Until the previous year, the concept of economic inflation was nothing more than a good story the older generation would hold over everyone else’s head. Back in the early ‘80s, it wasn’t inflation that made people very uncomfortable with managing their finances, it was the Fed’s policies to combat inflation that forever changed an entire generation’s view of debt. Those people in America who held mortgages or loans during the early ‘80s are not nearly as comfortable with holding debt as most of the generations that have come after them. We cannot blame them for being so averse to holding loans unless completely necessary; mortgage rates topped out at 18.63% in October of 1981 but stayed at almost 10% through the end of 1989.

If you have paid any attention to the media these last few months, there’s an inevitable event headed our way that they say could be detrimental. Everyone is happy to give their opinion and predictions about it and since so many people say it is coming, it must be true. That nasty little word is: recession. A recession has threatened to overtake our economy for a long time, probably even before the pandemic. I think we must figure out what exactly a recession is and how that affects our lives – especially our investment portfolios.

Gas prices are spiraling upward, inflation is higher than it’s been since the 1980s, and both the stock and bond markets are significantly in negative territory since the beginning of the year. Russia doesn’t seem to be lightening up on whatever quest they are on in Ukraine, and the Federal Reserve has been backed into a corner and is being forced to raise interest rates to slow our already slowing economy to curb inflation. It seems like a perfect storm and that the U.S. is staring down the barrel of an inevitable recession.

As the labor market has been gutted by COVID (early retirements and twenty-somethings who got used to the government sending them paychecks for 18 months and are not willing to work), employers are having to pay significantly higher wages and offer new and exciting benefits to coax people back into the workforce. One of these benefits is an employer-sponsored 401k. This plan is a tax- efficient way for employees to save for retirement through employee payroll deferral. One of the main benefits to having a 401k is the ability to defer your current income until a time in the future, typically during retirement, when your income is lower. Your deferred payroll deposits are not included in your current taxable income and are allowed to be invested in different markets and grow tax-deferred, until you withdraw those funds when you retire. Another added benefit to a 401k plan is that often, employers will match the contribution you make. Then, this type of savings plan is even more beneficial for the employee and becomes a very valuable part of their employment package. Some employers, in an effort to try to retain and recruit good employees, have instituted match policies of up to 10% of the salary percentage that employees put away on their own. That is essentially a 10% increase in pay if you stay with the employer for a specific period of time, as laid out in the plan’s vesting schedule.

On an April 12 podcast by Goldman Sachs called “Rising Stagflation Risks Are Changing the Investment Climate’’ their global head of asset solution stated, “I would say that the playbook for investments and portfolio construction, of the period since the financial crisis, may not be relevant anymore. We have entered a period of higher inflation, higher volatility, and more uncertainty.” To say that the first quarter of the year was challenging for investors would be a massive understatement! At the time of this writing, the NASDAQ Index is -14.66%* the S&P 500 is -7.84% and if you think that is bad, the Russian index is -36% followed by China’s Shanghai index slightly better at -11.77%.**

In December, I wrote about the ratcheting-up of our inflationary numbers. We had recently heard from our Federal Reserve Chairman, Jerome Powell, that we need not worry because the inflation created through our government’s money printing policies and its COVID restriction-induced supply chain debacle was going to be “transitory.” I assumed that “transitory” must be related to something close to having an enema, because in my opinion, that’s exactly what this inflation situation has felt like. Much to my surprise after looking up the definition, the word transitory meant that this inflationary spike was going to be temporary. I then started reviewing some of the past Federal Reserve meeting minutes and realized that this transitory inflation has now lasted for over nine months! *

The wave of infections from the COVID Omicron variant that started just before the holiday break has been nothing short of breathtaking. I don’t know about you, but it seems like almost everyone I talk to lately has been infected and or re-infected. Vaccinated, unvaccinated – it seems like Omicron doesn’t play favorites and is out in full force to wreak havoc on our nation. The only good I can make of it is that (at this writing) it seems to be much less lethal than the previous strains.

I wish all My City Magazine readers a very prosperous and Happy New Year!

As we’ve just finished recovering from our Thanksgiving feasts and mustered the courage to step back onto the scales to assess the damage that’s been done, I encourage everyone to also assess their lives in terms of generosity.

I’m at work, it’s 4pm and I can feel myself falling behind on the day’s tasks. I know that the family has dinner planned, kid’s evening events that need shuttling to. My family will be expecting me home by 6pm to get the evening rolling and I know I’ll be lucky to get there by 6:30. It is at this instant that I have to decide whether to make the phone call to tell them I’ll be home late, OR do my best to work faster than I ever have to make sure I arrive just slightly after 6pm, maybe 6:15-6:20?

The House of Representatives is putting forth a new tax plan that will likely increase taxes on both corporations as well as higher-income earners. An article on Rueters.com1 states the current proposal is to increase corporate tax rates from 21% to 26.5%, and to increase the highest personal tax bracket from 37% to 39.6%. It would also increase the Capital Gains Tax for single filers making above $400,000 and joint filers making above $450,000 from 20% to 25%. Luckily (for the time being), it looks like the step-up in cost basis to the owner’s date of death will remain in place. It also appears that the Estate Tax will likely stay intact at $11.7 million, which can be doubled through some moderately advanced estate planning.