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Articles

Fighting for Financial Independence

-September 2015-
In America, the idea of “independence” is almost sacred. Every July 4th, we celebrate the start of the United States’ long road towards independence and control of its own interests.

When people make plans for the future, many put “financial independence” as their ultimate goal. But much like national independence, financial independence— living without the need to work for someone else—takes years of struggle against huge challenges.

Here are some of the essential concepts to help you win your war for financial independence. Each one battletested and proven effective by that other great struggle for independence: the American Revolution.

Coordinate your attack – Winning a war takes success on all fronts. If you neglect a certain area of your finances, all your progress could be completely undermined. For instance, going to great lengths to secure higher income for yourself becomes pointless if it forces your expenses to grow even faster. Even though you are worth more, your net worth will decrease and it will take more time to reach your goal. Every part of your financial plan needs to work together to secure victory in the shortest amount of time. (Siege of Yorktown, 1781)

Seize opportunities to advance – Sometimes a great financial opportunity appears, but we are too nervous to take advantage of the situation. Although caution is useful, having the courage to commit to a solid investment can pay huge dividends in the future. Watch for financial opportunities, judge them rationally and make a bold move if everything looks good. (Battle of Saratoga, 1777)

You can lose a battle and still win the war – Both financial plans and military strategies must survive
setbacks and short-term problems on their way to a longterm goal. If generals completely changed their campaigns every time something went wrong, no army would ever accomplish its objectives. Don’t let temporary market downturns or sudden expenses cause you to panic or abandon your goals. Expect difficulties and learn to push through, even when things are disrupted. (Battle of Bunker Hill, 1775)

Keep your morale up – Staying disciplined with saving, planning and investing is difficult in even the best of times. But if your attitude turns negative, you’ll never be able to reach the level of independence you desire. When things get tough, try to focus on the future and how great things will be when you reach your goals. Don’t forget to regularly reward your efforts; it’s better to occasionally deviate from your plans than to get worn out and give up entirely. (Winter at Valley Forge, 1777-8)

Drill your actions – As with all things, practice makes permanent. Habits take time to develop, so keep trying to put your financial plans into practice. If you continually allow or encourage yourself to break your rules, you’ll be creating bad habits that could end up being costly. Training is about getting so comfortable with an action that you can perform it in the middle of chaos. (Baron von Steuben, 1730-1794)

Get creative – The most impressive victories are the ones that an enemy never saw coming. Traditional tactics can work well in most situations, but taking time to find an original approach to your goals can get you to financial independence faster and more efficiently than anyone expected. (Battle of Cowpens, 1781)

The fight for financial freedom takes hard work, discipline and sacrifice. It’s a war unlike anything else, but its values are nothing new. By understanding the challenge and adapting the lessons of the past, we can learn how to keep winning independence for the future.

When it comes to economic growth, no country can compare to China. The country’s expansion over the past quarter-century has been staggering, posting annual GDP growth rates between 7.4 and 14.3 percent. What makes the growth rate even more impressive is the scale on which it’s happening: China is the world’s most populous country, home to approximately 1.3 billion people.

Although it is mostly communist, China has tried to introduce more free-market principles into its economy. It has encouraged—and limited—its citizens to make domestic investments. The government knows that if it can attract foreign investment while keeping Chinese capital within the country, it could perpetuate economic growth. The only question is how difficult it will be for citizens to integrate financial markets into their lives.

 

Lifetime Debt

-September 2015-

Debt is not a bad thing. Credit is not a bad thing. Mortgages are not bad things. Student loans are not bad things.

But they sure can cost you a lot of money, both now and in the future.

Paying to Pay
Debt, in whichever form, means paying extra for immediate access to money. Debt is said to be “efficient” if the benefit the money provides is greater than the extra cost of borrowing it.

In the United States, we love debt. At the end of 2014, America’s total household indebtedness was $11.83 trillion. Major sections of consumer debt include:

• $8.68 trillion in housing loans
• $1.16 trillion in student debt
• $950 billion in auto loans
• $700 billion in credit card debt

(Figures taken from the Federal Reserve Bank of New York’s “Household Debt and Credit Report” Q4-2014)

While using debt is routine for most people who need to buy homes and cars, go to college and cover major expenses, it is still extremely important to consider its cost. The website www.credit.com estimates that the average American surrenders $279,000 in debt interest over the course of his or her lifetime (not including student loan interest). What’s more, household debt is trending up; it has risen 43 percent since 2004. Student loans have grown particularly fast, climbing over 300 percent over that same time.

This is cause for concern among some economists and financial news pundits. The fear is that loans (particularly student loans) are siphoning off wealth people traditionally would have saved. Though broad loan usage helps stimulate the economy, high debt among individuals could stunt their financial growth.

A major part of the problem is that debt is self-sustaining. It not only grows on its own, but also puts people in a position to need more debt. A single event (e.g. medical cost) can trigger interest payments that ruin a family’s cash flow and send them into a debt spiral.

To the Limit
But does debt need to cost us anything? Many people successfully avoid, or even invert, debt costs by being careful. The classic example of this is using a credit card to accumulate rewards while religiously paying off the monthly balance. Unfortunately, this may still lead to losses; your spending habits are much harder to outwit than a credit card company.

As it turns out, debt causes us to spend more money—even if interest is avoided. Debt psychologically enables extra spending, giving us immediate gratification while delaying the pain of cost. The result is a mental lapse in valuation that makes us comfortable with paying higher prices or buying on impulse.

This distortion of debt value is particularly bad when buying high-priced items. We may labor over spending an extra $20 at a grocery store, but when buying a car or house, our reasoning is skewed by big numbers and long timeframes. Hundreds or thousands of dollars seem trivial when we already have to take out a huge loan with decades on the term.

What Can You Do?
Although it comes at a price, debt is still an important tool that can give people amazing opportunities. The good news is that you can do several things to reduce the cost of debt in your life:

• Improve your credit score – The difference between a “Fair” and a “Good” credit score can easily translate into tens of thousands of dollars in interest payments over your life.

• Pay with cash when possible – This might seem like an unrealistic or outdated idea, but it limits your ability to buy impulsively and reduces bloated credit spending.

• Fight for each dollar – Remember that $100 saved when buying a car is worth the same as $100 saved while shopping. Don’t let a loan inflate your target price for a big purchase.

• Consolidate – If you have numerous debts, consolidate them under a single bank loan. Interest rates are very low right now and a consolidation can save you thousands.

Keep Reaching for Your Financial Goals

-September 2015-
Few things are able to motivate us like self-improvement. But despite our initial enthusiasm, our personal goals can seem like impossible challenges after just a few days.

Financial goals are particularly difficult to accomplish. Spending money is an unavoidable part of modern life and financial goals can easily get lost in other money issues. What’s worse, the feedback from financial goals is blunt and immediate. As soon as we get started, our finances begin evaluating our success with clear positives and negatives. Financial goals also remember our mistakes. A one-time slip-up, like a significant purchase, can disrupt and damage a goal for months or even years.

The success of a goal often comes down to the strategies and tools used to support them. However, valuable techniques are often abandoned as soon as a little bit of progress is made. Can anyone expect to reach their goal if they don’t sustain their plans for meeting it?

Do you have a goal you’ve given up on? Give it another try. It’s never too late to renew your efforts. Use some of these steps to help make your goal a reality:

Be reasonable – It’s always important to be realistic; but for financial goals, it is essential. If you make your goals too extreme, you set yourself up for frustration and disappointment. It’s better to have an easy goal you can reach than an impossible goal that makes you quit. Once you have a little success, you can raise your expectations.

Set solid milestones and celebrate them – Milestones are a great way to track progress and boost your morale, but you need to make them an important part of your life. If you’ve made it halfway to your goal, celebrate in some way and give yourself a taste of what success will feel like. Stay positive; milestones are meant to show you how far you’ve come, not how far you still have to go.

Find some accountability – Talk with an advisor about your goals and having them check up on your progress can massively boost your discipline. Even if your advisor only asks for occasional updates, being accountable for your actions can provide a lot of encouragement to stick to your plan.

Automate what you can – Constantly trying to make the right choices can wear down your motivation.
Automating your target savings or debt payments can help you avoid the potential mistakes and will allow you to save your energy for other challenges.

Limit the number of goals – Reaching goals can be difficult, so don’t try to accomplish several of them simultaneously. Only start one or two financial goals at a time and don’t create new ones until your current efforts have become second nature.

Bend so that you don’t snap – Interruptions are inevitable. Much like setting a realistic goal, it’s important to have realistic expectations for your progress. If there is an unavoidable problem, adjust your goal accordingly and keep trying. Don’t give up on a goal just because of an unplanned setback.

Reaching goals is a skill that takes practice and experience. In accomplishing one goal, you learn which strategies work best with your personality. Even when you fail, you’ve learned more about what it takes to reach success. The important thing is being willing to try again.

Simple Fitness Truths

June 2015
-By Mark Olson-

Why is it that most of us have a sincere desire to manage our health and finances to their highest potential but few have effectively cared for those critical aspects of life over the long haul?

Most of us will acknowledge the primary cause is that life is complex, and the urgent tends to crowd out the important.  Another contributing factor is that we are surrounded by, and vulnerable to, varieties of myths and traps that keep us from taking, and then staying on, that higher road. 

One dominant health myth is that there is a magic diet or product that will allow us to be fit and maintain our target weight with a minimum amount of time or effort.  Six-pack abs in six weeks anyone?

The financial arena is loaded with illusions that financial security is an end-all or that a guru or scheme exists that can magically turn $100 into $1,000 virtually overnight.  The untimely death of a loved one can be a sobering reminder that financial security and blazing returns may not be so important after all.

So what is it that can help us rise above the complexities of life and do what is most important? 

The missing link, that can make all the difference, is a goal-focused plan that flows out of our deepest convictions overseen by someone who can hold us accountable.  One of the first steps of getting there is to be quiet enough, long enough, to define those elements in life that matter most.  Spouses, coaches, pastors, advisers and friends can be invaluable along that path.

If your conviction is that you are a steward of the physical aspects of your life, your goal-focused health plan may be to maintain a target weight and exercise some minimum amount per week.  If so, your long-term success could be assured by simply eating less calories than your body expends, finding ways to exercise consistently with activities that bring you joy and engaging people to hold you accountable.

If your conviction is that you are a steward of the financial aspects of your life, your goal-focused financial plan may be to maintain giving and saving at some target level and living on the rest.  If so, your long-term success could be assured by giving to the people and causes you care about most, investing in a globally diversified portfolio with a target return that flows out of your plan and engaging with some type of coach to help you adhere to your plan until your needs change.

In health, as well as finance, I have found that the differentiating keys to success over the long haul are defining reasonable goals and maintaining consistency through an appropriately balanced pace.  It’s all about average speed over a lifespan; not maximum speed at any emotionally charged point in time.

See you on the journey.

“There is no shortcut to anywhere worth going.”  Beverly Sills

“Slow and steady wins the race.”  Robert Lloyd

“The glory of God is man fully functioning.  Find your place to do that, and you will find the peace that passes all understanding.”  Irenius

Know Your Financial Math

May 2015
Please keep in mind that these are simple estimations and are not to be treated as precise technical calculations. They can be influenced by a number of factors and don’t take any personal information into account. The formulas help call attention to parts of your budget, but do not calculate exactly what you should expect.

The easiest and best place to start. Your cash flow is the total surplus or deficit you have each month after paying your expenses. If you find you are running a deficit most months, you need to cut your expenses down or find a way to boost your income.

Another easy formula, calculating how much a monthly (or weekly) expense will cost you over a whole year is an important insight for a budget. Paying $8 a month for a subscription may seem cheap, but you should realize it’s costing you $96 over the course of a year.

The EPA estimates that the average car owner uses about 500 gallons of gas a year (almost 700 if you drive a truck or SUV). While volatile gas prices make it impossible to project your exact gas expenses for a year, this formula makes it easy to understand how much a change in gas prices is worth: for every $0.01 gas drops, you could expect to save $5 annually.

Have you ever wanted a quick estimate of how long it takes for money to double? Try the “Rule of 72.” Just divide 72 by the annual growth rate of your account and you get an approximation of how many years it takes to double. (Example: 6 percent growth would be 72/6 = 12 years to double). If using this formula for investment account, remember that the market is unpredictable and average market performance does not guarantee future returns. Investments can be subject to losses, which will greatly change their nominal rate of return.

Although there are some major outliers, most new cars depreciate around 10% when driven off the lot and another 10% each year they are driven (for the first 5 years). So when looking at new cars, remember that most lose their value fast. Without a down payment, you’ll likely be underwater on the loan for the first year or two.

This equation is a bit more complex, but it’s pretty handy for people wondering how their rent cost compares to a 30‐year mortgage. Take 75 percent of the expected mortgage interest rate and add 3 percent to get the annualized rate of repayment. If you multiply this number by the initial mortgage amount, you get the annual cost. (Example: A 30‐year mortgage issued at 4 percent would have an annual repayment rate of (3+4×.75) = 6%. If the mortgage was for $200,000, you’d pay ($200,000×6%) = $12,000 a year ($1,000 a month) to stay on the 30 year schedule.) Keep in mind that this is an estimation of the mortgage costs only and does not include home insurance, mortgage insurance, property expenses or any of the other various costs of owning a home.

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Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser. 

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014 Advicent Solutions. All rights reserved.

The Dollar Vacation

May 2015
Every day, there are countless pressures on national currencies. Exchange rates are in constant flux, while supply and demand change the prices of a country’s goods and services. For those vacationing abroad, a sudden shift in the market can make big differences in how much money they can spend.

In 2014, the U.S. economy delivered a gift to its travelers: a strong dollar. Hitting its highest value in years, the dollar’s performance drove up U.S. exchange rates, decreasing international prices. While tourism costs followed the exchange rate down in most countries, some destinations stand out as especially good (or surprisingly bad) deals for Americans planning a vacation.

Better Deals Abroad:
Russia: Provided you know where to travel and how to get around safely, there is a great deal to be found in traveling Russia right now. International conflict and falling oil prices have crushed the ruble in currency markets over the past year, decreasing tourism costs by 30‐50 percent.

Romania/Bulgaria: As economic growth remains low in Eurozone countries, these countries have decreased their already low tourism costs over the past year. Many Americans do not realize that both these countries have extensive Black Sea coastlines that attract many vacationers.

Norway/Sweden: Although these Scandinavian countries are still some of the priciest destinations in Europe, both the krone and the krona have lost a considerable amount of strength over the past year. If you’ve been thinking about traveling to these countries, now might be the time.

Argentina: The disastrous bond default by the Argentine government has damaged the national economy and has upped the dollar’s exchange rate to the peso by about 50 percent. High consumer price inflation will limit how far these extra pesos go, but the overall effect is still cheaper tourism.

The Neighbors: The U.S. dollar made significant gains on both the Mexican peso and the Canadian dollar. Though neither country may feel particularly “foreign,” the money saved on short travel times can make them two of the easiest destinations for exploiting the strong U.S. dollar.

Countries Bucking the Trend:
China: Although it remains fairly cheap compared to the United States, China’s growth has outpaced the United States for decades, and its currency has grown in strength. China is no longer the bargain earlier travelers remember, and chances are good vacations there will only get more expensive.

Switzerland: Already a fixture on the list of most expensive places to visit, Switzerland threw off any dollar advantage in January when the Swiss Franc jumped in value after breaking ties with the Euro. Americans eager to see the Alps may wish to stay in the slightly more affordable Eurozone countries of France and Italy instead.

India: While the nominal exchange rate between the dollar and the Indian rupee remained relatively flat throughout the year, the country’s high inflation (over 5 percent annually) means your dollars will get you less. Much like China, India is still affordable in many areas, but its rapid growth likely means its cheapest days are behind it.

Alternative: See America First U.S. National Parks: Traveling around the United States won’t provide you with any currency advantage, but the recent drop in gas prices has
certainly made American road trips drastically cheaper than last year. The U.S. National Park Service protects 407 places of natural and historic significance and offers an annual pass for just $80.

The current strength of the dollar is a bonus for American travelers, but smart planning will always be the biggest factor to a successful vacation. Hunting for deals on airfare and choosing the best seasons to travel will have a bigger impact on the quality and price of a trip than any currency fluctuation. By taking time to detail your spending and itinerary, you can get the most out of any vacation.

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Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser. 

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014 Advicent Solutions. All rights reserved.

TEACHERS – THEIR IMPACT ON OUR COMMUNITY

March 2015
-By Kirk Hoffman-

My life experience allows me a unique perspective in regard to top teachers.  I come from a long line of educators.  My great-great grandfather helped found two universities and was the president of a third.  My great grandfather was a teacher, professor, and university president.  My grandmother was a public school teacher.  Both of my parents were public school teachers.  My wife works for Jackson Public Schools and my daughter is a public school teacher.

I also have worked in financial planning since 1986 and obtained my Certified Financial Planner™ certification in 2003.  This background has let me see the effect that top teachers have on individuals, businesses, and communities.

Over the years, I have witnessed individuals sharing the positive impact that my family of educators has had on their lives.  They’ve been thankful for the encouragement that they received as students.  They’ve appreciated having an adult in their life that cared about them.  They were happy to have someone help them identify their gifts and strengths and get them passionate about it.  They were thankful that someone was successful in inspiring them to go after their dreams.  They were grateful for the preparation that they received that made them successful in their careers.  Some of these appreciative students even became top teachers themselves.

I have also seen the impact of top teachers in working with individuals on their financial plans over the last 28 years.  I’ve had the opportunity to work with executives, business owners, and high net worth individuals.  A common theme among these accomplished individuals is how they equate their success to the educational opportunities that they had, and the teachers and professors that influenced them.  The individuals I’ve worked with who are supervisors within their companies report that the educational experience of their employees has a positive impact on the life of the entire company. The cumulative effect of top teachers positively impacts business success and entire communities.

From my perspective, we all benefit from having top teachers in our community.  Therefore, it is important to encourage those teachers and be supportive of educators in our community.  Financial and moral support is critical.  I know from my own family experience how difficult and frustrating the teaching profession can be at times.  Entering the teaching profession has been much more challenging for my daughter than it was for my parents.  My wife and I have been long time supporters of Jackson Public Schools.  Both of our daughters graduated from Jackson High.  They had a good experience, received a great education, and had some wonderful teachers.  They were well prepared to move on to university and have been successful there.  We’ve also been pleased and impressed over the years with how the Jackson community values education and supports the schools in the district. 

The Jackson business community, especially local manufacturers, have done an impressive job in collaboration with the schools.  My family of educators appreciates the community and business support, and encourages our community to continue that support.  Top teachers do make a difference.

Silicon Apps Overtake Silver Screens

February 2015
No one would debate that the mobile app market is huge. But just how big of a deal is it? Take a look at these stats:
•    The iOS apps catalog contains 1.4 million apps.
•    People spent $500 million on iOS apps in the first week of 2015 alone.
•    In 2014, Apple paid app developers a total of $10 billion.

Those numbers don’t even include Android apps. Android numbers are more difficult to compile, since multiple companies offer app stores. But, to give some perspective, Google paid out about $3 billion to its developers in 2014 for sales made through its official store. 
Compare all that with Hollywood, where U.S. movie revenue came in at about $10.35 billion, and you can see just how important app revenue has become. 

Although the numbers aren’t the complete story (iOS data doesn’t include Android apps or service businesses, and the Hollywood number doesn’t include international box office revenues), app revenues have been growing exponentially for years while Hollywood revenues have remained relatively stagnant. If the app economy hasn’t completely overtaken the U.S. movie industry yet, it soon will.
This surge in technology revenue isn’t limited to mobile apps. The tech sector is seeing sweeping growth in many areas. Everything from online software to IT services is growing at an incredible rate. Though there are exceptions, of course, the trend has significantly raised the value of many tech companies over the past several years. 

The question for many economists is whether the current trend is a normal growth spurt or whether the market is experiencing a new tech bubble. You don’t have to be ancient to remember the last tech bubble—it burst only 15 years ago. The so-called “dot-com” crash saw dozens of unbelievably fast-growing companies disappear overnight. 

So, are we in the same position? There certainly are major differences between now and then. In the late 1990s and early 2000s, tech companies were able to draw investor capital bases with little more than a hint of potential success. The running joke at the time was that all a company had to do to increase its share price was add “.com” to its name. Companies were going into debt renting office space and buying computers to rush into a very uncertain industry.  

Today, investors are more digitally savvy and know how to analyze “internet” companies more rigorously. Still, the risk of overvaluation is always possible. Some point out that several tech startups have unnaturally high stock prices and speculative sustainability. The rapid advance of technology coupled with quickly shifting cultural preferences for mobile technologies prevents investors from making anything more than educated guesses. 

If the tech market finds itself with another bursting bubble, beneficial technologies may still survive. For example, despite the dot-com crash in 2000, no one thought that online services were going to disappear or that they would never be lucrative. Individual companies were in danger, but it was obvious the tech sector as a whole would bounce back. 

What should you take away from all this as an individual investor? Even if you can’t predict the future, it is still valuable to be aware of how technology can shift the value of markets. Knowing the broad changes can keep you from acting on speculation, fear or greed. You should know what drives your investments’ success and how they fit into your personal portfolio. The best decisions are always made within the context of your personal financial plan, so speak with your financial advisor before making any changes. 
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Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser. 

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014 Advicent Solutions. All rights reserved.

Chinese Economy Now Largest in the World

February 2015
For decades, the U.S. has had the largest economy in the world, and by a wide margin. Though other countries, such as China and India, have had much more rapid growth in recent years, the U.S. GDP still dwarfs that of any other country. In fact, it’s almost double China’s, at least in terms of nominal GDP. However, the International Monetary Fund (IMF) recently reported that China is the world’s largest economy in one regard: purchasing power parity (PPP). 

First, some background: When comparing the size of economies, normally each country’s GDP is converted to U.S. dollars using current market exchanges rates to create an easy means of comparison. A country’s GDP expressed in U.S. dollars using this method is called its nominal GDP. It is in this regard that the U.S. still towers over every other country. The U.S. nominal GDP is roughly twice the size of China’s economy using this method and multiple times the size of every 
other country. 

But economists have pointed out that nominal GDP doesn’t give us the whole picture. The same goods or services in one country don’t cost the same in another, even taking into account market exchange rates. This is especially true in underdeveloped countries, where goods and services are often much cheaper. Tourists often recognize this concept intuitively when going to a restaurant or market in a less developed country than their own and noticing their money goes much further. Purchasing power parity applies this concept on a much larger scale.  One country may have less money (nominal GDP) than another, but the amount of goods and services that money could buy within that country (PPP) is effectively the same. 

In terms of PPP, the IMF reports that China currently outputs $17.6 trillion in goods and services annually, while the U.S. outputs $17.4 trillion. This may come as a surprise for many who had heard that China’s economy won’t become the world’s largest until 2020 or later. That’s still true, as those estimates are based off nominal GDP estimates, not PPP estimates. Most tend to regard nominal GDP as the more important measurement, because it better states the position of the country in a global economy. However, the reason the PPP estimate is so significant is that the time that China will become the largest economy by any measure is not so far off. 

This isn’t to say that China’s economy is similar to the U.S. economy—far from it. The U.S. still has much more purchasing power globally, even if it has less inside its own borders. While China may be able to purchase more domestic goods, like cars, missiles or soldiers, than the U.S., the U.S. has greater access to foreign goods due to the strength of the dollar. China also has a much larger population than the U.S. This means that while the country’s economy is large, its per capita GDP is drastically lower than the U.S. Additionally, China is still mostly a communist state, and many of the companies are state-run with limited access to foreign investment. However, that is changing as China has been becoming more public. Just last November, China’s Shanghai stock exchange linked up with the Hong Kong exchange to become open to foreign investors. It’s too soon to tell how well the exchange will do, but the long-term implications are significant. 

Does this mean Americans need to start converting their dollars to Yuan and learning Mandarin? No. But it does mean that the global economy, as always, is changing in big ways. If things continue in the direction they are heading, America will soon lose its tenure as the world’s economic leader—in size, at least—and China will step in to take its place.
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Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser. 

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014 Advicent Solutions. All rights reserved.

For Today’s Children, Retirement Planning Starts Young

February 2015
We all hope for a long, healthy life, but—from a financial standpoint—the length of our lives may be starting to get out of hand. One projection from the U.K.’s Office of National Statistics estimates that more than 30 percent of the nation’s children born after 2011 will reach age 100. That means that for every couple that reaches age 65, more than half will have least one partner live another 35 years.

If today’s children continue to retire at what we currently consider a “normal” age, many could spend almost as much of their life in retirement as they spend working. Since a majority of U.S. citizens already face insecure retirements with current financial planning norms, extended longevity may become an overwhelming monetary challenge.

One solution to the problem may lie in changing when people begin to plan for retirement. A few extra years of growth can have a massive impact on the value of a retirement account. If we can train today’s children to make good financial decisions earlier in life than most adults do now, they’ll be better able to handle the cost of an extremely long retirement. 

But it’s today’s adults who will need to teach them.

In general, adults usually impart their financial habits to children—whether they mean to or not. Kids are observant, and adults’ financial decisions can imprint upon them easily. However, retirement planning, though essential, is an obscure subject. Children get to see how adults spend their money, but they don’t often see how they save it.

Obviously, trying to lecture a young child about 401(k)s and investment strategies won’t be helpful to anyone, so adults will need to take a more basic approach. By teaching children the underlying principles of saving, planning and money growth, you can turn their future financial decisions into a matter of obvious choices.  

Getting Kids to Learn
Though teaching financial habits takes more than a piggybank, it’s still a great place to start. Providing a younger child with both an allowance and savings goals is a great way for them to practice budgeting. Help the child set goals that are simple and attainable; if they set an ambitious goal, offer to help them by covering the difference if they reach a significant percentage of the total value.

But saving alone isn’t enough: children need to understand that value can grow over time. This can be taught by providing them with interest: offer a small amount of money for each dollar they saved from their last allowance. They’ll quickly learn that by forgoing some immediate gratification, they can reach their savings goals even faster.

Later on, you can reverse this process to teach a child about debt. Allow them to borrow money from you for a small purchase, but plainly explain that they’ll have to pay the money back with interest. When they hand their money over to you later, it becomes a golden opportunity to explain how debt means paying extra.

If you prefer a more direct route of education, there are numerous online resources to help teach kids about money and smart planning—one of the most interesting examples being Warren Buffett’s own online cartoon series “Secret Millionaires Club” (www.smckids.org).
As a child grows, help them get the ball rolling on retirement planning. Our team at GuideStream Financial would be glad to help them take some first steps. We can help you explain the importance of planning ahead for retirement and avoiding heavy credit debt (especially during college). Financial maturity doesn’t happen overnight, so stay patient and don’t try to cover everything all at once. 
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Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser. 

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014 Advicent Solutions. All rights reserved.

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Name: GuideStream Financial, Inc.
Phone: 800-325-8975
Fax: 517-750-2752
Address: 8050 Spring Arbor Rd., PO Box 580, Spring Arbor, Michigan 49283