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Even successful Business Executives face this threat to their Financial Independence

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By Holly Klamer

Special to the Financial Independence Hub

While most business executives are and should be approaching Financial Independence, there is a little-known threat to their financial well-being: addiction/substance abuse.

In fact, according to the SAMHSA [Substance Abuse and Mental Health Services Administration], around 11.4% of management employees (example business executives and managers) are diagnosed with a Substance Use Disorder every year.

If the addiction is not managed in a timely fashion, abrupt dismissal could torpedo any long-term goals for financial freedom.

As an aspiring business executive or someone who is serious about their financial education, it’s good to be aware of addiction and its possible ramifications.

So in this post, we look at why business execs should take addictions seriously. We also discuss different treatment options available for business executives to overcome SUD.

Help is Available

Anyone can suffer from drug addiction, including those in white-collar, executive positions who juggle a lot of responsibilities. In fact, it could be more difficult for them as they may be tempted to avoid/delay treatment so their career or work doesn’t suffer due to the required time off.

That’s where executive addiction-related treatment centers come in. These treatment centers are equipped with high-end tools, services, and necessary amenities so that patients can maintain active personal and professional lives while also achieving sobriety.

Often the main highlight of these programs is the luxury setting and amenities given to the professionals and a distraction-free comfortable environment.

Addiction Treatments available for Business Executives

Medical Detox

Often the first phase of most recovery programs; medical detox aims at the cessation of drug usage. In the absence of medical aid, the patient may experience myriad unpleasant withdrawal symptoms.

Executive treatment facilities, such as detox centers in California, deploy safe and medical procedures to make the detox process as comfortable and less painful as possible.

Psychotherapy

Often the therapeutic phase of the program begins right after the detox is successfully over. Inpatient rehab centers in Los Angeles for example, use it in individual and group settings. Psychotherapy mainly aims to recognize the psychological reasons that are causing or triggering the drug usage.

After that, it teaches several relapse prevention mechanisms and coping techniques to deal with tough situations without resorting to drugs. Continue Reading…

Vanguard 2022 Outlook projects lower 10-year returns for 60/40 portfolios

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Vanguard Global Economist Joe Davis: Vanguard.com

Returns on the traditional 60% stocks/40% bonds balanced portfolio are expected to be roughly half of what investors realized over the last decade, according to the Vanguard Group’s 2022 Economic and Market Outlook, which is being released today (Monday, Dec. 13).

Global stocks are expected to outperform U.S. stocks bonds significantly over the next ten years while US and global bonds will be in the range of 1.3% to 2.4% annualized ,

Here are Vanguard’s 10-year annualized return projections:

  • Global equities: 5.2% – 7.2%
  • U.S. equities: 2.3% – 4.3%
  • Global bonds: 1.3% – 2.3%
  • U.S. bonds: 1.4%– 2.4%

The report issued by Valley Forge, PA-based Vanguard is titled Striking a better balance: ironic given its projections for performance of balanced portfolios.

“The road ahead for investors promises to be a challenging one,” said Joe Davis, Vanguard’s global chief economist and co-author of the report. “Global markets will test investors’ discipline as they navigate the risks of unwinding monetary policy support, slower growth, and rising real rates.”

In an advance webinar aired last Thursday, Davis said: “Wage inflation will dictates the pace of rate hikes in 2022.” He said the US Federal reserve is likely to raise rates to at least 2.5% this cycle in order to maintain price stability. As for stocks, we are in an era of “high valuations and low rates,” which creates a “fragile backdrop for markets ….[which] will chip away at future returns.” Better valuations are in developed markets outside the US, small-caps and Value. More stretched valuations are in Emerging Markets, the US, Growth and Large-cap, Davis said.

US equities have not been this overvalued since the dot-com bubble, Davis said, adding that a secular decline in rates has been three decades in the marking.

For Bond markets, best values is in TIPS and short-term treasuries. Most stretched are long-term treasuries, mortgage backed securities and international credit. In between are intermediate treasures and high-yield bonds.

Policy accommodations

In Monday’s press release, Vanguard said challenges are likely to be most evident with the unwind of monetary policy, a critical factor in 2022 as central bankers assess a rapidly evolving economic landscape. Inflationary pressures have sharpened the focus on monetary policymakers as these pressures may drive changes in central bank communications and actions. Vanguard projects that central banks will largely try to avoid sharp and unexpected shifts in the timing of policy changes, particularly of policy rate increases, but that conditions will force them to act in 2022 and quite possibly by more than markets are anticipating.

Economic outlook

With the global economic recovery expected to continue in 2022, Vanguard economists foresee the low-hanging fruit of rebounding activity to give way to slower growth, regardless of supply- chain dynamics. In both the U.S. and the Euro area, Vanguard expects economic growth to normalize to 4%. In the U.K., Vanguard expects growth of about 5.5%, and in China, expectations are that growth will fall to about 5%.

Inflation

Vanguard expects labor markets will continue to tighten, with several major economies quickly approaching full employment. Vanguard estimates the cyclical effects of supply constraints will persist well into early 2022 and then normalize as the structural deflationary forces of technology and unemployment take hold again. These factors contribute to expectations that inflation will trend higher for some time before slowing in the second half of 2022.

Don’t fear a “lost decade” for US stocks but a lower-return one

Vanguard’s long-term outlook for global asset returns for 2022 and beyond remains guarded, particularly for equities where valuations are high and low real interest rates continue to act as a strong gravitational pull on future returns. Investors should not fear a “lost decade” for U.S. stocks, but rather, a lower-return one, it says. For fixed income, low interest rates mean investors should expect lower returns. However, because rates have risen modestly since 2020, Vanguard’s outlook is commensurately higher.

International equities will outperform US in coming decades

Given the differences in valuations between the U.S. and non-U.S. developed markets, Vanguard projects international equities will outperform U.S. equities in the coming decades and value stocks will outperform growth in the U.S.

It says investors are best served in a broadly-diversified portfolio, including international equities.

“While the economic recovery is expected to continue through 2022, easy gains in growth from rebounding activity are behind us, and policy will replace health as the leading consideration for investors,” Davis said, “Despite a potential low-return environment, we are still expecting a positive premium for bearing equity risk. Investors should continue to focus on what they can control, and if they have the patience to weather potential periods of underperformance, we believe accepting some active risk offers the opportunity to offset low future returns.”

Inflation: Transitory with a Twist

At the advance webinar, Vanguard America’s Senior Economist Roger Aliaga-Diaz projects inflation to be “Transitory with a Twist.” He foresees only a modest decline in inflation in 2022. Central banks, including the Fed, will have to normalize sooner than later. “We may see next week [i.e. this week: Dec. 13 to Dec 17] accelerating tapering but not likely to hike rates.” He expects “one or two” hikes in the second half of 2022. Inflation will be around 5% early in 2022 but this should be in the low 3s by the end of 2022. Continue Reading…

Marty Zweig and the Inflation Boogeyman

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Outcome Metric Asset Management

By Noah Solomon

Special to the Financial Independence Hub

The continued rise in stocks, real estate, and almost every other asset class on the planet can be attributed to three things: liquidity, liquidity, liquidity. According to legendary investor Marty Zweig:

“In the stock market, as with horse racing, money makes the mare go. Monetary conditions exert an enormous influence on stock prices. Indeed, the monetary climate – primarily the trend in interest rates and Federal Reserve policy – is the dominant factor in determining the stock market’s major direction.”

In today’s markets, you don’t have to look very hard to find strong evidence of Zweig’s theory, which explains why stock markets were making fresh highs during successive outbreaks of Covid-19 and spiking unemployment. It also explains why approximately two thirds of stock returns over the past decade are attributable to multiple expansion rather than earnings growth. It’s hard to envision things turning south when real interest rates remain highly negative, and money is so freely available.

Something is happening here but it ain’t exactly clear what

For the first time in decades, the inflation genie is threatening to escape from its bottle. The abundant global liquidity that has been the primary driver of markets is threatened by the potential need to combat inflationary pressures, which have been rearing their head after a several-decade slumber.

Despite some disconcerting inflation readings over the past several months, it is possible that this phenomenon turns out to be a Covid-induced disruption in supply chains that will prove temporary. If this scenario prevails, then rates will remain fairly low, as will the probability that stocks will crater. Conversely, it is entirely possible that the recent uptick in inflation marks the beginning of a longer-lasting trend, in which case rates could rise materially, thereby increasing the chances of a severe decline in risk assets.

There are certainly some signs that suggest that at least a portion of the recent surge in inflation may have staying power. Bridgewater, the world’s largest hedge fund, recently wrote a research report called “It’s Mostly a Demand Shock, Not a Supply Shock, and It’s Everywhere.” The authors contend global production is back to normal levels following last year’s Covid-related disruptions. On the other hand, they claim global demand has exploded. Bankim Chadha, Chief U.S. Equity & Global Strategist at Deutsche Bank Securities, summarized his recent discussions with company executives:

“Most companies noted that supply chain issues kept them from fulfilling the underlying demand, which was much stronger than they had expected. They didn’t plan their supply chains to have a sustained surge in volume for 18 months. Labor availability and cost pressures show no signs of abating any time soon, a development that is new and not welcome. Companies are however very confident in their ability to raise prices.”

Although rates have risen modestly over the past few months, they have yet to rise materially. Both central banks and market participants remain skeptical that inflation will become a serious concern, which has prevented rates from spiking and provided stocks with sufficient “cover” to remain buoyant. On a rolling 10-year basis, equities are beating bonds in the U.S. by the largest margin since 1964. As long as the money is coming the mare will keep running. Continue Reading…

Collateral vs Conventional Mortgages

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By Sean Cooper

Special to the Financial Independence Hub 

Collateral and conventional mortgages may sound similar, but they’re actually two separate and distinct things. In this article we’ll look at the difference between the two.

What is a Conventional Mortgage?

A conventional mortgage is the mortgage type most Canadians are familiar with. When you make at least a 20% down payment on a property, you can take out a conventional mortgage. This differs from an insured mortgage, where you can put down as little as 5% on a home.

With a conventional mortgage, the lender will let you borrow up to 80% of the property’s value. The property value is the lesser of the purchase price or the appraised value. Usually the purchase price and appraised value are the same, but sometimes they differ.

If the home is appraised higher than the purchase price, that’s a good thing. That means that you’re getting a good deal on the home. However, if the home is appraised at less than the purchase price, you’ll need to make up the difference if you still want to put at least 20% down.

With conventional mortgages, you get to choose the length of the mortgage. The most popular lengths or amortization periods are 25 and 30 years. If you’re looking for the lowest mortgage rate, a 25 year amortization usually offers that. However, if you’re looking for lower mortgage payments, the 30 year amortization is the best option.

What is a Collateral Mortgage?

Not to be confused with a conventional mortgage, a collateral mortgage is a lot like a conventional mortgage, but with a key difference. Unlike a conventional mortgage, a collateral mortgage re-advances. This means that a mortgage lender is able to loan out more funds as the value of the property goes up, without needing to refinance your mortgage. Continue Reading…

Stocks expected to keep outperforming bonds next 10 years: Franklin Templeton

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Investors should expect North American and international equities to continue to outperform bonds over the next ten years, according to senior portfolio managers for Franklin Templeton Investment Solutions. As the accompanying chart illustrates, expected returns for equities the next 10 years range from a 4.6% for US stocks to a high of 6.5% for Emerging Markets stocks. Canadian stocks are expected to do almost as well, at 6%, and EAFE equities will also outperform US stocks, with retiring expectations of 4.9%.

Returns for bonds are more modest: Franklin Templeton projects 1.8% return for Government of Canada Bonds and 2.4% for Global Investment Grade Bonds. The chart shows the volatility, topped by Emerging Markets at 16.9% and Canadian equities at 15%.

The forecasts were provided Tuesday at a virtual webinar at the Franklin Templeton 2022 Global Investment Outlook.

3% Global Growth should keep pace with Inflation

Over the next 7 to 10 years, the firm expects 3% annual global growth, roughly keeping up with inflation, said CFA William Yun, executive vice president for Franklin Templeton Investment Solutions. Over that time, equities should outperform fixed income and non-US equities should outperform US equities, he said.

Looking to Canada, Canadian stocks should have slightly higher expected returns, albeit with greater volatility, said Senior Vice President Ian Riach. The outperformance will be because of lower  “more reasonable” valuations for Canadian stocks, he added. “We are quite positive on the Energy and Financial Services sectors.”
Continue Reading…