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Slick TV ads often make financial planning and wealth management sound simple, but it’s usually not. Managing wealth requires knowing a lot about highly technical topics, like taxes, government regulations, and finance as well as history, psychology and how to communicate with loved ones about sensitive issues. This article highlights some of the knowledge needed to manage wealth and why it’s often so daunting without the help of an independent personal financial advisor who is familiar with your situation.
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Understanding The Federal Reserve Mandate To End Inflation
The Federal Reserve System, the nation’s central bank, has a dual mandate to pursue maximum employment and maintain price stability. These two priorities are currently treated equally, but that was not always the case. In fact, the Fed’s bias toward maximizing employment was a critical driver of the stagflation that plagued the U.S. in the late 1960s and 1970s. Recognizing the need to balance price stability and maximum employment, in 1977, Congress revised the Federal Reserve Act.
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Fed Governor Kugler Details Inflation And Economic Outlook
The 12-month inflation rate, as measured by the personal consumption expenditures (PCE) index, was 2.6% in December, down from its peak of 7.1% in June 2022, and the six-month rate for PCE inflation was even lower, at 2%, which is the target rate set by the Federal Reserve.
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Why Rates May Not Be Cut Until June
The cost of a loan to buy a home, car, college education, and achieve the American Dream is staying the same for now. As expected, Federal Reserve Chairman Jerome Powell said the central bank did not lower loan rates following the Fed’s Wednesday, Jan. 31, 2024, policy meeting.
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Practical Suggestions For Achieving Your 2024 Resolutions
New Year’s resolutions usually fail because they‘re often too hard to achieve. After six months, only 10% of people who make resolutions achieve them or remain committed to them, , according to a study by Dr. Mark Griffiths, a Chartered Psychologist and Distinguished Professor of Behavioral Addiction at the Nottingham Trent University. What can you do to make financial, medical, or other personal resolutions more likely to be achieved?
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A Sign Of Progress In Solving U.S. Economic Problems
The Federal Reserve appears to be pulling off a feat most experts did not believe it could: ending its aggressive inflation-fighting campaign of 11 interest rate hikes without tipping the U.S. economy into a recession.
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Fed Keeps Rates Unchanged; Expects Easing In 2024
To promote transparency and free markets, the Federal Reserve System began publishing the opinions of the 19 U.S. central bankers that decide interest rate policy.
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Have You Logged Into Your Social Security Account?
Have you logged in to your Social Security account? Creating an online account at SSA.gov is an important first step in understanding your retirement income situation. However, only about 60 million of the 160 million individuals in the U.S. labor force who have Social Security accounts have created a way to access the Social Security Administration’s website.
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The Great Fake Out Of 2023 Is Poised To Extend Into 2024
All year long, the economy and stock prices have fooled experts and consumers, outperforming expectations month after month.
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Test Your Financial Planning IQ
The five questions below are a challenge meant to allow you to assess your knowledge of investing, tax and financial planning. If you have been following our news stream, this quiz draws on familiar ground. The answers are below.
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Planning Briefs
Market Melt-Up Risk Grows
Published Wednesday, December 15, 2021 at: 5:43 PM EST
This is not a prediction but, if you do the math, earnings could drive the stock market higher in the months ahead. Predicting the market is risky business but professional prudence requires a realistic set of expectations about the future supported by math. Professional prudence requires realistic expectations supported by math. The current math indicates the market is at risk of melting up.
To be clear, a lot of people think the stock market is not connected to any reality, irrational, whimsical, or like going to a casino. But that’s not how financial economics works. While earnestly attempting to avoid hyperbole or sensationalism, here’s the math explaining why the stock market could rise sharply in 2022, why a virtuous cycle is being triggered in which economic growth causes earnings growth at America’s largest public companies, driving stock prices higher.
Although markets may form bubbles, bubble barometers are currently nowhere near the red zones reached during the last stock market bubble, which ended with the tech stock bust of 2000. For instance, the consumer sentiment indicator, which grew irrationally exuberant in the last bubble in stocks in the late 1990s, is currently depressed compared to its long-term trend in the gray line.
Meanwhile, household net worth, a quarterly figure from the Federal Reserve, released December 9, for the period through September 2021, has surged during the pandemic on stock market and real estate gains. The “wealth effect” historically kicks in and ebullient investors reinvest their gains, and it creates a circular dynamic. When household net worth goes higher, it stimulates spending, which stimulates higher stock prices. And you can have a virtuous circle. So, household net worth can be a significant measure, and the wealth effect is something real, and it is doing something that hasn’t happened since the last bubbles in both the stock market and real estate.
Ultimately, however, earnings drive stock prices and doing the math indicates a surge in stock prices could occur. Fritz Meyer, an independent economist, says the S&P 500 stock index is currently trading at a multiple of 21 times their expected earnings for the 12 months through the end of 2022. If you apply that same forward earnings multiple of 21 to the earnings expected in 2023, where would that put the Standard & Poor’s 500 stock index at the end of 2022? The answer: the S&P 500 would be priced at 5122 versus its closing value midday price of 4626. That would be about a 10% gain, and it would follow on a gain, so far in 2021, with only two weeks let in the year, of 25%.
Let's just do the arithmetic. Twenty times forward earnings at the end of 2022 would put the market at 4878, and today we're at 4625 today. If you apply a forward earnings multiple of 21 times that 2023 estimate, we would be at 5100 at the end of next year. And if 22 times, we'd be at 5300. Simply doing the arithmetic, applying a forward P/E multiple to earnings estimates a year from now, trying to figure out where we could possibly be on the S&P 500 a year from now.
In the stock market bubble of 2000, the S&P 500 traded at more than 24 times expected 12-month earnings throughout 1999 and into early 2000, according to data from Yardeni Research. A 24 multiple would take stock prices higher by about 20%. Heightening the risk of a melt-up in stock prices, yields on bonds have never been as low in U.S. history. With bonds so low, stock valuations could head higher because bonds – the usual alternative to stocks -- are less attractive relative to stocks.
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