Friday Financial Five – January 8, 2016
Friday, January 08, 2016
Presidential election
Income inequality and a national debt approaching $20 trillion will be huge issues in the upcoming election. This graphic illustrates the inequality, as 2013 saw the top 400 taxpayers earn an average of $265 million while everyone else earned an average of $61,700. The topic of a wealth tax may make an appearance as an option to reduce inequality and plug deficits. Tax revenue, government spending, and budget deficits are all increasing and candidates should have plans to address all three. Student debt will also be a major talking point, especially with free college entering the conversation. 2016 will hopefully be the year that a candidate offers solutions to proactively take on these challenges as opposed to react when calamity arises.
Employment
There are two interpretations of recent employment numbers, and not surprisingly, the difference mainly falls along a political divide. One side points to the significantly lower unemployment rate and monthly job gains of 200,000 or more for much of 2015. The other speaks of underemployment and people leaving the work force or taking multiple part-time jobs. There’s more focus on the rate of return on education tuition dollars and the probably of a justifiable employment income. And the future one percenters will be those that break ground by finding innovative new ways to employ the masses.
Interest rate hikes and inflation
The Fed’s decision to raise rates in December is part of a longer term strategy to normalize the interest rate environment. 2016 is expected to see two more rate increases, which should have a longer term impact than what occurred immediately after December’s hike. In the process, inflation should finally begin to tick up to a more normalized level after years of trending well below historical standards. 2015 inflation numbers fell below 1% thanks to the dramatic drop in energy prices, a trend that should reverse in 2016.
Strengthening Gross Domestic Product
The nation’s GDP has been weak coming out of a recession, with consumer spending acting as a foundation for positive growth. A strong dollar will be a drag on net exports, but housing numbers are expected to surge in 2016 as buyers try to beat interest rate increases. After another lackluster year in 2015 of 2.1% growth, GDP is expected to rise slightly this year. Signs of deviation much higher or lower than the anticipated rate may lead to reverberations or Fed action.
Finalization of the fiduciary standard
The back and forth between the Department of Labor and the financial industry to establish a fiduciary standard for financial advice should finally get resolved in 2016. The sides are pretty well defined. The DOL would like financial advisors to operate in clients’ best interest while the financial industry would like to maintain revenues and limit liability for advisors. The final DOL rule is expected in the first half of the year (with a transition period following) and should result in an industry wide shake-up.
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 [email protected].
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