Friday Financial Five – January 19, 2018

Friday, January 19, 2018
Dan Forbes, GoLocalWorcester Contributor

Equity markets hot to start the year

The tax changes apparently resonated with investors, as domestic and international markets started well. Following last year’s pattern, emerging markets and international investments are leading the way, both returning over 5 percent. Large and small U.S. stocks are returning between 3 and 5 percent. Meanwhile, domestic real estate is one area that received the tax changes negatively, down over 3 percent so far. Fixed income has also seen a sell off, with most areas slightly negative.

Budgets, 401(k) contributions, and credit cards

The first step of any financial planning process involves grasping the budget, as detailed here on the CFP website. There are other recent developments to consider as well. The auto-enrollment of workers into 401(k)s is producing an unintended consequence: increased consumer debt. Employees need to make sure the money taken from their paycheck for retirement doesn’t drive them into spending deficits. To help track expenses, consolidating bank accounts and credit cards might help. In January, several credit card companies, including Chase Freedom, make 2017 spending history available to cardholders. These reports break down spending by month and category and can be invaluable for those without the time or inclination to stay on top of it.

Tax help for the individual

As the dust settles on the tax law changes, businesses are the big winners but there are some nuggets for individual taxpayers. One strategy is to “group” deductions in one year in order to surpass the increased standard deduction. That might include making higher charitable contributions, possibly into a donor-advised fund (DAF) or medical expenses, which has a lower floor, in one year instead of splitting it between two. In addition, Roth conversions will benefit from lower income tax rates. While Roth recharacterizations are going away, there is still no income limitations for conversion.

Keeping an eye on inflation

2018 might finally be the year that inflation concerns materialize. The CPI (Consumer Price Index) surpassed the Fed’s 2 percent target in November and December. Low unemployment has not led to a dramatic demand for higher wages, which would typically be associated with higher inflation. That is probably the first domino to look for, as consumers that are more educated continue to use available information to keep the price of goods and services at bay. From an investment perspective, while the bond market appears to expect higher inflation, Treasury Inflation-Protected Securities (TIPS) have been slightly negative so far this year. Bond expert, Jeffrey Gundlach, discounts the current CPI numbers but notes that increased GDP could be the driver behind higher inflation.

NBER paper connects retirement and mortality    

While there is anecdotal evidence that retirement might correlate to mortality, a new paper from the National Bureau of Economic Research attempts to quantify the relationship. Citing that one in ten people retire the month they turn 62, those retiring might then need to cover health insurance until Medicare kicks in at age 65, while living on a reduced income. Meanwhile, many retiring at 62 are doing so due to poor health. With these factors all playing a part, the research concludes there’s a roughly two percent increase in mortality for those retiring at 62.


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

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