Your Financial Future: Math and science will prepare your family
What is going on in the economy? We are seeing record unemployment rates that have not been seen since the Great Depression in 1929.
Even these high totals do not reflect all of the people working part time or under employed. We are starting to see some 鈥渉elp wanted鈥� signs at large retailers and fast food restaurants. The CARES Act can hurt the unemployment rate if people receive more in unemployment benefits than by working. The situation is so complex it is hard for the right hand to know what the left hand is doing.
After almost two months of a forced shut down for many businesses, we do not know how many might not be able to ever reopen. JC Penny蘑菇视频 declared bankruptcy, joining several other department store chains to recently do so. They have announced plans to close at least one-third of their stores. Losing an anchor in a mall can cause many other smaller retailers to close because there is not enough traffic.
Some major companies have announced that many of their employees will be working from home. This could cause some office buildings to go vacant or others not to be built. This could affect many jobs. Restaurants are doing a fraction of their normal business, and many may not survive. Airlines, hotels and entertainment facilities are struggling. We are hearing about county swimming pools that will not open this year. Many of these companies have large quantiles of bonds maturing soon which could wreak havoc on financial markets.
The deficit is growing very fast and the CBO forecast total federal debt will top the total economic output of the United States this year. This is a serious situation. The good news is we will recover. The question is, when?
The stock market might be way ahead of itself. It fell to its low on March 23. Since then, it surged 31% the biggest one month gain since 1938. This is still down double digits from where was earlier in the year. Things might not be as good as they seem. Since the S&P 500 is weighted by market capitalization (that means the value of all stocks and bonds are considered), five large technology stocks are making up a huge part of the gain. The other 495 stocks are not doing as well. The current forward P/E ratio is 20.5X compared to an average 15.2X.
This is the highest since the tech crash in 2002, and there are a number of technical indicators that could be troubling. Maybe maintain your positions if appropriate, but be careful placing new money in unless you have a long time frame and a well-positioned written financial plan.
If you have a mortgage or other debt, interest rates may never be lower than near zero. Thirty-year government bonds are only paying in the neighborhood of 1.2%. That is a long time to tie up money at such a low rate. Some countries actually have negative rates where you pay the government to hold your money. A few weeks ago, some oil companies were paying people to take their oil because of a lack of storage tanks. These are unusual times.
There is a lot that scientists do not yet understand about this virus. Can we get it again? Will there be a vaccine and how is the best way to treat it? Will there be a second wave this fall or winter?
Many things will change and we are far from knowing all of the answerers. The greatest minds in the world are working on these problems. Eventually they will find an answer. Start today to prepare your family financially based on math and science. This will help protect them from whatever happens. Get your finances is the best possible place by making choices based on the new normal.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, 鈥淵our Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.鈥� If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.