Come See Us December 6th During Customer Appreciation Day

Our customers are the best!
OUR CUSTOMERS ARE THE BEST!
There are plenty of places where you could do your banking. We’d like to say “Thanks” for choosing Peoples Bank. And this year (our 101st!), we’re taking Friday, December 6th to show you how much we appreciate you!

We’ll have refreshments all day, in every office. Please come by and let us thank you in person!

The Impact of Inflation – Installment 4

The Impact of Inflation - Installment 4 article

Inflation 101 – What to know, what to do

Inflation is perhaps the single-biggest influence on your economic situation. It is not properly understood by many, nor do many people make good decisions in light of it.

Peoples Bank is making the effort to address what may be an important gap in the financial efforts of its customers and others with 4 blog posts. We hope this information is more than instructive, we hope that it is meaningful, helpful. Feel free to write us with your comments, and don’t hesitate to share the link with others.

The first installment defined the term and describe it in real-world terms while the second one described what you can do about it (personally) and what tools are available to deal with bonds. The final post in the series is about how your retirement can be improved by dealing with it.


Inflation Doesn’t Retire When You Do

The need to outpace inflation doesn’t end at retirement; in fact, it becomes even more important. If you’re living on a fixed income, you need to make sure your investing strategy takes inflation into account. Otherwise, you may have less buying power in the later years of your retirement because your income doesn’t stretch as far.

Your savings may need to last longer than you think

Gains in life expectancy have been dramatic. According to the National Center for Health Statistics, people today can expect to live more than 30 years longer than they did a century ago. Individuals who reached age 65 in 1950 could expect to live an average of 14 years more, to age 79; now a 65-year-old might expect to live for roughly an additional 19 years. Assuming inflation continues to increase over that time, the income you’ll need will continue to grow each year. That means you’ll need to think carefully about how to structure your portfolio to provide an appropriate withdrawal rate, especially in the early years of retirement.

Adjusting withdrawals for inflation

Inflation - added cost chartInflation is the reason that the rate at which you take money out of your portfolio is so important. A simple example illustrates the problem. If a $1 million portfolio is invested in an account that yields 5%, it provides $50,000 of annual income. But if annual inflation runs at a 3% rate, then more income – $51,500 – would be needed the next year to preserve purchasing power. Since the account provides only $50,000 of income, $1,500 must also be withdrawn from the principal to meet retirement expenses. That principal reduction, in turn, reduces the portfolio’s ability to produce income the following year. In a straight linear model, the principal reductions accelerate, ultimately resulting in a zero portfolio balance after 25 to 27 years, depending on the timing of the withdrawals.

A seminal study on withdrawal rates for tax-deferred retirement accounts (William P. Bengen, “Determining Withdrawal Rates Using Historical Data,” Journal of Financial Planning, October 1994), using balanced portfolios of large-cap equities and bonds, found that a withdrawal rate of a bit over 4% would provide inflation-adjusted income (over historical scenarios) for at least 30 years. More recently, Bengen showed that it is possible to set a higher initial withdrawal rate (closer to 5%) during early active retirement years if withdrawals in later retirement years grow more slowly than inflation.

Invest some money for growth

Some retirees put all their investments into bonds when they retire, only to find that doing so doesn’t account for the impact of inflation. If you’re fairly certain that your planned withdrawal rate will leave you with a comfortable financial cushion and it’s unlikely you’ll spend down your entire nest egg in retirement, congratulations! However, if you want to try to help your income – no matter how large or small – at least keep up with inflation, consider including a growth component in your portfolio.

Installment 3: Inflation and Bonds: The Ups and Downs.
Check out the whole series

Contact our Peoples Investment Services, Inc. representative at 828-464-5620 or  www.raymondjames.com/PeoplesInvSvcs. 

This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The material is general in nature. Past performance may not be indicative of future results. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other government agency, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2013

If you’re looking for a privately-funded, well-rated charity, look no further

If you’re looking for a privately-funded, well-rated charity, look no furtherMost of you who read this blog are in position to help others in need, and to your credit, you want to do so. The really important question is not why, or how much, but who? This second blog about charitable giving, takes up this issue.

You’ve probably heard the stories about, or perhaps even experienced, charities who turned out to be weakly ineffective, or worse, fraudulent. The internet contains hundreds of such tragic stories.

Charity Navigator makes extensive effort to document charitable organizations that are worthy of the name, and ranks them by years of service, salary of the CEO, and more. Their website, CharityNavigator.org presents a comprehensive list of Top 10 and we recommend as a place to start if you’re looking to support a cause that gives positive signs of effectiveness and transparency. The lists include those charities that are expanding in a hurry, are consistent under-performers, and those that are in deep financial trouble.

One list that caught our eye this year was 10 Highly Rated Charities Relying on Private Contributions. You may no longer be surprised to learn that many of the more popular charities rely on membership fees and government contracts and subsidies. This list presents those charities that draw revenue solely from direct and indirect public support. Thus, greater than 95% of their total revenue comes from private contributions, which as the web site states, “makes the efficiency of their fundraising operations all the more impressive.” We notice that the Cure Alzheimer’s Fund makes this impressive list.

Our communities are founded on group support of individual needs. We urge you to carefully evaluate a charity to support what you find important.

Read the first charitable giving blog Six Questions To Ask Charities Before Donating.

The Impact of Inflation – Installment 3

The Impact of Inflation - Installment 3 article

Inflation 101 – What to know, what to do

Inflation is perhaps the single-biggest influence on your economic situation. It is not properly understood by many, nor do many people make good decisions in light of it.

Peoples Bank is making the effort to address what may be an important gap in the financial efforts of its customers and others with 4 blog posts. We hope this information is more than instructive, we hope that it is meaningful, helpful. Feel free to write us with your comments, and don’t hesitate to share the link with others.

The first installment defined the term and describe it in real-world terms while the second one described what you can do about it (personally) and what tools are available to deal with it. This post will review how inflation effects bonds and the next is how your retirement can be improved by dealing with it.


Inflation and Bonds: The Ups and Downs

The price/rate seesaw

Inflation has an impact on most securities, but it can particularly affect the value of your bonds. Why? Because bond yields are closely tied to interest rates, and when interest rates and bond yields rise, bond prices fall.

When the Federal Reserve Board gets concerned that the rate of inflation is rising, it may decide to raise its target interest rate. That makes borrowing money more expensive, which in turn tends to slow the economy. When the Fed raises its rate, bond yields typically rise as well. That’s because bond issuers must pay a competitive interest rate to get people to buy their bonds.

When yields rise, bond prices fall. That’s why bond prices can drop even though the economy may be growing. An overheated economy can lead to inflation, and investors often begin to worry that the Fed will raise interest rates, which would hurt bond prices.

Falling rates: good news, bad news

Just the opposite occurs when interest rates are falling; bonds issued today will typically pay a lower interest rate than similar bonds that were issued when rates were higher.

Older bonds with better yields become more valuable to investors, who will pay a higher price to get that greater income stream. As a result, prices for those higher-yield bonds tend to rise.

Example: Jane buys a newly issued 10-year corporate bond that has a 4% coupon rate – its annual payments equal 4% of the bond’s principal. Three years later, she wants to sell the bond. However, interest rates have risen; corporate bonds being issued now are paying interest rates of 6%. As a result, investors won’t pay as much for Jane’s bond, since they could buy a new one that pays more interest. If rates fall later, Jane’s bond would rise in value.

When interest rates drop, bond prices tend to go up. However, a slowing economy increases the chance that some borrowers may default on their bonds. Also, when interest rates fall, some borrowers may redeem existing bonds and issue new ones at a lower interest rate, just as you might refinance a mortgage. If you plan to reinvest any of your bond interest, it may be a challenge to generate the same income without adjusting your investment strategy.

All bond investments are not alike

Inflation and interest rate changes don’t affect all bonds equally. Under normal conditions, short-term interest rates may reflect the effects of any Fed action most immediately, but longer-term bonds likely will see the greatest price changes.

Also, a portfolio of bonds may be affected somewhat differently than an individual bond. For example, a portfolio manager may be able to minimize the impact of rate changes, altering the portfolio’s duration by adjusting the mix of long-term and short-term bonds.

Focus on goals, not just rates

Your bond investments need to be tailored to your financial goals, and take into account your other investments. Your financial professional can help you design a portfolio that can accommodate changing economic circumstances.

The inflation/interest rate cycle at a glance

  • Inflation goes up
  • Bondholders worry that the interest they’re paid won’t buy as much in the future because inflation is driving costs higher.
  • The Fed may decide to raise interest rates to try to control inflation. To get investors to lend money (buy bonds), bond issuers must pay higher interest rates.
  • When interest rates go up, bond prices go down.
  • Higher interest rates make borrowing money more expensive. Economic growth tends to slow, which means less spending.
  • With less demand for goods and services, inflation levels off or falls.
  • With lower inflation, bond investors are less worried about the future purchasing power of the interest they receive.
    Therefore, they may accept lower interest rates on bonds, and prices of older bonds with higher interest rates tend to rise.
  • Interest rates in general fall, fueling economic growth and potentially a new round of inflation.

Installment 2: How can you fight the Effects of Inflation?
Installment 4: Inflation Doesn’t Retire When You Do.

Contact our Peoples Investment Services, Inc. representative at 828-464-5620 or  www.raymondjames.com/PeoplesInvSvcs. 

This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Raymond James Financial Services, Inc. does not guarantee that the foregoing material is accurate or complete. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The material is general in nature. Past performance may not be indicative of future results. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other government agency, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2013