Shotwell Rutter Baer

The debt ceiling debate has been front and center lately, so we thought we’d share this article from our partners at Clearnomics discussing this issue and how it may impact markets. Over the past week, there has been nonstop news coverage of the federal government hitting the $31.4 trillion borrowing limit known as the debt ceiling. This once again puts Washington drama on center stage as the Treasury Department enacts “extraordinary measures” to not default on its obligations. Although this has become a regular occurrence, many investors are still understandably nervous. While it’s unclear how this will play out politically before the estimated June 5 deadline, the fortunate news is that financial markets have taken these events in stride. How can long-term investors maintain the right perspective around political and fiscal uncertainty in spite of these headlines?

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The federal government has hit the debt ceiling

The large and ever-growing national debt is a controversial topic that impacts the economy and markets in complex ways. At its core, budget deficits occur when the government spends more than it collects in taxes and other sources of revenue, adding to the total debt each year. Even though tax revenues increase as the economy grows (even without raising tax rates), they have been outpaced by spending over time. These expenditures have grown across “mandatory” programs such as Social Security and Medicare as well as “discretionary” items such as defense and education, and have only accelerated since the global financial crisis in 2008 and the pandemic in 2020. The difference between revenues and spending is funded by government borrowing, i.e., by issuing Treasury securities.

What makes this discussion challenging is that several complex issues are intertwined. First, the question around the debt ceiling is not about government spending per se, since that spending has already been authorized through the normal budget process. The only question around the debt ceiling is whether the government can pay its bills. This is akin to signing the papers for a new car and then afterward requesting an increase to your credit card limit. For most of us, the decision to buy something can’t be separated from whether we will pay for it, even if it’s with debt. Unfortunately, the Congressional process for approving a budget by September 30 each year is separate from whether the Treasury can actually pay the bills.

This nearly reached a breaking point in 2011 when a political standoff around the debt limit led Standard & Poor’s, a credit rating agency, to downgrade the U.S. debt. During this period, the stock market fell into correction territory with the S&P 500 declining 19%. Ironically, the prices of Treasury securities increased during the 2011 debt ceiling crisis because, even though these were the exact securities being downgraded, investors still believed they were the safest in the world at a time of heightened uncertainty.

The debt ceiling was eventually raised to $16.4 trillion which averted a government default. Debt ceiling standoffs have occurred a few times since then with the limit suspended and raised in 2013, 2014, 2015, 2017, 2018, 2019, and 2021. Fortunately, despite the headlines and investor concerns, these episodes had little long-term impact on markets. The U.S. has never defaulted on its debt, and nearly all economists and policymakers agree that doing so would lead to turmoil in the financial markets and increase borrowing costs for businesses and everyday citizens.

Second, debt ceiling aside, the national debt at today’s level means that it has more than doubled over the past decade and, with very few exceptions, has grown nearly every year over the past century. While this is often framed as a partisan issue, the unfortunate reality is that neither party has addressed the problem over the past decade. The last major effort was the bipartisan Simpson-Bowles commission in 2010 which had little lasting impact on reducing government spending. The last balanced budgets occurred during the Clinton years and the Nixon administration before that.

Given how heated the topic of government spending can be, it’s important for investors to distinguish between their political feelings and how they manage their portfolios. In other words, investors should focus on what they can control in order to differentiate how things work from how they would like them to.

The unfortunate reality is that deficits are unlikely to go away. And yet, despite how unpalatable this may be too many, markets have done well regardless of the exact level of government debt and taxes over the past century. In fact, as unintuitive as it might seem, the best times to invest over the past two decades have been when the deficit has been the worst. These represent times of economic crisis when the government is engaging in emergency spending, which tends to coincide with the worst points of the market. And while this isn’t something investors would hope is repeated often, it does underscore the importance of not overreacting to fiscal policy and politics in one’s portfolio.

Finally, many investors worry about who holds U.S. debt – and what this may mean financially and geopolitically as the debt grows and interest rates rise. While it’s true that Treasuries are held by other countries including China, since Treasuries are important to the global financial system, about 77% of the national debt is held either by the U.S. government itself or by U.S. citizens. The amount held by U.S. government entities is generally excluded by economists when considering the total size of the debt since this is the equivalent of moving money from one pocket to the other. Thus, the many headline numbers that focus on total debt rather than “net debt,” which excludes intra-governmental borrowing, may not provide the most accurate picture.

That said, many investors worry that growing debt and deficit levels mean that Treasuries could be less attractive in the future. In the extreme, this could hamper the government’s ability to roll its debt, especially given the jump in interest rates. And while this is a possibility, it’s still unclear where the limits will be. Japan, for instance, has been operating with a debt-to-GDP ratio of about 250% for years. And although interest rates have jumped over the past two years, they have also stabilized and fallen over the past several months.

The debt ceiling and federal debt won’t be resolved anytime soon and there will continue to be media coverage over the next few months. As with many political issues, it’s important for investors to separate their concerns and not react with their hard-earned savings and investments. History shows that staying invested is the best approach to navigating drama in Washington.

About Shotwell Rutter Baer

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

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2023 Reasons

Check out the Diversification Matters chart we reference in this episode.

We usually talk about surprises in terms of being bad for the market, but the flip side of that is the surprise is a good thing and there is a scenario out there where the fed gets it right. 

So there’s just no telling where we’re at and what’s going to happen. It’s a matter of being a long-term investor and not worrying about what’s going to happen six months from now.

About Shotwell Rutter Baer

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

This is a pretty common question for our clients t ask in December and January. 

We’re in an industry where everybody loves to make bold predictions and there’s not a lot of accountability around what happens. Well, we need to be careful with that. If nothing else we are at least filling that void of saying, “Hey you know we put these ideas out there a year ago so let’s see how we did. ”

We’ve also got a sampling of some of the major investment banks and sources out there and we can look at what they predicted last year to give an idea of how meaningful these predictions are.  

Tune and listen and we review how well our predictions were for last year, as well as give our thought about 2023.

About Shotwell Rutter Baer

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

Nick was asked recently why he liked being a financial planner. He and Dave both agree that this is an important question to ask your financial planner or anyone who is going to help you with your money.

Nick tells a story about how he first started thinking about money and saving and how that shaped the career path that he followed. Listen along and learn more about Nick and how he landed a job he really loves now.

Money is a very emotional thing for most people and the entire industry has pivoted this way.

Nick reveals, “Trying to get people to make more money for no reason other than to make more money and I really needed to change the conversation around what are we going to do with this money and really have that conversation before we actually talked about what we were going to do with the money. That really changed my perspective on financial planning. It really allowed me to fall in love with the industry and fall in love with this career. Since then I’ve studied under Mitch Anthony. I’ve done a lot of work with George Kinder and became a registered life planner.”

Popular culture comes into the conversation as well, comparing people who have a lot of wealth and are still not happy, and those who are.

If you are considering a job in financial planning, this is a great episode to check out.

About Shotwell Rutter Baer

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

Michigan is an auto-centric state and people from the East and West coast don’t understand why we still driving the same Subaru we bought in the nineteen eighties. Nonetheless, a very popular question we get asked a lot is whether you should buy or lease a car. 

A car is a major expense and a big budget item and is usually still a necessity for most of our clients. Ultimately, it’s about practicality. The difference between buying and leasing a car isn’t going to change your life. We’re not talking about thousands of extra dollars to invest if you do one or the other. The cost is marginal.

A lot of people are buying out their lease and then turning around and flipping it making a profit. This is unheard of. Of course, this depends greatly on the make and model of the car and the timing of the lease.

Join Nick and Dave as they talk out the pros and cons of leasing versus buying your next car. Let us know what you are going to do when you purchase your next vehicle.

Here is the chart they refer to in the episode:

About Shotwell Rutter Baer

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

This is our 100th Episode! Thanks for listening over the past 2 years!

Join Nick and Dave as they talk about a topic they bring up with their clients on a regular basis. It’s never too early to start saving for retirement. Financial advisers regularly check it with clients to ensure they are saving enough for their retirement goals. This often corresponds with saving more and spending less.

The effect of doing this is that small changes or changes that may seem insignificant on the front end have a big impact twenty years out from
retirement. 

This podcast is based on a recent blog article Dave wrote, which you can read HERE.

Call us at 517-321-4832 for financial and retirement investing advice. Or email [email protected].

About Shotwell Rutter Baer

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

All these things felt like the end of the world at the time.  Well, the end of the financial world, anyway. There are a lot of events that didn’t make the chart. Yet the stock market still continues to grow.

So,  a little inflation and supply chain issues and stuff coming out of the pandemic seems pretty important right now but probably will be a blip in the chart in the future.

Thinking beyond the stock market in general, and thinking about life, there are always bad things that are going on and oftentimes we fail to put them into perspective. 

If you think of all of the great things that have happened in the last five to 10 years, it’s really a remarkable time that we live in. 

Thinking about the stock market in the long term, we are not so worried and we don’t tend to focus on the bad of what’s happening right now at this moment.

Despite concerns about the economy, the unemployment rate, which underpins that economy and keeps money in people’s pockets, is still at record lows.  We’ve got a 3.7% unemployment rate. How bad can a recession be if everybody still has a job?
The definition of a recession is when your neighbor loses his job. A depression is when you lose yours. So far, very few net people have lost their job. 

There have been quite a few layoff announcements out in Silicon Valley. A lot of tech companies are laying people off. But the net numbers as of this morning show the creation of another 200000+ jobs in October.

It is remarkable that despite inflation and companies tightening their workforce, we haven’t seen things change in terms of unemployment rates and unemployment in general.   

According to The Wall Street Journal, it looks like we have a 5.1% wage growth. So,  not only are people continuing to hold onto their jobs but they’re also getting a decent raise. Keep in mind,  inflation over that same timeframe was in the 8-9% range, but it takes some of the sting out.

Another thing to keep in mind regarding the tech jobs, some of the pundits have put it out there that really what happened was during
the pandemic many companies overhired because they were worried about having capacity as more activity moved online. 
Now things are reverting to normal as far as that goes so we’ll see how it plays out. It sounds like it’s almost more of a cyclical thing that happens in tech

With higher interest rates the bond market has come down a bit. There’s actually income in fixed income these days. Imagine that right? Not only income and fixed income,  but we’ve also seen cash savings rates get a little bit of rate of return as well.

About Shotwell Rutter Baer

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

Join Dave and Nick as they discuss an Aol Finance article titled Hidden Fees To Watch Out for in Retirement.

As fee-only financial planners, we always operate as fiduciaries. This means that we are legally obligated to provide advice that is in your best interest. That is, we don’t profit by selling you a particular product or investment. Many people believe that all financial advisors are required to give advice that is in your best interest; unfortunately, that’s not always true if they have something to gain by steering you in one direction or another.  Since commission-based financial planners are paid to sell products, they may choose a product that pays them a higher commission, even if it’s not the best choice for you. As fiduciaries, we don’t get paid that way.

However, there are many different ways that other types of financial advisors assess fees and get paid.  Listen as we break down what these fees are and which ones you may be able to avoid.

About Shotwell Rutter Baer

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

Dave and Nick offer tips on how to check that your financial plan is on track to provide the goals you have for your future and retirement.

Your plan should include resources for things that may come up that you are not planning for. Such as:

People don’t typically come to their financial adviser when things are going great. They usually have a concern or questions. A lot of times it is because something happened to someone they know, and they want to make sure they are prepared if something similar happens to them.

The solution to this is to make sure you have a normal plan in place and then let’s see if these possible events break that plan.

This is an invaluable exercise to get clients to start thinking about events that may arise and to have peace of mind that their financial plan, savings, and investments will take care of them.

Join Nick and Dave as they discuss some of these scenarios and see if any of them apply to you and your family.

About Shotwell Rutter Baer

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.

Dave and Nick review the book, The Investment Answer by Daniel C. Goldie and Gordon S. Murray

This is a favorite of both of theirs for investing information, especially for those just getting into the investing game.

From Amazon:

“The good news is that people today expect to live longer, healthier lives. The bad news is that many of us will not have enough money to retire comfortably. The solution to this problem is a wise investment of the wealth we accumulate during our working lives, but the unfortunate truth is that when it comes to investment, many of us don’t know where to start.

Daniel Goldie and Gordon Murray aim to change the way we think about investing and influence the way we select financial advisors, invest our money and assess the results.

In THE INVESTMENT ANSWER, they provide readers with the necessary background to make the five key decisions that have a significant impact on the overall investment experience so that they will never again be afraid of financial markets or uncertain about what to do with their money.

Specifically:

In a world of fast-talking traders who believe that they can game the system and a market characterized by instability, this extraordinary and timely book offers guidance every investor should have.”

About Shotwell Rutter Baer

Shotwell Rutter Baer is proud to be an independent, fee-only registered investment advisory firm. This means that we are only compensated by our clients for our knowledge and guidance — not from commissions by selling financial products. Our only motivation is to help you achieve financial freedom and peace of mind. By structuring our business this way we believe that many of the conflicts of interest that plague the financial services industry are eliminated. We work for our clients, period.

Click here to learn about the Strategic Reliable Blueprint, our financial plan process for your future.

Call us at 517-321-4832 for financial and retirement investing advice.