Losing a job is a high-stress event, but what comes after can have long-term ramifications for both your mental state and financial situation. The best plan is to have a plan. Whether you are recently unemployed or recognize this is something that could happen in the future, here are some guidelines to help minimize the financial impact of unemployment.
On Monday, December 3, the U.S. Treasury Yield Curve inverted for the first time in over a decade. Just one day later, the Dow fell 799 points (3.1 percent), with the S&P 500 and Nasdaq also finishing down (3.2 percent and 3.8 percent respectively).1
The yield curve inversion occurred as the yield on the five-year note hit 2.83, one basis point lower than the three-year note’s yield of 2.84. (If you’re not familiar with basis points, 100 basis points equals one percent. One basis point equals .01 percent.)
What exactly is the U.S. Treasury Yield Curve and how does its inversion affect investors? The Treasury Department sells 12 types of securities: bills in durations of one, two, three and six months; Treasury notes in durations of one, two, three, five and 10 years; and 30-year bonds. A yield is the return an investor realizes from a fixed-income security, which includes the 12 securities offered by the U.S. Treasury.
In a growing economy, the longer the maturity of the security, the higher its yield. This is due to its duration risk; the longer the security is held, the more sensitive it is to interest rate changes. A yield curve shows the spread between yields for each type of security. The yield curve is normally an up-sloped shape, somewhat like a capital U.
When shorter-term security yields surpass long-term security yields, the yield curve turns upside down. The inversion is caused by predicted interest rates; if interest rates are forecasted to be lower in the future, investors purchase more long-term bonds in order to lock in their higher rates now. In response to the increase in demand, the price for long-term securities goes up and yield goes down. The opposite is true for short-term securities, where yields are being pushed up due to decreased demand. The curve changes shape as the relationship between short-term and long-term yields changes.2
An inverted – or negative, as it’s sometimes called – yield curve is often a predictor of a lurking recession; the yield curve has inverted ahead of the past seven recessions. However, while the inversion often accurately predicts a turning point, a recession doesn’t always follow immediately on its heels. For example, the yield curve inverted in March 2006, and the first pangs of the following recession weren’t felt until December 2007.3
Even though there is frequently a gap between an inversion and a recession, some analysts are tying Tuesday’s market drop to investors who are nervous about the inverted yield curve.4 Although we can’t say for sure if this is a turning point in the current business cycle, the inverted yield curve tells us that investors aren’t optimistic about the economy in the near future.
1 Matt Egan. CNN Business. Dec. 4, 2018. “Dow plunges 799 points on trade, slowdown fears.” https://www.cnn.com/2018/12/04/investing/stock-market-today-dow-jones/index.html. Accessed Dec. 5, 2018.
2 Investopedia. “Inverted Yield Curve.” https://www.investopedia.com/terms/i/invertedyieldcurve.asp. Accessed Dec. 5, 2018.
3 The National Bureau of Economic Research. “US Business Cycle Expansions and Contractions.” https://www.nber.org/cycles.html. Accessed Dec. 5, 2018.
4 Kevin Kelleher. Fortune. Dec. 4, 2018. “An Inverted Yield Curve, a Predictor of Recessions, Has the Stock Market Spooked. http://fortune.com/2018/12/04/stock-market-inverted-yield-curve-are-we-in-a-recession/. Accessed Dec. 5, 2018.
This content is provided for informational purposes only. The third-party information and opinions contained herein, have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management.
Long-term investing through dividend stocks has been a reliable method to help build wealth. If you’re investing with the goal of providing retirement income in the future, dividend stocks offer an interesting option for your equity allocation. These stocks tend to be issued by high-quality companies that are well-established in their industries and appear to be here for the long haul. One caution, though: Dividend stocks are not considered growth securities. They’re all about income growth over the long haul.
In the U.S., interest rates have remained relatively low for about a decade — since the Great Recession. Low rates are a problem for conservative bonds, traditionally a preferred investment for retirees. Because of low income yields, retirees have sought supplementary income from more aggressive holdings. One such security is the dividend stock.
The typical profile for a dividend stock investor is someone seeking income payouts over the long term, with principal preservation and modest growth. [Read more…]
Speculation can be fine now and then, if you have the money to lose. But investing involves knowing the fundamentals of a company and making wise, evidence-based decisions. Take the popularity of bitcoin — a prime example of speculating, not investing.
There’s no question that 2017 was the year of the bitcoin. In just 12 months, the digital currency rose from under $1,000 in price to nearly $20,000. 1 Before its meteoric rise in value that year, most people had never heard of the digital currency and probably thought it was a gaming app you could download on a smartphone.
Now, however, it seems everyone is talking about bitcoin. You hear stories of people who threw away a hard drive years ago containing bitcoins, when the cryptocurrency was almost worthless. At one point last year, that junked-out hard drive would have been worth millions. 2 Conversely, though, the currency had a difficult first quarter in 2018, falling 48 percent in value. 3
Speculation can be fine now and then, if you have the money to lose. But investing involves knowing the fundamentals of a company and making wise, evidence-based decisions. Take the popularity of bitcoin — a prime example of speculating, not investing. [Read more…]
“Recently, I was talking to my financial adviser on the phone…
when he asked me a question about our retirement planning that I couldn’t answer. I conferenced in my wife and in the next few minutes I realized something important about our marriage. When she answered the phone, I said, “Hey, Sweetheart,” in an upbeat loving voice.
“Hey,” she replied in an equally loving voice, and within minutes we had the issue resolved. We hung up satisfied with the solution and happy with each other.
Days later, I was still thinking about that call. It occurred to me that sometimes when we talk to each other, my wife and I sound like we’re employees of the company we call ‘Our Family’, a group that includes my wife and me and our three busy teenagers. We’re just taking care of business – rushed, matter of fact, kind of unaware of how we sound to each other. But having that conference call with our financial adviser made me more aware of how I think we should sound when we’re talking to each other. [Read more…]