I appreciate working with you, and value the long-term relationships I have developed with many of you. This letter is providing both an update on professional advances I have made , as well as some thoughts on the future of the markets. Professionally, I completed a Master of Science degree in Personal Financial Planning from the College for Financial Planning in May. I started on my Masters around 3 years ago, and am glad to have finally finished! What I have learned from taking the Master's courses will be useful for working with clients and for teaching. Another important step for me as a financial planner is that I have been accepted into NAPFA (National Association of Personal Financial Advisors), which is the premier national organization for fee-only planners. NAPFA, along with the Garrett Planning Network that I am already a member of, will provide strong networks and resources with like-minded, professional, fee-only financial planners. I encourage you to visit NAPFA's website at www.napfa.org, or you can visit my website and link from there. I will continue to work hard to stay current and on top of what is happening in the field of financial planning.
Concerning the future of the markets, this is an interesting and complex time. At the recent NAPFA National Convention, Bernard Lietaer was one of the speakers. He is the author of "The Future of Money", and was involved in creating the euro currency. He identified four major megatrends he believes are now in place for the future, and I have seen these trends mentioned by others. These all have important implications for long-term financial planning, and they are presented here along with some additional observations.
1) Aging of the population in the developed world. 2/3rds of all people in human history who have reached the age of 65 are living today. There is a large unfunded liability going into the future for older Americans (and other older individuals in other developed nations). Social Security and Medicare are coming under pressure, and solutons will need to be found. For example, we have a Medicare prescription drup plan on the books for the coming years without adequate disclosure of its costs. We do not have funds for all the Medicare benefits that are already in place, much less adding an additional burden for prescription drugs! Social Security has long-term problems, but the issues facing Medicare and Medicaid are more urgent.
2) Economy is growing faster than it is creating jobs. Companies are now accomplishing more by using technology rather than people. In other words, economic growth does not necessarily mean job growth. This means there is going to be a growing number of individuals that are unemployed or have trouble finding work, even if the population grows at about the same pace as the economy. This highlights the importance of lifetime education and training. World population growth, and finding work for the large numbers of unemployed or underemployed workers is a major challenge going forward.
3) Climate change and loss of biodiversity. This also ties into the expanding human population and its impact on the planet. Lietaer pointed out that biologists estimate that at current rates we will lose between 50% and 70% of the species living here today. We don't know what we are losing in many cases, such as potential medical cures. The American Museum of Natural History found that a majority of biologists are seriously discussing the current period becoming the fifth major extinction in Earth's history- the fourth was the extinction of the dinosaurs 75 million years ago!
4) Monetary instability. The dollar has been increasingly unstable for several reasons. The U.S. is running two enormous deficits today. We have a negative trade balance with our trading partners, and we have a very large federal budget deficit. We are paying the price for cutting taxes while spending more, especially on warfare and domestic security. Another future issue for the dollar that Lietear brought up is the fact that oil has been priced in dollars since Henry Kissinger (as secretary of state) worked out a deal with Saudi Arabia, but this most likely will not continue forever. Also, further declines in the dollar could occur if the world loses faith in the dollar and other nations put more money in other currencies instead. Lietaer believes that there is a 50% chance that the U.S. dollar will collapse. Even without a collapse, a declining dollar has important implications for U.S.investors. This trend is perhaps the trickiest to call, and could go either way depending on what happens both here and in other countries.
These four major trends as identified by Mr. Lietaer are looking at the big picture, and show difficult challenges that lie ahead for all of us. In order to come up with solutions, individuals with different opinions and viewpoints need to talk and listen to each other, and respect each other. Each of us has to determine for ourselves what is important and what we can do to make this world a better place. Our actions may seem small in relation to the problem, but they are still very important. It is obvious that individuals are going to become more and more responsible for their own financial future, and there are no simple answers. The social safety nets that are currently in place (Social Security, Medicare, Medicaid) are being stretched, and the odds are that whatever is available for future generations will not be as generous as what is available now, especially in the area of medical benefits.
For those of you that I help with investments, I will continue to develop allocation strategies that I believe are prudent in today's market environment. More than ever, I believe diversification is vital. The possible continuing devaluation of the dollar, and increasing inflation need to be considered. I will continue to research, read, and evaluate various opinions on the markets. Remember that I am here to help take the load off of your shoulders so that you do not have to make all these decisions by yourself.
I appreciate your faith in me, and I look forward to continuing to work with you in the future. Please do not hesitate to contact me if you have any questions about this letter, or any issues that are important to you.