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This is a question we often hear people ask – is now a good time to invest? Sometimes it is asked after the market has had a good run and is sitting at an all-time high. Other times it comes up when the market has been through a significant downturn.

So, what’s the answer? If you are truly a long-term investor, it’s always a good time to invest. Should the market be higher in 10 years from now? Yes. What about 20 years from now? Absolutely. Let’s look at some data points that should be meaningful in understanding if now is a good time to invest.

When the stock market hits an all-time high, the media loves to talk about it and investors often feel like they will not have strong gains moving forward. However, the data says otherwise. The historical data indicates that over 1, 3 and 5 year periods after the market hits an all time high, the average subsequent performance is actually quite good. These are annualized (i.e. – average annual) returns and are quite strong.

Let’s also look at the average performance of the stock market after the market endures losses of 10, 15 or 20%. This study shows that US stocks have generally delivered strong returns over the following 1, 3 and 5 year time periods following a steep decline. In nearly all cases, the subsequent performance is above the long-term average annual return of equities.

So what have we learned? If currently invested, sticking with your plan helps put you in the best position to capture the recovery. If sitting in cash and waiting for the best time to invest, often we end up waiting well past the optimal point in an effort to capture perfect timing. Data suggests it’s impossible to time the market, so investing either via a lump-sum or gradual dollar cost averaging approach is often the most prudent strategy when investing a cash position.

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There is a lot of talk about inflation these days. Indeed, there are many economists and policymakers who are on national TV or writing articles online about how they are forecasting higher inflation through the rest of the year. They argue that with interest rates being so low, so much Federal stimulus money flowing through the economy, and the economy emerging from a pandemic, prices will rise faster than many people expect. However, let’s take a step back and review what exactly inflation is, how it affects the economy, and what can be done about it.

Inflation is the general rise in prices in an economy. Its presence typically means that an economy is growing, especially when inflation is accompanied by rising wage growth. The 2% rise in milk prices when you go to the grocery store won’t matter as much to you if your wages have kept up. Supply and demand for goods and services are in relatively good equilibrium. An increase in inflation doesn’t mean that prices for all goods and services are rising in unison, just that a “basket” of these have shown price increases overall.

It makes sense then that the amount and rate of change of inflation matters. When inflation is low and stable, wages have an easier time keeping up, and consumers can make adjustments to their budgets relatively easily to combat rising prices. The FED has come out in the last year saying that they are targeting an “average” of 2% inflation, meaning that continued they are okay if inflation runs higher for a time, just so the average is about 2%. This rate of inflation, in their eyes, means that the economy is in equilibrium, with prices rising just enough so that the economy can grow at a sustainable rate. However, this has been quite the difficult task over the last ten years:

United States Inflation Rate. (March 2021). Trading Economics.

As mentioned, rising inflation numbers are typically synonymous with a growing economy (if it’s not, it’s called stagflation, where there is inflation but no growth in the economy), and therefore are also synonymous with rising interest rates, mostly in the long-term end of the curve. When inflation expectations rise, longer-term yields typically rise along with them. This can play havoc in the bond market. Rising rates and inflation mean that the purchasing power of each coupon (interest) payment an investor receives has declined.

In addition, those with longer duration bonds in their portfolios will see larger price declines as rates rise. This is typically a short-term phenomenon though. Looking back over the last ten years, there have been two times when rates rose dramatically over a short period. Both times, the Barclays U.S. Aggregate Bond Index, a benchmark that tracks intermediate-term bonds, bounced back in the year after the dramatic rise ended:

This time around, the 10 year yield bottomed on August 4, 2020. Since then, the Barclays U.S. Aggregate Bond Index is down 3.47%.

With both inflation and inflation expectations rising, then, why is the FED sticking to the original script and forecasting no rate increases until 2023? The FED has a dual mandate of price stability and maximum sustainable employment. As mentioned, they came out last year with an updated inflation goal of an “average” of 2%. This means that they will allow inflation to run hot (over 2%) for a time before considering raising their benchmark rate. While current inflation is approaching this 2% target, they still are not worried. Why? There is still considerable slack in the jobs market despite the unemployment rate falling by over half since the pandemic started: The economy has yet to regain over 9 million jobs lost from the pandemic.

Wassan/Litvan. (March 3, 2021). Biden Relief Plan Faces Senate Hurdle With Debate Poised to Open. Bloomberg. https://www. senate-hurdle-with-debate-poised-to-open

The FED sees this and thinks that with this much slack in the jobs market, price pressures due from rising demand may be transitory due to short-term stimulus from the Government. Inflation can be a good thing, especially when it’s not volatile and it’s expected. However, when inflation runs too high, or when there are unexpected shocks, that can cause mayhem in markets. The FED’s job is to manage this inflation risk, taking into account many different factors, hopefully smoothing out any volatility that could arise.

There is certainly some pain being felt in portions of the markets with rates rising. We have already seen bond funds posting negative returns due to the increase in rates and the low starting point. However, it is also not desirable for investors to earn close to a 1% nominal yield on their bonds in the long-run. Certain parts of the equity markets that increased dramatically on the backdrop of low interest rates have already started to see a pull back with rates moving north. However, this could be viewed as a healthy correction and other parts of the markets that did not have the same large rally in 2020 are showing some stronger performance. We don’t yet know the length and magnitude of this current rising rate environment, and inflation certainly can be problematic. However, it is important to know that higher rates and inflation expectations can be a good thing, especially when accompanied by strong economic growth, which is what we are seeing now as we emerge from this pandemic. A historic recession and unprecedented fiscal/monetary response is likely to result in a recovery that has its stressful and uncertain moments. But as always, we believe it is important to keep focused on a strategy that matches your time

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Many investors are focused on the “when”, “where”, and “how much” questions when it comes to retirement. Much of financial planning is focused on these questions too. In this column, we focus on other important items to consider in the years before retirement. These strategies may make a positive difference as you embark on financial freedom and security.

Estate Planning
If you die without proper estate planning, it could create unnecessary anxiety for those left behind and needlessly waste a portion of your assets on taxes, attorney, and probate fees. Have a lawyer review your will, account titling, powers of attorney, medical directives, and beneficiary designations to make sure everything is up-to-date and appropriate for your stage in life. You want to be certain that you and your beneficiaries are properly protected. Knowing that you are prepared should provide peace of mind.

Organize Necessary Documents
Now that your documents are up-to-date, do your loved ones a favor and organize it all in one place. Conrad Siegel has developed a Personal Roadmap to help with this task. Also, sharing a duplicate set of documents with a trusted family member or attorney is a good idea. Contact your Conrad Siegel Investment Consultant or e-mail to request a copy of our Personal Roadmap document.

Health Care Insurance
Medicare begins at age 65. If you plan to retire before 65, make sure you understand your health coverage options and costs. Even after Medicare begins, some costs are not covered. For that reason, you will want to investigate Medicare supplement plans that fill in the “gaps”. The Medicare program is complex. Applying late may cause delayed benefits or increased premiums. Make sure you know the rules for your situation. You may also want to consider long-term care insurance.

Take on debt while working
As a rule of thumb, large debts should be avoided for most retirees, but there are circumstances where new debt can make sense, such as financing a new home for retirement or an RV for traveling. Why now? The loan application and qualification process will be easier while you still have earned income. You may be able to negotiate lower interest rates and better terms if you have a solid credit score and low overall debt.

Use vacation time to “test drive” retirement
Make a list of the areas you might consider moving to during retirement and use your vacation time while you are still working to visit them. If you enjoyed it in the winter, go back in the summer as well. Who knows, it might end up becoming your future home.

If you plan to move or downsize in retirement, then get your home ready now. Clear the clutter, complete the repairs, and update whatever is necessary to tip the sales process to your advantage.

Retirement planning is not a DIY project
Planning for financial independence is not a do-it-yourself project. Work with your Conrad Siegel investment consultant to make sure your financial plan is up-to-date. You have saved your whole working career for retirement, you do not want to cut corners as you approach the home stretch.

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In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Conrad Siegel’s Pennsylvania offices were abruptly closed on March 19, 2020, under the order to close all non-life sustaining businesses in the state. A few days later, on the 23rd of March, the S&P 500 Index bottomed out after a devastatingly fast decline of 34% from its high in February. The world was in a state of disarray and nobody knew what tomorrow would bring.

A year later, restrictions are still in place but there is a renewed sense of hope that we will soon be able to put the fears of virus the behind us. That we will once again be able to spend time with family and friends without that worry that we may be contributing to the spread. That we can all return to work and those that lost jobs will soon find a promising opportunity. That small businesses will experience renewed foot traffic and not have to contemplate closing their doors.

As we all anticipate these things, the word “NORMAL” has been the most overused word of the past 12 months. We cannot help but look forward to better times. Financial markets, which are a forward-looking indicator, have recovered and surpassed even the most optimistic projections from a year ago. So, what lessons have we learned from the past year while seeking out the new normal?

Emergency funds: We should always be prepared for emergencies. Building an emergency fund is one of the first steps toward achieving financial success and stability. We typically recommend saving 3-6 months’ worth of expenditures in a money market account for quick and easy access. Encourage your loved ones to start saving, no matter how long it may take to build this fund, so they will be prepared for those times they don’t see coming.

Life insurance: Speaking of the unexpected, the pandemic is a good reminder that risk management is a pillar of financial planning. While death is not an easy topic to think about and plan for, the necessity of life insurance to provide for our family if the worst happens cannot be ignored. There are a lot of products out there and we typically recommend certain types over others, so reach out if this is a topic you would like to review or if you would like us to make an introduction to a trusted agent.

Estate planning: Piggybacking on the last topic, let’s not forget about the importance of having wills and estate planning documents in place and up-to-date. Procrastination is common in this ever important area. If you do not have a will, Power of Attorney, and health care directives, do not delay in setting up an appointment with an estate planning attorney. Once again, we are happy to provide referrals in this area. Finally, don’t forget to check your beneficiary designations.

Bear markets have always come to an end. But, knowing that does not make it any less frightening when watching markets drop. Recency bias causes humans to have an affinity with recent events over historic ones. When financial markets are tumbling, this bias causes us to believe the recent past will continue into the future as we hear calls that “this time is different.” Reacting to this fear and impulse in the early spring of last year could have caused you to miss out on the rapid ride up the markets experienced despite many predicting further turmoil.

Long-term investing takes discipline. We have all heard the stories of market-timing and stock-picking that promise a fantasy of riches. Speculation is not long-term investing, and often these stories do not end happily ever after. This is why Conrad Siegel believes in investing in a broadly diversified portfolio that you feel comfortable sticking with regardless of market conditions, what you read in the headlines, or hear in the news. Your strategic asset allocation, or mix of stocks and bonds, should be based on your risk tolerance levels and your financial goals to provide you with a level of comfort even when a global pandemic has been declared.

Please do not hesitate to reach out if you would like to review any of the financial planning aspects discussed above.

We want to make sure you are confident in your future, knowing that you planned for the unknowns ahead. Here’s to looking forward to normal!

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You have likely been saving, investing, and planning for retirement for years, if not decades. Having a workable and flexible financial plan is essential as you approach the end of your working career. But retirement readiness also includes non-financial planning or life planning. What are you going to do once you reach your goal? Retirement is a major lifechanging event that will require an emotional adjustment.

Hopefully your retirement will be filled with many rewarding and productive years. However, just like other phases of life there will be bumps along the way. Retirement is a whole new chapter of your life; it isn’t a permanent vacation. You will likely experience a range of emotions. There will be a sense of joy and freedom as you pursue travel, hobbies, and more time with family and friends. There can also be concerns surrounding no longer working as you transition from saving for the future to instead spending what you’ve saved. You might also experience a feeling of letdown after so many years working and planning, this can lead to loneliness, boredom, and disillusionment.

Most major life-changing events involve an ongoing process of emotional adjustment. Retirement is no exception. Retirees must face what is essentially the last transition of their lives. Typically, you will move through a 6-Step process when dealing with this transition. At some points you may be in two phases at once, others might skip a phase entirely. No two retirement journeys are exactly alike. Flip the page for a more in-depth look at each phase and the characteristics associated with it.

Considerations as part of your Life Planning:

  • Are you retiring “to something” or “from something?”
  • Is your identity tied to your career?
  • Is your social network primarily your coworkers?
  • What will your daily schedule look like in retirement?
  • What will your home look like? What will you do with your free time?
    • Travel
    • Enjoy Hobbies
    • Start A New Career
    • Volunteer
    • Social Network

Pre-retirement – Planning Time

During your working years, retirement can appear to be both a distant goal and a cause for worry. You save for it, you might develop a financial plan for it, but have you devoted thought to what you will actually do once you reach your goal? Too often we get caught up in the busyness of our daily lives: kid’s activities, paying for college, paying down the mortgage, and having fun too. It is hard to focus on the future, when there are so many demands on our time today. The default concern becomes making sure that enough money is allocated to long-term savings each year. If you are looking for a better transition from working to retirement, sketch out a flexible plan on how you anticipate spending your time.

The Last Day – Smiles, Handshakes, Farewells

By far the shortest stage in the retirement process is the last days of work. This is often marked by some sort of dinner, party, or other celebration. In some respects, this event is comparable to a marriage ceremony, a new chapter of life has started, off to the honeymoon…

Honeymoon Phase – No More Alarm Clock

Of course, honeymoons follow more than just weddings. Once the retirement celebrations are over, a period often follows where retirees get to do all the things that they wanted to do once they stopped working: travel, indulge in hobbies, visit relatives and so forth. This phase has no set time frame and will vary depending upon how much honeymoon activity the retiree has planned.

Disenchantment – So this is it?

The emotional high of the retirement has worn off, now the day-to-day reality of the new situation is visible. The big question becomes: How am I going to be productive in retirement? After looking forward to this stage for so long, many deal with a feeling of disappointment. Now is the time to address the needs of daily living, the honeymoon is over. This phase can also be associated with loneliness, monotony and feelings of uselessness.

Reorientation – Building A New Identity

Fortunately, the disenchantment phase of retirement doesn’t last forever. Retirees begin to familiarize themselves with the landscape of their new circumstances and navigate their lives accordingly. This is easily the most difficult stage in the emotional retirement process and it will take both time and conscious effort to accomplish. Self-examination is required: “Who am I, now?” “What is my purpose at this point?” and “Am I still useful in some capacity?” It is important to develop satisfactory answers to these questions. One way to get started is to set small goals. Working on goals can give you a sense of purpose. Accomplishing new things can give you a sense of achievement. Unfortunately, some retirees never exit this stage. If you find yourself struggling seek advice from experts, friends, or family.

Routine – Your New Normal

Finally, a new daily schedule is created, new marital ground rules for time together versus time alone are established, and a new identity has been at least partially created. Eventually, the new landscape becomes familiar territory and retirees enjoy the last phase of their lives with a new sense of purpose.

The Bottom Line

“People can maximize current enjoyment partly by spending time and other resources to produce ‘imagination capital’ that helps them better appreciate future enjoyment.” Life planning is important to a successful retirement. Those that have given serious time and thought to what they will do following retirement will generally experience a smoother transition than those who haven’t planned. It is never too soon to begin mapping out the course of the rest of your life.

Source: “The New Retirement Mindscape,” Ameriprise Financial Inc.
1G. Becker Cambridge, MA Harvard University Press

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