Weekly Observations for 3/2/2018 — Trade Tariffs and Ferris Bueller

Happy Friday, once again! It was a busy week and I didn’t get as much time to read as I would have liked, but a number of items came across my desk that I thought are worth sharing with you.

–  One of the more significant news items this week was the heightened talk of tariffs, particularly on steel and aluminum products, and the threatened instigation of a trade war on several fronts. My all-time favorite historical and economic discussion of the efficacy of trade tariffs comes from the movie “Ferris Bueller’s Day Off” in 1986, where Ben Stein succinctly explains if tariffs worked during previous attempts, while his students respond with complete boredom.

–  On Wednesday, I gave a presentation that included a discussion of whether or not the traditional 60/40 “balanced” portfolio (a simple blend of stocks and bonds) will continue to be an effective tool to control risk as investors enter retirement. For the past 30+ years, this approach has worked very well. But it’s important to realize that in 1985 10-year Treasury bonds were paying over 11% interest, and in 1995 the rate was over 7%. It’s not hard to see how those rates would have worked very well as part of a retirement portfolio. Today, the same 10-year bond is paying less than 3%. Consequently, other methods of preserving wealth and generating income are needed as we look forward. I will continue to discuss these in-depth in our quarterly client letters.

–  Finally, an important point of discussion at our quarterly Financial Planning Association meeting this morning — If you plan well for retirement, you can actually retire with less money. If you plan poorly, on the other hand, even with more money, the result may be running out of assets during your lifetime. Well-planned strategies for taxes, income timing, and asset structuring make a dramatic difference for our clients.

I hope you have a great weekend!

Kenneth