Some days along coast, the ocean is flat and glassy, with small waves curling up to the beach like gently folding flower petals.  The only thing that makes this picture more serene is a nice summer day, with 90 degree sunshine and a cold Corona Lite, fresh lime, and salt.  As we enter 2015, Fed watchers are eagerly chomping at the bit for the first overnight bank lending rate hike.  But in 2014, the yield on the 30-year treasury actually dropped yet again – a full 117 basis points.  On January 14^th, 2015, the 30-year stunned Wall Street when the yield dropped below 2.4%.  This action on the far end of the yield curve sets the stage for an interesting scenario:  when the Fed does start raising rates, there is less distance for the short end of the curve to catch up to long end rates – and flatten the curve.  Will such flattening come this summer?  And if it does, will the clouds gather and ruin the mostly serene days the stock markets have seen since 2009?

In 1993, short-term rates remained around 3% for the entire calendar year, while the 30-year treasury yield fell 1%.  In 1994, short term rates rose above 5 ½%, and the 30 year rose 1%.  It took until the end of 1995 for the curve to flatten.  When did the next recession occur?  Not until 2001.  Investors enjoyed a booming decade of stock market returns during to 1990’s and it took years before the next economic slowdown began after the first Fed action was initiated in 1994.

Many investors fear Fed action which leads to a flat, glassy yield curve.  But beware lightening up on equites in your portfolio too early, as you might miss some great gains in the market.  Stay the course, and your patience may pay off enough to fund a late summer vacation at the beach with some Corona Lite, fresh lime and salt.

© 2015 Pawleys Investment Advisors, LLC. All rights reserved.

After years of experience watching people in a variety of financial circumstances glide into retirement, I’ve assembled some best-practices to share with everyone.  The daunting task of saving for retirement takes years of planning and preparation.  Hitting that actual day of retirement feels, to many, like standing atop a high mountain peak.  The hard work is done, and it is time to joyfully celebrate the accomplishment and glide down into the golden years.  Easy, or is it?  Of the alpinists who die while climbing Mount Everest, K-2, and other peaks over 8,000 meters, the majority perish in the descent after having successfully reached the summit.  A few die from falls, accidents or avalanches, but the majority die from altitude-related sickness.  Many articles and books about mountaineering cite that 1/10 who reach the summit of Mount Everest end up perishing on the descent, and most deaths are tightly tied to poor planning.  Retirees face a similar challenge, and given the multitude of uncertainties, it can be difficult to know how to financially plan.  Take heart, the Pawleys 3 Bucket approach can give you some certainty and empower you by alleviating the stress and uncertainty of the descent into retirement.  Check out this strategy of matching income sources to expenses:

Bucket 1 – The must-haves including food, clothing, shelter:  This bucket includes just the bare minimum to survive, and I mean the minimum.  Think “Survivor.”  Your house should be fully paid for before you retire, so your expenses will include real estate taxes, your heat and light bill, water and sewer bill, food, and basic clothing.  Basic healthcare costs should come from this bucket as well, and any income tax.  Income Source: Social Security. *reminder, -you may need to save a little each month so you have enough money budgeted to pay annual bills such as your property tax*

Bucket 2 – Reasonable living expenses that increase comfort and convenience but are not extravagant: Niceties include non-essentials such as cable TV and computers, cell phones, pets, automobiles, health club memberships, newspaper subscriptions, dining out from time to time, gifts for family and friends, tithing, insurance, purchasing of basic personal and household items, and property association dues.  Income Sources: Pension, basic IRA and 401(k) retirement distributions (including annuity income streams), real estate rental income after expenses, business royalties.

Bucket 3 – Discretionary expenses and larger-sum gifts:  Travel, hobbies, gourmet dining and special activities/events, acquisition of collectables such as art and antiques, charitable giving and family gifting.  Income Sources:  Excess investment income, capital gains and inheritance.

As you match your income sources to expenses, try to identify which items will remain fixed versus those that will increase.   Be sure to consider your health history and plan for unexpected illness.  Many sources of income remain fixed while expenses rise, so a little planning goes a long way to make sure you not only survive but enjoy the descent!

© 2014 Pawleys Investment Advisors, LLC. All rights reserved.