Will You Outlive Your Money and Should You Evaluate Your Consumer Consumption?
 By: Kevin Dombrowski
Past performance is not an indication, predication or guarantee of future results.
Weekly Update
The markets had a short but very eventful week. On Tuesday, political tumult in Italy drove global investors away from risky assets, in turn sending the US markets down sharply. In fact, it was the largest single daily drop in nearly two years. By Thursday, the two anti-establishment parties struck a deal on a coalition government, somewhat calming investors globally. 

So, what exactly happened? Italy’s growing populist movement has made the markets uneasy. Remember Brexit? As a result, Italian stocks fell more than 10 percent in in the past two weeks. Additionally, Italy’s borrowing costs increased rapidly, making matters even worse for the country (ten yield bond yields are up over 3% from just 1.7% a month ago). 

However, US and Italian markets rebounded strongly on Wednesday, Thursday, and Friday quickly erasing Tuesday’s sizeable loss. Italy, at 1.912% of the global GPD, is small but interconnected. We cannot forget that less than a decade ago, Greece (roughly 1/7 the size of Italy’s economy) dragged down the global economy. This is something to keep your eye on.

Will your lifestyle outpace your investments?
Each year, pension funds must estimate how much they expect to earn on investments, a projection that determines the amount the sponsoring company must contribute for the year. Robust returns reduce the need for additional support. However, as we’ve seen with the past ten years of low performance by many pension funds, it quickly exposes a funding gap. This gap can be tackled by increasing payments into the fund, decreasing spending, or increasing investment returns. It’s a simple math equation.

Consider this same equation for individual investors. Most individuals are somewhat familiar with their investing strategy, but many have no idea if this strategy will pay for their lifestyle through retirement, among other lofty goals. With long term life expectancies increasing, most individuals have no idea what they can spend and whether their investing strategy provides an appropriate level of expected risk and return for the long run. 

In the end, just like with pension funds, you should have a strategy to save enough, invest appropriately, and spend predictably. If you do not have a plan, consider establishing one.  The earlier you begin investing , the more secure your financial life will likely be in the future, all things being equal. Consider consulting with a trusted wealth advisor or financial planner to build the appropriate plan.

The 10X Investment Consumption Rule
If you find yourself buying too much and saving too little, perhaps you should follow The 10X Investment Consumption Rule . This rule simply states that before you buy some consumer good or service you don’t need, you must make an investment return above or equal to 10X the price of the good.

Take the $1,000 iPhone X, for example. Before purchasing, you need to make $10,000 of returns on your investments. If you only have $10,000 to invest, you will need to double your investment. However, if you have $1,000,000 to invest, you only need a 1% return before doing so. 

The goal is to transform from a consumer mindset (spending) to an investor mindset (saving). As Benjamin Franklin once said, “If you would be wealthy, think of saving as well as getting”. 
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MainLine Private Wealth 308 E Lancaster Avenue Suite 300 Wynnewood PA 19096