2016 Seminar Quiz – The Answers
View the video of the seminar by clicking here.
1) a. The Federal Reserve has not yet announced a rate increase in 2016, although their regularly scheduled meetings include two more this year – Nov. 1 and 2 and Dec. 13 and 14.
2) Corporate earnings and interest rates are what move stock prices over time. Led by the effects of low oil prices, year-to-year earnings have been negative for five consecutive quarters, but analyst forecasts for 2017 call for increases ranging between 11% and 14%.
3) b. Because of historically low interest rates, current stock valuations are not as pricey as they appear otherwise. Expectations for continued low rates support higher stock multiples. (For more information, please view Earnings, interest rates and valuations, a Money Talk Video from Brian Kilb.)
4) c. As Bob put it, he’s “more interested in where the goal line is.” Already, the Fed has lowered expectations for its eventual target for the overnight rate to 2.5% from around 4%. The current rate, set in December 2015, is between 0.25% and 0.5%.
5) d. Economists see bar and restaurant sales as a harbinger for consumer spending on more durable goods. Consumer spending makes up more than two-thirds of the U.S. gross domestic product.
6) a. Although companies have been flush with cash, they generally have preferred paying shareholders dividend and buying back stock instead of plowing money back into their business growth.
7) d. Bob noted that the only way to increase aggregate net worth is through higher productivity, which measures output per hour worked. He also pointed out that the rate of Americans working or looking for work has been stuck below 63% after peaking above 67% nearly 20 years ago.
8) c. Despite Fed efforts to normalize the level of inflation, the core Personal Consumption Expenditures index has shown the annual inflation rate staying below 2% since 2008.
9) a. Historical models assumed an interest rate of 5%, resulting in higher returns from bonds. The 10-year Treasury has had an average monthly yield of 5% or more just twice in the last 10 years.
10) b. As Bob explained, assuming an 8% annual return on stocks and 3% on bonds would result in a 6% total return each year on a portfolio of 60% stocks and 40% bonds. That 6% total return would allow for a 4% annual withdrawal and a 2% reinvestment for inflation. (For more information, please view Safe investment withdrawals for retirees, a Money Talk Video from Art Rothschild.)
Photo by Reuben Neese (initially posted September 29, 2016)