Permanent Value

President’s Message

Bruce Doole
July 12th, 2011

HALF TIME REPORT…

Given that we are half way through the year, it seems appropriate that we would give you a half time report on the world and how we are adapting your financial strategy to reflect what is happening.  (For you NFL and NBA fans, it might be the only half time report you get all year if they don’t solve their labor disputes!)   The first half of the year had mainly been dominated politically by government change in the Middle East and economically by government debt, the debt ceiling, and the annual deficit not only here in the US but overseas as well.  We are in a period of slow economic and job growth but companies seem to be doing a good job at maximizing their profits.  Congress is finally addressing in a meaningful way the question of how much debt is too much and what is being done to not just reduce it but simply to slow down its growth!   Now you might be asking “what does this have to do with my financial strategy?”  In most financial strategies, we are either growing our income sources for future distribution or distributing from our current income sources.   Current and future interest rates have a lot to do with that and the government sets the interest rates.  Because your income is reliant on interest rates, the higher interest rates are the less you have to save to provide your future income.  Given that the government debt is about to top $15 trillion, they are very motivated to keep interest rates down because even at 2% the government has to pay out $300 billion in interest alone every year.

INFLATION…

We have been in a very low interest rate environment for some time and with the federal debt situation it looks like we will continue to do so.  This tells us that we will have to save more and acquire more incoming-producing assets than in years past.  Inflation is also a key factor because the government’s chief tool to keep down inflation is to raise interest rates and it is not able to do so effectively until it starts reducing its debt.   We’ll give some statistics on the state of current inflation in the Planner’s Perspective of this newsletter.

So we have to be aware of inflation in everything we do because it erodes the value of the money we save every year.  In fact, since 1950, the value of the dollar has declined over 90%.*   Taxes are also a key ingredient in this mix because ultimately it’s what you keep rather than what you earn or have saved that is most important.  So the three key factors in long-term investing and your financial strategy are inflation, interest rates and taxes and we have to keep all these in mind with every investment that we make.

*Source: Bureau of Labor Statistics. Web: http://stats.bls.gov/.

SUMMERTIME…FALL…

Understanding the dynamics of how your financial plan navigates these economic forces is crucial to reaching your financial goals.  Your financial strategy is a fluid and dynamic plan that updates and adjusts but doesn’t change its core principles (accumulating or distributing, protection, low volatility or high volatility, etc.).  Every meeting we have together builds upon the foundation we have established to make sure your financial goals are achieved.  We look forward to meeting with you in the fall to discuss your strategy and make any year-end adjustments that will make your strategy more effective given any income and asset changes you have made throughout the year.  Have a wonderful summer and we’ll see you this fall.