Economic Termites & Financial Capability

June
02

Written by: Jon McGraw

If you’re a fan of home renovation TV shows then you’re probably familiar with the types of bad news home inspections can uncover. Last week, the Commerce Department inspected its previous estimate for real gross domestic product (GDP) growth during the first quarter of 2014 and found some bad news. As it turns out, the rate of economic growth in the United States declined by 1 percent rather than increasing slightly, as previously thought.

The revision sparked debate among economists and politicians about the health of the U.S. economy. According to The Guardian, some economists found the revised numbers difficult to reconcile because they seem to contradict other first quarter economic data – such as expansion of non-farm payrolls, healthy manufacturing activity, and stronger retail sales – which indicate a more positive growth trend.

News that the U.S. economy might have shrunk slightly didn’t deter investors at all. The Standard & Poor’s 500 Index finished the week at a new record high. This could mean investors are confident economic growth will rebound in the second quarter of 2014 or it may reflect a belief economic weakness in the United States will encourage a more stimulative monetary policy.

The Wall Street Journal suggests signs of slower growth in the United States and Europe are behind the resurgent popularity of emerging markets. If you recall, investors pulled about $60 billion from emerging countries early in 2014 as they worried these markets would be affected negatively by the U.S. Federal Reserve’s less stimulative monetary policy. In May, a Reuters’ poll found 51 investment houses in the United States, Japan, and Europe had reduced their cash positions to the lowest levels since last November and invested the proceeds in emerging markets.

One expert cited by The Wall Street Journal called the rush into emerging markets a “global chase for yield.” No matter what you call it, last Friday, Morgan Stanley Capital International’s emerging markets stock index rose to its highest level since October 2013. It was up 3 percent for the year. 


Data as of 5/30/14

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

1.2%

4.1%

16.3%

12.7%

15.3%

5.6%

10-year Treasury Note (Yield Only)

2.5

NA

2.1

3.1

3.7

4.7

Gold (per ounce)

-3.2

4.1

-11.5

-6.6

5.0

12.2

DJ-UBS Commodity Index

-1.4

6.4

1.9

-7.0

0.7

-1.5

DJ Equity All REIT Total Return Index

0.9

15.1

8.0

10.3

21.3

10.0

HAVE YOU EVER MADE A PEANUTBUTTER AND JELLY SANDWICH?

If you’ve ever been asked to write clear instructions for a seemingly simple task, you know the challenge is in the details. To illustrate how to make a PB&J, you start with bread, peanut butter, jelly (in a squeezable bottle), and a knife. Then you need to remember to tell the reader to open the bread bag, unscrew the top of the peanut butter jar, and turn the jelly bottle upside down before squeezing it. You have to provide a lot of very concise information.

Communicating financial and investment ideas effectively also can be challenging. It appears a significant number of Americans are not receiving all of the information they may need. For several years, the Financial Industry Regulatory Authority’s (FINRA) Investor Education Foundation has employed a five-question quiz to evaluate financial literacy. The questions include fundamental concepts related to financial knowledge and decision-making.

In 2012, about 30 percent of Americans were able to answer three of the five quiz questions correctly. That was about the same number of questions that were answered correctly when the quiz was first offered in 2009. The percentage of respondents who were able to answer four or five quiz questions correctly varied significantly by generation:

  • 24 percent of Millennials (born between early 1980s to early 2000s)
  • 38 percent of Gen Xers (born between early 1960s to early 1980s)
  • 48 percent of Baby Boomers (born between 1943 to early 1960s)
  • 55 percent of the Silent Generation (born between 1925 to 1942)

When a similar quiz was offered to people in countries throughout the world, financial literacy was linked (in all countries) to retirement planning or participation in private pension plans. In most countries, people who were financially literate were more likely to plan for retirement which requires an understanding of interest rates, risk, and diversification.

If someone you care about would benefit by knowing more about financial matters, please give us a call. We would be happy to sit down and talk with them about a specific topic or recommend some good reading materials.

Weekly Fun – Buttonwood Welcomes Brent Bastian!

Buttonwood Financial Group is proud to announce the addition of Brent Bastian to our Team as Portfolio Technical Specialist!

Brent graduated from the University of Central Missouri with a Bachelor of Science in Business Administration, where he majored in Accounting and minored in Finance. He began his career overseeing endowments, foundations, and pension plan portfolios at State Street Bank & Trust. Developing passions for the wealth management industry soon lead him to Schwab Performance Technologies, where he began working closely with Registered Investment Advisors. During his time at Schwab, Brent gained industry experience in portfolio management, client relationship management, and investment platforms.

Brent currently lives in Lee’s Summit with his wife Abby, and their three children. Brent is pursuing his Master’s degree through the University of Central Missouri. In his free time he enjoys playing golf and spending time with his family at community events, outdoor activities, or a casual night in. Brent also has a passion for music and enjoys playing the alto saxophone recreationally.