Schwartz Financial Weekly Commentary 6/23/14

Schwartz Financial Weekly Commentary

June 23, 2014


The Markets

The Federal Open Market Committee (FOMC) press release wasn’t quite as catchy as España Cañí — the Spanish song played to rile crowds at events as varied as baseball games and bullfights — but it helped motivate investors as they pushed American stock markets higher last week.


The markets’ optimistic surge was a bit difficult to understand. Since April, the U.S. economy has offered mixed signals. As it turns out, the economy actually suffered a contraction — not a slight expansion, as was originally thought — during the first quarter of 2014. Unemployment has been relatively steady with employers adding about 200,000 jobs in each of the last four months.  However, inflation numbers have some pundits concerned.


The Bureau of Labor Statistics’ Consumer Price Index Summary (CPI) showed the CPI increased by 0.4 percent in May, but that doesn’t really tell the whole story. The price of food was rising faster (0.7 percent) than the CPI and in May, the food index posted its largest increase since August 2011. In addition, the cost of electricity and gasoline rose 0.9 percent.  When questioned about the discrepancy, Chairwoman Janet Yellen indicated the numbers around inflation could be just ‘noise.’  The Fed’s attitude toward inflation had The Guardian accusing it of magical thinking.


“…Consumers are surrounded by rising prices on all sides – paying higher bills, paying more money at the market, paying more just to get to work. At the same time we’re shelling out more for these necessities, our incomes are stagnant. No more money is coming in. Yet the Fed, which just wrapped a two-day meeting to diagnose the economy, is dismissing these real-world costs as a trick of the charts – a mere math problem rather than a real snapshot of the challenges facing Americans.”


If economic signals are mixed, why were markets so optimistic? Reuters suggested investors’ confidence had a lot to do with the markets’ resilience during 2014 to-date (in the face of events in Ukraine and the Middle East, among others), as well as economic improvement, earnings growth, and the availability of cheap credit.


Data as of 6/20/14
Standard & Poor’s 500 (Domestic Stocks)
10-year Treasury Note (Yield Only)
Gold (per ounce)
DJ-UBS Commodity Index
DJ Equity All REIT Total Return Index

S&P 500, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s,, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.


Decimate is a very interesting word…In the early 1500s, according to,decimation (an earlier version of decimate) referred to tithing—paying a tenth of your income to an organization that was usually religious in nature. By the end of the 1600s, “An English Dictionary defined [decimate] as both ‘to tythe or take the [tenth]’ and ‘also punishing every tenth man.’”  More recently, decimate has been defined as destroying a large portion of something or drastically reducing the strength or effectiveness of something.


When it comes to retirement, the great decimator could be healthcare costs. The Employee Benefits Research Institute (EBRI) estimated that, in 2013, men needed $65,000 and women needed $86,000 to have a fifty-fifty chance of covering healthcare expenses during retirement. At least, that’s how much they needed to pay for Medigap premiums, Medicare Part B premiums, Medicare Part D premiums, and out-of-pocket expenses.


Of course, if they wanted better odds, people had to save more. Let’s say a person wanted a 90 percent chance of having enough money to pay the healthcare costs listed above. In that case, a man needed $122,000 and a woman $139,000. A married couple (both with drug expenses in the 90th percentile) needed $360,000 in savings. EBRI Notessaid, “Individuals can expect to pay a greater share of their costs out-of-pocket in the future because of the combination of the financial condition of the Medicare program and cutbacks to employment-based retiree health programs.


Of course, it’s important to note that these targets don’t include any expenses associated with early retirement or long-term care costs. A new study estimates that a couple retiring at age 62 will pay about $17,000 in out-of-pocket expenses each year until they become eligible for Medicare.  No matter when they retire, 70 percent of Americans eventually need long-term care services and support, according to  The cost of long-term care depends on the services required, but it is not insignificant. One survey estimated that the average cost of care for one year in a private nursing facility was about $96,000 in 2014.


Putting sound financial strategies in place can help prevent healthcare expenses from decimating your retirement.


Weekly Focus – Think About It

People who think they know everything are a great annoyance to those of us who do.”

— Isaac Asimov, American author and biochemistry professor


Value vs. Growth Investing (6/20/14)


 ©2004 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) is not warranted to be accurate, complete or timely. Morningstar is not responsible for any damages or losses arising from any use of this information and has not granted its consent to be considered or deemed an “expert” under the Securities Act of 1933. Past performance is no guarantee of future results.  Indices are unmanaged and while these indices can be invested in directly, this is neither a recommendation nor an offer to purchase.  This can only be done by prospectus and should be on the recommendation of a licensed professional.


Office Notes:


Financial Responsibility –
It’s Never Too Early To Start


Children and money will always be linked together.  From birth to adolescence and from college graduation to having children of their own, children will always be linked to money and finances.

How do children learn to manage money?

Should they learn at school, from social media, their peers, by mismanaging at first, or should they learn from watching their parents?

The answer is a combination of all the above.  Children will learn many of their earning, saving and spending habits from a variety of sources.  How can you make a difference in preparing your children or grandchildren to comfortably face the multitude of financial challenges they will encounter as they grow up?

At first glance, money seems like a simple concept and one that would not require a lot of education. Children learn about money very early in life, usually by spending it, then hopefully by earning it! Is it necessary to introduce smart and frugal financial habits at an early age? Absolutely!

If you take a look at all of the financial difficulties that we encounter as a society, it becomes obvious that there is a need for financial education. We all encounter many opportunities to educate our children and grandchildren about financial responsibility. Through financial education and teaching by setting a strong example, your children or grandchildren could have a leg-up in developing sound financial habits that will hopefully last a lifetime.

We all know the old saying, “Money can’t buy you happiness.”  Please keep in mind that one of the main purposes of having children and grandchildren is to reward you with a lifetime of happiness. If you help them understand money, you can help eliminate potential stress, financial burdens and emotional strain that the misuse of money can bring.

Does this mean that you should enroll your 4-year old child or grandchild in a finance class at your local college? No! But it’s never too early to share helpful information when it comes to money. The goal is not to expect that your child will accumulate great financial riches, but rather to provide sound advice and values so that as adults they can avoid potential financial pitfalls and live comfortably and financially stress-free.

Here are several things that you can teach your children or grandchildren about money that can help them.

Educate and empower your
children or grandchildren to become regular savers and investors.

Take an active role in teaching children to keep more of the money they earn. Teach them to be thoughtful in what they spend their hard-earned money on. Everyday spending decisions that they make can have a great impact on their financial future more so than many of the investment decisions they will make in their lifetime. Teaching children how to think about saving money rather than spending it on toys and trendy items can hopefully prepare them for later in life when those decisions are about sport cars or swanky vacations.

Communicate openly and regularly about your values on
spending and saving money.

It is your responsibility to share with your children or grandchildren how to save money, let it grow, and most importantly, when and how to spend it in a timely and wise fashion. These types of discussions should not be a one-time lecture, but rather consistent and regular dialogue so the lessons learned become part of that child’s personal fabric.

Teach your children the difference between a need and a want.

One of the most difficult concepts for children to understand is the difference between a basic need versus a want. Helping them rationalize and learn the difference will teach them about how to spend and allocate their money so that as they grow into adults they have a healthy relationship with money. It is okay to allow children to give in at times to wants and wishes, but there is a clear need to distinguish the difference. Many adults struggle with this balance and sink into debt because they cannot distinguish and control their spending habits on frivolous wants, versus frugally spending it on needs. While our society encourages us to spend, spend, spend, and buy items that are not necessities, it is your responsibility to teach your children financial education. Share with them that they should first look to meet their everyday needs, plan for emergencies, grow their savings, and finally consider spending their money on “want” items.

Introduce the concept of saving versus spending.

It might not be appropriate for you to dictate what your child saves versus spends, but it is certainly helpful for you to teach the concept of earning interest and potential growth on savings. Consider opening an interest bearing account with the money children save at home or possibly offer them a small interest amount on money you save for them. Show them how you calculate that interest and have them watch it grow! Some parents even offer to match what their children save on their own so they are encouraged and “bonused” for saving their money. The bottom line is this: it is your responsibility to introduce to your children the value and benefit of delaying immediate gratification, and opting for saving that money.

Use your own regular shopping trips as opportunities to teach your children or grandchildren about the value of money.

 For many children, going to the supermarket is one of their earliest and most frequent spending experiences. Groceries and household items are an important use of our earnings and spending smarter at the grocery stores can help the family better allocate monies to different areas. When possible, use coupons and look for sales as ways to show children strategies that help them reduce the recurring but necessary spending.  Make it fun and have them search out coupons on items that you regularly use. Another learning tool is to show them how to compare unit prices and values. Try to train them to constantly look for ways to save and avoid being wasteful. One strategy is to plan your supermarket trip and purchases by making a list in advance and then teach your children not to impulse buy.

Alert children to the dangers of
borrowing money and paying interest.

Unfortunately, many times the bank of mom and dad, or grandpa and grandma, typically do not charge interest on large or small loans. Therefore children or grandchildren never learn how expensive it is to borrow money!  It is never too early to teach children that paying for something over a long period of time with a 12-18% interest rate means that although the buyer may pay less up-front or per month, they pay far more for the purchase over the time of the loan. 

Think about establishing regular
 family discussions about finances.

This can be especially helpful for pre-adolescents and teenagers. It can provide the time to discuss topics like cash, checks and credit cards. You can talk about wise spending habits and the proper use of credit, a problem that plagues many people later in life who have not learned this lesson. It is helpful as well to discuss what is happening both nationally and locally in the economy and how it can affect or change your thought process about economizing. We always remember what Benjamin Franklin said, “A penny saved is a penny earned.” Keep in mind that although that penny saved is a penny earned, it won’t help you as much at the end of the day if you still owe a dollar!

Review your allowances and expectations.

Many experts differ on whether or not allowances should be tied to household chores.  Some say children will learn more about personal responsibility if they are not paid for helping out at home.  Others feel it teaches a valuable lesson about working and earning. One way to solve this issue is to let your children know that good grades and regular help around the house is expected as a price of family life. You may consider paying your children for chores outside of the daily duties, such as washing the family car or working in the garden.


There is no assurance that any child will accumulate financial savvy. Your true goal is to provide guidance and help your children or grandchildren prior to adulthood learn the basics of personal finance. While we can never fully guarantee any results, you will hopefully leave a far greater legacy with this information than those who choose to ignore this topic. It is never too early or late to sit down and discuss finances with your loved ones. Financial responsibility is a necessary, life-long skill.




Michael L. Schwartz, RFC®, CWS®, CFS


P.S.  Please feel free to forward this commentary to family, friends, or colleagues.  If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added. 


Michael L. Schwartz, RFC, CWS, CFS, a registered principal offering securities and advisory services through Independent Financial Group, LLC., a registered broker-dealer and investment advisor.  Member FINRA-SIPC. Schwartz Financial and Independent Financial Group are unaffiliated entities.


This information is provided for informational purposes only and is not a solicitation or recommendation that any particular investor should purchase or sell any security. The information contained herein is obtained from sources believed to be reliable but its accuracy or completeness is not guaranteed.  Any opinions expressed herein are subject to change without notice.  An Index is a composite of securities that provides a performance benchmark.  Returns are presented for illustrative purposes only and are not intended to project the performance of any specific investment.  Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly.  Past performance is not a guarantee of future results.


* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.


* The DJ Global ex US is an unmanaged group of non-U.S. securities designed to reflect the performance of the global equity securities that have readily available prices. 


* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.


* Gold represents the London afternoon gold price fix as reported by the London Bullion Market Association.


* The DJ Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.


* The DJ Equity All REIT TR Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.


* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.


* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.


* Past performance does not guarantee future results.


* You cannot invest directly in an index.


* Consult your financial professional before making any investment decision.


* To unsubscribe from our “market commentary” please reply to this e-mail with    “Unsubscribe” in the subject line, or write us at “”.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s