explaining today’s political realities. Without this political education, those who teach financial literacy only address why their students or clients will not have upward economic mobility.

Today, those teaching financial literacy only address a small and politically safe part of the problem, not its cause. Just as no conscientious doctor would only treat a patient’s symptoms, those who teach financial literacy must treat the cause (neoliberalism), not the symptoms.

If you think the economic recovery prompted by the many effects of the COVID virus will be like past economic recoveries, think again.

This is a global event and it has happened at unprecedented speed worldwide. It is a delayed virus and affects people who gather in groups.

Now, predicting economic recoveries is a tough task, but in this podcast economist, Nouriel Roubini gathers the current data and makes economic and market forecasts that incorporate real-world economic and financial conditions faced by average people and their employers.

The reality is that many people will not get their old jobs back, restaurants will go out of business, and people will be spending much less.  It is recessionary and deflationary in the short-term, he said. People will become part-time workers or unemployed, plus they will have huge amounts of debt.  This means average Americans will be spending less, and they will have diminished savings.

Listen to the Podcast here.

This is a pessimistic economic forecast, but with income gaps at their largest levels in modern times, accompanied by poor savings rates, unprecedented Fed bailout activities, and job insecurity, this forecast seems to align with current economic dynamics and household financial situations.

This will also have a huge impact on wealth management and financial planning, so advisors should take note and become more realistic in their client discussions.  The future will not be like the Never-Never Land discussions of years past.  Ask Disney Corporation if you don’t believe this.

Listen to this economic forecast here.  

The current global coronavirus pandemic is impacting all aspects of social, economic and mental health, but it’s also impacting the retirement security of millions of Americans.

The reason is that housing, including rental expenses and the level of homeownership, have all been negatively affected by the viruses’ economic impact.

Homeownership is one of the greatest engines behind retirement wealth creation. Along with 401(k)s, pensions, savings, and Social Security, housing equity completes the formula for how much money most Americans will have to fund their retirements.

But all that is now changing.

And, if the 2008 recession is any indicator, these changes could evolve over the next decade and impact all income groups.

Delayed Home Purchases Are Now Here

These changes will cause many first-time homebuyers to delay purchases. Job insecurity, no money for down payments, and constriction in housing and rental inventories will keep costs near their present levels.  For people graduating in a period of economic uncertainty, the Gen Z group, the impact will be even worse and could shape their homeownership expectations for years to come.

Homeownership inequality will also increase by income groups, according to Chief Economist at Apartment List, Igor Popov.  This will hit low-income groups the hardest. “Since 2008, the bottom ten percent of earners have seen their housing costs rise, while the richest quarter of the population has actually seen their housing costs fall,” Popov wrote.

“The pandemic’s economic effects are likely to accelerate this trend. Over the next two years, higher earners will take advantage of low borrowing costs for refinancing and abundant luxury rental inventory, while lower-income households will struggle with economic uncertainty and even greater competition for an already tight inventory of affordable housing. “

Home Ownership Trend is Declining Worldwide

Many housing experts point to the 2008 mortgage and derivatives fraud recession as being the starting point for the decline in homeownership trends in the US. However, this decline started decades before in the US and Europe.  A paper, The End of Mass Homeownership? Changes in Labour Markets and Housing Tenure Opportunities Across Europe, by Rowan Arundel, of the University of Amsterdam and John Doling, of the University of Birmingham, found that job insecurity has emerged as the leading reason why people cannot make the financial commitment a mortgage entails.

The authors wrote: “One particular dimension of this has been a fundamental and long-term shift in the nature of labour markets in terms of both the security of employment and financial rewards of work to growing sections of the labour market. To varying extents in different advanced economies, these changes have increasingly eroded the flow of people gaining well-paid and secure jobs, especially among younger people.”

The “dominance of homeownership” was also evident in the USA, Australia, Canada, and East Asia, but all of these areas have seen the trend reverse since the 2008 recession.

The reasons for the declines are common: higher unemployment, underemployment, contract insecurity or increasing disparities in job rewards, especially due to gains in productivity compared to wage increases paid to workers. “The broad effect has been to reduce the proportion of national populations that have well-paid and secure jobs,” the authors said, and these are the primary reasons why mortgages are approved.

In terms of retirement planning, the decline in homeownership also parallels rising polarity between salaries, with growth in lower-paid jobs and higher-paid jobs occurring at the same time that jobs paying medium wages decreased. This applies to the US, and “the data points to distinct polarization across these 16 countries (in the EU 15) with the highest and lowest paid occupational groups increasing their share of employment by 6% and 2% points respectively, while the medium-paid group decreased by 8% points,” the paper said.

Time for More Realistic Retirement Planning

People planning for retirement also report their retirement nest eggs are paltry. A survey by the Employee Benefit Research Institute found that 40% of those surveyed said the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000. This includes 19% who have less than $1,000 in savings.

For those who own homes and hope for significant appreciation in the future, the virus has already slowed down that process. A CNN article from January 2020 said housing price increases have already stalled. And that was before the virus outbreak in the US began around January 2020. According to the article, “the weakness in home price growth is likely to continue in 2020 as sales could decline by 1.8%. That’s alarming because lower home sales in a tight supply environment could force sellers to reduce prices.”

Post-virus, housing prices should decline more, accompanied by more reluctant home buyers or those who cannot qualify for a mortgage. This also will change the job market. “Life as we knew it has now changed abruptly and drastically for an unknown period, as was the case after 9/11,” according to Hilco. 

Another piece of bad news is that workers lucky enough to have public pensions are seeing their benefit payments decrease, even despite the record run-up in the stock market.

A Forbes article by Edward Siedle, found that the S&P 500 bull market that crashed March 13, 2020, after an 11-year historic run that returned 400%, did not result in an increase in public pension benefits. The article found that “public pension benefits were not increased one iota over the period.” In fact, it was just the opposite; the bull market did not increase benefits, but since the 2008 recession about 50% of all states cut pension benefits.

The lesson for average public employee workers is that the states don’t increase your benefits in good times, but decrease your benefits any chance they get, regardless of the returns in the stock market.

Retirement planning professions, inside of corporate HR departments and outside, should inject these new realities into their client discussions. Discussing the old, hackneyed truisms of asset allocations and risk tolerances alone, outside of this new virus-impact context, is misleading happy talk that misleads clients about their long-term retirement sustainability.

As the Trump Administration continues to steamroll democratic institutions, accompanied by concerns about the income gap, wage stagnation and economic security continue, financial advisors have a choice:

They can continue to provide clients with financial plans based on a no- or small-wage growth scenario, accompanied by admonitions to save more and reduce expenses, while contributing more to a diversified 401(k) plan.

Or, they can create prudent, long-term financial plans for retirement and wealth building while also pushing for progressive, national economic reforms that will create wealth on a much larger scale.

One of the basic goals of all financial advisors is to work with clients who are growing their wealth. This propels the entire economy. At the local level, it creates a win-win situation for clients and advisors as wealth is created.

But as recent history over the past 30-plus years has shown, political and fiscal policies are intertwined with corporate economic power, often to the detriment of average Americans.

This is more true today than ever. But more importantly, how can this be corrected for the benefit of average investors?

One alternative is to link progressive thinking individual investors with like-minded financial advisors to advance a progressive economic agenda. This can be done through existing investments (such as, low-cost funds and ETFs or socially responsible mutual funds) accompanied by focused efforts aimed at specific issues (such as closing tax loopholes for corporations who want to hide profits overseas and avoid taxes.)

Yet, while there are millions of individual investors who are political progressives, there are fewer progressive financial advisors, or at least they have not publicly identified themselves.

This makes it more difficult to connect progressive individual investors with RIAs and investment firms that adhere to the fiduciary standard and progressive political goals.

What is a Progressive Financial Advisor?

The role of progressive financial advisors (PFA) is to advocate for progressive political positions that are now resonating with millions of individual Americans. These are issues that have largely by-passed the political and corporate establishment.

Evidence of this is seen in the raw popularity of both Senator Bernie Sanders and Donald Trump.  For different reasons, both have tapped into the unsettled, seething attitudes of many Americans who have either not enjoyed financial security or been forced to serve as silent witnesses to the mismanagement of America’s political, economic and military systems.

So while these are often considered purely political problems, financial advisors know these are problems that affect their clients every day.

This is why some financial advisors should consider becoming PFA. Then, these advisors can include today’s political issues directly into their financial practices and advice.

Not only will this align PFA with like-minded individual investors, but it will also differentiate certain practices from other advisors who just offer advice without ever addressing the macro-political-economic events that shape all current financial plans for 99% of all Americans.

Individual investors who are progressives and link with PFAs should both benefit as they pursue positive financial gains while also advancing a progressive political agenda.

Advancing the Progressive Economic Agenda

While many individual investors may back away from aligning their choice of a financial advisor based on sharing political beliefs anathema or foreign, it is not an uncommon practice.

Injecting politics into the financial advisory business has existed for decades, as evidenced by the huge lobbying money financial services and insurance companies have been directing into anti-investor laws and regulations for decades.  

Today, the financial services industry (comprised of insurance, securities and investment companies) is the nation’s largest lobbying force and spent $3.45 billion from 1998 to 2015, according to www.opensecrets.org.  In 2015 alone, the securities and investment industry spent $48 million to advance their own interests over those of individual investors, according to the same source.

At a different level, injecting an outside philosophy into providing investment advice has existed for decades among the religious right. There are many Christian-oriented financial advisory firms which promote investment advice aligned with biblical scripture and teachings.

Niche marketing is also an accepted marketing strategy. Financial advisors who have cultivated a following among gays have existed for decades.  Similarly, the progressive political movement has fostered many financial endeavors, such as co-ops, building and loan societies, fraternal lending associations, and social investing. However, these have not existed in a formalized way among progressive advisors working with like-mined individual investors.

So while the PFA suggestion is admittedly a novel and undeveloped idea, it may also be an idea who time has come; a time for a few intrepid independent investors and financial advisors to think out of the box.

So for those few, here are the progressive ideas to promote in a PFA practice. Each can be built into a module as part of a larger presentation and as a way to lead into a product or strategy discussion.

If you are a progressive advisor and a RIA, consider a listing on this web site to promote your practice. For more information see the Listing tab on the home page.

In the U.S., here are some retirement-related news events worth noting:

Americans Not Saving Enough for Retirement; 40% Have Saved Nothing

A  new study by Fidelity found that as of  Q2 2018, most 50-something Americans between 50 and 59 years old with a 401(k) had an average balance of $174,200 and were contributing 10% of their paychecks. On average, employers were matching 4.9%, putting the total savings rate for this group at 14.9%. While this is an improvement over the past years, Fidelity said “their nest egg may not be big enough: If you earn $50,000 a year, you should have $300,000 in savings by age 50. If you earn $75,000 a year, you should have $450,000 in savings by 50.” But there is also bad news:  GOBankingRates found in a 2017 report that 40% of older Gen Xers (those aged 45-54) and 33% of baby boomers (55-64) have no retirement savings. 

Financial Pros Should Recognize That the Retirement Crisis Is Now Permanent

Financial professionals should recognize that the lack of retirement savings is now a permanent feature of American society.  In this article on this site, it is evident that most Americans cannot retire with any sense of financial security. If you want to build your practice on trying to find clients with $1 million in assets, your search is going to become more difficult. Current Republican policies will not grow your business over time, so maybe it is time to re-think your business philosophy and work to grow the economy for all and this means much more than just passing a temporary tax cut.

Concern over retirement security is a major concern for Americans. A poll by Prudential Financial found that American workers rank retirement security as the top issue they want Congressional candidates to talk about in upcoming national and local elections in 2018. The survey of 2,000 respondents found that 80% thought this was the most important issue followed by job security (75%), taxes (74%), workforce development (70%), the minimum wage (67%), and college costs (61%).

Income inequality is a major factor that hurts all democracies, but it not only affects people who are working, but also those who have retired.  A new study by the Urban Institute found that since Social Security benefits are based on the amount of income earned during a worker’s lifetime,  that amount also translates into a skewed retirement benefit (as a result of the wage gap) that continues into retirement.

When inflation is added into the formula, that gap only increases. A story on CNBC said “People who fall near the bottom of income distribution, after factoring in inflation, have actually seen their wages decline over the past few decades, according to the institute.”

This gap means people aged 67 to 75 in the top fifth of the income distribution will see their income increase by 3% in 2045, 5% in 2065 and 7% in 2085, the researchers found.

“On the other hand, those aged 67 to 75 in the bottom fifth of the income distribution will see their income fall by 3% in 2045, 6% in 2065 and 13% in 2085.”

And even worse, no politicians are even addressing the permanent retirement financial crisis.

Fiduciary standard still under fire after a decade of lobbying. The move to give average investors an even break when it comes to getting objective product advice from financial advisors is still under attack from the Republican-dominated SEC and Congress.

New report cites need for conflict-of-interest protections. A new report from the Public Investors Arbitration Bar Association (PIABA) suggests 12 specific ways to improve conflict-of-interest protections, protect investors’ best interests, and ensure adequate and clear disclosure to investors. Written by attorneys Andrew Stoltmann, Chicago, Ill. and Melinda Steuer, Sacramento, Calif., the report addresses deficiencies in the SEC’s “best interests” standard for financial firms and brokers who provide financial advice and products to individual investors.

The report states: “There is an overwhelming need for a strong, investor centric best interest standard. Americans are woefully unprepared for retirement and meeting other financial goals. Decades of conflicted advice and high fee investments by brokerage firms directly led to this crisis. Half of all Americans have less than $10,000 in savings, and nearly half of the oldest Baby Boomers are at risk of not having sufficient retirement resources to pay for basic retirement expenses and healthcare costs.⁴ The Center for Retirement Research at Boston College estimates that our “retirement income deficit” is $6.6 trillion. That number represents the gap between the pension and retirement savings that American households have today and what they should have today to maintain their standard of living in retirement.”

Along with income inequality, the demise of pensions, job insecurity and stagnant real wages, the conflicts-of-interest that underlie the financial services business have also pushed unsuspecting, uninformed individual investors into high-priced financial products that benefit brokers and financial firms more than the retiree. For instance, as noted in my book,

revenue sharing and 12b-1 fees alone costs individual investors at least $9 billion annually. The SEC’s foot dragging on the fiduciary standard (a basic plea for transparency and disclosure to show conflicts-of-interest) shows how the financial industry continues to work against its own clients.

Re-visiting revenue sharing.  Most 401(k) and pension plan participants don’t know the first thing about an old, established conflict-of-interest that is widespread in the financial business. That practice is revenue sharing. If you don’t know about it, you should since it certainly hurts the net returns of average investors.

Revenue sharing is covered in my book How 401(k) Fees Destroy Wealth, but it is was posted in LinkedIn by attorney and pension expert Chris Tobe in an article from Plan Sponsor. Basically, revenue sharing is defined as “the secret sauce that makes plan economics work.” In this case, the article is aimed at the companies that are plan sponsors, or those which create and manage 401(k) and pension plans. But revenue sharing is a core sales practice and it extends to mutual funds, annuities and most financial products that are sold to investors in or out of a retirement plan.

As this relates to 12b-1 fees, the article notes that “12b-1 fees being paid directly to the broker, there are two issues that should be of concern to the plan’s fiduciaries.  They both center on the reasonableness issue.  How much are they getting, and what are they doing to earn it?  Since it’s going directly from the fund company to the broker, you can’t intercept this money.  The broker is going to get it.  So, the question turns to the value the plan is receiving from the broker.  Some brokers earn their keep and others are largely absent.”

This raises the fiduciary issue again (the same one the SEC has been debating for the last decade), and it may mean there is a fiduciary violation if the plan sponsor does not understand these fees and what they are being used for. For individual investors, it means you may be paying for something you are not receiving. Over decades of 401(k) or pension contributions, this can add up to hundreds of thousands of dollar, so pay attention and ask questions. It’s your money after all.

If you are a RIA or financial services firm that wants to find like-minded clients, consider posting a notice on this site that lists your pro-investor business case. The listing information is available on the front page of this site. This information  can be accessed by clicking on the Business Listings and Submit Listing tabs.

Since 2011, this website has emphasized the importance of finding investment managers who don’t have conflicts of interest, charge excessive fees, and don’t have a considerable overhead in terms of having national mutual fund wholesaler fund sales forces and excessive executive compensation. This old sales investment management structure was designed for the benefit of substantial global investment firms and their staff and not for the benefit of individual investors.

But today, average investors have more choices than ever in terms of investments and types of managers, and these choices can go right to your bottom line (in some cases, increasing your net return by 2.9%). So, your 401(k) and other investments benefit from lower expenses and fees and access to a wide variety of lower-cost investments, such as ETFs.

The robo advisor revolution is here and it’s time for more investors to note the benefits of this basic change in selling and managing investment products.

This is happening because of the vast technological advances, especially the robo-advisor revolution.

Here is an article that explains the basics of robo-advisors and how they can increase the money in your investment accounts.

This article comes from Nico Bros. They do a good job explaining the basics of robo advisors, what they do, and how they work. All this means that technology provides lower costs passed on to investors.

In future articles here, I’ll list other robo advisors for your consideration, but the days of old-line investment firms with national wholesaler networks and other personnel structures that only add to your expenses and never increase your bottom line should be over.

[Article starts here]

How to Find the Best Robo Advisors that Will Help You Make More Money

How to find the best robo advisors may not be easy to answer. Robo advisors are becoming very popular among investors. These are automatic and low-cost investment opportunities. Within moments, robo-advisors help you set up a diverse, customized portfolio. You can access fund management services like a certified financial planner, etc. Such services were earlier reserved for the super-rich. For these reasons, robo-advisors are getting people’s attention. In fact, AT Kearney claims that assets managed by robo-advisors are likely to grow by 68% p.a. They’ll become nearly $2.2 trillion in the coming five years.

There’s an increasing choice of robo-advisors as new companies enter the industry. Veteran robo-advisors are also increasing their offerings. So, how do you choose from the options to get the best robo-advisor? The ideal robo-advisor varies from investor to investor. It depends on their financial needs and situations. But, the high-rated robo-advisors have some common traits. For this list, robo-advisors got the highest points for solid portfolio management, minimum account balance, and low fees.

We hope this article can help you make money, get rich, and become a millionaire!

What Is A Robo Advisor?

Financial advisors could be costly. Though an average yearly fee of 1%- 2% isn’t much, it adds up. For example, the stock market generates a return of 6.5% after inflation. In this case, a 1-2% fee makes up for 15-30% of the overall return. For people who hardly meet their financial advisors and have significant portfolios, the total cost can be appalling. For people who meet their advisors once, the cost can sum up to $10,000-50,000/hour.

Usually, financial planners don’t help the client outguess the market; also, studies have shown that active investing cannot beat passive investing, especially after considering the fees.

Due to high fees and weak performance, many fintech firms created the robo-advisors. It’s a sophisticated algorithm that does most of the things financial planners do. But for a meager price. At its center, robo-advisors help build, manage, adjust, and improve portfolios. For a person who retires after 20 years, the robo-advisor may suggest riskier assets like stocks. But, for a person about to retire in a few years, it may recommend conservative options like bonds.

Why Do We Need Robo Advisors?

1. Variety of Services—Robo-advisors help determine the amount to invest, which is in tune with the client’s financial goals and risk tolerance. They also help automate tax-loss harvesting, asset optimization, and portfolio rebalancing. Some even help people develop retirement plans and manage their 401ks. Plus, robo-advisors like Betterment automatically rebalance the portfolio without any commission fee.
2. Negligible Minimums—This is one of the most significant merits of Robo advisors. They have lower account minimums than financial planners, who ask for an investment of at least $100,000. Some robo-advisors have $0 account minimums. This makes portfolio balance and retirement planning advice affordable.
3. Low Fees—Robo advisors charge 0.25%- 0.5% of the portfolio, while financial advisors charge 1-2%. Though this 1-2% may not seem much at first glance, it adds up in the long run. The users of robo-advisors get a higher share of investment profits, which may also be thousands of dollars for many people. The robo-advisors’ fees don’t always include mutual funds and ETFs.
4. Little or No Conflict of Interest—Usually, financial advisors’ interests differ from their clients’ interests. A financial planner may earn more if he drives his customers toward high-fee products, which may not suit the client’s goals. As robo-advisors use algorithms, they look for the least costly solution to fit client needs. Hence, there is a small conflict of interest.
5. High Availability—As robo-advisors are software, they’re always available until the client has internet access. However, it’s difficult to access a financial advisor anytime you want. You need to make an appointment to schedule a meeting, and financial advisors are very busy people.
6. Tax-Loss Harvesting – Clients also get an advanced tax-loss harvesting feature with robo-advisors. This is the practice of divesting a loss-making security, i.e., harvesting. It helps offset profit somewhere else in a portfolio. You can then replace this divested security with similar security. Thus, you can maintain an optimal asset allocation by portfolio diversification. The losses on divestment can also decrease the investor’s taxable income by almost $3,000.
7. Hybrid Robo Advisors—For some, robo-advisors are not enough. They need a more practical human touch. To resolve this issue, many companies provide hybrid robo-advisors. Such robo-advisors have the extra functionality of speaking with human advisors on the phone. These financial advisors can help investors with complex matters that robo-advisors are unable to do currently.

How Do We Find the Best Robo Advisors for You?

We ranked robo-advisors based on several criteria. Our experts reviewed over 30 different firms. They spent nearly 100 hours crunching data and speaking with other experts. Below are the rules we used to find out the best:

1. Best All-Round Quality – Some companies surpassed others in every category
2. Account Limits – The lower, the merrier
3. Fees – We prefer little or no fees
4. Assets Under Management – The higher the AUM, the higher the company’s stability, and the more you can trust it.
5. Features – The more features it has, like tax loss harvesting, direct indexing, etc., the better
6. Customer Service – Support is critical when it concerns investments

Best Robo Advisors Help You Make More Money

Best Robo Advisor 1: Betterment

Betterment LLC is among the robo-advisor giants. With $10 billion in assets under management (AUM), it is by far the principal robo-advisor. In July 2016, it crossed the $5bn AUM mark and became the first robo-advisor to do so. Betterment has a passive investment approach. It trades via the Apex Cleaning Corporation, like its arch-rival Wealthfront.

So why do many investors prefer Betterment? The service is suited to new investors. It has a zero account minimum for its standard or digital plan. The company also provides excellent portfolio management services via its Plus and Platinum Plans. Betterment uses automatic tax-loss harvesting. It promotes that “You can keep an extra 2.9% of your returns every year by using Betterment.” This is because of company’s passive investment approach and rebalancing techniques.

Betterment provides a blend of bond index funds and low-fee stocks. The company will give you a diverse, customized portfolio after knowing your risk tolerance.”