If you think the American economy is booming now, just think what it would be like if American collegians had an extra $1.5 billion to spend—especially with President Donald Trump’s tariffs set to raise the prices of imported consumer goods despite he and his administration saying the tariffs won’t result in price hikes.
Well, if prices aren’t increasing, tariffs aren’t working. The point of a tariff is to make locally produced products more attractive to local consumers by raising the price of imported alternatives. This, in theory, would result in more local production and fewer imports. But a tariff is paid by the importer of a product, not the exporter. So the 25-percent tariff Trump recently leveled on Chinese imports is transferred to the American consumers of those goods, not the Chinese producers.
The trade war isn’t taking money out of the pockets of Chinese manufacturers; it’s taking money out of the pockets of American consumers of Chinese products and Chinese consumers of American products. And since the United States runs a $375 billion trade deficit with China, the only way Trump can “win” his trade war is if Chinese economists can’t do the math to match Trump’s tariffs dollar-for-dollar. It’s even becoming more likely trade with China ends altogether. China has already cancelled planned trade talks with Trump.
It is impossible for America to run a trade surplus with China because China produces more products Americans consider essential than America produces for the Chinese, including car, computer and mobile phone components. It’s lower labor costs and Americans’ addiction to consumption allow China to perpetually have the upper hand in a trade war. If an iPhone were made entirely in America, it would cost as much as a brand new car, so while Trump might be making some American-made products more attractive to American consumers, he’s doing so at the expense of American consumers who can’t do without many of the Chinese imports found in their technology and automobiles. Even the Tesla Model 3 can only be 95-percent American-made at most.
Since Americans will be paying more for computers, mobile devices and cars, it’s not entirely unreasonable to forgive the $1.5 billion in student loan debt and allow those accepted into college two years of college education free of charge. Students and parents are going to pay more for the devices required to attend college, and colleges are going to pay more for them as well, which will be reflected in tuition costs, which will further increase student loan debt while decreasing consumers’ available income for spending in the American economy, potentially sinking the stock market.
There are other reasons besides boosting the economy for the government to payoff student loan debt. First, today’s Associate’s degree, usually obtained in two years at a community college, is the equivalent of a 1980s high school diploma. Advances in technology have made working in what is now a global economy much more complicated and necessitates further education be obtained. Students are not leaving high school with the education necessary to provide for themselves let alone a family, and it’s not their fault.
Secondly, with 17 states offering tuition-free college programs, the trend seems to be students at least delaying the accumulation of student loan debt for two years, potentially lowering accrued interest as well as principal loan balances. In short, future college students in the United States will be saddled with considerably less student loan debt than current and past college students. Meanwhile, entire generations (and student loan debt does span generations), are suffering student loan debt and unable to stimulate the American economy by spending money on anything but debt and living expenses.
Finally, the collective credit rating of American college students, past, present and future, would receive a boost that could spur entrepreneurial growth and investment in businesses as a whole. America was the land of opportunity, where you could go from “rags to riches” with enough hard work. America used to be the best place to start a small business and be your own boss. That isn’t the case these days because despite incomes increasing for middle-class Americans, their purchasing power has barely budged since 1965. You can’t grow an economy in which most consumers have hardly more purchasing power than their grandparents did over 50 years ago, and consumer confidence in the stock market can’t increase if consumers have no means to express their confidence by purchasing stocks.
Lifting the $1.5 billion in student loan debt owed by 44.2 million American borrowers would allow 44.2 million Americans to spend their student loan payment, averaging $351 per month, stimulating the American economy instead of simply paying off interest. Lenders can’t be the only ones making money if the American economy is going to grow.
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The stock market is not the economy. It is not indicative of the economy’s health. The stock market is a human collective reacting emotionally to news and numbers. It is merely a means to measure the perceived value of publicly-owned companies based on human emotion and expectations. Those perceived values can be overvalued, undervalued or properly valued, and with the Dow Jones Industrial Average dropping nearly 1,000 points the last three days, it seems stocks were overvalued.
Stocks were overvalued due to a myriad of factors. According to the “Shiller PE Ratio,” stocks were more expensive than they were on “Black Tuesday” in 1929, but less expensive than they were at the height of the dot.com bubble. So historically speaking, stocks were dangerously expensive.
Stocks are overvalued when things are going right. A lack of volatility over the past few years has culminated in a perfect storm that’s seen the VIX -- the stock market’s most popular measure of stock volatility -- rise more than 300 percent in a month.
“One big change affecting the market is interest rates, which have climbed sharply in 2018 to multiyear highs in the U.S. and around the world as economies have picked up steam,” Ed Carson writes for Investor’s Business Daily. Higher interest rates mean higher borrowing costs, which result in people consuming less. Much of the stock market’s recent losses are tied to an expectation that consumers will be spending less in 2018.
Don’t expect the stock market to continue providing 2017 rates of return, and with interest rates likely to increase, bonds aren’t necessarily the best place to put your money, but not the worst either.
There is good news for this newly volatile stock market. Midterm elections are more often good for the stock market than bad. “[T]he seasonality associated with midterms has brought positive returns for the stock market a lot more than it has brought losses,” according to Dominic Chu of CNBC. “On average, the S&P 500's return between Oct. 31 of the midterm year and Oct. 31 of the following year has been an eye-popping 17.5 percent.” So it’s not time to pull your money out of the stock market; it’s time to invest in the stock market.
The best approach for investing in 2018 is the same approach for investing in 2017 and any other year: invest and forget. You’re not going to get rich buying Exchange Traded Funds (ETFs), but you will realize a better return than you would from putting your money in a savings account or buying a Certificate of Deposit (CD).
Attempting to time the market is also a mistake, as is reacting to the market like stock traders did this week. Pulling your money out of the stock market at the first sign of adversity is the same emotional response that drove the stock market down in the first place. Traders selling shares in fear worsened the market’s decline because they had come some accustomed to the market’s lack of volatility. In fact, regular contributions to the stock market help limit volatility. So expect volatility and accept it. Just keep feeding the beast and try to forget that it’s there.
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While Birdman might sleep on a million dollars cash, you can get intimate with your money without sleeping with it. That’s a more lustful relationship with money than it is intimate anyways. The relationship I’m talking about is one that allows your money to give back.
I recently wrote about how the science of keeping checkbook register is dying but is still badly needed. But it didn’t take long to realize that in order to make my money make more money, I’d need more than a checkbook register in my smartphone. To truly get intimate with your money you have to bring in a third party -- a money ménage à trois, or partie carrée for those ready for a finance orgy of four.
Having someone or something monitor your money habits might sound a little uncomfortable. There they are, looking lustfully at your money, salivating perhaps. But there’s really no need to worry. While online money monitors connect to your bank and credit accounts, their interest is to sell you their money management plans -- not steal your money.
I used both LearnVest and Personal Capital, and I prefer LearnVest because it does more of the work for you. You can just make yourself comfortable and let her take control, so to speak. While LearnVest has a hard time determining from where your money comes and goes, she attempts to organize it in three key areas: income, fixed costs and flex spending. Personal Capital simply puts your money into two categories: assets and liabilities. So I like that LearnVest lets me know how much money I’m spending on things I might not need.
LearnVest can easily identify your income and does a pretty good job of doing so (unless your income doesn’t show up in your bank account via direct deposit). It’s the debits that cause a problem for LearnVest. Some electronic withdrawals aren’t very specific. For example, an auto-payment to a Chase credit card of mine simply comes up as Chase Bank in my bank statement. That was one of many transactions I had to put in the “Credit Card Payments” folder. You can even create a folder for regular expenses that don’t fall under broad descriptions like transportation, travel, gifts, groceries, shopping and home.
LearnVest also has the easier user interface of the two money monitors. There’s no struggling with the bra on this software. Pretty much anyone can figure her out, and she allows you to set priority goals like paying off credit card or student loan debt.
The busty, budget monitor is a really nice feature, too. She let’s you know if you’re in the black or in the red, and by how much. You can even set expected income and expenses and budget for specific things like eating out, transportation, travel and entertainment.
The best thing about bringing LearnVest into the bedroom is it will help you save and better invest your money for retirement. Now she’s not going to whisper hot, stock tips while nibbling on your ear, but by monitoring your money together, you get a better understanding of where it goes and where it could go.
Spice up your relationship with your money by trying new things in new places. You can’t spend all day in the bedroom with your money. Your money needs to get out in order to make money for you. And you don’t need a chaperone, either. You can control your financial future and retirement planning without the help of an investment banker. Just read this first. Then check out Stash. Stash allows you to build a portfolio based on the things you love, so you’ll feel good about where your money is going when she’s not with you.
Stash groups similar companies together in exchange-traded funds (ETFs) so you can invest in an industry rather than a single company. An ETF is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, though, an ETF trades like a common stock on a stock exchange, so prices change throughout the day.
So if you’re into technology, you can invest in the “Techie” ETF on Stash. If you’re into social media, you can invest in the “Trendsetter” ETF, and so on. Stash is a great way for young people to start preparing for their retirement without needing a lot of investment knowledge or a large investment. You can get started for as little as $5, and you can set it and forget it with Stash. Regardless of how much trading you do, you’ll pay $1 per month to Stash, and twelve bucks a year is pretty cheap considering individual trade commissions range from $4.95 to $6.95 each.
There are plenty of ways to earn a good return on your money without paying commissions to an online trading service, too. Charles Schwab offers over 200 commission-free, exchange-traded funds (ETFs). You can trade any one of them anytime without paying a dime in commission. This is an even cheaper way to get started on saving for retirement.
Whether you’re a recent graduate looking to begin growing the very little money you have or an experienced stock trader looking to invest over $100,000, there’s an online stock broker that’s right for you. Nerd Wallet has again knocked it out of the park and reviewed every online stock broker for you. But there’s even more you can do to grow your relationship with your money.
If your money is too much to manage by yourself or with a money monitor, it might be time to bring another person into the bedroom. An investment manager can design an investment strategy that will hopefully meet your retirement goals. I say hopefully because not all investment managers are reliable in the bedroom, and I certainly wouldn’t pay one doesn’t perform.
If you live near a metropolitan area, your best bet is to sit down with a local agent of a few online brokerages. There’s a Charles Schwab and Scottrade office near me, so I’ll be visiting with their staff next week to see which one I like more. I’m leaning toward Charles Schwab because of their commission-free ETF options, but you never know what these people are willing to offer once you’re on the way out the door with your money. Do your research before you sit down with these people, though. Have an idea of what you’d like to do with your money, how risky an investment you’re willing to make and how often you intend to trade. You don’t want to bring another person into the bedroom without warming-up to them a bit first.
If you live in a rural area, you’ll probably have one investment advisor in the whole town if you’re lucky. But it doesn’t cost anything to schedule an appointment and just chat about your plans for retirement. You might even learn something you didn’t realize just by uttering your retirement plans aloud.
Whatever you do, don’t commit to anything or sign anything, open an account or hand over any money based on your initial interaction with this person. First of all, these people are selling themselves in order to have an affair with your money. They aren’t who they seem, and you don’t want to realize that once they’re in the bedroom disrobing your money and tossing it around like a pimp. Secondly, these people are selling themselves, so they’ll likely offer you a better deal if you play hard to get. Investment banking is highly competitive, and customers don’t come along with your stash everyday. You are special, and you have a special relationship with your money. You didn’t get intimate with your money to hand it all over to someone else. You should remain involved in the relationship going forward, so find an investor who wants you in the bedroom with her and your money.
That’s how you get intimate with your money and stay intimate with your money. Online money management services and stock trading allow you to be more involved in your retirement planning than ever. And you should stay involved, because while you can’t take it with you, your money can work for you and those you love long after you’re gone. Getting intimate with your money will payoff for generations, so sit down with your money regularly and don’t be afraid to bring someone or something new into the bedroom.
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