U.S. Treasuries are offering a lesson in supply and demand.
Last week, the U.S. Treasury auctioned $258 billion in bonds. Treasury auctions are the way the United States government finances its debt. The Treasury sells short-, intermediate-, and long-term IOUs, known as bills, notes, and bonds. When investors and governments purchase bonds, they agree to lend money to the United States. In return, the United States agrees to pay an amount of interest over a certain period of time. At the end of that time, the government is expected to repay the money borrowed.
The price and interest paid on U.S. government debt is determined by supply and demand. When there are few bonds and a lot of demand, prices rise and interest rates fall. When there are a lot of bonds and little demand, prices fall and interest rates rise.
Last week, Barron’s reported, “The law of supply and demand meant that the glut of new Treasuries temporarily drove down prices and pushed up yields. The 10-year Treasury climbed during the week – brushing 2.95 percent – but ultimately lost half a basis point, ending at 2.87 percent. (A basis point is a hundredth of a percentage point.)”
The Treasury increased its debt issuance to fund tax reform and the two-year federal budget. Reuters reported, “…tax reform is expected to add as much as $1.5 trillion to the federal debt load, while the budget agreement would increase government spending by almost $300 billion over the next two years.”
A surplus of Treasury bonds, in tandem with decreased demand as the Federal Reserve reduces the holdings it accumulated during quantitative easing, could push Treasury rates higher. In addition, MarketWatch reported the Federal Reserve appears to be committed to gradually increasing the Fed funds rate to avoid an overheating economy and keep inflation down.
Higher interest rates may be coming.
|Data as of 2/23/18||1-Week||Y-T-D||1-Year||3-Year||5-Year||10-Year|
|Standard & Poor’s 500 (Domestic Stocks)||0.6%||2.8%||16.3%||9.2%||13.1%||6.3%|
|Dow Jones Global ex-U.S.||0.1||1.6||19.3||4.9||4.6||0.7|
|10-year Treasury Note (Yield Only)||2.9||NA||2.4||2.1||1.9||3.9|
|Gold (per ounce)||-1.8||2.4||6.4||3.3||-3.5||3.5|
|Bloomberg Commodity Index||0.6||0.6||1.5||-4.5||-8.4||-8.2|
|DJ Equity All REIT Total Return Index||-0.3||-8.0||-3.6||2.2||7.4||6.9|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg 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, djindexes.com, 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.
olympic athletes have to pay the bills, too. Not every American Olympian and Paralympian is a household name. Money.com reported, “These athletes don’t have the same kind of lucrative sponsorship deals as Olympic standouts like snowboarder Shaun White or alpine skiing star Lindsey Vonn – so they have to make ends meet, which can often mean squeezing in extra shifts during the off season, heading to the gym early in the morning before work and moving from a full-time position to a part-time one with no replacement for those lost wages.”
So, how do lesser-known athletes pay the bills while training?
- Sled hockey player Josh Pauls is a sales account executive. His teammate Steve Cash is a personal banker.
- Pairs figure skater Chris Knierim works as an auto mechanic and wants to have his own auto shop someday.
- Biathlon competitor Lowell Bailey is a singer and songwriter who plays in bluegrass bands.
- Curling team member Nina Roth is a registered nurse. Her teammate Tabitha Peterson is a pharmacist.
- Snowboarder Jonathan Cheever is a licensed plumber.
- Luger Emily Sweeney is a member of the National Guard, and so is bobsledder Nick Cunningham.
- Short track speed skater Jessica Kooreman has a real estate license.
- Luger Justin Krewson is a firefighter.
- Snowboarder Mike Schultz designs and engineers prosthetics.
- Nordic skier Kendall Gretsch works in tech support.
There is a lot to admire about Olympic and Paralympic athletes.
Weekly Focus – Think About It
“There are only three ways to meet the unpaid bills of a nation. The first is taxation. The second is repudiation. The third is inflation.”
–Herbert Hoover, 31st President of the United States
Value vs. Growth Investing (2/23/18)
|US Large Cap||0.64||3.44||-2.85||6.59||19.68||11.82||15.13|
|US Large Core||0.20||1.32||-3.13||4.05||16.46||11.45||15.29|
|US Large Growth||1.66||8.35||-1.11||10.35||32.01||13.50||17.79|
|US Large Val||-0.01||0.57||-4.44||5.34||11.13||10.48||12.28|
|US Mid Cap||0.16||1.56||-3.63||4.57||14.70||9.38||14.11|
|US Mid Core||-0.15||0.14||-4.16||3.53||12.89||8.38||13.60|
|US Mid Growth||0.64||4.28||-2.38||5.47||22.56||9.31||13.77|
|US Mid Val||-0.03||0.20||-4.39||4.79||8.79||10.38||14.91|
|US Small Cap||0.31||-0.03||-4.53||2.24||10.57||8.43||12.33|
|US Small Core||0.06||-0.58||-4.66||2.69||9.08||8.54||12.39|
|US Small Growth||0.70||3.22||-2.45||3.30||21.12||9.84||13.56|
|US Small Val||0.16||-2.65||-6.47||0.91||2.04||6.77||10.96|
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.
Are you making these 3 common mistakes with your IRA?
Let’s get right to it:
Mistake #1: Fail to maximize contributions.
According to a 2013 study by the Employee Benefits Research Institute, the average IRA balance for people between the ages of 60-64 was only $165,139.2 While this may sound like a lot, it may be well far short of what it takes to achieve your goals in retirement.
Mistake #2: Choosing the wrong type of IRA.
While all IRAs come with tax benefits, the type of benefits depends largely on the type of IRA. For example, contributions to traditional IRAs are often tax deductible, however the withdrawals you make from your IRA after retirement are taxed as regular income. Contributions to Roth IRAs, meanwhile, are not tax deductible, but withdrawals are tax-free.
It’s important you choose the right type of IRA based on your specific tax situation. Otherwise, you could end up paying more in taxes than you need to – either now, or after retirement.
Mistake #3: Choosing improper investments within your IRA.
IRAs often come with a wide range of investments, but not all investments are created equal. Too often, people fail to pay much attention to how the funds in their IRA are invested. Sometimes, they may be too risky, subjecting you to a greater probability of losing your hard-earned retirement savings. Or, your investments may be too conservative, meaning you won’t be able to grow your money the way you need to fund retirement.
All investing comes with risk, of course, but ensuring your investments contain the right level of risk for you is a key part of saving for retirement.
Why making any of these mistakes can be costly for your retirement plans
Imagine two people. Both are hard workers with high-income jobs. Both have good credit ratings, savings habits, and little debt. Both saved for retirement using some type of IRA. And yet, when retirement comes, one has the means to achieve all her financial goals, while the other merely gets by.
Why is this?
There are many possible reasons, but here’s a BIG ONE:
One person got the most out of their IRA and the other didn’t.
The question you have to ask yourself, is which person are you?
Why IRAs are so important
Nowadays, IRAs are more important than ever. According to a study, 34.8% of U.S. households owned at least one type of IRA as of mid-2017.1 That’s not surprising, because IRAs come with many advantages compared to other forms of retirement savings. For instance:
- IRAs typically come with a wider range of investment options than, say, a 401(k).
- IRAs bring significant tax advantages. (As previously mentioned, contributions to traditional IRAs are often tax-deductible, while withdrawals from Roth IRAs are tax-free.)
Unfortunately, many would-be retirees fail to get the most out of their IRA. As a result, they may not have as much in retirement savings as they would otherwise.
So how do you know if you’re getting the most out of your IRA?
That’s the reason for this letter. As your IRA or Roth IRA is such an important part of funding your dream retirement lifestyle, let’s you and I get together to look at:
- Whether your investments fit your personal risk tolerance.
- Whether the type of IRA you own is right for your personal financial situation.
- How much in savings you really need to reach your retirement goals.
What I would like to offer you, is a fresh look at whether you’re getting the most out of your IRA – and if not, what you can do to fix it.
So call me at 215-886-2122. There’s no cost or obligation. We’ll do an analysis of your IRA, and if everything looks great, I’ll tell you so! But if there’s anything you can do to get more value out of your IRA, we can have a continued discussion about the steps you need to take.
1 “Additional Data on IRA Ownership in 2017,” Investment Company Institute, December 2017.
2 Craig Copeland, “Individual Retirement Account Balances, Contributions and Rollovers, 2013,” Employee Benefit Research Institute, May 2015. https://www.ebri.org/pdf/briefspdf/EBRI_IB_414.May15.IRAs.pdf
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 “firstname.lastname@example.org”.