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Sustainable Development: The Future of Investing

InvestMy Comments: Followers of this blog have seen the ideas expressed by Scott Minerd. I share them with you as I think they are important ideas, intended by me to help you better understand the role that money plays in your life. As I’ve expressed many times, we live in a society where having more money is better than having less.

Scott Minerd, Chairman of Investments, Guggenheim Partners, May 20, 2016

I grew up in Western Pennsylvania during a halcyon period. It was the 1960s, the postwar industrial economy was booming, and Pittsburgh supplied about 70 percent of the world’s steel. There was a feeling of great prosperity and limitless opportunity, but that would soon change. By the end of the 1970s the steel mills I knew as a boy had been shuttered. The collapse of the massive regional industrial complex left blighted towns, impoverished lives, and a polluted environment. I wondered why my hometown failed so miserably, why the roadmap for economic development in the region ended with such disaster.
“At its core, sustainable development means investing in safe, reliable infrastructure and financing projects that will power our world, feed our people, and foster growth in ways that preserve and protect our environment.”

Looking back at this and many other hard lessons from history, we see how critical sustainable development is to healthy economic growth and social progress, which is why it is also the “true north” by which every investment compass must navigate. Sustainable development is about delivering strong and stable investment returns in efficient, effective, consistent ways for the future of the world. At its core this means investing in safe, reliable infrastructure where almost none exists, and financing innovation in the sectors that will power our world, feed our people, and foster growth in ways that preserve and protect our environment. That is sustainable development.

But capital will only flow to sustainable development in the future if it can also meet the institutional investor’s mandate to generate strong and stable returns.

The good news is achieving strong and stable returns no longer requires trade-offs. We no longer need to sacrifice economic growth for environmental protection, or give up compelling returns in order to make responsible investments. In fact, in the future, I believe it will be impossible to deliver strong and stable returns without a principled approach to sustainability.

Nowhere is this principled approach to investing needed more than in the Arctic region. The Arctic is truly the final frontier market for global investors, and it is the bellwether for the sustainable development movement. Home to 12 million people and $450 billion in annual economic output, the Arctic already produces a significant share of the world’s food, minerals, and energy. As climate change affects the Arctic, the region will only grow in environmental and economic importance to the world. Arctic sea ice currently covers 65 percent less of the region than it did in 1979. By 2040, the Northern Sea Route could be open year round, resulting in faster, more energy-efficient global trade. In addition, the Arctic holds an estimated one-quarter of the world’s undiscovered oil and gas reserves, but its ability to generate and share energy from wind, hydro, tidal, geothermal, solar, and biomass will make it a leader in the future of clean energy.

As the climate transforms the Arctic, so will the Arctic transform the world, creating extraordinary long-term investment opportunities with real responsibilities. To adapt and thrive, communities will need critical and careful investment, paired with a strong commitment to protect and preserve the environment for future generations.

The World Economic Forum Global Agenda Council on the Arctic took an important step towards this goal by establishing six foundational and formative principles for responsible investment in the Arctic, called the Arctic Investment Protocol. We estimate that infrastructure investments in the region are expected to reach US$1 trillion over the next 15 years, and these principles set clear standards for sustainable and responsible business practices, governance, and environmental stewardship.

The Arctic, with its possibilities and challenges, is just one example of the global need for sustainable development. Last year, 193 nations adopted the United Nations Global Goals for Sustainable Development (SDGs), which aim to end extreme poverty, protect the planet, and ensure prosperity for all.

The SDGs require up to an estimated $4.5 trillion per year in capital investment in developing countries between 2015 and 2030. Current investment in these areas is around $1.4 trillion, leaving an annual investment gap of around $3.1 trillion. If just 1 percent of the $300 trillion global capital stock were allocated to sustainable development each year for the next 15 years, we could free the world from extreme poverty, spare millions from the perils of preventable disease and lack of education, and promote freedom and economic opportunity. We can achieve this and so much more if we recognize we no longer live in a world of trade-offs. Smart, strategic investments in sustainable development today can deliver strong, stable returns, and make the world a better place.

A Social Security Claiming Strategy to Consider

SSA-image-2My Comments: Every choice when it comes to filing for Social Security benefits comes with trade-offs. Whether one works for you to a large extent is determined by how long you live, and for most of us, that’s the elephant in the room. But if you assume you and your spouse will live to a normal life expectancy, this one might make sense for you if your circumstances fit the pattern.

by Joe Lucey on May 17, 2016 on MarketWatch

The 2015 bi-partisan budget act killed the “File and Suspend” as of April 29. But that doesn’t mean the end of smart Social Security election options that could add significant dollars to your Social Security income in retirement.

If you and your spouse were born on or before Jan. 1, 1954 — meaning you are both 62 years of age or older as of Jan. 1, 2016 — and both qualify for social security benefits this strategy could work for you.

It’s called “restricted application,” but is more accurately described as a “spousal claiming strategy”.

Here’s how it works.

When you are claiming social security benefits, you have three basic options:
• You can claim your benefits at age 62 early with a penalty (up to 25% less than your full benefits).
• You can claim your benefits at full retirement age (66 or 67 depending on when you are born) with no penalty.
• You can delay claiming your benefits up to age 70, with every year you delay adding an additional 8% to your monthly benefits.

But when you use “Restricted Application”, you get a valuable fourth option that allows you to claim spousal benefits without having to claim your Social Security benefits (yet).

Not only will you max out your social security benefit by delaying it until 70… but you’ll also get income while you wait for it to mature.
Essentially, you get paid extra to wait.

Let’s look at an example

Jack and Jill are married and just happen to be born on the exact same day. Today is their 66th birthday and they are ready to retire now that they have both reached full retirement age.

Jack is an engineer at a large company and Jill is a schoolteacher at the local high school. Jack has a Social Security benefit of $2,400/month and Jill’s is $2,000/month.

Their initial plan was to claim their full benefits as is and call it a day, but see how this strategy would boost their retirement income.

f they claim their full benefits, they would receive $4,400/month (or $57,600/year). For the remainder of their retirement, they would continue to receive $4,400/month.

But what happens if Jack uses “restricted application” to delay his benefits until 70 and claim his spousal benefit (which is 50% of Jill’s full benefit) instead? In the short term, Jack and Jill will earn less. But once Jack turns 70, he will now begin to claim his own Social Security benefit that has now increased to $3,168/month meaning the couple will now earn $5,128/month.

That means Jack and Jill will be earning an extra $9,216 every single year.

Seeing as how many retirees are living much longer than they used to, this makes a significant difference over a 30-year retirement.

The “restricted application” strategy wont produce more total income until the 12th year of retirement, but over 30 years winds up producing $172,416 of additional income.

Additionally, if we assume that Jill is going to outlive Jack, this also increases the survivor benefit for Jill meaning she will continue to $5,128/month as a widow.

Making this strategy work for you

Keep in mind that retirement planning is all about trade-offs. Not all strategies make sense for all couples, but it’s important that you explore your options. Otherwise, you might just be missing out on tens or even hundreds of thousands of dollars you could be enjoying in retirement.

Like any investment strategy, a variety of other factors — pensions, annuities, investments, savings, life expectancy, and taxes to name a few — need to be considered when deciding what will work best for you.

Before making any decisions about what to do with your social security, I strongly recommend you speak a financial professional familiar with social security and retirement income planning.

It’s extremely difficult to undo your Social Security claiming strategy once you make your selection, so make sure you do this right.

Sinking Atlantic Coastline Meets Rapidly Rising Seas

My Comments: Our esteemed Governor, Rick Scott, has decreed that the phrase ‘climate change’ cannot be uttered by any state employee. OK.

But it doesn’t change the reality that the planet is experiencing a warming trend that may or may not be influenced by advances in human activity. The reality is that for the foreseeable future, our coastlines, and those who live there, are going to be increasingly under threat. I happen to live in central Florida where coastal flooding last happened many millions of years ago and I suspect I’ll be long gone before it happens again.

But my grandchildren will experience over the next 70 years and more what some of us can rationally predict will happen. Some effort by our elected leaders, to mitigate the threat, seems to be a rational expectation.

By John Upton, Climate Central on April 14, 2016

The 5,000 North Carolinians who call Hyde County home live in a region several hundred miles long where coastal residents are coping with severe changes that few other Americans have yet to endure.

Geological changes along the East Coast are causing land to sink along the seaboard. That’s exacerbating the flood-inducing effects of sea level rise, which has been occurring faster in the western Atlantic Ocean than elsewhere in recent years.

New research using GPS and prehistoric data has shown that nearly the entire coast is affected, from Massachusetts to Florida and parts of Maine.

The study, published this month in Geophysical Research Letters, outlines a hot spot from Delaware and Maryland into northern North Carolina where the effects of groundwater pumping are compounding the sinking effects of natural processes. Problems associated with sea level rise in that hot spot have been — in some places — three times as severe as elsewhere.

“The citizens of Hyde County have dealt with flooding issues since the incorporation of Hyde County in 1712,” said Kris Noble, the county’s planning and economic development director. “It’s just one of the things we deal with.”

On average, climate change is causing seas to rise globally by more than an inch per decade. That rate is increasing as rising levels of greenhouse gases in the atmosphere trap more heat, melting ice and expanding ocean waters. Seas are projected to rise by several feet this century — perhaps twice that much if the collapse of parts of the Antarctic ice sheet worsens.

Ocean circulation changes linked to global warming and other factors have been causing seas to rise much faster than that along the sinking mid-Atlantic coastline — more than 3.5 inches per decade from 2002 to 2014 north of Cape Hatteras in North Carolina, a recent study showed.

The relatively fast rate of rise in sea levels along the East Coast may have been a blip — for now. The rate of rise recorded so far this century may become the norm during the decades ahead. “Undoubtedly, these are the rates we’re heading towards,” said Simon Engelhart, a University of Rhode Island geoscientist.

Engelhart drew on data from prehistoric studies and worked with two University of South Florida, Tampa scientists to combine it with more modern GPS data to pinpoint the rates at which parts of the Eastern seaboard have been sinking.

Their study revealed that Hyde County — a sprawling but sparsely populated farming and wilderness municipality north of the Pamlico River — is among the region’s fastest-sinking areas, subsiding at a little more than an inch per decade.

10 Things You Must Know About Social Security

SSA-image-2My Comments: Next month I start a new job; teaching folks about Social Security. Actually, it’s a function of my need to keep busy and an apparent ability to share 40 years of experience as a financial planner with people who need to know about this very important financial element of their lives. This article, which appeared recently on Kiplinger Today is a great summary.

By Rachel L. Sheedy, May 12, 2016

For many Americans, Social Security benefits are the bedrock of retirement income. Maximizing that stream of income is critical to funding your retirement dreams.

The rules for claiming benefits can be complex, and recent changes to Social Security rules created a lot of confusion. But this guide will help you wade through the details. By educating yourself about Social Security, you can ensure that you claim the maximum amount to which you are entitled. Here are ten essentials you need to know.

1. Your age when you collect Social Security has a big impact on the amount of money you ultimately get from the program. The key age to know is your full retirement age. For people born between 1943 and 1954, full retirement age is 66. It gradually climbs toward 67 if your birthday falls between 1955 and 1959. For those born in 1960 or later, full retirement age is 67. You can collect Social Security as soon as you turn 62, but taking benefits before full retirement age results in a permanent reduction — as much as 25% of your benefit if your full retirement age is 66.

Age also comes into play with kids: Minor children of Social Security beneficiaries can be eligible for a benefit. Children up to age 18, or up to age 19 if they are full-time students who haven’t graduated from high school, and disabled children older than 18 may be able to receive up to half of a parent’s Social Security benefit.

2. To be eligible for Social Security benefits, you must earn at least 40 “credits.” You can earn up to four credits a year, so it takes ten years of work to qualify for Social Security. In 2016, you must earn $1,260 to get one Social Security work credit and $5,040 to get the maximum four credits for the year.

Your benefit is based on the 35 years in which you earned the most money. If you have fewer than 35 years of earnings, each year with no earnings will be factored in at zero. You can increase your benefit by replacing those zero years, say, by working longer, even if it’s just part-time. But don’t worry — no low-earning year will replace a higher-earning year. The benefit isn’t based on 35 consecutive years of work, but the highest-earning 35 years. So if you decide to phase into retirement by going part-time, you won’t affect your benefit at all if you have 35 years of higher earnings. But if you make more money, your benefit will be adjusted upward, even if you are still working while taking your benefit.

There is a maximum benefit amount you can receive, though it depends on the age you retire. For someone at full retirement age in 2016, the maximum monthly benefit is $2,639. You can estimate your own benefit by using Social Security’s online Retirement Estimator.

3. One of the most attractive features of Social Security benefits is that every year the government adjusts the benefit for inflation. Known as a cost-of-living adjustment, or COLA, this inflation protection can help you keep up with rising living expenses during retirement. The COLA, which is automatic, is quite valuable; buying inflation protection on a private annuity can cost a pretty penny.

Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government. For example, in 2009, beneficiaries received a generous COLA of 5.8%. But retirees learned a hard lesson in 2010 and 2011, when prices stagnated as a result of the recession. There was no COLA in either of those years. For 2012, the COLA came back at 3.6%, but dropped to less than 2% in the next few years. But bad news came again this year: Prices were flat, and thus there was no COLA for 2016. The COLA for the following year is announced in October.

4. Marriage brings couples an advantage when it comes to Social Security. Namely, one spouse can take what’s called a spousal benefit, worth up to 50% of the other spouse’s benefit. Put simply, if your benefit is worth $2,000 but your spouse’s is only worth $500, your spouse can switch to a spousal benefit worth $1,000 — bringing in $500 more in income per month.

The calculation changes, however, if benefits are claimed before full retirement age. If you claim your spousal benefit before your full retirement age, you won’t get the full 50%. If you take your own benefit early and then later switch to a spousal benefit, your spousal benefit will still be reduced.

Note: You cannot apply for a spousal benefit until your spouse has applied for his or her own benefit.

5. If your spouse dies before you, you can take a so-called survivor benefit. If you are at full retirement age, that benefit is worth 100% of what your spouse was receiving at the time of his or her death (or 100% of what your spouse would have been eligible to receive if he or she hadn’t yet taken benefits). A widow or widower can start taking a survivor benefit at age 60, but the benefit will be reduced because it’s taken before full retirement age.

If you remarry before age 60, you cannot get a survivor benefit. But if you remarry after age 60, you may be eligible to receive a survivor benefit based on your former spouse’s earnings record. Eligible children can also receive a survivor benefit, worth up to 75% of the deceased’s benefit.

6. What if you were married, but your spouse is now an ex-spouse? Just because you’re divorced doesn’t mean you’ve lost the ability to get a benefit based on your former spouse’s earnings record. You can still qualify to receive a benefit based on his or her record if you were married at least ten years, you are 62 or older, and single.

Like a regular spousal benefit, you can get up to 50% of an ex-spouse’s benefit — less if you claim before full retirement age. And the beauty of it is that your ex never needs to know because you apply for the benefit directly through the Social Security Administration. Taking a benefit on your ex’s record has no effect on his or her benefit or the benefit of your ex’s new spouse. And unlike a regular spousal benefit, if your ex qualifies for benefits but has yet to apply, you can still take a benefit on the ex’s record if you have been divorced for at least two years.

Note: Ex-spouses can also take a survivor benefit if their ex has died first, and like any survivor benefit, it will be worth 100% of what the ex-spouse received. If you remarry after age 60, you will still be eligible for the survivor benefit.

7. Once you hit full retirement age, you can choose to wait to take your benefit. There’s a big bonus to delaying your claim — your benefit will grow by 8% a year up until age 70. Any cost-of-living adjustments will be included, too, so you don’t forgo those by waiting.

While a spousal benefit doesn’t include delayed retirement credits, the survivor benefit does. By waiting to take his benefit, a high-earning husband, for example, can ensure that his low-earning wife will receive a much higher benefit in the event he dies before her. That extra 32% of income could make a big difference for a widow whose household is down to one Social Security benefit.

In some cases, a spouse who is delaying his benefit but still wants to bring some Social Security income into the household can restrict his application to a spousal benefit only. To use this strategy, the spouse restricting his or her application must be at full retirement age and he or she must have been born on January 1, 1954, or earlier. So the lower-earning spouse, say the wife, applies for benefits on her own record. The husband then applies for a spousal benefit only, and he receives half of his wife’s benefit while his own benefit continues to grow. When he’s 70, he can switch to his own, higher benefit. Exes at full retirement age who were born on January 1, 1954, or earlier can use the same strategy — they can apply to restrict their application to a spousal benefit and let their own benefit grow.

8. There aren’t many times in life you can take a mulligan. But Social Security offers you the chance for a do-over. Say you claimed your benefit, but now wish you had waited to take it. Within the first 12 months of claiming benefits, you can “withdraw the application.” You will need to pay back all the benefits you received, including any spousal benefits based on your record. But you can later restart your benefit at a higher amount.

Early claimers have another opportunity for a do-over: They can choose to suspend their benefit at full retirement age. Say you took your benefit at age 62. Once you turn 66, you can suspend your benefit. You don’t have to pay back what you have received, and your benefit will earn delayed retirement credits of 8% a year. Wait to restart your benefit at age 70, and your monthly payment will get a 32% boost — which could erase much of the reduction from claiming early.

9. Most people know that you pay tax into the Social Security Trust Fund, but did you know that you may also have to pay tax on your Social Security benefits once you start receiving them? Benefits lost their tax-free status in 1984, and the income thresholds for triggering tax on benefits haven’t been increased since then.

As a result, it doesn’t take a lot of income for your benefits to be pinched by Uncle Sam. For example, a married couple with a combined income of more than $32,000 may have to pay income tax on up to 50% of their benefits. Higher earners may have to pay income tax on up to 85% of their benefits.

10. Bringing in too much money can cost you if you take Social Security benefits early while you are still working. With what is commonly known as the earnings test, you will forfeit $1 in benefits for every $2 you make over the earnings limit, which in 2016 is $15,720. Once you are past full retirement age, the earnings test disappears and you can make as much money as you want with no impact on benefits.

But the good news is that any benefits forfeited because earnings exceed the limits are not lost forever. At full retirement age, the Social Security Administration will refigure your benefits going forward to take into account benefits lost to the test. For example, if you claim benefits at 62 and over the next four years lose one full year of benefits to the earnings test, at age 66 your benefits will be recomputed — and increased — as if you had taken benefits three years early, instead of four. That basically means the lifetime reduction in benefits would be 20% rather than 25%.

How to Trump-proof Your Portfolio

global investingMy Comments: This is not intended as a political statement. However, clients are asking me whether there are likely to be economic consequences, and therefore an impact on their investment portfolios, if Donald Trump wins the Presidency. These comments appeared in The Financial Times and may or may not apply to you.

Gillian Tett – May 5, 2016 – The Financial Times

This year investors have grappled with a plethora of global mysteries: Brexit, war in the Middle East, negative interest rates, energy prices, the Chinese debt bubble, Russian President Vladimir Putin’s policymaking and drama in Brazil.

Now, however, we face another big uncertainty: what an election battle between Donald Trump and Hillary Clinton might do to American asset markets.

Although Mrs Clinton, the presumed Democrat nominee, appears to have a fairly big lead over Mr Trump in the polls, the outcome of November’s presidential vote looks uncertain. We have all learnt in the past year how wrong pollsters can be.

What is even more unnerving for investors is that, as populism gathers momentum, it is eroding many of the normal boundaries of “right” and “left”, “pro-business” and “anti-business”. Discerning clear policy patterns amid the wild rhetoric is not easy for either Democrats or Republicans.

So what is an investor to do if they want to Trump-proof their portfolio — or even benefit from an ugly Clinton-versus-Trump fight? In the coming weeks, sellside banks and financial advisers will produce acres of ideas. Here are five of my own.

First of all, do not buy banks; or not if you hope government will boost their share price. Until recently, Mrs Clinton was perceived as being soft on Wall Street; indeed, some financiers hoped that bank-bashing would end in 2016.

But Bernie Sanders, her Democratic rival, has performed so well that Mrs Clinton will face pressure to steal his “socialist” language to appease his supporters, and may well pick an anti-Wall Street figure as her running mate, such as Sherrod Brown, an Ohio senator.

Mr Trump may not be so different. Many Republicans would love to repeal the post-crisis financial reforms, and he has criticised the Dodd-Frank Act. But he also seems instinctively hostile to Wall Street. As a self-appointed hero of angry main street voters, he is unlikely to embrace banks.

Second, do not expect a rally in Treasury bonds; at least, not one driven by debt cuts. A couple of years ago, it was presumed that by this point in the economic cycle policymakers would be discussing how to cut America’s vast debt burden. But Mrs Clinton is no fiscal hawk. On the contrary, she seems to lean towards fiscal stimulus, and may try to appease supporters of Mr Sanders this way.

And, while the Tea Party wing of the Republican party is eager to slash debt, Mr Trump has built a career on exploiting leverage. He has vaguely promised to get rid of America’s $15tn debt in eight years; but he also wants to create jobs, boost growth and protect entitlements. Little wonder that traditional fiscally hawkish Republicans dislike him.

Third, embrace infrastructure stocks — whoever wins. Mr Trump built his brand with construction, and were he to win in November he would be likely to unleash a national infrastructure campaign to create jobs and growth. He likes the idea of being a second Dwight Eisenhower, the man who built America’s Interstate highway system.

But Mrs Clinton may do this too. After all, as Lawrence Summers, the former US Treasury secretary, recently pointed out, the beauty of infrastructure spending is that it could create middle-class jobs and growth at a time when monetary policy has reached its limits — at least, if you do not mind raising debt.

Fourth, expect currency volatility. The most eye-grabbing element of Mr Trump’s campaign so far has been his threats about trade protectionism. But Mrs Clinton has turned more protectionist, too, toning down her support of the Trans-Pacific Partnership. No one knows if her newfound caution will actually change trade flows or supply chains. But sabre-rattling on the global stage could certainly quickly unleash some currency swings.

Finally — and most importantly — investors need to invest in assets with an eye to capricious government intervention. After all, if there is one thing that will make sense of this peculiar election, it is the idea that voters have lost faith in the free-market political centre.

With populism rife, Mrs Clinton may deploy more consumer protection and regulation in response, while Mr Trump may plump for endless protectionism.

Either way, if you want to invest in pharma, cars, tech or pretty much anything else, you would be a fool to make your choice based on economics or free-market theories alone. Populism matters, in investing and politics alike now — even, or especially, if it makes your head spin.

Five Truths Every Investor Needs to Know: #1

global tradeMy Comments: This is the first of five “truths” that appear in a brochure published recently by Invesco, a global wealth management company with offices in over 20 countries, serving clients in more than 150 countries.

As you consider your wealth, or lack of it, these ideas may serve to keep you grounded and making better decisions. As someone who has made both good personal decisions, and bad ones, this might prove helpful to some of you.

Also, my wife and I will be traveling for the next several days. Those few of you who follow these posts, please know I’ll be ‘retired’ until May 5th at the earliest.

#1 – The Truth About Gains and Losses

Myth: My portfolio will be in fine shape if it has more up years than down years.

You may have heard that because the stock market’s good years have far outnumbered its bad years, equities are a good play.

It’s true that from 1926 to 2014, the S&P 500 Index has posted 65 positive years and only  24 negative years. If your investment portfolio were scored by “match-play” rules, like tennis, that would be good news because you’d win if up years outnumbered down years. How well your portfolio performed in each of those years wouldn’t matter.

Truth: The magnitude of gains and losses counts more than their frequency.

In reality, portfolios are scored under “stroke-play” rules — like golf. In stroke play, it doesn’t matter how many individual holes you win, it’s the total score that counts. Mistakes on just a hole or two can ruin an otherwise well-played game. Likewise, in investing, it may take just one or two exceptionally bad years to push you off the investment path to victory.

As the decade from 2000 to 2009 showed us, it’s possible for the market to have more up years than down years, yet still lose money on average. This decade included six up years and four down years, yet resulted in a total return of -9.10%.


Action: Understand the market’s scoring system and design an investment strategy accordingly.

Now that you know how the market keeps score, ask yourself this: What does it mean to achieve victory in investing? Does it mean my portfolio made money during the years I invested? If that’s the measuring stick, then victory is easy to achieve, according to the following chart. All you’d have to do is invest in the stock market for 10 years — nothing else. Historically, that strategy has yielded positive returns 95% of the time. But, of course, it’s not that simple.Scratching

The investment plan you and your financial advisor map out as a path to your goals assumes a certain level of contributions and an average rate of return over an investment lifetime — typically a return of 10% or more from an investor’s equity allocation for a plan to be on target. Simply scoring positive returns doesn’t mean you’ll reach your goals.

The true victory in investing is achieving your financial objectives — retirement, home ownership,a child’s college education — not merely making money over your years of investing. If your portfolio doesn’t make enough to reach your goals, then you haven’t really won. And, as we’ve seen, just one or two exceptionally bad years can throw you off course. That’s why you need an intentional approach to investing with an asset allocation strategy that seeks to balance downside protection and upside participation instead of one that chases returns at the expense of risk management.

Onward, Fellow Humans!

bruegel-wedding-dance-ouMy Thoughts: This is not political, but these days it’s hard to not have an intelligent conversation about life without it having political overtones. And as someone intimately involved with economics and finance, these thoughts by Joe Brewer resonate with me. It’s about a five minute read.

By Joe Brewer, April 21, 2016

The Pain You Feel is Capitalism Dying

It can be very confusing to know that you won’t find a decent job, pay off student loans or put in a down payment on a house in the next few years — even though you may have graduated from a top-tier university or secured glowing references from all those unpaid internships that got you to where you are today.

Even if you are lucky enough to have all of this going for you, you’ll still be one among hundreds of applicants for every job you apply for. And you’ll still watch as the world becomes more unequal, with fewer paid opportunities to do what you feel called to do in your work or for your life path.

What’s more, you won’t find much help from your friends because most (if not all) of them are going through the same thing. This is a painful and difficult time that is impacting all of us at once.

There will be people who tell you it’s your fault. That you aren’t trying hard enough. But those people are culprits in perpetuating a great lie of this period in history. The standard assumptions for how to be successful in life a few decades ago simply do not apply anymore. The guilt and shame you feel is the mental disease of late-stage capitalism. Embrace this truth and set yourself free.

To see how broken things have become you’ll have to think systemically. Take note of the systems built up to create this situation and understand how it came to be — so you’ll see why it cannot possibly continue on its current path.

First, a diagnosis of the problem:

A Global Architecture of Wealth Extraction has been systematically built up to rig the economic game against you. This is why a tiny number of people (current count is 62) have more wealth amongst them than half the human population. Decades of those using tax havens to hide their wealth, unfair trade agreements designed to extract wealth from poor countries, banking regulations and austerity measures meant to destabilize entire economies so massive transfers of wealth can go from everyone else to a tiny financial elite, and election rules that all-but-guarantee only those who become whores to these financial pimps will ever sit in high office.

So yeah, it’s okay to feel restless as capitalism winds itself down from these system-level harms to society.

Why do I say that capitalism (in its corporatist, wealth-extracting form) is dying? There’s a long, detailed story that could be told about this. For the sake of brevity, I will answer with two essential pieces that show how business-as-usual is finished. It is physically impossible for it to continue much longer.

Reason 1: There Are No More Profits to Extract.
As eloquently described in the writings of Jeremy Rifkin and Paul Mason, the primary motivator for capitalists — to extract wealth from consumer exchange in the form of monetary gain — is crippled by the fact that the science of wealth extraction has become so advanced that every new wave brings diminishing returns. What is called “marginal cost” by economists, the difference between how much it costs to produce something and what people are willing or able to pay for it, is nearly zero now for everything we manufacture or provide as a service. This zero marginal cost trend is breaking capitalism down by the unexpected outcome of its own spectacular success.

Add to this that most of the growth in the global economy in the last 40 years has been in speculative finance. The money system grows faster than the productive “real” economy — with the predictable outcome of market crashes, financial collapse, and structural adjustments (wealth extraction) when the mismatch grows too large. What we end up with is bloated debt too large for everyone to pay back. Combined with the end game of wealth hoarding mentioned above, this is a death knell for capitalism as we’ve known it in the last 100 years.

Reason 2: Damage Built Up in the Natural World
There is no such thing as an economy that exists without the physical world. The delusional idea that markets are separate from nature has guided mainstream economic policy for a long time — and now we are seeing the consequences in mass extinctions, loss of topsoils, climate change, collapse of fish stocks in the world ocean, rising levels of pollution, and more.

Physicists would describe this as increasing entropy, which simply means the rise in social complexity of human economies comes with a corresponding deterioration of the larger natural environments they are embedded within. And we have crossed the unprecedented watermark of history in the 20th Century — with exploding population growth, and the crossing of several essential planetary boundaries (any of which, if passed, will place our civilization in jeopardy). At current count, we have passed four of them.

So the nails are in the coffin for capitalism. What remains to be seen is whether this will take down our globalized civilization as well. I am hopeful, yet sober about our prospects. It’s going to be a very turbulent time (for the rest of our lives) but I think we can make it through this restlessness by acknowledging that it’s real, naming the architecture of wealth extraction that created these systemic harms, and dismantling this globalized system to release vital monetary resources for the emergence of a new, life-affirming paradigm for economic development.

But before we can begin this great work of our times, we must acknowledge the pain that a dying capitalist system creates in our personal lives. I know it hurts. It is quite natural to feel ashamed when you try really hard and do your best, yet still are unable to succeed. You’ll need to change the rules of the game (a few of which I have outlined here). And doing this is going to require going through a healing process internally for yourself and with your friends.

You are not alone. All 7.4 billion of us alive today are going through this. We are doing it together. Now is the time to become fully aware of the systemic nature of what we are going through. The future will not be like the past. It is going to be painful and confusing at times. Yet the prospects for getting through this struggle are nothing less than a thriving planetary civilization that is inclusive and nourishing for all people while at the same time remaining in harmony with our home planet of Earth.

Onward, fellow humans.