Riding the Wave for Financial Success

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In a column last week, I mentioned that my daughter was participating in the USA Surfing Championships. Well, I’m happy to say that she made the final for her age group and got invited to join the USA junior Olympic development team as well.

Of course, not everything went perfectly.

During the early part of her final heat, a massive set of waves came through and detonated on her and another competitor. My daughter had to duck under wave after wave, losing a lot of time and a lot of energy in the process.

Good thing she was wearing a leash – a rubber cord that connects a rider’s ankle to a surfboard.

In the earlier days of surfing, there was no such thing. Your board just rolled and tumbled to shore, often getting crushed on a reef or rocks along the way.

Of course, plenty of old timers – and some younger traditionalists – continue to surf without leashes.

There are some functional advantages, especially if you enjoy moving up and down your board a lot. And there are also some philosophical reasons as well.

In fact, you may hear some people grumbling that “the leash is what ruined surfing” or simply referring to such devices as “kook cords.”

The idea is that back in the day, before leashes, you had to be a competent swimmer and very aware of your own abilities out in the water.

As someone who occasionally surfs smaller waves (and longer boards) without a leash, I can tell you there is some merit to the argument. And yes, there is an investing point to this story…

False Sense of Security

Your whole mentality shifts when you aren’t wearing a leash.

For starters, you aren’t simply going for every wave in sight because there will be consequences to blowing a takeoff, falling, or having something else go wrong.

You are also a lot more careful about how you jump off your board and where you point it. The last thing you want is a new ding or to accidentally hit another surfer.

And when a number of surfers are all swimming after their boards, the entire lineup changes and opens up a bit more. You might say the better surfers get more waves while the less adept spend more time swimming away from where the waves are actually breaking.

In short: Leashes are like surfing’s great equalizer, but they can also breed a false sense of security.

Is anyone really safer wearing a leash?

I’m not sure.

Boards can still travel five or ten feet in any direction, which is plenty of room to hit someone or something else.

Rank beginners feel far more empowered to put themselves into situations they probably can’t swim out of.

People can paddle into more waves, which amplifies overcrowding.

And if anything, all these surfers are worrying far less about where their boards may end up going.

Today’s Financial Markets

I’m telling you all this because today’s financial markets feel much the same way – most investors and financial institutions are basking in a safety net created by easy money and yet serious dangers are still out there. 

Think about it …

When dotcom stocks crashed, the Federal Reserve came swooping in with low interest rates to help smooth over those (much deserved) losses.

When real estate speculators got wiped out in the subsequent bubble, here came the Fed yet again, pushing rates even lower.

The ensuing financial crisis? Same thing. Bailouts for banks and reckless institutions.

Now we’re hearing the Fed talk about the possibility of lowering rates once again.

Of course, the risk of drowning is still out there.

Just ask anyone who’s ever had a leash snap in sizable surf.

Suddenly that floating life preserver is no longer connected to you and the shore looks a lot farther away than it did two minutes earlier!

We may be approaching that day when the leash is simply stretched too far. When everyone has been lulled into a sense of complacency. And when the lifeguards are powerless to do anything more.

Knowing “How to Swim” in Our Financial World

So enjoy the waves. But make sure you know how to swim!

As I’ve explained many times, dividend stocks inherently carry some downside protection during tough markets.

In addition, you should also have other tools at the ready.

Meanwhile, you should also take stop loss orders, which tell your broker to sell your shares should they reach a predetermined price level.

Now, I do NOT recommend stops for your long-term, income-generating investments, provided you believe the company is strong and the dividend is reasonably secure.

That’s because if you’re constantly getting stopped out of positions, you will lose the current income, which is the real benefit of buying and holding dividend stocks.

However, choppy markets call for defensive measures when it comes to your shorter-term positions, especially if capital appreciation is the main goal.

You can also employ stops in your profitable positions as a way to lock-in gains in the event of a market decline. Simply raise your stop loss as the profits pile up.

Another thing to consider: Inverse ETFs, which hold a basket of investments are designed to go up when markets are heading down.

Example: An inverse ETF focused on Dow stocks should go UP when the Dow goes DOWN by roughly the same amount.

There are also double and triple inverse ETFs. They can be expected to go up two to three times as much as the Dow or another index goes down.

If you’re an income investor holding dividend stocks, inverse ETFs can help you hedge your portfolio against an imminent market drop without having to lose ownership or miss out on any dividend payments.

That’s not to say there aren’t some disadvantages with inverse ETFs:

First, you must allocate some of your investment dollars to the inverse ETFs, thus giving up some income for the protection.

Second, if the market rises substantially, your inverse positions will lose money (or at least offset the gains in your “long” positions).

Third, because of the way they’re constructed, inverse ETFs can drift away from their benchmark over time. And this is especially true of the double and triple leveraged versions.

In other words, if you hold them in your account for a long time, you may find that they gradually move away from the “mirrored” performance you expected.

But for short-term purposes, they are still a valid option. In fact, they can work really well with proper timing.

I know from experience. I recommended a double inverse Dow ETF — the UltraShort Dow30 ProShares ETF (DXD) — to my readers back in August 2008. And on September 30, 2008 … I recommended doubling their stake in the DXD for additional downside protection.

What happened next? The Dow plunged about 2,400 points!

When I recommended closing out the hedges at the end of 2008, I tracked gains of 65.4 percent and 43.7 percent, respectively.

That’s powerful protection, indeed!

And there are still additional, more advanced steps you can consider, too – including several strategies that involve options.

Plus, there are the original “investment leashes” – precious metals like gold and silver.

The bottom line? The seas might look really smooth so far this summer, but it never hurts to prepare for that rogue set somewhere out on the horizon.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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The Truth About Brain-Boosting Supplements

This post The Truth About Brain-Boosting Supplements appeared first on Daily Reckoning.

The signs of memory loss can be scary: misplaced keys, forgetting where you parked, a task you suddenly can’t remember, repeating a question over again that was just answered.

Five million Americans are estimated to have Alzheimer’s disease and related dementia, according to the Centers for Disease Control and Prevention – a figure that’s projected to grow to 13.9 million by 2060.

To date, there are no drugs that have been shown to prevent or reverse diseases like Alzheimer’s, which is leading many people to seek out questionable treatments with false claims.

One AARP analysis on spending found that 50-plus adults spend more than $93 million a month on six different supplements marketed for brain health.

“The people taking these pills are spending between $20 and $60 a month and flushing dollars down the toilet that could be better spent on things that actually improve their brain health,” says AARP Senior Vice President for Policy Sarah Lock.

Study after study seem to reveal the same conclusions: there’s virtually no good evidence to suggest that brain health supplements can prevent or delay memory lapses, mild cognitive impairment, or dementia in older adults.

In fact, some are even doing more harm than good. Here’s what the science says about taking brain boosting supplements, and what you should do instead.

What the Research Says

The three most popular supplements marketed for memory enhancement are fish oils, B vitamins, and ginkgo biloba extract, made from the dried leaves of the ginkgo tree. But decades of studies on these three supplements have all come up short.

Fish oil pills are probably the best studied and the results are not encouraging. When all the studies are pooled, we find very small improvements in recalling lists of words soon after they’ve been learned, and the effect doesn’t last.

The only encouraging evidence is people with diets high in omega-3s, found typically in fatty fish like salmon, may have a lower risk of dementia. But similar benefits are not linked to omega-3 in pill or supplement form.

Ginkgo biloba extract is another popular brain booster and the research is not hopeful either. In one landmark trial published in the Journal of the American Medical Association, researchers followed more than 3,000 people age 75 or older for six years.

Half were given 120 mg doses of the herb twice a day, while the others took a placebo. The ginkgo did not decrease the incidence of Alzheimer’s disease or dementia. 

B vitamins are also in question when it comes to improving cognition. A 2015 review of studies found that supplementation with B6, B12, and/or folic acid failed to slow or reduce the risk of cognitive decline in healthy older adults and did not improve brain function in those with cognitive decline or dementia.

The only instances where B vitamins had any significant effect on brain health was in people with B vitamin deficiencies.

Blame Advertisers and Loose Regulation

A 2017 Government Accountability Office (GAO) report analyzed hundreds of ads promoting memory-enhancing supplements online and identified 27 making what seemed to be illegal claims about treating or preventing diseases like dementia.

Supplements are loosely regulated, and you should be extra careful as some even contain undisclosed ingredients or prescription drugs. Several brain boosting supplements should not be taken with medications.

For example, ginkgo biloba should never be paired with blood thinners, blood pressure meds, or SSRI antidepressants.

Supplements that need to be metabolized by organs like your kidneys and liver can compete for limited metabolic function, potentially messing up the levels and performance of your medication.

What Should You Do Instead?

Two things: get active and get on a brain-boosting MIND diet.

Exercise is one of the few things within your control that has shown to protect against cognitive decline. Set a weekly goal of 150 minutes of moderate exercise.

Second, get on the MIND diet, which stands for Mediterranean-DASH Intervention for Neurodegenerative Delay. The diet includes lots of veggies, nuts, whole grains, olive oil, some beans, fish, and poultry, plus a daily glass of wine. A quick Google search and you’ll find all sorts of recipes.

The foods chosen in the MIND diet have all appeared to have brain-protecting effects. The researchers who invented the diet studied almost 1,000 elderly people, and followed them for an average of 4.5 years.

Those with diets most strongly in line with the MIND diet had brains that functioned as if they were 7.5 years younger than those whose diets least resembled this eating style.

A follow-up study showed that the MIND diet also cut their risk of developing Alzheimer’s disease in half. So although there seems to be no signs of miracle supplements or drugs for the treatment of cognitive decline just yet, your best bet is still the most simple: stay active and feed your brain good foods.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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2 Reasons Why Your Refund Isn’t as Big as You Thought…

This post 2 Reasons Why Your Refund Isn’t as Big as You Thought… appeared first on Daily Reckoning.

Are you accustomed to receiving a fat tax refund from the IRS… money that you often use for a summer vacation or to save for a rainy day?

This year, though, you might’ve gotten a smaller one than expected. Or worse yet, you may have had to include a check when you submitted your 2018 return.

You’re not alone.

According to the IRS, the average 2018 refund check for early filers was $2,640… 16% less than in 2017.

So why were so many caught off guard when the tax overhaul had promised relief?

Two reasons…

First, the Tax Cuts and Jobs Act (TCJA), which became law last year, lowered the rates for five of seven tax brackets. And the IRS changed its withholding tables to more closely match the amount owed.

So rather than withholding the same amount of tax as they did from your paychecks in 2017, your employer took out less.

That means your refund may not be as big as you expected because less tax was taken out of your paychecks and you got more money throughout the year.

Second is that many folks were affected by the biggest set of major changes in 30+ years, such as:

  • The end of personal exemptions
  • The elimination of the job-related expense deduction
  • Doubling of the standard deduction
  • Doubling the maximum Child Tax Credit for dependent children from $1,000 to $2,000 per qualifying child
  • The $10,000 cap on the deduction for state and local taxes

Retool Your Tax Withholding…

To prevent the same shock from happening this tax year, you may want to fine tune how much is withheld from your paycheck and how big of a refund you’d like. Factors include: marital status and how many dependents you have.

You don’t want a too big refund, because that’s like giving Washington an interest-free loan. Nor do you want to owe a big balance, since you could also get slapped with a penalty.

My advice: File a new Form W-4 so that your employer can withhold the correct amount of federal income tax from your pay.

The good news is that the IRS has a free withholding calculator that makes the job of completing a new Form W-4 a snap. You’ll need two documents: most recent pay stub and most recent tax return.

For an example how the calculator works, suppose you’re married, file jointly, and both of you are 60 years old.


Next, your salary is $75,000. Through mid-June of this year, $2,600 has been withheld with $200 coming out of each paycheck.

Let’s assume you’ll take the standard deduction…


As you can see, figuring what to put on Form W-4 is a piece of cake. The calculator provides specific recommendations on the number of allowances you should claim. It might also recommend an additional flat-dollar amount withheld from each paycheck… again so there’s no surprises when you file your return in 2020.

In our example, if you don’t make any changes, you’ll owe $287 come tax filing time. But if you follow the “Here’s how” instructions and file a new Form W-4, you’ll receive a refund of around $200.

As soon as you complete the Form W-4, give it to your employer so you can make up withholding shortages, or recover overages, by year end.

Also, check your withholding whenever there is a major change in your life, for instance, getting married, getting divorced, or starting a part-time business.

After you’ve finished with the Form W-4, you might want to checkout…

More Free Stuff from the IRS!

The IRS’ homepage has a boatload of free tools for you that can make the tax filing process a tad easier.

For instance, you can:

  • Get your refund status
  • Make payments
  • Get answers to tax questions
  • Find forms and instructions

And as long as your income is below $66,000, you can file your taxes for free with Free File’s easy to use software.

However, there’s a potential drawback if you use the program… one that Washington doesn’t talk about…

Some preparers have found that in reviewing clients’ Free Filer returns the IRS had made adjustments on those returns that were in the government’s favor and did not apply all rules to the taxpayer.

And those erroneous adjustments resulted in demands for payments, rather than refunds. 

Although up to 100 million taxpayers, or 70% of filers, are eligible to use the Free File program, whether it will continue is a coin toss.

On June 10, 2019, Congress passed the Taxpayer First Act of 2019. It’s meant to modernize the IRS and strengthen taxpayer protections.

The original version of the bill included a provision for Free File… the final approved version did not.

Understanding refunds can be tricky, but hopefully this issue was able to clear things up for you a bit.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post 2 Reasons Why Your Refund Isn’t as Big as You Thought… appeared first on Daily Reckoning.

The Silver Lining of Having an Empty Nest

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Since the 1970s, relationship experts have popularized the notion of “empty nest syndrome,” a term used to characterize feelings of deep sadness, angst, and loneliness parents sometimes feel when the last child leaves home.

Several books and blogs have been written to help parents deal with the transition. Simon & Schuster even published a “Chicken Soup for the Soul” dedicated to empty nesters.

But a growing body of research suggests that the phenomenon has been misunderstood.

While you may clearly miss your kids when they leave home for good, the empty nest is not necessarily an unhappy place.

Improving Your Marriage Quality

New research shows that marriage quality and happiness actually go up when the kids finally leave home.

And it’s not that your life is worse off with kids. The study found parents were still happy with kids, but their marriage satisfaction improved substantially when the kids left.

While that may not surprise a lot of parents, especially if you’ve lived this transition firsthand, I have to admit I was a bit shocked by these findings.

Why do empty nesters have better relationships than parents with kids still living at home?

It’s a timely question, given that for the first time in more than 130 years, adults ages 18 to 34 are more likely to be living in their parents’ house than living with a spouse or partner in their own home.

Understanding why empty nesters have better relationships can offer important lessons on marital happiness for all parents, even ones still years away from having a child-free house.

How Kids Impact Your Relationship

One of the unsettling findings from the paper was the negative effect children can have on a previously happy relationship.

Although it’s a common belief that kids bring couples closer together, more research is finding that marital satisfaction and happiness drop after the arrival of the first baby.

The Journal of Advanced Nursing reported on a study from the University of Nebraska College of Nursing that examined marital happiness in 185 men and women.

Scores declined starting in pregnancy, and remained lower as the children reached 5 months and 24 months. Other studies found that couples with two children score even lower than couples with one child.

While having kids can obviously make parents happy, the financial burden and time constraints will add stress to a relationship. After your first kid, you’ll find you have only about one-third the time alone together as you had when you were childless, say researchers from Ohio State.

The arrival of children also puts a disproportionate burden of household work on women. After kids, housework increases three times as much for women as for men.

The thing about these studies is they mostly focus on the early years. To understand the effects over time, researchers at Berkeley tracked marital happiness among 72 women in the Mills Longitudinal Study, which followed a group of Mills College alumnae for 50 years.

This study was important because it tracked the first generation of women to juggle traditional family responsibilities with jobs in the workforce.

In the empty-nest study, researchers compared the women’s marital happiness in their 40s, when many still had children at home; in their early 50s, when some had older children who had left home; and in their 60s, when virtually all had empty nests.

Empty Nester = Happiness

At every point, the empty nesters scored higher on marital happiness than women with children still at home.

These findings mirror what we’re seeing today. The American Psychological Association ran a study where they followed a group of parents and interviewed them at the time of their last child’s high school graduation and 10 years later.

They found that the majority of parents scored higher on marital satisfaction after children had left home.

While the Berkeley researchers hypothesized the improvement in marital happiness came from couples’ spending more time together, the women in the same study reported spending just as much time with their partners whether the kids were living at home or had moved out. But they said the quality of that time was better.

Less interruptions and less stress means more quality time. It wasn’t that the couples spent more time with each other, but that the time spent together was better.

If you still have kids living at home, the lesson here is you need to carve out more stress-free time together.

In the sample studied, it was only relationship satisfaction that improved when children left home. Overall, parents were just as happy with kids at home as in the empty nest.

So your kids aren’t ruining your life, they’re just making it more difficult to have enjoyable interactions together.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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5 Things You’re Probably Spending Too Much On…

This post 5 Things You’re Probably Spending Too Much On… appeared first on Daily Reckoning.

When planning on how much to save for retirement, you first need to know how much you’ll spend.

The general rule is that you’ll need 70% to 80% of your pre-retirement income to maintain your standard of living.

However, a recent study found that nearly two in five (39%) retirees are spending more than they had expected.

With that in mind, there are at least five things you might spend more on once you retire.


Many retirees love to travel, especially on the kind of trips they could only dream about while working.

Cruises are a favorite. In fact, the majority (38%) of cruisers are baby boomers and 47% of them plan on booking another cruise. Furthermore, the average age of those take cruises lasting 16 days or longer is 58.

And they’re big ticket items…

Fares advertised for less than $75 per person per day, say to the Caribbean, are enticing.

But it can run double or triple that amount depending on the cabin you book, your drinking preferences, the number of spa visits, how many shore excursions you take, and whether you are a big shopper at the gift store. Gambling can shoot your tab to the moon.

To keep the price of your cruise under control, realize that the mass-market lines with the lowest prices include buffet meals and entertainment… not much more. They’re also the ones who are notorious for pushing all the extras.

And don’t forget the cost of getting to and from the ship.

So before booking your cruise make a plan:

· Estimate how much the trip will cost.

· Calculate the amount you need to set aside each month so you won’t have to run up credit card debt to finance the trip.

· Stick with your cost estimate while on the trip. Don’t succumb to pressure to buy extras that were not in your budget.


As we age, our health changes.

According to the Employee Benefit Research Institute, the average annual out-of-pocket health care cost for households ages 85 and above represents 19% of total household expenses. Between ages 65-74 it accounted for 11%. Preretirement it was 8%.

Some costs are predictable, others are not.

  • The predictable ones include:
  • Regular doctor visits
  • Dental cleaning and exams
  • Ongoing prescription medications
  • Eye glasses

Examples of those that can come out of nowhere and have a higher probability of occurring as you age:

  • Extensive dental procedures
  • Emergency room visits
  • Overnight hospital stays
  • In-home health care
  • Nursing home stays

And even if you’re on Medicare, there are a slew of items not covered, such as long-term care, most dental care, vision care, and hearing aids. Plus there are deductibles and copayments for doctors’ services and outpatient care.

So you need to have separate preparations for each.

Medicare Advantage and Medigap plans can fill some of those holes. There are also supplemental policies you can buy that cover dental, vision, and long-term care.

Another option is to sign up for a health savings account (HSA). To qualify, you must have a health insurance policy with a deductible of at least $1,350 for single coverage or $2,700 for family coverage. You can contribute up to $3,500 for a single or $7,000 for a family. Plus another $1,000 if you’re at least 55.

Moreover, the contributions are excluded from your taxable gross income. 

With an HSA you withdraw funds tax-free for medical, dental, and other out-of-pocket expenses at any age. However, you can’t make new contributions to the account after you enroll in Medicare.


With spare time on your hands and the possibility of health issues down the road, you may be inclined to become more physically active. And the fitness industry is quick to accommodate you with gym options aimed at retirees.

To spot a retiree-friendly gym see if they have:

  • Classes specifically for seniors
  • Equipment that’s easy for older folks to use
  • Personal trainers for seniors
  • Discounts for seniors. Many nationwide gyms partner with AARP or AAA to offer discounted plans for seniors.

If you have a Medicare Advantage or Supplement plan, you might also check to see if it covers enrollment at your local SilverSneakers gym.

A YMCA is another option. Many have an Active Older Adults program that includes senior fitness routines.

Or you can visit your community center. Classes are very affordable, and some are held in parks to get you out in the sun and fresh air.


Once you retire, you’ll likely spend more time at home. That means you’ll use your TV, air-conditioning, heating, and other energy hogs more, too.

Here are some quick and effective ways to trim those costs:

  • Limit the time you run your pool pump to six hours a day in the summer and four hours in the winter
  • Cool your home at 78 degrees or higher with the thermostat fan switched to auto. Bump it to 82 degrees or higher when you’re away.
  • Heat your home at 68 degrees or lower with the thermostat fan set on auto. And drop it to 65 or lower at night or when you’re away. 
  • Reduce your water heater temperature to 120 degrees and save about $2 per month. 
  • Clean or replace A/C filters regularly.
  • Turn off the ceiling fan when you leave a room. That could save you up to $7 a month.
  • Replace old, high-flow showerheads with water-efficient ones and save up to $80 per year.
  • Match the water level on your washing machine to the load size. Also use cold water when possible.
  • Clean the lint filter in your dryer before every load.


The concept of going from a big home with loads of space you’re no longer using to a modestly-sized condo or house in an adult community sounds inviting.

But there are hidden costs…

First, making your home marketable.That means taking care of all that deferred maintenance you’ve put off for years. And to get it done in a timely fashion, it might be worth spending the money for professionals to tackle those tasks.

Second, up to 20% in capital gains tax.You can exclude up to $500,000 of profit when you sell your home if you’re married filing jointly. That drops to $250,000 if you’re single. 

Third, the actual move.Unless you want to rent a box truck and do the backbreaking lifting yourself, you should hire a moving company. Depending on the distance you’re moving and how much stuff you have, a full service moving company will charge $10,000 or more.

The priciest times are in the summer when kids are out of school. So try to time your move during the winter, and you might save a few bucks.

And use this opportunity to get rid of stuff you’ll never use [link to the article we wrote on death cleaning]. You’ll save money on moving fees and feel a sense of accomplishment.

Fourth, it could cost more to live at your new location.For instance, real estate taxes could jump, even if the value stays the same. Your current home is taxed based on its assessed value. Whereas your new home’s tax is based on the purchase price. So be sure to review taxes when considering downsizing.

There might be HOA or club membership fees that you don’t have now. Food, restaurants, and auto insurance could cost more.

To sum it up, chances are your spending will fluctuate throughout retirement. And how much you spend will have a big impact on how well you live during those years.

But if you recognize which expenses can increase and how to control them, you’ll be better prepared when they pop up.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post 5 Things You’re Probably Spending Too Much On… appeared first on Daily Reckoning.

Capitalism Is Broken

This post Capitalism Is Broken appeared first on Daily Reckoning.

The announcement came rolling from the Eccles Building at 2 p.m. Eastern…

No rate hike today.

Jerome Powell has decided to sit on his hands — for now.

In his very words:

It’s important that monetary policy not overreact to any one data point… The FOMC will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.

That is precisely why the next move will be a rate cut.

We have reckoned lots lately about the inverted yield curve… and the recessionary menace it represents.

The 10-year versus 3-month yield curve recently inverted to its lowest level since April 2007.

Meantime, 10-year Treasury yields hover at two-year lows — 2.04%. One Bloomberg opinion piece instructs us to prepare for 1% yields.

As the old-timers know… the bond market gives a truer economic forecast than the chronically dizzied stock market.

Meantime, the New York Fed’s recession model reveals a 30% probability of recession within the next year.

It last gave those same odds in July 2007 — merely five months before the Great Recession was underway.

JP Morgan places the odds of recession in the second half of this year at 40%.

And Morgan Stanley gives a 60% likelihood of recession within the next year — the highest since the financial crisis.

Yes, the Federal Reserve will soon be cutting rates.

One clue?

Conspicuously absent from today’s statement was the word “patient.” Thus Mr. Powell telegraphs that he is ready to move.

Federal funds futures presently give nearly 90% odds of a July rate cut.

The market further expects as many as three rate cuts by this time next year — perhaps four.

We are compelled to restate the blindingly obvious:

The Federal Reserve has lost its race with Old Man Time.

The opening whistle blew in December 2015… when Janet Yellen came off the blocks with a 0.25% rate hike.

If the Federal Reserve could cross the 4% finishing line in time, it could tackle the next recession with a full barrel of steam.

Alas… it never made it past 2.50%.

The Federal Reserve cannot return to “normal.”

The stock market will yell blue murder and take to violent rebellion if it tried — as happened last December.

No, Wall Street has Mr. Powell in its hip pocket — as it had Janet Yellen, as it had Ben Bernanke, as it had Alan Greenspan before him.

But it is not only the Federal Reserve…

Last year the world’s major central banks were pledging to “normalize.”

But now they are in panicked retreat…

All have taken to their heels, hoofing 180 degrees the other way.

For example:

Both the Bank of Japan and European Central Bank are now gabbling openly about rate cuts and/or additional quantitative easing.

“It’s all in the open now. Front and center. The new global easing cycle has begun before the last one ended.”

This is the considered judgment of Sven Henrich, he of NorthmanTrader.

We must agree.

Yet the central banks have only themselves to blame…

They grabbed hold of the poisoned apple during the financial crisis.

They gulped… and took the first fateful nibble. It proved nectar to the stock market.

Encouraged by the results, they soon munched the full dose… and later went plowing through the entire tainted orchard:

Zero interest rates, QE 1, 2 and 3 — Operation Twist — the lot of it.

Even with trade war raging and recession hovering, stocks are within 1% of record heights.

And so the banks are too far gone in sin to turn back now.

Their greatest casualty?

Capitalism itself.

Henrich on the wages of central bank sin:

Let’s call a spade a spade: Equity markets and capitalism are broken. Neither can function on any sort of growth trajectory without the helping hand of monetary stimulus. Global growth figures, expectations and projections are collapsing all around us and markets are held up with promises of more easy money, in fact are jumping from central bank speech to central bank speech while bond markets scream slowdown.

We fear Mr. Henrich is correct.

We further fear capitalism will get another good round pummeling in the years to come…

The Federal Reserve’s false fireworks will land as duds against the next recession.

Cries will then go out for the artificial savior of government spending — Modern Monetary Theory (MMT).

Free college tuition… universal Medicare… jobs for all… a $15 minimum wage…a possible Green New Deal…

These and more will be in prospect.

Politicians will go running through the Treasury as a bull runs through a china shop… and leave the nation’s finances a shambles.

Only then — too late — will they discover that debt and deficits matter after all…


Brian Maher
Managing editor, The Daily Reckoning

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How to Retire Rich Without Social Security

This post How to Retire Rich Without Social Security appeared first on Daily Reckoning.

It’s no secret that our country’s Social Security program is running out of money.

The Social Security system is paying out in benefits more than it’s collecting in tax revenue and as a result they’re dipping into the Social Security trust fund to make up the difference.

If Congress takes no action to fix the problem, starting in 2034 retirees are going to see a 23% cut in social security payments.

Today, the average retiree receives about $1,300 per month from SS. If this massive cut happens, your SS cheque will drop to about $1,000. This will lead to an economic crisis worse than the 1930s depression.

Anyone in their twenties, thirties, heck, even forties might be thinking: “Gee, I feel bad for Dad or Grandpa, but you know it’s not my problem.”

Well the reality is it is your problem. Because Congress will find the money…and you know where they’ll find it? Tax increases on American workers.

What can you do?

The key is to start saving. You have to assume you’re not going to get much help from our government, you’re not going to get much help from your employer, and your financial future is all up to you. And that means you need to save more and save a lot.

The issue is we’re really not good at preparing for retirement. The vast majority of Americans are reaching retirement with around $150,000 saved in their 401(k) plans…for the whole rest of their life. That’s clearly not enough.

Here are some strategies that will allow you to retire rich without having to rely on social security:

Max Out Your 401(k) Match

You can’t rely on your employer to bail out your retirement but if they’re offering to help, then at least make the most of it.

In 2019, the IRS allows those up to age 50 to contribute $19,000 to a 401(k) plan or a similarly structured 403(b) or 457 plan. If you’re older than 50, you can contribute up to $25,000 in 2019.

Most workplaces offer employees the choice of using a traditional plan, which offers an immediate tax deduction or a Roth account, which eliminates a deduction on contributions in exchange for tax-free withdrawals in retirement.

The biggest perk to a 401(k) plan is a lot of employers will match a portion of your contributions. This can be set up in different ways, like a dollar-for-dollar match or a percentage match of contributions up to a certain amount. Take advantage of your employer’s match program, it’s an easy way to boost savings.

Build Your Own Pension Through Tax-Free Savings

Start saving early at the highest percentage you can even if you’ve been putting this off. But don’t let your savings get eaten up by taxes. Minimize what you owe the government by using IRAs, health savings accounts and your employer’s 401(k).

IRAs offer traditional and Roth options, so you can choose to receive tax savings now or in the future.

But contribution limits for IRAs are significantly lower than for 401(k) plans – $6,000 for workers up to age 50 and $7,000 for those 50 and older in 2019.

If you’re eligible for a high-deductible health insurance plan with single coverage, you can contribute $3,500 to an HSA in 2019. With family coverage, you’re looking at contributions up to $7,000.

When you contribute money to these accounts, your money is tax deductible, grows tax-free and can be used tax-free for qualified medical expenses. At age 65, withdrawals can be made from an HSA for any reason and only regular income taxes will apply.

Invest, Invest, Invest

You can’t just save money for retirement and expect it to grow. You need to invest properly. And I don’t mean just putting all your savings into the S&P 500 and hoping for the best.

Index funds that track the market are great, but shouldn’t be your only strategy. If you’re still several years away from retirement, you may want to put your savings in more aggressive growth funds to maximize potential returns.

And if you’re nearing retirement, you might take the opposite approach and diversify your savings into less risky investments. It all depends on your circumstances but leaving your money sit in a savings account earning half a percent is no good.

Find Other Guaranteed Sources of Income

Social Security gives you a steady monthly income, regardless of how the market performs. But an annuity can do the same.

If you’re looking for peace of mind, a variable annuity might be right for you. Payments are fixed though, so if you happen to die prematurely, any extra principal is pocketed by the insurer. But, annuities can be another source of guaranteed income to look into.

Claim What’s Yours, Early

There’s no telling what could happen to Social Security. While the full retirement age is 66, you can begin claiming benefits as young as 62. If you do claim early, you lock in a permanent 30% reduction in benefits.

But with the future of SS in question, it might not be such a bad move to claim as much as possible before the program runs out.

Still, I think it’s unlikely that Congress will let SS collapse by 2035. So it’s best to wait and maximize your SS benefits. If you’re married, you might be able to hedge your bets by having one person claim benefits early and let the other wait.

SS was never meant to replace 100% of your pay at retirement. It was designed to prevent people from going into poverty like in the great depression.

However even though it’s likely not going to disappear, save like it doesn’t exist and you’ll thank me later.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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REVEALED: How Far Stocks Will Fall

This post REVEALED: How Far Stocks Will Fall appeared first on Daily Reckoning.

How far might markets plunge next time around?

And will you be able to recover your losses rapidly?

Answers — possibilities, rather — shortly.

And is one of Wall Street’s oldest chestnuts of investment wisdom tragically wrong?

This question too we will tackle.

But first to that vicious den of sin and iniquity — the stock market.

The Dow Jones roared 353 points today. The S&P rallied 28 points and the Nasdaq… 109.

For reasons we turn to the president’s comments this morning:

Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting.

That G-20 meeting transpires June 28-29.

We shall see.

But how much value can you expect the stock market to shed in the next bear market?

The United States economy has endured recession every five years since World War II — on average.

Yet the present economic expansion runs to 10 years. It will be crowned history’s longest next month.

How much longer will the gods of chance be put off, cried down, ridiculed and shooed away?

10-year Treasury yields have slipped beneath 3-month Treasury yields.

This yield curve inversion has preceded each and every recession 50 years running.

And last week the yield curve inverted to its steepest degree since April 2007.

Meantime, Morgan Stanley’s Business Conditions Index just endured its largest-ever monthly plummet.

It presently languishes at its lowest level since December 2008 — the teeth of the financial crisis.

In Morgan Stanley’s telling, the American economy may already be sunk in recession.

But today or 18 months from today… a bear market will likely come dragging in on recession’s coattails.

Thus we arrive at the inevitable question:

How much value might the stock market lose in the next bear market?

Financial journalist Mark Hulbert interrogated the history since 1900 (based on data from research firm Ned Davis).

Investors have withstood 36 bear markets in these 119 years.

Hulbert then zeroed in on stock market valuations.

In particular, to the cyclically adjusted P/E ratio (CAPE) hatched by Yale man (and Nobel winner) Robert Shiller.

At 30.2, CAPE is mountain-high — that is, stocks are vastly expensive by history’s standards.

Today’s valuations rise even above 1929’s — and put 2008’s in the shade.

Only during the dot-com delirium were stocks dearer than today.


Hulbert’s research reveals bear markets tend to greater severity when stock valuations are elevated.

And so given today’s wild valuations, how far might the Dow Jones drop next time?

The answer, says Hulbert… is 35.3%:

A simple econometric model whose inputs are past bear markets and CAPE values predicts that, if a bear market were to begin from current levels, the Dow would tumble 35.3%. Though that’s less severe than the 2007–09 bear market, it still would sink the Dow below 17,000. 

In fairness…

Hulbert concedes his findings do not rise to the 95% confidence level he seeks. But can you safely throw them aside?

Assume the Dow Jones does go tumbling 35.3% — beneath 17,000.

Worry not, says Wall Street.

Hold on for the long pull. Buy and hold is the way.

The stock market always comes back, the learned gentlemen assure us.

The magic of annually compounding returns will ultimately leave you in easy waters.

But have another guess, says analyst Lance Roberts of Real Investment Advice…

Perhaps you seek 10% compounding annual returns for five years.

Ten percent is handsome — but not extravagant.

Assume 10% is precisely what you receive the first three years. But you lose 10% the fourth.

What then happens to your gorgeous five-year 10% compounding?

You would need to haul in a ludicrous 30% return the fifth year… to catch up.



The “power of compounding” ONLY WORKS when you do not lose money. As shown, after three straight years of 10% returns, a drawdown of just 10% cuts the average annual compound growth rate by 50%. Furthermore, it then requires a 30% return to regain the average rate of return required.

If you are approaching retirement — or already in retirement — can you afford to stagger 10%?

Or 20%?

You must further consider today’s extreme valuations.

The higher the valuation… the lower returns you can expect over the next several years.

At today’s valuation extremes…

Would you be better off placing $3,000 into the stock market each year — or wedging it under your mattress?

Roberts has given the numbers a good, hard soaking. At 20x valuations, he finds…

Your stock market money would finally exceed your snoozing cash… in twenty-two years.

22 years!

“Historically, it has taken roughly 22 years to resolve a period of overvaluation,” affirms Roberts, adding:

Given the last major overvaluation period started in 1999, history suggests another major market downturn will mean revert valuations by 2021.

And recall — today’s CAPE is 30.2%. Perhaps stocks must wait even longer to break ahead.

But can you afford to wait?


Brian Maher
for The Daily Reckoning

The post REVEALED: How Far Stocks Will Fall appeared first on Daily Reckoning.

What I Tell My Daughter About Money (and Life)

This post What I Tell My Daughter About Money (and Life) appeared first on Daily Reckoning.

I had a great Father’s Day weekend, spending time at the beach watching my daughter compete in a major surf contest at Huntington Beach.

This week I’ll watch her do an even bigger one – the USA championships at Lower Trestles, an invite-only Olympic development event.

Quite honestly, my daughter amazes me. After just a few years in the sport, and just a few days after her twelfth birthday, she’s already doing things most people only dream of. (See for yourself by checking out her Instagram account @velamattive.)

It’s the result of natural talent, passion, and hard work.

So through surfing, she’s already learning major life lessons.

But I take every opportunity to give her additional insights… many of the same ones my mom and dad gave to me.

Probably the simplest and most effective thing I’ve ever learned is the need to keep things in balance – not just on a board but in life… and especially when it comes to money.

Finding Balance

It started when, as a young kid, my parents took me to the bank to open up a basic savings account.

I can still remember getting handed that little passbook ledger for the first time. It seemed so important and grown up!

From that day on, we always put some money into the account whenever I received gifts for birthdays or other special occasions.

I was then able to watch the progress add up in that little book, a tangible reminder of saving for the future.

At the same time, I was free to spend money on things I wanted, too.

The overall message was pretty clear: Life isn’t about being a miser OR a spendthrift. It’s about maintaining balance between current wants and future needs.

Today, my daughter is saving and spending her own money just like I did.

Managing Your Health

It’s the same thing when it comes to overall health, too.

If you think about eating and exercise, you’ll quickly realize that our bodies are just like checkbooks: They’re best when they stay balanced.

Burn up a lot more energy than you take in, and you crash.

Consistently take in more calories than you burn, and you accumulate extra deposits over time!

So again, I always aim for balance.

I try to eat the highest-quality foods possible. But I don’t deny myself pleasurable splurges, either.

The way I see it, an ice cream isn’t a big deal if I ride my bike 15 miles that same day. 

Coincidentally, even the act of exercising serves as a good counterweight to all the time I spend sitting at a desk writing and watching the markets.

When I come back from surfing or cycling, I end up feeling more energized and creative.

Teaching My Daughter Balance

My daughter has grown up seeing this in action and already practices it herself.

We might take a few hours to go surf together then return home and get our respective chores and work done.

We have dessert but only after the healthy dinner is over.

And speaking of my work, I’m also trying to impart the power of not just saving but also investing!

If you merely eat well, exercise regularly, and spend less than you make, you’ll be living a pretty solid life – probably better than 90% of the population.

But learning how to get your money working for you is what takes things to the next level and gets you that extra 9% or 10%.

Again, I try to illustrate this to my daughter whenever a situation arises.

For example, a few years ago all of the girls in her school were into a teeny-bopper clothing retailer at the local shopping mall.

So one day, when she was going on about how great their clothes were, I took it as an opportunity to explain the basic premise of capitalism.

“Do you realize,” I said, “That instead of spending $50 on a t-shirt there, you can actually buy some of the store itself for the same amount of money?”

After a little further discussion about the merits of owning a stake in the store itself, which was part of publicly-traded retail group, my daughter went quiet for a minute.

“Would I have to work there?” she asked.

“No,” I explained. “Actually, everyone at the store would work for you. And every time one of your friends bought something, you would benefit from that spending.”

The general concept quickly took root in her mind — she started talking about opening her own store, including how she would price the products. (“High, so I make a lot of money.”)

Right now, it’s mostly just cute when we have these conversations.

But there’s no doubt in mind that the long-term implications will be crucial to her success, her independence, and her overall well being.

Because, really, these lessons are not just about money, physical fitness, or hard work.

They’re about truly living well… enjoying what you have… dealing with both the wins and the losses… and always aiming to do a little better in the future.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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Clinton D.C. Home and a True Meritocracy

This post Clinton D.C. Home and a True Meritocracy appeared first on Daily Reckoning.

Hillary Clinton recently shared a glimpse of her lavish D.C. home — dubbed “Whitehaven” – with Architectural Digest. And while I’m more of a modern design kinda guy, I have to say it’s definitely a nice pad… especially since it’s not even the Clintons’ primary residence!

Of course, seeing pictures of the lavish home also made me think about a story I originally discussed many years ago… and one that we should keep in mind as a whole new crop of politicians vie for our attention in the next presidential election cycle.     

In a nutshell, lawmakers – on both sides of the aisle – are often massive hypocrites.

And in Bill and Hillary Clinton’s case, you know this because of their homes.

Not because their houses are nice or expensive or magazine-worthy or anything like that.

It’s actually what you can’t see – namely, the fact that, at least in the case of their N.Y. house, ownership was shifted into a special type of trust to avoid future estate taxes.

Here’s how Bloomberg explained it:

“The Clintons created residence trusts in 2010 and shifted ownership of their New York house into them in 2011, according to federal financial disclosures and local property records.

“Among the tax advantages of such trusts is that any appreciation in the house’s value can happen outside their taxable estate. The move could save the Clintons hundreds of thousands of dollars in estate taxes, said David Scott Sloan, a partner at Holland & Knight LLP in Boston.”

Now, let me say that I have absolutely no problem with anyone using current law to maximize their own personal wealth, including legally avoiding taxes through whatever means are available.

Estate Taxes

The real problem is that the Clintons are purposely avoiding the very taxes they have always wanted to impose on everyone else.

Just listen to this quote from a speech Hillary delivered back in 2007:

“The estate tax has been historically part of our very fundamental belief that we should have a meritocracy.”

If you really believed that, wouldn’t you be okay with a bigger portion of your own wealth going back to Washington, D.C. upon your death?

Would you really employ advanced financial planning techniques to shelter many millions of dollars in real estate from the estate tax?

Especially if your child already seemed to be doing just fine with her husband, himself the son of two Congresspeople and a former Goldman Sachs banker?

Wouldn’t you figure the future utopian meritocracy would take care of everything for all the grandkids?

Therein lies the rub for me: A meritocracy is simply a place where people get rewarded because of their abilities and choices… not a place where successful people have to be wiped back down to zero once they have accomplished things.

By the way, in a pure meritocracy we would probably all be judged and placed into career paths based on standardized test results, IQs, and other “objective” measures.

Your last name wouldn’t help you get into an Ivy League school… or find a job in finance… or allow you to create your own career because of any type of inherited fame.

There would also not be affirmative action… college financial aid tied to need rather than ability… or many other things that the Clintons have supported over the years.

At any rate, the point here is simple: The Clintons, and most other politicians, like to create arbitrary lines for us… lines that they themselves happily skirt.

They say earning $250,000 a year makes someone “rich” while charging that much for a single two-hour speech…

They say anyone with several million should surrender 40% of that wealth upon death while shifting their own several-million house into a specially-designed tax shelter… 

And when it comes to retirement? Don’t even get me started!

Beyond Politics…

It isn’t just politicians, either.

Warren Buffett, who was there for that Hillary Clinton speech back in 2007, is another person who adamantly supports aggressive taxes on the wealthy. Yet as far as I know, he has never written the IRS a bigger check than he has to.

So don’t worry about other people’s houses or how they define “fairness.”

Do what’s best for your own family within the letter of the law because that’s what just about everyone in Washington, D.C. does (and some go beyond the law as well).

Personally, I think the idea of an estate tax is ridiculous.

You’re taxed when you make it.

You’re taxed if you successfully invest it.

You’re taxed when you live in it.

And you’re taxed when you spend it.

So there’s simply no reason you need to be taxed one more time on whatever you have left when you die.

Wherever the money goes next, it will be used to do something else that generates more future taxes. Or, if the heirs are stupid, it will end up finding its way back into the general population very quickly anyway.

And to me, that’s a real meritocratic idea!

No more need for elaborate tax shelters or two-faced political speeches. Just let the money keep cycling through the economy naturally.

Anyone who doesn’t want to create a family dynasty can simply write a rather large check to Uncle Sam or their favorite charity any time they want to.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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