Tag Archives: Investment advisor

Guess How Many Seniors Say Life Is Worse in Retirement

My Comments: After 40 plus years as a financial/retirement planner, I’ve lost count of the number of people who, as they approach retirement, ask whether they’ll have enough money. Or the corollary, when will they run out?

If you expect to have a successful retirement, ie one where you run out of life before you run out of money, you had better have your act together long before you reach retirement age. Here’s something to help you get your arms around this idea. https://goo.gl/b1fG39

Maurie Backman \ Feb 11, 2018

We all like to think of retirement as a carefree, fulfilling period of life. But those expectations may not actually jibe with reality. In fact, 28% of recent retirees say life is worse now that they’re stopped working, according to a new Nationwide survey. And the reasons for that dissatisfaction, not surprisingly, boil down to money — namely, inadequate income in the face of mounting bills.

Clearly, nobody wants a miserable retirement, so if you’re looking to avoid that fate, your best bet is to start ramping up your savings efforts now. Otherwise, you may come to miss your working years more than you’d think.

Retirement: It’s more expensive than we anticipate

Countless workers expect their living costs to shrink in retirement, particularly those who manage to pay off their homes before bringing their careers to a close. But while certain costs, like commuting, will go down or disappear in retirement, most will likely remain stagnant, and several will in fact go up. Take food, for example. We all need to eat, whether we’re working or not, and there’s no reason to think your grocery bills will magically go down just because you no longer have an office to report to. The same holds true for things like cable, cellphone service, and other such luxuries we’ve all come to enjoy.

Then there are those costs that are likely to climb in retirement, like healthcare. It’s estimated that the typical 65-year-old couple today with generally good health will spend $400,000 or more on medical costs in retirement, not including long-term care expenditures. Break that spending down over a 20-year period, and that’s a lot of money to shell out annually. But it also makes sense. Whereas folks with private insurance often get the bulk of their medical expenses covered during their working years, Medicare’s coverage is surprisingly limited. And since we tend to acquire new health issues as we age, it’s no wonder so many seniors wind up spending considerably more than expected on medical care, thus contributing to both their dissatisfaction and stress.

And speaking of aging, let’s not forget that homes age, too. Even if you manage to enter retirement mortgage-free, if you own property, you’ll still be responsible for its associated taxes, insurance, and maintenance, all of which are likely to increase year over year. The latter can be a true budget-buster, because sometimes, all it takes is one major age-related repair to put an undue strain on your limited finances.

All of this means one thing: If you want to be happy in retirement, then you’ll need to go into it with enough money to cover the bills, and then some. And that means saving as aggressively as possible while you have the opportunity.

Save now, enjoy later

The Economic Policy Institute reports that nearly half of U.S. households have no retirement savings to show for. If you’re behind on savings, or have yet to begin setting money aside for the future at all, then now’s the time to make up for it.

Now the good news is that the more working years you have left, the greater your opportunity to amass some wealth before you call it quits — and without putting too much of a strain on your current budget. Here’s the sort of savings level you stand to retire with, for example, if you begin setting aside just $400 a month at various ages:

You can retire with a decent sum of money if you consistently save $400 a month for 25 or 30 years. But if you’re in your 50s already, you’ll need to do better. This might involve maxing out a company 401(k), which, as per today’s limits, means setting aside $24,500 annually in savings. Will that wreak havoc on your present spending habits? Probably. But will it make a huge difference in retirement? Absolutely.

In fact, if you were to save $24,500 a year for just 10 years and invest that money at the aforementioned average annual 8% return, you’d be sitting on $355,000 to fund your golden years. And that, combined with a modest level of Social Security income, is most likely enough to help alleviate much of the financial anxiety and unhappiness so many of today’s seniors face.

Retirement is supposed to be a rewarding time in your life, and you have the power to make it one. The key is to save as much as you can today, and reap the benefits when you’re older.

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The Market Is Finally Getting the Joke

My Comments: I struggle, day to day, just like you, to figure out what the markets are going to do because so many of my friends and clients are exposed to market risk. Are you exposed to market risk? Does it worry you at all?

If not, you don’t need to read this. But if it does worry you, then perhaps a few minutes reading these comments from Scott Minerd will be good for you. And oh yes, there are ways to shift the risk of a downward correction to an insurance company and by so doing, preserve your principal and market gains from a crash.

Scott Minerd, February 21, 2018

The last two weeks have been pretty exciting, certainly a lot more interesting than anything we’ve been through over the last year. Given the recent market dislocation, there is a basis to rebalance portfolios and do trades to take advantage of relative repricing. At a macro level, it should not surprise anyone that rates have begun to rise—we have been talking about the Federal Reserve (Fed) tightening, we have been talking about how the Fed is behind the curve, how the market has not believed the Fed, and that someday this was going to have to get resolved, probably by the market having to adjust to the Fed’s statements. The market has now gotten the joke. I still don’t think the yield curve is accurately priced, but it is a lot closer today than where it was at the beginning of the year.

The concern, as I explained in A Time for Courage, is that now the market is moving from complacency—where it really did not believe the Fed was going to do what it said it was going to do—to a time when it has begun to realize that the Fed may be behind the curve. The market is now coming to believe that the Fed is not going to make three rate increases this year, it is going to make four. And so, rates start to rise and the whole proposition that the valuation of risk assets is based upon, which is faith in ultra-low rates and continued central bank liquidity, comes into question. As markets lose confidence in that view, investors have started to rearrange the deck chairs by repositioning portfolios.

Anytime we see strength in economic data, we are going to see upward pressure on rates. Upward pressure on rates is going to result in concern over the value of risk assets, and we are going to have a selloff in equity markets, or the junk bond market, or both. Credit spreads will widen. The reality of the situation, however, is that the amount of fiscal stimulus in the pipeline, the U.S. economy fast approaching full employment, the economic bounceback in Europe, and the pickup in momentum in Japan and in China are all real. Against this backdrop, even a harsh selloff in risk assets is not going to derail the expansion.

The Fed knows this, and for that reason the Fed is shrugging its shoulders and saying, “Okay, we don’t have a mandate around risk assets, but we do have a mandate about price stability and full employment. And it looks like we’re at full employment or beyond full employment, and the thing that seems to be at risk now is price stability. We’ve got to raise rates.”

What does that mean for investors? Markets are engaged in a tug of war between higher bond yields and the stock market. In the near term, the two markets will act as governors on each other: Higher bond yields will drive down stock prices, and lower stock prices will cause bond yields to stop rising and to fall.

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“The market is moving from complacency about the Fed to realizing that it may be behind the curve.”

Scott Minerd

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An analogue to today may be 1987. That year began against the backdrop of 1985/1986, which had seen a collapse in energy prices. In 1986 oil prices were very low, and concerns around inflation had diminished. The Federal Reserve had dragged its feet on raising rates. As we entered 1987, in the first few months of the year the stock market took off. By the time we got to March, stocks were up 20 percent. In April there was a hard correction of approximately 10 percent. As fear overtook greed, market participants became cautious on stocks. Going into that summer the stock market rallied another 21 percent from the April lows. By August we were at record highs; interest rates started to move up; the Federal Reserve was raising rates; the dollar was under pressure; and there were increasing concerns over inflation. The concern was the Fed was behind the curve as it accelerated rate increases. By October things were becoming unhinged. Bond yields had risen in the face of an extended bull market in stocks. The market reached a tipping point and began its infamous slide. By the time we got to the end of the year, the stock market for the year was up just 2 percent. That was the stock market crash of 1987, which wiped out about a third of the value of equities in the course of a few weeks.

Today, investors have the same sorts of concerns they had in 1987. For now, the market has gotten a reprieve. Soon, investors will start to have confidence in risk assets again. Risk assets like stocks will start to take off. Eventually, the perception will be that the Fed is falling behind the curve because inflation and economic pressures will continue to mount. Eventually the Fed will acknowledge that three rate hikes will not be enough, but it is going to raise rates four times in 2018, and market speculation will increase that there may be a need for five or six rate hikes. That will be the straw that breaks the camel’s back.

This is a highly plausible scenario for this year, but who knows how these things play out in the end. The reality today is that the economy is strong, interest rates are rising, and equities look fairly cheap. The Fed model right now would tell you the market multiple should be 34 times earnings. That is just fair value, not overvalued. And based on current earnings estimates for the S&P this year, the market multiple is closer to 17 times earnings. If stocks go down by 10 percent, the market multiple would drop to 15 times earnings. This would be getting into the realm of where value stocks trade. If there were a 20 percent selloff, you’re at a 14 times multiple. These market multiples don’t make sense. Markets do not price at 14 times earnings in an accelerating economic expansion with low inflation.

The Retirement Savings Mistake That 68% of Baby Boomers Regret

My Comments: I have a client, age 58 and single. I’m unsure just how much money she has set aside for her future. I have every reason to think she’s healthy and given statistical probabilities, will live another 30 years or more.

She lives a very busy professional life and finds it hard to focus on her financial future. The language, the concept, the details are outside her comfort zone, so she ignores them until I make a lot of noise in her ear.

My challenge, as a financial professional, is to somehow influence her thinking so that she doesn’t find herself 20 years from now with not enough money to pay her bills. If she does live to 88, she’s still going to have core expenses to pay.

Things like groceries, cable TV, a phone, food, insurance, new clothes from time to time. Even with no car to worry about, you still need to call Uber if you need to get to a doctor’s office. And they aren’t free. Who knows if Social Security will still be there.

These words from Wendy Commick should make you think hard about the possibilities.

Wendy Connick Jan 13, 2018

As the baby boomers retire in large numbers, they’re finally getting the chance to see how well their retirement planning (or lack thereof) has paid off. Unfortunately, many boomers aren’t happy with the results: 68% wish they’d saved more, and only 24% are confident that they have enough money to last throughout their retirement, according to a study by the Insured Retirement Institute.

The good news is that you can learn from the average boomer’s mistakes. Here are some ways to make sure your savings will see you through retirement.

Setting your retirement savings goal

The best way to set a retirement savings goal is to come up with a list of all the expenses you’ll face during retirement, add 10% for unexpected expenses and fun stuff, and use the total for the basis of your retirement planning. For example, if you add up all your expected retirement expenses and reach a total of $3,000 per month, then add 10% ($300) and multiply the sum by 12 to get your minimum annual retirement income goal: $39,600.

Assuming you’ll be able to take 4% of your entire retirement savings account balance as a distribution each year, (though the “4% rule” has its problems), then you can turn your retirement income goal into a savings goal by dividing it by 4%. For example, divide the above goal of $39,600 by 0.04 to get a savings goal of $990,000.

If you don’t want to go through this process, or you’re unsure what your expenses will be in retirement, then there are number of shorthand ways to find your retirement savings goal that, though less precise, will at least get you in the ballpark.

Planning your contributions

Once you have a savings goal in mind, you can work backwards to figure out how much you need to contribute to reach that goal. The good news is that you don’t actually have to save $990,000 in order to accumulate that much money in your retirement savings accounts: Wisely investing the money you contribute will help you grow those funds by a significant percentage each year. The sooner you start contributing, the more time that money will have to grow.

You can use a savings calculator to figure out how much you’ll need to contribute to your retirement accounts each month in order to hit your savings goal. For example, let’s say your goal is to have $990,000 by the time you retire, you plan to retire 30 years from now, and you have nothing saved so far. Assuming you can earn an average of 8% per year on your investments, a savings calculator will tell you that you need to save $8,092 per year — approximately $674 per month — to hit your goal.

I can’t save that much!

If the contributions you’d need to make to reach your goal are way too high, you have a few options. The simplest option is to delay retirement by a few years. Returning to the above example, let’s say you decide to retire in 33 years instead of 30 years. Delaying retirement by just three years would reduce your annual contribution goal from $8,092 to $6,281, which works out to $523 in contributions per month. You could hang on to $151 more each month while still ending up with the same amount of money when you retire.

Another possibility is to reduce your savings goal by coming up with other sources of retirement income. For example, if you decide to get a part-time job during retirement and are sure you can make at least $1,000 per month at that job, then the amount of annual income you’ll need from your retirement savings accounts will drop from $39,600 to $27,600. That means your new retirement savings goal will be $690,000. If you’re retiring 30 years from today, you’ll need to contribute $5,640 per year — $470 per month — to hit your new goal.

Finally, you could boost your retirement savings contributions by finding more income today or reducing your current expenses. Increasing your income could mean getting a raise, lobbying for a promotion, switching to a higher-paid job, or supplementing your income with a part-time job or side gig. Reducing your expenses could mean making some short-term sacrifices, such as cutting back on entertainment expenses, to free up some more money.

One extremely helpful way to reduce expenses is to pay off any credit card debt you’re carrying. Getting rid of those monthly payments can save you a boatload in interest charges, freeing up that money for retirement savings.

Saving money is a huge challenge for the average American, but that means you can be above average just by spending a little time on retirement planning. And once you retire, unlike those unfortunate baby boomers, you’ll be confident that you have plenty of money to finance your retirement dreams.

How to Pay Off Your Mortgage Before You Retire

My Comments: Retirement is the third stage of our lives. #1 is childhood when our needs are provided for by adults; #2 is adulthood when our needs are met by our efforts; and #3, retirement when you quit working for money and money has to work for you.

If you’re lucky, you don’t need to learn a new skill set to retire successfully. Or you understood what had to happen before you retired. One of those things is not having to pay more than necessary for shelter.

In a perfect world, you are happy with where you live and like whatever it is you live in. And before you retired, you figured out how much extra you had to pay each month to make the mortgage disappear just when you quit working.

Wendy Connick, Sep 28, 2017

Housing is the single biggest monthly expense for many families, so if you don’t have a housing payment to worry about during your retirement years your savings will last you a lot longer. Paying off your mortgage by the time you retire isn’t complicated; it just requires a little preparation.

Your repayment plan

If you know how much you owe on your mortgage, your interest rate, and how long it will be before you retire, figuring out how to get rid of the mortgage in time isn’t difficult. You can even use a mortgage payoff calculator to see the effect of adding extra payments.

For example, let’s say that you owe $220,000 on your mortgage at 5% interest, and it’s scheduled to be paid off in 25 years. However, you plan to retire in 20 years. Making an extra principal payment of $170 per month would get you paid off in 19 years and 11 months, and incidentally save you just over $38,000 of interest over the life of the loan.

Sticking to the plan

Coming up with a repayment plan is the easy part — sticking to it is a lot harder. Scraping up an extra $170 every month for the next 20 years can be a daunting task to undertake. Fortunately, there are ways to make saving that extra payment a lot easier.

First, make sure that the extra payments you make are to the mortgage’s principal, not a combination of principal and interest like your regular payments. Putting the extra money into the principal means that the loan will be paid down much faster, and you’ll save a lot more money on interest during the life of the loan.

Next, find a way to automate your extra payment. Ideally, this would mean setting up an automatic extra principal payment with your mortgage company, to happen along with your regular monthly payment. If the mortgage company can’t or won’t set this up for you, the next best option is to do an automatic transfer from your checking account to a special, dedicated savings account.

The biggest benefit of the second approach is that rather than taking a single large sum each month, you can spread your transfer out into multiple tiny transfers, which will be less disruptive to your checking account balance. For example, instead of doing one $170 transfer each month, you could transfer $5.70 every day from your checking to the special savings account. When it’s time for you to make your mortgage payment, you just make the extra principal payment straight from the savings account.

The biweekly payment option

Switching to a biweekly (every other week) payment system, instead of a monthly one, is another way to pay off a mortgage faster — assuming that it will take care of your loan balance in time. Splitting your monthly payment into two biweekly payments works because there are 52 weeks in a year, so it comes out to the equivalent of 13 monthly payments per year instead of just 12.

The main argument against biweekly payment schedules is that the extra money goes to both principal and interest, just like your normal payments. That means that your extra payment won’t go as far toward paying off the loan quickly as if you’d made the same extra payment toward principal only. Also, many lenders charge to make the switch from monthly to biweekly payments. So unless you have a significant reason to do so, stick with making extra principal payments. It’s the simplest way to have a retirement free from monthly housing bills.

Don’t Screw Up Index Investing By Making These 3 Mistakes

My Comments: First, my thanks to all of you who wished us well during IRMA’s visit to Florida. We came through unscathed. We were without power for a number of days and believe me when I tell you cold showers every day are not much fun. And we are now watching Maria carefully.

Second, there is increasing evidence that active asset management is starting to pull ahead of passive investing, which is the focus of this article, written a year ago by Walter Updegrave. Some of the references may be out of date but not the underlying message.

Passive investing as a strategy is always ok for some of your money. Overlaying it with some tactical steps to add value is the next step, something that can be done effectively without going all in with skills you perhaps don’t have.

Walter Updegrave – August 10, 2016

For consistently competitive returns, index funds and their ETF counterparts are the way to go. If you doubt that, just take a look at this new Vanguard research paper that lays out the case for indexing and check out the latest S&P Dow Jones Indices index vs. active scorecard, which shows that fewer than 20% of large-company stock funds beat the Standard & Poor’s 500 index over the five- and 10-year periods ending Dec. 31. But just buying index funds and ETFs doesn’t guarantee investing success. To do that, you’ll also need to steer clear of these three all-too-common indexing mistakes.

Mistake #1: Assuming all index funds are cheap. Since index funds simply buy the stocks or bonds that make up indexes like the Standard & Poor’s 500 or Barclays U.S. Aggregate bond index rather than spend millions on costly research and manpower to identify which securities might perform best, they’re able to pass those savings along to shareholders in the form of lower annual fees. Lower fees translate to higher returns and more wealth over the long term. That advantage is especially valuable today given the forecasts for lower-than-usual investment returns in the years ahead.

But not all index funds and ETFs are bargains. While many are available at an annual cost of 0.10% or less, others sometimes charge 10 times or more than that amount, according to Morningstar data. For example, one fund, Rydex S&P 500 Class C, levies a whopping 2.31% in annual expenses, prompting this headline on a recent post about the fund on the American Institute For Economic Research’s Daily Economy blog: “Is This the Worst Mutual Fund in the World?”

Before you invest in an index fund or ETF, make it a point to know how much it charges in annual fees, especially if you’re investing through a broker or other financial adviser. Then don’t buy unless its expenses compare favorably to funds or ETFs that track the same benchmark. You can gauge whether you’re overpaying by seeing how the expenses of the fund you’re considering stack up versus the expenses of the index funds and ETFs that made the cut for the Money 50, Money Magazine’s list of the best mutual funds and ETFs.

Mistake #2: Playing the niche index game. The beauty of index investing is that it allows you to easily and inexpensively create a well-balanced portfolio for retirement savings or other money you’re looking to invest. For example, by combining just three funds—a total U.S. stock market index fund, a total international stock index fund and a total U.S. bond market index fund (or their ETF counterparts)—you have the foundation for a broadly diversified portfolio of stocks and bonds that can get you to and through retirement.

But many investors fall into the trap of believing that the more bases they cover, the more diversified and better off they’ll be. And investment firms are all too willing to oblige them by marketing ever more specialized index offerings, allowing investors to invest in indexes that track everything from wind power and cyber security to obesity and organic foods.

Diversity is a good thing, but you don’t want to overdo it. Once you have a diversified portfolio of stocks and bonds, the extra benefit you get from venturing into investments that focus on narrow slices of the market or obscure niches can be minuscule or even disappear, since more arcane investments often carry higher fees. You also run the risk of ending up with an unwieldy and overlapping jumble of holdings that’s difficult to manage. And, let’s face it, a lot of what’s done in the name of broader diversification is really more about riding the latest fad.

In short, the more you stick to tried-and-true index funds that track wide swaths of the market at a low cost and resist the temptation to invest in every new indexing variation some firm churns out, the less likely you’ll end up “di-worse-ifying” rather than diversifying your portfolio.

Mistake #3: Using index funds to gamble rather than invest. When the indexing revolution got underway back in the 1970s, the idea was for investors to track the performance of broad market benchmarks like the Standard & Poor’s 500 index. The rationale was that since it’s so difficult to outperform the market, investors are better off trying to match the market’s return as much as possible.

Today, however, many investors see index funds as vehicles that can help them juice performance by quickly darting in and out of the stock or bond market as a whole or making bets on a sector they believe is poised to soar, be it growth, value, small stocks, energy, technology, whatever. ETFs are especially popular with such investors since, unlike regular index funds, ETFs are priced constantly throughout the day and can be traded the same as stocks.

Problem is, succeeding at this approach requires investors to have the foresight to know where the market or specific sectors are headed. That’s a dubious assumption at best. Consider how investors swarmed into tech and growth stocks at the end of the ’90s dot.com bubble, confident that double- or even triple-digit returns would continue, only to see shares crash and burn. Or, more recently, how pundits were predicting Armageddon for stocks in the wake of the Brexit vote, only to see the market climb to new highs.

Bottom line: Indexing works best when you use low-cost index funds that cover broad segments of the stock and bond markets as building blocks to create a diversified portfolio that matches your tolerance for risk—and that, aside from periodic rebalancing, you’ll stick with through good markets and bad. Remember that, and you’ll be more likely to benefit from all that indexing has to offer.

Disruption Of Confidence

Monday = Investing Money:

I’d like to think that my posts help someone, anyone? Professionally I’ve lived in the financial world for over 40 years and it pains me to say I haven’t a clue what’s going to happen next. What’s telling is that others, far more competent than I, don’t have a clue either.

Lance Roberts, whose comments I share this week, is a technician, attempting to glean clues from a rigorous adherence to mathematics and the signals that supposedly exist and reveal the future when correctly interpreted. Tread carefully.

Aug. 20, 2017 Lance Roberts Seeking Alpha

As noted last week:
“The weakness in the market previously, combined with the threats between the U.S. and North Korea, led to a fairly sharp unwinding in equities on Thursday which in turn triggered a short-term sell signal.

That sell-off has remained confined to the current bullish trend line but has threatened to violate the 50-dma (day/daily moving average). If the market is unable to regain the 50-dma on Monday, and remain above it for the balance of the coming week, the most likely move in the markets will be lower.”

I have updated the chart above (see HERE) through Friday afternoon. I followed that analysis up on Tuesday, stating:
“On Monday, the market surged out of the gate as headlines suggested ‘geopolitical risk’ had subsided. I find this particular explanation hard to digest, given the rising rhetoric of a potential trade war with China, violence in Charlottesville over the weekend, no resolution with North Korea, etc., so forth, and so on. I find little evidence of a global turn in geopolitical stresses currently.

Monday’s ‘buy the dip’ frenzy was no different. The question will be whether the market can both reverse the short-term ‘sell signal’ and climb above the previous resistance of the old highs? Such a reversal would end the current consolidation process and allow for additional capital to be invested.”

That was so last Tuesday…

The reversal, at least to this point, was not to be the case.

Exactly one week after last week’s sell-off, the market dumped again. This time it was the news of the complete dismemberment of President Trump’s “economic council” of CEOs along with the rumor that Gary Cohn would be exiting his position at the White House as well. While the latter turned out to be #FakeNews, the damage had already been done as market participants began to question the ability of the Administration to get its promised legislative action advanced.

Given the run-up in the markets since the election, which was based on tax cuts/reform, infrastructure spending, repatriation and repeal of the Affordable Care Act, the lack of progress on that agenda has left the markets pushing higher on “hope” and “promises.” The disbanding of the economic council has led to some disruption of that confidence.

Importantly, with the market currently on a weekly sell signal, it also compounded the bulls’ problems by breaking the bullish trend line that begins in February of last year.

This is not a “panic and sell everything” signal…yet.

It is, however, a potentially important change to the bullish backdrop of the market in the short-term particularly given the ongoing deterioration in the internal participation in the market. Note that when sell signals have been triggered from similarly high levels (vertical red dashed lines), subsequent corrections have been fairly brutal.

Previously, I questioned whether or not to “buy the dip?”

“My best guess currently is – probably. But not yet.”

I also stated the following two reasons for that sentiment:

1. Bull markets don’t typically end when the mainstream media is “peeing down both legs” over the 1.5% drop on Thursday.

2. The bullish uptrend remains intact and “fear” gauges remain confined to a downtrend.

This remains this week as well. The sell-off so far remains contained above the previous bullish breakout to new highs and remains above current price support levels. Furthermore, while volatility did pick up a bit on Thursday, it has not exceeded last week’s volatility spike, suggesting traders are less worried about a correction than media headlines makes it appear.

Capitalism’s excesses belong in the dustbin of history. What’s next is up to us

My Comments: Some of you will not bother to read this. Like when you’re in the car looking for a radio station and you hear classical music or country & western; you can’t stand either so you just move on.

But we all have a responsibility to our children and grandchildren. So, in my opinion, we need to better understand what we don’t like. Especially when their economic future is at stake.

So, do yourself a favor, especially those of you who recoil at the term ‘socialism’. There are forces at work like the tides at the beach. No amount of yelling will cause them to stop.

Martin Kirk/Aug 1, 2017

It’s time to dethrone capitalism’s single-minded directive and replace it with a more balanced logic, laying the foundations for a better, more equitable world

Back in February, a college sophomore called Trevor Hill stood up during a televised town hall meeting in New York and put a simple question to the House minority leader, Nancy Pelosi.

Citing a study by Harvard University that showed that 51% of Americans between the ages of 18 and 29 no longer support capitalism, Hill asked if the Democratic party would contemplate moving farther left and offering something distinctly different to dominant rightwing economics? Pelosi, visibly taken aback, said: “I thank you for your question,” she said, “but I’m sorry to say we’re capitalists, and that’s just the way it is.”

The footage went viral on both sides of the Atlantic. It was powerful because of the clear contrast: Trevor Hill is no hardened leftwinger. He’s just your average millennial – bright, well-informed, curious about the world and eager to imagine a better one. By contrast, Pelosi, a figurehead of establishment politics, seemed unable to even engage with the notion that capitalism itself might be the problem.

It’s not only young voters who feel this way. A YouGov poll in 2015 found that 64% of Britons believe that capitalism is unfair, that it makes inequality worse. Even in the US it’s as high as 55%, while in Germany a solid 77% are sceptical of capitalism. Meanwhile, a full three-quarters of people in major capitalist economies believe that big businesses are basically corrupt.

Why do people feel this way? Probably not because they want to travel back in time and live in the USSR. For millennials especially, the binaries of capitalism v socialism, or capitalism v communism, are hollow and old-fashioned. Far more likely is that people are realizing – either consciously or at some gut level – that there’s something fundamentally flawed about a system that has as its single goal turning natural and human resources into capital, and do so more and more each year, regardless of the costs to human well-being and to the environment.

Because that is what capitalism is all about; that’s the sum total of the plan. We can see it embodied in the imperative to increase GDP, everywhere, at an exponential rate, even though we know that GDP, on its own, does not reduce poverty or make people happier and healthier. Global GDP has grown 630% since 1980, and in that same time inequality, poverty and hunger have also risen.

The single-minded focus on the growth of the capital supply is why, for example, corporations have a fiduciary duty to grow their stock value before all other concerns. This prevents even well-meaning chief executives from voluntarily doing anything good, such as increasing wages or reducing pollution, when doing so might compromise the bottom line – As the American Airlines CEO, Doug Parker, found earlier this year when he tried to raise workers’ salaries and was immediately slapped down by Wall Street. Even in a highly profitable industry – which the airlines are, despite many warnings – it is seen as unacceptable to spread the wealth. Profits are seen as the natural property of the investor class. This is why JP Morgan criticized the pay rise as a “wealth transfer of nearly $1bn” to workers.

It certainly doesn’t have to be this way, and we don’t need to look backwards to socialism, or any other historical system, as an prebaked alternative. Instead, we need to evolve. The human capacity for innovation and fresh thinking is boundless; why would anyone want to denigrate that capacity by believing that capitalism is the final system we can come up with?

Martin Luther King spoke of a “higher synthesis”, that takes the best of historical systems, draws on this boundless capacity, and creates something new. There is no shortage of ideas. We can start by changing how we understand and measure progress. As Bobby Kennedy said, GDP “measures everything, in short, except that which makes life worthwhile”. We can change that. We can adopt regenerative agricultural solutions to help us to live in balance with the environment on which we all depend for our survival. We can introduce potentially transformative measures like a crypto-currency-based universal basic income that could fundamentally improve the money system.

Measures like these and many others could dethrone capitalism’s single-minded prime directive and replace it with a more balanced logic. If done systematically enough, they could consign one-dimensional capitalism to the dustbin of history.

We need our political and business leaders to go from clinging on to the myth that growth will solve all our problems, to joining the conversations that social movements, progressive forces, and young people like Trevor Hill are having about how we can lay the foundations for a better, safer, more equitable post-capitalist world. ■