Summer Travel is Back!

One of the most anticipated comebacks of 2021 isn’t an athlete, rock star, or movie franchise. It’s summer travel, and it appears to be back with a vengeance.

Travel agents are working 14-hour days to meet the needs of eager travelers. People aren’t just taking road trips, either; airports are reporting being at 80% of pre-COVID capacity, while the TSA screenings reached two million for the first time since the pandemic. While these reports may be slightly less than pre-COVID, they also reflect an industry working to meet demand in the midst of new safety requirements, many of which place limits on the number of passengers and indoor occupancy at airport gates.^1,2

If you’re planning to take a trip this summer, bear in mind that prices for gas and tickets don’t merely reflect recent inflation, but an increased demand. AAA reports that hotel bookings in Las Vegas, Anaheim, and San Diego are seeing a pronounced uptick. Bear that in mind if you’re not
necessarily looking for population density this year.³

These summer travel stats show an industry in recovery and a nation eager to get out of the house. Whatever your plans might be, I hope you enjoy the season and look forward to touching base with you and hearing all about your travels.

The Fed Acknowledges Inflation

At its June meeting, the Federal Reserve confirmed what many of us have suspected for some time: prices are rising. In fact, prices are climbing faster than many expected. In response, the Fed raised its inflation expectation to 3.4%, up from its March projection of 2.4%, effectively raising its inflation expectation by 42%.¹

The Fed’s course correction on inflation expectations and planned interest rate hikes unsettled the financial markets, with further volatility felt after St. Louis Fed President James Bullard said that the first interest rate hike could be as soon as 2022.²

The Fed also indicated that two interest rate hikes in 2023 were likely, despite signals last march that rates would remain unchanged until 2024.³

So, what’s an investor to do? It’s important to remember that inflation is just one of the factors considered when creating a portfolio. If inflation trends higher than expected for some time, adjustments may need to occur. Fed Chair Jerome Powell also said at the June meeting that he believes that inflation will be transitory. But as evidenced by the recent changes, the Fed remains ready to update its outlook as economic data continues to accumulate.

If you’re concerned about inflation, please reach out. As the economy continues to strengthen, economic trends and themes are evolving quickly. We’d welcome the chance to hear your thoughts.

Are you ready for the Second Act of the Secure Act

Recently, you may have seen headlines regarding the Securing a Strong Retirement Act, also referred to as the second version of the SECURE Act, or SECURE Act 2.0.

As the bill moves from the House of Representatives to the Senate, many hopeful investors are anticipating further retirement support as the majority of the bill stems from the original SECURE Act of 2019. However, it’s worth noting that the bill may change drastically before being signed into law. With that in mind, here are some potential benefits of the Securing a Strong Retirement Act.

• Required Minimum Distributions (RMD): For those who contribute to a 401(k) or IRA, the Securing a Strong Retirement Act may allow you to wait until age 74 to start taking RMDs from your retirement accounts.¹
• Catch-up Contributions: Those who own an IRA and are over age 60 may be allowed to contribute an additional $10,000 per year to their retirement accounts.¹
• Student Loans: Employers may be allowed to match retirement contributions for employees who are paying off student loans.¹

There’s little doubt the bill will benefit many retirees or those approaching retirement; the only question that remains is “how.” If you have any questions about how this new legislation may impact your retirement strategy, or you just want to chat, give me a call anytime. We’re always here to help.

A COLA with your Social Security

If there is a “silver lining” to all the inflation talk, it may be that Social Security benefits are expected to see a larger-than-normal increase in 2022.

Preliminary estimates call for a 4.7% cost-of-living increase (COLA) in Social Security benefits next year, which would be the highest since 2009. Benefits rose 1.3% in 2021.¹

The Social Security Administration makes its official announcement in January 2022. The Bureau of Labor Statistics bases its annual adjustment on the Bureau of Labor Statistics data in the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as the CPI-W.²

A lot can change between now and January 2022, but remember that data from the third quarter of 2021 will be the basis for the COLA for next year.

In my experience, Social Security is one of the most misunderstood sources of retirement income. For example, only 33% of people in 2021 expected Social Security to be a major income source during retirement.

In reality, it was a major source for 62% of retirees.³ Retirement may hold many surprises. But your sources of retirement income shouldn’t be one of them. It’s critical to have a strategy that keeps your expectations in line with reality. We’d welcome the chance to hear what you think about Social Security.

Rebalancing your portfolio

Everyone loves a winner. If an investment is successful, most people naturally want to stick with it. But is that the best approach?

It may sound counterintuitive, but it may be possible to have too much of a good thing. Over
time, the performance of different investments can shift a portfolio’s intent – and its risk profile.
It’s a phenomenon sometimes referred to as “risk creep,” and it happens when a portfolio has
its risk profile shift over time.

When deciding how to allocate investments, many start by taking into account their time horizon, risk tolerance, and specific goals. Next, individual investments are selected that pursue the overall objective. If all the investments selected had the same return, that balance – that allocation – would remain steady for a period of time. But if the investments have varying returns, over time, the portfolio may bear little resemblance to its original allocation.

How Rebalancing Works

Rebalancing is the process of restoring a portfolio to its original risk profile.¹

There are two ways to rebalance a portfolio. The first is to use new money.

When adding money to a portfolio, allocate these new funds to those assets or asset classes that have fallen. For example, if bonds have fallen from 40% of a portfolio to 30%, consider purchasing enough bonds to return them to their original 40% allocation. Diversification is an investment principle designed to manage risk. However, diversification does not guarantee against a loss.

The second way of rebalancing is to sell enough of the “winners” to buy more underperforming assets. Ironically, this type of rebalancing actually forces you to buy low and sell high.

Periodically rebalancing your portfolio to match your desired risk tolerance is a sound practice
regardless of the market conditions. One approach is to set a specific time each year to
schedule an appointment to review your portfolio and determine if adjustments are appropriate.

Shifting Allocation

Over time, market conditions can change the risk profile of an investment portfolio. For
example, imagine that on January 1, 2010, an investor created a portfolio containing a mix of
50% bonds and 50% stocks. By January 1, 2020, if the portfolio were left untouched, the mix
would have changed to 33% bonds and 67% stocks.²