Conservatory Chat

Against all odds and expectations, the number of women who either choose not to have children or, for other reasons, do not, has become a major political issue. This raises the question – are more women today choosing to go childless versus their parents’ or grandparents’ generations?

The answer appears to be yes. A survey found that the number of women of prime child-bearing age who were not having children rose by 4.7 million, compared with fertility patterns before the Great Recession. Going back to 1950, the births per woman peaked at around 3.5 in 1953, meaning the average woman in America at that earlier time had 3 or 4 children. Today that number is down to around 1.8, which insinuates that a lot of women are choosing not to have children at all.

Why? A survey by the Pew Research Center found that among U.S. adult women younger than age 50, 47% said they were unlikely ever to have children – up from 37% in 2018. The reasons varied, but the most common answers were that they just don’t want to (57%) and that they want to focus on other things (44%). A remarkable 38% said they don’t want to bring children into a world that they are concerned about, 36% said they couldn’t afford to raise a child, and 26% said they had concerns about the environment. (20% chose the response indicating that they didn’t like children.)

When the same questions were posed to childless women over age 50, looking back over why they never had children, the most common response (39%) was that it just never happened, followed by (33%) who didn’t find the right partner.

Before we get too alarmed, we should recognize that today’s fertility rate is roughly the same as it was in 1979; the real decline took place from the late 1950s to the very late 1970s, and things have leveled off from there. This roughly follows a global trend of fewer births and a dramatic slowdown in the growth of the world’s population. If a fertility rate in the 1.8 range worries us, then perhaps we should also worry about Belgium (1.5 fertility rate), Canada (1.3), Italy (1.2), or the Republic of Korea (0.8).

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

Quick – name the world’s greatest market timer in all history.

This is a question I often raise with investors who want to act on their impulse to get out of the market at the first sign of a hiccup or put all their money into AI stocks for fear of missing out.

The typical reaction is a blank stare. Now we can debate the greatest tennis players or the pantheon of great chess players throughout history. Everybody can cite statistics about the greatest hitters in the history of Major League Baseball, and you can have your opinions about the top pop stars and performers.

But market timers? Has anybody, anywhere, at any time in history, created an amazing track record of knowing the best times to get into and out of the market? Have you ever heard anybody debating the merits of this market timer versus that other amazing one?

Any activity that provides us with zero successful examples ought to be examined carefully and skeptically, and of this market timing might be the best example. Thus, rating the top market timers is not unlike rating the top individuals who have flapped their arms and flown away. There just aren’t any candidates.

The point is that if the world’s top economists, hedge fund managers, Wall Street traders, and TV market pundits haven’t achieved notable success in this endeavor, it’s fair to ask whether any of the rest of us are likely to outwit the psychologically driven twists and turns of share prices. We have seen a great example of this recently: pundits and economists were predicting smooth sailing for the markets and the economy right up until a sudden, unexpected 3% one-day drop in the S&P 500. Then the headlines were all about how the market was headed for a bearish stretch, and the headlines continued while the market recovered its lost ground and reached new highs. Now who could have predicted that?

The answer, based on history, is nobody.

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

Do you have any leftover euros from your last vacation in Europe? You might want to hold onto them.

The U.S. dollar is declining in value compared with a basket of international currencies. The greenback has fallen 5% in the last two months and now sits at a 13-month low.

Should we be alarmed? Probably not. Other nations go to economic war over trying to devalue their currencies compared with the others around the world. A strong currency means that the products of companies based in that country will be priced higher in countries they are exporting to – making them generally less competitive versus local brands. Japan and China exploited the value differences in their currencies to great advantage by helping their exporters sell their goods cheaply in the U.S. markets. American exports will surely benefit from the current trend, which could lead to higher profits for U.S. farmers and larger manufacturing firms.

On the other end of the spectrum, the dollar’s weakening against the euro has not been kind to export-oriented Germany, whose GDP recently turned negative for the third time in the last five quarters. The Japanese yen, meanwhile, has weakened against the dollar since the start of the year although it has gained strength from a greatly oversold position, and now sits at roughly where the Japanese government wants it.

You might read speculation in the press that the dollar’s recent doldrums threaten its status as the world’s reserve currency. But those fears are overblown. Dollar assets currently make up 59% of the total foreign central bank reserves, well ahead of the euro’s 20% share. 64% of world debt is denominated in dollars, and the dollar is used for 54% of cross-border international payments among countries and companies involved in global trade. The dollar isn’t going to be replaced any time soon.

The dollar’s value tends to fluctuate with U.S. interest rates, which means that the next interest rate easing by the Federal Reserve Board will probably add to the downward trend. The downside is that a less-valuable dollar means that foreign stocks, and goods and services manufactured abroad, are more expensive to Americans, and your next vacation trip overseas will cost more in dollar terms. So, like I said, you might want to hold onto those leftover euros. 

But most of these shifts will be felt only at the margins, and there is not likely to be a global restructuring around the euro or the Chinese renminbi. The U.S. economy makes up 26% of the world’s GDP, its economic rule of law is the strongest in the world, and for the near future, at least, the old greenback is the world’s most trusted currency.

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

There are two kinds of car owners in this world: the people who buy a new car every few years, and the people who continue driving their older cars until the transmission drops out onto the pavement. A recent study shows that a growing number of people are shifting from the former to the latter, and the trend has been going on for a while. In 1977, only 16.9% of cars on the road were at least 10 years old. Today that figure is just under 45%.

What's going on? There are several factors at play. One is the increased durability of cars manufactured in the recent past vs. a decade or two ago, which means they can stay on the road for many more miles. A vehicle owner with a reliable car might be hesitant to trade it in for a new model that is pricier (especially at today’s interest rates), and which also has more built-in electronics that can malfunction and increase repair costs. The average price of a new vehicle is $46,660, compared with $39,950 three years ago. Repair and maintenance costs are up 8.2% in the past year alone, and insurance prices are up a painful 22.2% over this time last year.

As more drivers are squeezing more miles out of their existing cars, it has become increasingly common to find odometers above 200,000 miles, and even 300,000.  This, of course, assumes that the car is durable enough to last that long. Lexus and Toyota vehicles have a reputation for giving their owners the fewest repair problems, while electric vehicles in general have been less reliable.

But, as mentioned earlier, it all comes down to preferences. The financially-minded person might compare repair costs on the existing vehicle with the cost of a new one, and conclude that repair is the less expensive option. Others like the idea of hitting the road in a shiny new ride.

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

The U.S. is experiencing a new epidemic: bankruptcies. Filings are up 28% from this time last year, for a total of 45,592 over the past 12 months. Commercial Chapter 11 filings, meanwhile, increased 40% to 542 – meaning the contagion is not just confined to individuals who have maxed out their credit cards. Small businesses have seen their total filings increase by 60%.

The main cause of the bankruptcy wave seems to be consumer debt, which is now above $5 trillion in total (counting credit card debt, student and auto loans) – a milestone that has never been reached in American history. Household debt, which includes mortgage debt, now totals an aggregate of $17.29 trillion. At the same time, total consumer savings, which peaked at $2.1 trillion in August of 2021, has dropped precipitously over the last few years, to less than $200 billion today.

As consumers take on more credit card debt ($43 billion in the last quarter alone), they pay interest at rates not seen in decades – currently a paralyzing 28.15%.  That’s potentially troubling for an estimated 48% of citizens who rely on credit cards to cover essential living expenses. Over half of Americans (53%) have reached their credit card limit.

Most companies rely on the financial health of the American consumer, so the wave of bankruptcies, higher interest rates, and lower savings are hidden risk factors for lower sales, lower earnings – and potentially more corporate bankruptcies in the future. 

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

Yes, folks, our government just keeps making our lives simpler and simpler by the day.

There was a time, back before 2020, when the rules covering people who inherited traditional IRA accounts were simple. Before the SECURE Act was passed, people could spread out their distributions from these inherited retirement accounts over their lifetime, using a simple mortality table. (No, not completely simple, but…) These were the famous “stretch” provisions, which made it possible to reduce the annual tax bite on the amount received.

Then SECURE forced the IRA inheritors to take all the money out within 10 years, but under the original rules, they could wait until the day before the 10 years expired to take a full distribution. That might not be optimal from a tax standpoint (bunching all the distributions in a single year would put you in a higher tax bracket) but at least it was uncomplicated.  

Then came IRS interpretations, and the IRS has finally issued finalized rules, which have made the lives of some IRA inheritors weirdly complicated. 

Under the rules, if a person inherits an IRA from someone who died before he/she was taking required minimum distributions, then that person has the flexibility to take the money out at any time during the 10 years – probably taking some amount each year to smooth out the taxes. The requirement is that all the money must come out within 10 years. 

But if the deceased IRA owner had been taking required minimum distributions, then the beneficiary would fall under an “at least as rapidly” (ALAR) rule, which means that the beneficiaries would have to continue taking annual required minimum distributions at least as high as what the previous owner had been taking.  At the end of the 10th year, any remaining assets would have to be distributed in full. 

As before, the distributions are calculated as a percentage of the value of the IRA as of December 31 of the year preceding the calendar year for which distributions are required, and must be made by April 1 of the following year.

The IRS conceded that the rules were muddled before the new finalized roles, and agreed to waive all penalties for not taking these distributions during the 2021-2024 period – which essentially waived the requirement to take them at all. People who did not take those distributions may do so, but that is optional – and the decision should probably be made in light of tax considerations.

As they weigh their options, they will probably wish that the account owner had converted their traditional IRA to a Roth IRA. The Roth accounts don’t require distributions up to the 10th year, and there are no taxes on those distributions.

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

We’re starting to see private equity firms make short-term investments in companies across the business landscape. At best, they’re looking to make a quick buck; but at worst, they’re looting the companies they “invest” in and leaving others holding the bag. One recent example is the Red Lobster bankruptcy, which closed locations nationwide and laid off 36,000 workers. A private equity firm called Golden Gate Capital essentially financed a takeover by selling the real estate (formerly owned by Red Lobster) of 500 Red Lobster restaurants for $1.5 billion, and the purchasing company then charged premium lease prices from the restaurants. By 2023, the rents totaled $200 million a year – amounting to 10% of total revenues.

You might have read that the “endless shrimp” promotion was the cause of the bankruptcy, and it certainly didn’t help. But a closer look reveals that even this was part of the looting. Thai Union Group bought the largest share stake in Red Lobster and then convinced the private equity-installed CEO to make the endless shrimp a permanent menu item. This allowed Thai Union to dump its excess shrimp onto Red Lobster – basically investing in the company to create a market for its excess inventory.

An academic report has investigated companies bought out and indebted by private equity and found that they go bankrupt 10 times more often than companies not purchased by these firms. You can bet that each of those bankruptcies enriched the “investing” private equity firm.

The private equity encroachment may be affecting our health. Private equity firms have become increasingly interested in for-profit hospitals, and the results of their efficiency measures (short-cutting procedures and reducing staff) are not encouraging. A Harvard Medical School researcher investigated data from 2009 to 2019 on 51 private equity-acquired hospitals versus 259 hospitals that private equity firms did not own. The private equity-acquired hospitals experienced a spike in infections, a 27% increase in patient falls, and a 38% rise in infections from IVs inserted to deliver drugs, fluids, and other substances.  

At least 460 hospitals are now owned by private equity firms – accounting for 30% of all for-profit hospitals in the United States. Many of these are places you would most likely go out of your way to avoid when it comes to receiving any significant medical procedures. Lifepoint Health, now owned by Apollo Global Management, has been cited for cutting staff and essential healthcare services, and selling real estate for a quick buck. It ranks near the bottom of its peers in various measures of outcomes and health.

In addition, private equity firms have purchased roughly 6,000 physician practices. Another study found that private equity-owned nursing homes were associated with 20,000 additional deaths over 12 years...

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

The markets seem to be testing new highs every week or so. But the first thing you’ll notice, if you look closely at the numbers, are the more modest returns experienced in the second quarter compared with the first. The commentators and pundits interpret that as the markets “running out of steam.” However, the early part of the year might be more accurately described as a period of over-enthusiasm, with investors worrying over the possibility of “missing out.”

The chief worry as we enter the third quarter is that much of the equity returns are coming from a small handful of Artificial Intelligence-related companies. Firms Nvidia, Apple, Amazon, Meta, and Microsoft – are all soaring even as the rest of the market is taking a pause. As a result, the S&P 500 is soaring, but on a very thin number of big winners. Microsoft has seen its shares soar nearly 75% since the beginning of last year, after announcing its OpenAI initiative. NVIDIA's share price has increased nearly 150% in the first two quarters of this year. Amazon, which provides extensive server farms, is up more than 27% this year.

Analysts and investors with long memories are telling us that they’ve seen this movie before – new technology promising to change our economic landscape, create vast efficiency improvements, and permeate every aspect of our lives. The new technology does do that, but in the process, investors in new technology often lose billions. The market appears reminiscent of the tech boom of the 1990s and the massive collapse of stock prices – known as the tech wreck – that ushered in the new millennium.

Will companies find a way to use AI technology in a way that benefits their bottom line? Eventually, yes. But currently, the new technology is a cost rather than a source of revenue for all but a small handful of companies. Yes, Nvidia, the chip maker, is generating record profits – and gains. Apple Computer plans to harvest AI in its iPhones, but does that mean it will sell more phones than it has in the past? Microsoft, which pioneered ChatGPT, hasn’t yet seen the investment generate a boost to the bottom line, and other than writing college essays and maybe having computers man the phone lines to handle FAQs already posted on their websites, what is the case for use? A recent study found that, as of today, fewer than 6% of large firms are using AI-related technologies in a meaningful way.

A secondary worry is how AI models are straining our energy systems – which, of course, are also the utilities that run our air conditioners in the summer. Several reports have suggested that our electrical systems are groaning under the weight of this new AI-driven demand; a generative AI system uses 33 times more energy than computers running task-specific software, and the computations rely on giant data centers that suck up energy...

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

Several U.S. states have become attractive destinations for retirees since they don’t charge state income taxes. Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming fall into this thrifty category. New Hampshire would but the state does charge a flat 4% tax on interest and dividend income.

So those states are the cheapest places to live, from a tax standpoint, right? When you look at the bigger picture, there are thriftier places to live, tax-wise. Why?  Because you also have to consider property taxes and state sales and excise tax into the equation.

When you look at the percent of an average person’s income that is paid toward total state and local taxes, you discover that the least expensive state, from a tax standpoint, is Alaska, which assesses just 4.9% of the income of its average citizen. Florida and Tennessee are near the bottom (6.1%) but Texas (7.6%) and Washington (8.0%) might not be the thriftiest retirement destinations.

No reader will be surprised that New York (12.0%) is the overall state tax leader, followed by Hawai’i (11.8%), Vermont (11.1%), Maine (10.7%), California (10.4%), and Connecticut (10.1%). Retirees who want to live on the coast and still pay low taxes might consider Delaware, which assesses an overall 6.4% tax rate.

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you. 

It seems like every news cycle includes an article about how the Social Security trust fund is about to run out of money. “About” may be somewhat of a misnomer.  Estimates vary, and change as the economy goes through its ups and downs, but the latest estimate suggests that the trust fund will run out of money by 2035, in 11 years.

That doesn’t mean that a decade or so down the road we will witness the abrupt termination of Social Security benefits for seniors who qualify. The program receives its revenues from two sources: the money paid in by workers through their FICA contributions, and – where this is insufficient to pay for the benefits – from the trust fund to make up the difference. Roughly 20% of Social Security payments, in aggregate, come out of the trust fund each year. The most recent estimate is that, if nothing is done and the trust fund is allowed to be depleted, the Social Security Administration will pay 83% of the benefits that you see on your benefits statement.

It’s unlikely that Congress will decide to ignore the problem; the more relevant question is which of many proposals will be acted on. One is to simply raise the full retirement age from 67 to 68 immediately, and then bump it up progressively by two months each year thereafter. That would fill 44% of the funding gap, and represent a roughly 13% stealth reduction in benefits to future retirees. A second, similar proposal would index the Social Security retirement age to rising lifespans, which would address 20-25% of the funding gap.

Another set of proposals would lower the annual inflation adjustments for retirement benefits by switching to a different (less generous) inflation measure.  This would fill an estimated 23% of the gap, but it might raise political hackles since most economists say that the current benefits increases don’t keep up with inflation as it is.

There are several proposals to change the tax cap on FICA payroll taxes – that is, the maximum amount of income that is subjected to FICA assessments. One would raise the cap from $110,100 to $215,000 of personal income, which would fill roughly 35% of the funding gap. Another proposal would subject all earnings to Social Security taxes, which would fill 86% of the funding gap. This might be a political winner since only 6% of American taxpayers would be affected. Alternatively, there’s a Congressional proposal to raise the 6.2% payroll tax rate to 7.2% and leave the cap where it is (indexed to inflation). That would reduce the funding gap by 64%...

Disclosure Notice: The Wealth Conservatory® is a Registered Trade Mark of Comprehensive Planning Associates, Inc. - a Registered Investment Advisor with offices in New Hampshire, California, and Missouri. The Conservatory is not licensed to and does not engage in the practice of rendering legal or tax advice. Any discussion of either is for informational purposes only and you are strongly encouraged to seek appropriate counsel prior to taking action. The Conservatory and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC Registered Investment Advisors by those states in which the Conservatory maintains clients. The information contained herein should not be construed as personalized financial or investment advice unless the recipient has an executed and active client or member engagement with the Conservatory. The Wealth Conservatory® is a Registered Trademark of Comprehensive Planning Associates, Inc. Thank you.