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Sunday, September 8, 2013

Smart Decisions about Money

Here is a re-post of one of the initial Advocacy Network blogs from Feb 2009, interesting now 4+ years later:

Feb 14, 2009

Today we take a look at the end of Reaganomics as we knew it. I remember as a young insurance professional in the early 80’s the public sentiment which was embodied in the actions of President Reagan, was for decreased taxes on the wealthy and decreased government involvement in the economy. Now, in 2009, public sentiment, which has been embodied in the speeches of President Obama, is for increased taxes on the wealthy and increased government involvement in the economy. The following are words taken directly from President Obama: “restore fairness to the tax code and provide 150 million workers with the tax relief they need and eliminate all income taxation of seniors making less than $50,000 per year.”

The Advocacy Network is committed to giving our members clear concise and non biased information that will assist our clients (members) in making smart decisions with money. We believe that practicing any political partisanship will not serve our clients. (that is not to say that we are not involved in the national and local political climate, as a responsible US citizen that is a fundamental right), yet our viewpoints are strictly towards events and how those will cause trends that all people need to be aware of in order to make smart decisions about money.

For every action there is an equal an opposite reaction, this is commonly referred to the Law of Unintended Consequences. Be prepared because there will be a mountain of unintended consequences in the decision to grow government involvement in the economy. That being said you can make these unintended consequences work for you instead of against you, it does however require that you be proactive in your decisions about money. Confidence is waning and that causes PROCRASTINATION. The most damaging impact that can be inflicted upon the market at any time is PROCRASTINATION, commonly referred to as the decision to make NO DECISION. These “no decisions” are in essence very powerful decisions which end up having huge impacts on the market place.

Let’s take a look at the present economic climate and potential impacts. The recent economic crisis has resulted in the Federal government taking substantial ownership interests in many of America’s Financial Institutions (whether you agree with this or not, it is what it is), this has led to an outcry for more governmental oversight as the public’s faith in private market solutions has been shaken. (More transparency should simplify this and hopefully allow people to regain confidence in the private market).

During the Reagan years with its lower tax rates on the wealthy (actually had the unintended consequence of choking off infrastructure investment (tax shelters) as much of the wealthy were willing to fund projects while at the 50% tax rate which while lowered was also hindered by the infamous passive income ceilings which in essence crippled the so-called tax shelter market) and its fundamental faith in the private market, saw a boom of innovative but increased risk products such as mutual funds and hedge funds. Now, many individuals see those products as too risky and are looking for safer places to put their money.

This will create a trend towards fixed rate products such as cash value life insurance and annuities. The trend towards protection products should have never decreased yet most of the buying public fell victim to a lack of clear transparency when it came to RISK. All investments are useful as long proper suitability is established. This suitability is reliant upon a client understanding the concept of RISK. No financial concept is more important to the American family then that of risk management. The financial risks of premature death, disability and living too long are the greatest risks our economy ever faces. So the movement back to protection products is not in any way a negative prospect.

Regardless of the given economic climate the great financial staples will always be tax deferral, guarantees and safety of principal. Once a foundation of protection is built then growth and accumulation can be directed and planned for. Getting back to basics of protection is a very positive thing.

The unintended consequences of the most recent governmental actions will be a strong market place for tax deferral, guarantees and safety of principal. Once again the communication and understanding of risk will be the most useful conversations individuals can have.

As to how the investment market place will be affected it is too early to tell, yet there are some factors that can give you a preview. Sectors to rely on will continue to be Technology, Financial and Energy. The recent government stimulus package included 50 billion for the energy industry, to put into renewable energy and clean energy programs. These programs will be driven by innovations in technology so it would follow that technology will enjoy and upward trend due to its causative relationship with energy. The Financial sector will be stabilized by the Insurance industry (mostly due to the previous points) but surely due to its consistent longevity and its basic economic fundamental to the American family and business owner as it pertains to risk management. Remember that the Life insurance industry has been around since just before the Civil War and has not just survived but thrived in such economic climates a World Wars, the great depression etc…, this industry has actually given the banking industry the tremendous opportunity establish itself. That very same banking industry has managed almost single-handedly to run our economy into the ground (discussion for another time).

We will continue to provide the latest and most prevalent economic information, our viewpoint will always take into account the principles of innovation, trending and clear transparency.