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1460 Energy Centre, 1100 Poydras Street
New Orleans, La. 70163
(504) 528-3685 tel
(504) 528-3690 fax
info@thirtynorth.com
BATON ROUGE
8550 United Plaza Boulevard, Suite 702
Baton Rouge, La. 70809
(225) 757-8007 tel
(225) 767-8006 fax
info@thirtynorth.com
Thoughts in Charts: We Will Pay for This
Source: Congressional Budget Office
This week’s graph is a bit of a bummer, so if you are having a “rainbows and butterflies” type of day, maybe just skip it. The chart is the Congressional Budget Office’s (CBO) projection of the national debt as a percentage of output if we don’t make any changes to current taxes and spending. We are already at World War II levels, and the projected uptick is steep.
There is a solid argument out there that says that the national debt really doesn’t matter that much. I tend to agree with a lot of that – to a point. I also believe that there is a level at which it very much will matter. I buy into the CBO’s statement that:
The good news is that this is a ratio. If Gross Domestic Product (the denominator) goes up, then the overall percentage goes down. If we produce more than anticipated, it may not look quite so bad down the road.
Will we reach a point where changes will be required? As I look at this chart’s big picture, I think we will eventually have to face the spending and revenue numerator in this ratio. Yes, I mean changes to both government spending and taxes. I warned you that this wasn’t a feel-good read.
At some point, it seems likely that this level of debt will matter enough that we need to act. That being said, there are a lot of variables at play. If you’d like to dig in and find out what drives this projected ratio, “The 2020 Long-Term Budget Outlook” is very readable – plus, it has a lot of great charts!
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1 Congressional Budget Office. “The 2020 Long-Term Budget Outlook.” PDF file. September 21, 2020. https://www.cbo.gov/system/files/2020-09/56516-LTBO.pdf
Thin(k) About Your 401(k) Plan: SECURE Act – Treatment of Part-Time Employees
I know it seems a long time ago, but at the end of 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The Act had a number of provisions, but I want to focus on the one aimed at part-time employees. This change will require employers to permit employees who work 500 hours for three consecutive years to save using the company’s 401(k) Plan. Employers are not required to match or make any contributions for these employees. However, if an employer does match or contribute, relevant vesting schedules apply.
This requirement effectively begins in calendar year 2021. Therefore 2024 would be the first year this group of employees would be allowed to contribute. It also means that companies will have to track and monitor this employment status beginning in 2021, something heretofore likely not done. As I type this in late October, I wonder how many companies are prepared to track this employee cohort starting in just a few months?
Let me know if I can help.
I found this article from Kiplinger very helpful: SECURE Act Basics: What Everyone Should Know
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Where Did It Go?
When special US government programs distribute money to individuals broadly, we often wonder how the money was actually used. It can occur after a natural disaster, and it happened in March with the $2.2 trillion CARES Act stimulus in response to the pandemic.
Federal Reserve Bank of New York economists published in Liberty Street Economics the results of surveys they conducted to answer this very question. You can read the entire report, “How Have Households Used Their Stimulus Payments and How Would They Spend the Next?” Here are the key points:
While the allocation of these payments varies among differing income and age levels, the results speak to the high uncertainty of how long the pandemic will last and the possible economic impact on recipients. Questions abound about how much money will be needed and when. For example, were parents concerned about “holding the spot” with their daycare provider? Was there concern about how long rent forbearance would last? Concern about layoffs this fall?
For a rough validation of the results of the survey, you can consider that the average U.S. FICO credit score increased in July to 711, the highest level in the past 15 years. Consumer debt levels represented by credit card balances have also decreased from $6,934 in January to $6,004 in July.
The average American was likely using sound financial strategy with their stimulus payments. The choice to forego spending where possible, add to cash reserves, and reduce personal debt is a healthy one during uncertain times and should reduce the possible negative economic implications as we work out of this situation.
Suzanne T. Mestayer is managing principal of ThirtyNorth Investments, LLC.
All investment strategies have the potential for profit or loss.
ThirtyNorth Investments, LLC, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.
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Thoughts in Charts: Vaccine Progress Report
There is a chance that the investment world is keeping track of vaccines about as obsessively as health organizations. Along with the physical and mental health implications, the economic stakes of a vaccine are high as well.
As a result, we have seen wonderful graphical vaccine progress reports. This table came across my deck from a Goldman Sachs piece, and I found it very informative.
I do love when there is a lot of information in a nice tidy visual!
For disclosures, please click here.
Thoughts in Charts: How long do you have?
At a firm where one of our key investment principles is that “time matters”, I love a chart that show why we value it. Before I dig in though, let me say loud and clear that past performance does not guarantee future results. I use history to teach me, but I don’t count on it repeating itself.
I’ve told you before that I’m a skeptic by nature, so I’m going to start by focusing on the bottom of each range. These are the worst 1, 5, 10, and 20-year-end returns from 1950-2019. It’s the historical worst-case return.
The first thing that jumps out is that a single year downside in a diversified stock portfolio has been as bad as -39%. Got it. In a single year, it can be bad – really, really bad; however, there has historically been enough good that the 5-year worst return is much less negative at -3%. That is significantly better, but let’s be real, if I lose 3% over 5 years, I’m a little frustrated. Frankly, if I have been in the market for 10 years, and I lose 1%, I’m still frustrated.
Here’s how time matters: if I coached myself to stay steady through some of those frustrating 5 and 10 year periods, the 20-year stock portfolio would have resulted in the most beneficial range of returns for my long-term goals. A stock portfolio’s worst 20-year return over the last 69 years was positive 6% – better than a bond portfolio or a 50% bond and 50% stock portfolio. On top of that, it also had the larger upside periods.
Let’s take a step back and look at the blue bars representing a diversified bond portfolio and the grey bar representing a portfolio that is 50% stock and 50% bond. It’s clear that the bond portfolio can act as a ballast. For the end of each year over the 69-year period, a 50% bond portfolio never had a negative worst-case return in a period longer than 5 years.
If you are still tracking with me, I’m going to give you my favorite nugget from this chart. The best 10-year returns on a 50% stock 50% bond portfolio are the same as a bond portfolio, but their worst case is better! I tend to think about bonds helping to limit losses, but in the 10-year time periods, including stocks in the portfolio actually limited downside as well.
Time does matter.
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Thin(k) About Your 401(k) Plan: Long-Term Investing – Election Year Volatility
I can hardly help allowing the uncertainty that comes during a Presidential election year from creeping into my investor mindset. I know many factoids about the market performance every four years when we elect a President. Volatility is a certainty. Typically markets perform well during election years and worse the year after, but nothing like this is written in stone. In the short-term, anything can happen in the stock and bond markets.
We also observe that partisan government favors the markets in general. It stands to reason that a President’s ability to enact legislation depends upon whether or not the House, Senate and President share the same political party. Further, a President’s ability to push through radical policy change has many hurdles based upon the makeup of Congress.
Myriads of research and articles are available on the topic of the markets during and after election years. Here is a link to an article I recently found interesting.
Here’s How The Stock Market Has Performed Before, During, And After Presidential Elections
Yet, I still find it difficult to not let the worry of the future creep into my mind. I found the table below to be a helpful reminder of the impact maintaining a long-term view during short-term volatility especially during Presidential election years. I’d be interested to know if this is helpful to you.
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