Daniel Nestlerode: My Financial Outlook for 2013
This is the time of year that many of the investment and economic experts scratch their heads, ponder the latest numbers and make predictions for the coming year.
It makes for great reading, pondering what might happen in the next 12 months on Wall Street, in our economy and in world markets and economies. The possibilities are endless, ranging from the end of life as we know it, according to the Mayan calendar, to fantastic new developments in medical and materials technologies that are soon to be adopted. Simply muddling through the year falls somewhere between the end of the world and our supposed “Jetsons” future (I am still awaiting my flying car promised so long ago by Popular Mechanics).
One of the big banks has an amusing commercial on television in which Thomas Sargent, a Nobel Prize-winning economist is asked what interest rates will be next year. In a word, he doesn’t know. The bank offers a certificate of deposit with a one-time interest rate adjustment if interest rates rise in the coming year. I guess that option is supposed to make potential CD buyers feel just better about earning less than one percent per year on their savings. I wonder which financial planners of yesteryear told their clients that they would be earning a paltry 1 percent on five-year certificates of deposit in 2012.
Did anyone save enough to make a 1 percent return provide a sufficient income during retirement? Let’s see, a 1 percent return on a cool $1 million is just $10,000 or less than $1,000 a month. $833.33 a month doesn’t go very far these days. People investing for retirement have been pushed out of so-called safe investments like banks savings accounts, CDs and Treasury obligations and into riskier investments like municipal bonds, high yield corporate bonds, stocks, real estate investment trusts and master limited partnerships.
If that is not enough, now the tax rates on dividends are expected to rise, reducing your net after tax income yet again. What the Federal Reserve has taken away with ultra-low interest rates, Congress and the Administration seems likely to reduce even further with the tax side of the equation. Of course, as I write this there has been no decision on tax rates or policies for 2013. How can anyone effectively plan for the future when the historic guideposts are now variables in this brave new world?
Aside from whatever my personal expectations are for the markets in 2013, one thing I know for sure is that I need to follow all of the investment markets every day they are open. The closest I can get to the future is right now, so I must constantly pay close attention. My best advice for 2013 is that the days of “set and forget” investing are history. Further, the notion of long-term investing is also becoming a cruel hoax.
Changes in the economy, technology and in the rules of investing keep coming at a seemingly increasing speed. I advise you to pay even closer attention to your money, your investments and your expenses. No matter your age, your financial strategy must be to make sure your income exceeds your expenses every month, including December. Anything short of this is not financially sustainable. I have one other piece of advice for my readers: Be sure to have a trusted person lined up to handle your investments when you are no longer able to effectively self- manage your (or your family’s) financial affairs.
The notion of retirement is changing rapidly from golden years when you could live a life of leisure and when your investments covered all your costs and you didn’t have to work, to saving enough to handle the remainder of your life when you can no longer work because you are just not able to do so.
What are my predictions for 2013? I expect more of what we had in 2012. Yet I also understand that some as-yet-unknown jolts are likely to occur in 2013, so I pay close attention to the events of the day and the reactions of the investment markets, cut my losses as small as possible, let my winners run, get rid of my financial obligations and keep a healthy cash reserve. So, the Mayans notwithstanding, here’s to a happy 2013.