Friday Financial Five – November 29th, 2013

Friday, November 29, 2013

Dan Forbes, GoLocalWorcester MINDSETTER™

In the spirit of Thanksgiving, we have the following to be thankful for in our financial lives.

A strong year for stock markets

Despite general angst about the state of the U.S. and foreign economies, broad stock market performance has been extremely strong this year. Companies large and small, domestic and foreign, have all contributed to all time highs in market indexes. After decades of strong performance in the bond markets, this year saw negative returns in many areas as the prospect of rising interest rates looms large. Diversification and the shortening of bond investment durations remains extremely important going forward.

Positive home equity

Homes are coming out from being underwater and that will have major ramifications for the economy’s future improvement. Positive equity reduces foreclosure time and expense as the property can be sold at a profit. There is increased mobility for the work force. For 2013, the rise in home equity also spurred refinancing activity, alleviating pressure on the nation’s debt burden.

Lower investment fees and increased fiduciary responsibility

A few trends in the delivery of financial services will continue to benefit the consumer. Overall investment expense continues to get driven down as companies compete to deliver mutual funds and exchange traded funds with lower expenses. Meanwhile, the SEC is pushing increased regulatory oversight to make as many investment professionals as possible take fiduciary responsibility for their clients.

Dissenting voices at the Federal Reserve

In 2014, the most important decision for the future of our economy will be how the Fed handles the end of Quantitative Easing. We know for sure that the Fed’s low interest rate policy has helped housing, but the tradeoff has been lower rates of interest for savers and lower income for retirees. There are now a few voices at the Fed asking for a plan to end the easy money policy, while transitioning to a higher interest rate environment.

A continued focus on college tuition’s value

This speech by Malcolm Gladwell reinforces the need to reassess the value proposition of higher education. By comparing the publication rates of the “elite schools” versus the “lousy schools”, Gladwell’s analysis argues against paying as much as possible to attend the most elite institution. Instead, the focus should be on attending a college where the student will thrive most, regardless of the institution's reputation. Elite institutions, many at a cost of over $50,000 per year, continue to fall short in terms of providing proper value to their graduates.

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at [email protected]

Friday Financial Five – November 29th, 2013

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