inflation Archives - Sycamore Financial Group

How Does Inflation Impact My Savings

Hello from Sycamore,

Inflation is a topic that we’re all hearing about lately. The Federal Reserve Bank (the Fed) has started to raise interest rates to help fight our current inflation. The Fed has a long-term inflation target of 2.0%. To simplify, this means that if a Coca-Cola costs you $1.00 today, then next year that same soda should cost you $1.02. When looking at the effect of inflation for a single year it seems insignificant, let’s look at the longer-term effects. Assume you have $100,000 sitting in cash earning no interest, what will this buy you 15 years from now assuming an average inflation rate of 2.0% each year? It would have a buying power of about $74,082 in today’s dollars. In other words, nearly a 25% reduction in purchasing power due to inflation. While your savings account balance is not declining, the amount of goods and services your money can buy, or your purchasing power, is reduced.

During your annual meetings, we update your financial plans and typically discuss your cash on hand and your emergency fund. This is a different number for everyone but typically somewhere between 3-6 months of living expenses is a good rule of thumb. Also, at different stages of your life, the number that’s right for you may change based on your situation and is a number that also coincides with your risk tolerance. The best number is the one that helps you sleep at night.

How can you lessen the impact of inflation? Our best advice is to keep your emergency fund such as a savings account or money market fund in a low-risk account that earns a competitive yield (several are yielding about 2% today). Then, to build wealth over the long term, try to maintain a well-diversified portfolio of various financial assets that have the potential to grow at a rate greater than inflation.

As always, never hesitate to contact us with any questions or concerns.

Thank you for your continued trust and support,

Sycamore Financial Group

***This article is distributed for general informational and educational purposes and is not intended to constitute legal, tax, accounting, or investment advice.***

By Sycamore Financial Group|2022-09-16T00:31:32-04:00September 14th, 2022|2022 Newsletters|0 Comments

Volatile and Unpredictable

Hello from Sycamore,

As I write this post, the market is down ~10% from its recent high. The beginning of 2022 has been a bit volatile and unpredictable. When we read the news, we see headlines that stop us in our tracks: Inflation, War, Stagflation, Market Correction, Possible Recession.

Realistically, most news these days is created to grab our attention, pull us in. Reporting tends to be negative because negative news sells. It brings people back; it gets more people to click on the headlines. Media is a for-profit industry.

The volatility you are seeing is real. Inflation is normal. Market corrections are normal. Recessions are normal. We are not saying these feel good, or we need to be excited about them, but they are a normal course of business. The market has performed better than expected for the past 12 years – except for a flash recession in 2020. It is not surprising that as we enter the endemic phase of the pandemic and Russia invades Ukraine we might see some volatility.

Here are some facts:

Unemployment is down from its high of ~14.7% in 2020 and currently is at 3.8%.
Wages have been increasing more rapidly than prices. The average income for the bottom 50% of wage earners in the US were up over 11% in 2021.
In 1973 when Craig began in the industry the Dow Jones was just over 500 and today (3/9/22) it’s over 33,000.

From our research, the economy and corporate America appear to be in good shape. We still believe that the best course of action is to stay the course.

Thank you for your business and trust,

Sycamore Financial Group

***This article is distributed for general informational and educational purposes and is not intended to constitute legal, tax, accounting, or investment advice.***

By Sycamore Financial Group|2022-07-21T12:30:07-04:00March 10th, 2022|2022 Newsletters|0 Comments

Thoughts on the Economy

Hello from Sycamore,

COVID-19 has been a shock to our economy and our lives. As a result, the Federal Reserve Bank had to implement swift and significant monetary policy changes. During the onset of the pandemic (March/April 2020), there were worldwide shutdowns that caused many to lose their jobs, miss paychecks that were necessary to pay bills, and companies shuttered. The Fed knew that they needed to take an approach that would spur the economy as much as possible as the country started to reopen. They did this by reducing the reserve requirements for depository institutions, they bought bonds in the open market, and they reduced the interest rate to nearly zero. All these measures made the economy flush with cash, borrowing cheap, and saving not lucrative.

The extra cash that these changes have generated has spurred inflation, but inflation is not always a bad thing. The Federal Reserve has a long-term target inflation rate of 2%. The right amount of inflation in a stable economy can influence expansion. While ongoing inflation issues are certainly possible short-term, we think prolonged inflation or hyperinflation seems unlikely.

If inflation would persist, however, there are a few ways that the Fed can help slow economic activity. These are through changing reserve requirements at depository institutions, open market operations, and setting the discount rate.

Reserve requirements refer to how much of a bank’s total deposits must be kept at the bank at the close of business every day. For example, if a bank has just $500 in deposits and the reserve requirements were 10% then they would only be able to loan out $450. Changing the requirement changes the money supply.
Open market operations are when the Fed either buys or sells government securities in the open market. If they sell securities, they are removing money from the economy by exchanging securities for cash. If they buy securities, they are adding money to the economy by exchanging cash for securities.
The discount rate is the rate that the Federal Reserve would pay to banks for depositing funds with the Fed overnight. This effectively sets a floor on the interest rate and the rate trickles down and influences other interest rates on loans such as car loans, personal loans, mortgages, business loans, etc.

All these measures can be used in different proportions to influence the economy and at various times or simultaneously.

Thank you for your business and trust,

Sycamore Financial Group

***This article is distributed for general informational and educational purposes and is not intended to constitute legal, tax, accounting, or investment advice.***

By Sycamore Financial Group|2022-07-21T12:29:41-04:00February 14th, 2022|2022 Newsletters|0 Comments

Riding Out the Stock Market – Summer 2008

Hello from Sycamore,

We thought it may be prudent to give you information on the markets in general, and to pass onto you some of our thoughts on all this.

As you likely know by now, the market has declined significantly this year. The Dow recently suffered its biggest percentage drop in more than six years, and is now down about 25% from its record close just last year, Oct. 9, 2007 Markets do go up and do go down. You know this, but when the market goes down, especially when it drops appreciably, it is unsettling. The volatility in the market is a common and normal activity of the stock market and should be expected.

Declines are common, take the following: The stock market since 1900.

A routine decline of 5% or more happens about three times a year and lasts about 47 days.
A moderate decline of 10% or more happens about once a year and lasts about 113 days.
A severe decline of 15% or more happens about once every two years and lasts about 215 days.
A bear market of 20% or more happens about once every 3 ½ years and lasts about 329 days.

(Capital Research and Management Company is source, flyer Sept. 2008)

Realistic Expectations on Stock Returns: As of 12-31-2007.

Over the past 60 years, stocks averaged 11.8% per year.
Over the past 40 years, stocks averaged 10.6% per year.
Over the past 20 years, stocks averaged 11.8% per year.
Over the past 10 years, stocks averaged 6.4% per year.

(From Global Financial Data, Stocks are Wilshire 5000 Index)

Good news you do not hear much about in the media.
(They want you to tune in tomorrow or buy another paper).

Interest rates are relatively low.
Inflation is moderate.
Our dollar has declined against other countries currencies, allowing other countries to buy goods and services produced in America for less.
Unemployment is not low but not high either.
We have been at this down market for almost a year now (See above).
We believe there are many companies that are good bargains.

What to do? While we wish we could predict the future of the markets, we cannot. We are advising you the best we can, but remember that there are no guarantees when it comes to investments in stocks, bonds or other financial instruments.

1) Don’t panic-Stay invested. You should have your monies diversified enough so that your short term needs are in a safe-liquid account and your longer term investments are in a broad basket of stocks, bonds and CDs.

2) Buy low-Sell high. We are likely in the “Buy low” part of this saying. This could be a good time to look at purchasing-not selling. Trying to time the market is difficult as it requires two near-perfect actions-getting out at the right time and getting back in at the right time. If you wait to get back in when you feel “comfortable” you may have missed most of the upswing in the market.

3) Re-evaluate your risk assessment. What percentage of your portfolio should you have in stocks? We can help on this one. We can then make any necessary change upon market recovery.

4) Invest regularly. Investing on an ongoing basis will take the guesswork out of timing the market. You buy in both up and down markets.

5) Seek professional guidance and review annually. We think it prudent to take a thorough look at your assets and investments once each year, make adjustments based on your risk-reward profile and go forward.

Markets do go up and down. The down part is no fun but is part of the package. If we can assist you in reviewing your investments, assets and risk assessment, please contact us.

Thanks for your business and trust,

Craig
Sycamore Financial Group

_________________

Past performance does not assure future results. Investors cannot invest directly in the stock market indexes such as the S&P 500. Invest return and principal value of an investment will fluctuate. Investor value, when sold, may be worth more or less than their original cost. The material in this presentation is for illustrative purposes and does not reflect any particular investment.

By Sycamore Financial Group|2022-07-21T12:19:19-04:00August 8th, 2008|Craig's Commentary 2008|0 Comments

Looking at Some Economic Indicators – Fall 2005

Better Than It Seems

As we’re meeting with our clients this fall, many are pleasantly surprised with the performance of their investment accounts. We frequently hear something like “ That’s great. With the market and economy being in so much trouble we were concerned that our investments may be as well” It seems that today more than at any other time, the perception of both the economy and the markets (mostly from the media) is very much different from the reality (the actual performance numbers).

The perception: crippling hurricanes, high gas prices, increasing interest rates and, so far this year, a quietly sagging stock market. Ouch!

The reality: Hurricanes? Nothing new there. Gas prices? Adjusted for inflation, the’re in the same neighborhood as 1982*. Interest rates? It could be that the rising interest rates are a positive indicator about the strength and the expansion of our economy. A quietly sagging stock market? Truth be known we’ve come to appreciate quiet markets.

Let’s take a look at some economic indicators.

The Department of Commerce reported that second quarter 2005 Gross Domestic Product grew at a 3.3% annualized rate. A good rate.
Housing starts rose 3.4% for September 2005 to an annual rate of 2.11 million units**. This is the fastest pace since Feburary and one of the highest rates ever.
The Bureau of Labor and Statistics reported that the September 2005 unemployment rate was 5.1% (not the best we’ve ever seen, but certainly not the worst). Over the last twelve months ending in August 2005, payroll employment grew by an average of 194,000 a month and the unemployment rate has trended downward during that year.

Those of you who have been investors over the last ten,twenty, thirty or more years know that there is always an abundance of negative news. You also know how well the markets overall, and in particular your individual investments, have performed over those same periods.

We’re not saying that everything is rosy; we know that there is room for improvement. We are however, recommending that the next time you feel a little uneasy because of the current dose of bad news, call us for a closer look at reality.

Thanks for your business,
Sycamore Financial Group

*The Big Picture. Posted 8/17/05
** U.S. Department of Commerce report dated 10/19/05

_________________

By Sycamore Financial Group|2022-07-21T12:13:34-04:00August 20th, 2005|2005 Newsletters|0 Comments