Stocks edged higher today to finish for the 5th straight day positive. This is dispelling the history of September being a down month for stocks.
First drop in household wealth in a year as stocks and home values dip while businesses hold more cash.
Twenty somethings will need to save much more than their parents did for retirement per the article below.
Here are the top financial stories of the day:
1) Dow Gains 4.7% in Week-From the Wall Street Journal
Stocks surged this week, rising all five days amid hopes that Europe's debt crisis won't spiral out of control.
The Dow Jones Industrial Average gained 75.91 points, or 0.7%, to 11509.09, on Friday, finishing the week with a 4.7% gain. The blue-chip index remains within striking distance of turning positive for the year.
Procter & Gamble and Intel led blue chips higher, each rising more than 2%. But financials kept the gains in check amid concern about how Europe's debt crisis will affect bank stocks. Weighing on the downside were Bank of America and J.P. Morgan Chase, which were among the Dow's biggest decliners.
Euro-zone finance ministers, meeting in Poland, are trying to find common ground and ease market tensions caused by the region's escalating sovereign-debt problems.
"In the short term, markets are encouraged that we are going to once again avoid a crisis," said Michael Farr, president of portfolio-management firm Farr, Miller & Washington. "But there's no certainty of a successful outcome. The only certainty is that consequences will not be met for some time."
The Standard & Poor's 500-stock index rose 6.90 points, or 0.6%, to 1216.01. Telecommunication, utility and consumer-discretionary stocks were the biggest advancers. The technology-oriented Nasdaq Composite gained 15.24 points, or 0.6%, to 2622.31.
Friday's gains came a day after global markets soared on the coordinated efforts of five major central banks to bolster the European banking system.
2) Household wealth dipped in the spring-From the AP
Americans' wealth declined this spring for the first time in a year, as stocks and home values fell. At the same time, corporations increased the size of their cash stockpiles.
The combination could slow an already weak economy because it implies that families have less to spend and businesses are reluctant to expand.
Household net worth dropped 0.3 percent to $58.5 trillion in the April-June quarter, according to a Federal Reserve report released Friday. That followed three straight quarterly increases.
The value of Americans' stock portfolios fell 0.5 percent in the second quarter. Home values dropped 0.4 percent.
Corporations held a record $2 trillion in cash at the end of June, an increase of 4.5 percent from the January-March quarter.
The economy is already struggling with high unemployment and meager pay raises.
When people feel poorer, they spend less. That slows growth. Businesses then respond by cutting back on hiring and expansion plans. It can become a cycle.
Net worth is expected to fall even further in the July-September quarter because stocks plunged in late July and early August.
A key reason was the government said the economy barely grew in the first half of the year. Investors also reacted to lawmakers' battle over raising the government's borrowing limit and Standard & Poor's downgrade of long-term U.S. debt.
"August put a big dent in whatever confidence consumers had left," said Greg McBride, senior financial analyst at Bankrate.com. That's largely why retail sales were flat last month, he added.
Overall, household wealth, which mostly consists of home equity, stock portfolios, and other savings, has risen 15 percent since the recession officially ended in June 2009.
The increase is due almost entirely to one of the fastest bull markets in history. Stocks began to recover in the spring of 2009 and doubled in value by April of this year, according to the S&P 500 index.
But Americans' wealth has taken a hit since the second quarter, which was the period covered by the Fed report. The S&P index has tumbled 11 percent since its April 27 peak, and 8 percent since the end of the quarter. That likely means an even larger drop in household net worth in the July-September quarter.
Stock portfolios make up about 15 percent of Americans' wealth. That's less than housing but ahead of bank deposits, according to the Fed's report.
An estimated 88 percent of people with 401(k) retirement savings plans now have more money in their accounts than they did at the 2007 market top, according to Jack VanDerhei of the Employee Benefit
Research Institute in Washington. That's largely because of workers' continued contributions to their accounts over the past four years.
Eighty percent of stocks belong to the richest 10 percent of Americans, who also account for a disproportionate amount of consumer spending. The richest 20 percent represent about 40 percent of consumer spending.
The likely drop in wealth comes at the same time that incomes are stagnating, particularly for middle-income households. Average household income, adjust for inflation, fell 6.4 percent last year from 2007, the year before the recession, the Census Bureau said earlier this week.
Americans also have less equity in their homes. The average homeowner has just 38.6 percent equity, down from 61 percent a decade ago.
Normally, home equity rises as you pay off a mortgage. But home values have fallen dramatically since the housing bubble burst in 2006. Many homeowners are losing equity even though the balance on their loan is getting smaller.
Home equity plays a large part in how much money people feel like they have. If they are swamped by hefty mortgage payments, they're less likely to spend freely. Home equity also serves as collateral for loans.
The report found household debt declined at an annual rate of 0.6 percent from the previous quarter, helped by a big decline in mortgage debt, which has fallen for nine straight quarters.
But the decline is deceiving. Mortgage debt is coming down because so many Americans are defaulting on payments and losing their homes to foreclosure, not just because people are paying off loans.
Home prices are expected to keep falling until the number of foreclosures is reduced, companies start hiring in greater force, banks ease lending rules and more people believe it makes financial sense to buy a house.
Economists say that's unlikely to happen for at least another year.
The Fed's quarterly report documents wealth, debt and savings for corporations, governments and households. It covers most of the financial transactions that take place in the United States.
3) Gen Y's $2 Million Retirement Price Tag-From US News and World Report
Retirement won't be impossible for Generations X and Y, but they will need to save considerably more than the baby boomers to make up for less employer and government help. Fewer young people have access to generous retirement benefits, including traditional pensions and retiree health insurance. And anyone born in 1960 or later must wait an extra year, until age 67, to claim the full amount of Social Security they are entitled to. Those who claim at the same age their parents did will get less. Here are some ways 20- and 30-somethings can get on track to retire comfortably.
Set a worthy goal. In a 2010 survey of 226 registered investment advisors commissioned by Scottrade Advisor Services, more than three-quarters (77 percent) suggested a retirement savings goal of at least $2 million for members of Generation Y, defined by the study to include those ages 18 to 26. Sixty-eight percent of the investment advisers said members of Generation X should also aim to save more than $2 million. "For a generation Y person who thinks she wants to retire at around age 70 who is going to have slightly above-average annual expenses, $2 million is probably the right number," says Michael Farr, president of the Washington, D.C., investment firm Farr, Miller, & Washington and author of A Million Is Not Enough: How to Retire With the Money You'll Need. But he cautions, "Most people who have high incomes and the ability to set aside $2 million will likely have more expensive lifestyles."
However, other studies have found that young people may be able to get by on less in retirement. Human resources consulting firm Aon Hewitt calculated that Generation Y workers, who it defines as people ages 18 to 30, will need 18.7 times their final pay for retirement, including Social Security, traditional pension plans, and personal savings, to maintain their current standard of living after retirement at age 65. For someone whose final salary is $75,000, that's just over $1.4 million, and Social Security will provide part of that. For Generation Xers ages 31 to 45, Aon Hewitt estimates they will need 16.1 times their final salary to pay for retirement. "A higher earner will probably continue to spend more in retirement," says Janet Tyler Johnson, a certified financial planner and president of JATAJ Wealth Management in Fitchburg, Wis. "It's really dependent on how much you need in retirement."
Take advantage of employer help. Getting to $2 million will take some effort, even if you start saving early. A 25-year-old will need to save about $7,405 annually, or $142 per week, to get there over 40 years, assuming an 8 percent annual return. Retirement account contributions from your employer will make it much easier to hit your retirement savings goal. If your employer matches your 401(k) contributions with $2,000 per year, you'll only need to save $104 per week to have $2 million by age 65, again assuming an 8 percent annual return.
Control costs. Minimizing investment fees and expenses will help you to grow your nest egg faster. That's because high expense ratios on mutual funds can have serious drag on your long-term returns. Getting a 7 percent annual return instead of 8 percent over a 40-year career (because you are paying 1 percent in yearly fees) means you will need to save $2,255 more per year to still hit $2 million by age 65. Index funds generally charge much less in annual fees than actively managed mutual funds. "If I didn't manage my own money, I would buy a S&P 500 index fund because it is low cost," says Farr.
Get a Roth IRA or 401(k). Roth 401(k)s and IRAs allow young people, who are likely to be in a low tax bracket, to pre-pay taxes on their retirement savings. "Young folks are in a lower tax bracket now than they will be in the future, including when they begin to tap into their retirement savings," says Joe Alfonso, a certified financial planner for Aegis Financial Advisory in Lake Oswego, Ore. "You're giving up the current tax deduction, but you are basically getting tax-free retirement income that would otherwise be taxable in the future." Once your contribution is made with after-tax dollars, that money can continue to grow for the rest of your life without the drag of taxes. If you wait until age 59½ to withdraw the money, you won't have to pay taxes on any of the growth.
Maximize Social Security. Social Security provides a base level of income that your retirement savings should build upon. Take steps to maximize the amount you get by making sure you have at least 35 years of earnings under your belt before you sign up for payments, so that zeros won't be factored into your calculation. And carefully consider the age at which you begin to claim benefits. Payouts increase for each year of delayed claiming between ages 62 and 70.
Don't plan on retiring at 65. A male born in 1946 can expect to live 18 years after retirement at age 66, according to Social Security Administration projections. Men born in 1980 should plan for at least a 19.3 year retirement, after the higher retirement age of 67. For women, the average projected length of retirement jumps from 20 years for those born in 1946 to 21.2 years for those born in 1980. And these are just the averages. "Generation Y's life expectancy is going to be a lot longer," says Farr. "They have to fund more years of retirement than the old financial planning models built in."
Of course, you don't have to retire at age 65, or at what the Social Security Administration defines as the full retirement age, which is 66 for most baby boomers and 67 for younger people. Working a few extra years gives you more time to save, allows your investments a longer time to compound, and reduces the number of retirement years your savings must finance. If you're 25 now and willing to work until age 70, you could reach $2 million by saving just $95 per week, assuming an 8 percent annual return and not even counting the 401(k) match.
Don't get hung up on the number. How much you need to save for retirement largely depends on your expenses. If you're willing to pay off your mortgage before retirement, move to a smaller house or low-cost area of the country, and live a modest lifestyle, you may find a way to get by on less. Conversely, those who want a lavish retirement will need to save more. "If you've got a goal based upon assumptions about inflation and rates of return, it's actually counterproductive, because those numbers can be pretty big, especially for young folks," says Alfonso. "It's more important to focus on the things that you can control, such as the percent of your gross income that you save and to really focus on your career and moving up the salary chain."
Quote of the Day from Dave Ramsey.com:
Be miserable. Or motivate yourself. Whatever has to be done, it's always your choice. — Wayne Dyer
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