DICK BAYNTON: Today’s Smart and Not So Smart Money

Dick Baynton

The Dow Jones Industrial Average (DJIA) fell 11175.21 points on Monday, February 5th, 2018, one of the most precipitous drops of all time. This was a 4.6% retreat from Friday, February 2nd’s close of 25,521. At 4.6%, a $1 million portfolio would lose about $46,000 in value; securities valued at $100,000 would lose $4,600. Investments in real estate and personal assets did not change. The value of your almost new car remained steady. College tuition costs probably remained static. Stock markets are known for volatility just as weather has its ups and downs; temperatures in Siberia have been recorded from -90?F to +98?F (188?F). Zig Ziglar once said, “Tough times don’t last but tough people do.”

The moral of the story about change, even steep ones should be considered in the context of other events and conditions such as the strength of the U.S. economy at this time. As a footnote, the DJIA rallied 567.02 points on Tuesday, February 6th, restoring about half of the losses from the prior day. Perhaps the most useless activity would be to call your financial advisor and declare that your investment strategy must be redirected based on the steep decline in value on one day.

Recognizing that unusual events are often anomalies, here are some interesting data about the financial situation in our great nation, the world’s largest economy. Each of our 327 million citizens owes $63,048 of the national debt that now is $20.6 trillion. Total debt per citizen stands at $212,046 but savings per family is just $4,707. Total household net worth in 2008 was $56 trillion but has increased to $97 trillion in late 2017; that’s an annual increase in value of about 6.29%. Median annual income of wage earners is currently $31,612 an increase of about 1.3% over peers in year 2000.

Here are some situations that touch all taxpayers. A report from the Education Department’s Inspector General reports that government has assessed the default and delinquent situation with ‘The Student Aid and Fiscal Responsibility Act’ that was a ‘rider’ on the ‘Patient Protection and Affordability Act’ of 2010 and determined that non-payments are draining the program of billions of dollars. An estimated 45 million students took advantage of the program and federal student debt now tops $1.5 trillion. This is a reminder of where some errant government spending will burn a hole in our tax payments.

Regarding jobs, the January report from the Labor Department shows that 200,000 jobs were added and private sector average hourly wages increased at the rate of 2.9%. Following the recently passed tax reform legislation amounting to a cut of $1.5 trillion, about 90% of workers can expect higher paychecks. The Tax Policy Center estimates that about 80% of taxpayers will see a tax cut and about 5% will see a tax increase. Consumer confidence apparently increased as consumer spending was up a strong 3.8% for the first quarter and business investment increased 6.8% (non-residential). One New York banker stated that our economy could grow at a 4% rate in 2018; this rate of growth was last reached in 2000.

A WSJ report mentions that 16.7 million U.S. consumers lost $16.8 billion by having their identities stolen. Social Security numbers have eclipsed credit card numbers as the source of this fraudulent activity. Other cautions worthy of note are earnings estimated to the IRS; about 10 million returns were assessed $1.3 billion in penalties regarding faulty estimates.

There may be considerable confusion this year regarding all aspects of personal and business taxation. Although do-it-yourself computer programs provide a high level of accuracy, it might be worthwhile to have a professional take a look at your return before submitting it.

If  you are retired and your liquid assets or portfolio amount to about $1 million, experts that formerly suggested 5% spending annually in retirement are frequently lowering their estimates to 4% and even 3% due to market volatility and increasing costs of living in retirement. It would be a good idea to consult a qualified expert in the field of financial planning for specific advice.

Author’s note: Nothing in this column should be considered actionable financial advice for readers. The author is a journalist, not an accountant, attorney, banker or financial advisor.