The Dow Jones Industrial Average could hit 100,000 by 2030, according to financial author and adviser Ric Edelman. Edelman, who believes incredible profits are in the making for those who prepare for new economic realities. If it doesn’t hit 100,00, he said, it will probably hit 150,000.
The blue-chip index currently trades at around 21,000, meaning a surge to 100,000 would mark a roughly 376% increase.
In his book, “The Truth About Your Future: The Money Guide You Need Now, Later and Much Later,” Edelman tries to educate investors on saving for retirement in the age of technology with life expectancies of 110 and 120. People will need to work much longer than they do today because they will live much longer.
Fortunately, technology has reduced the cost of investing, thanks to exchange-traded funds.
Retirement Will No Longer Exist
“We’re not going to have a future the way our parents and grandparents had theirs,” Edelman told interviewer Scott Gamm in “The Street,” a Yahoo interview show.
Retirement now, as a 20th Century innovation is gone. It won’t exist in the 21st Century.
“You need to save in companies that are going to survive and thrive in the 21st Century,” he said.
Gamm asked Edelman how a person who has failed to start saving early can make up for getting a slow start. “It’s never been easier thanks to the Internet, and exchange traded funds and products of that type,” Edelman said. “Investing has gotten cheaper, it’s gotten easier, it’s gotten faster, it’s gotten safer.”
“Exponential technology also brings with it exponential growth… compound interest,” Edelman said.
And when you take advantage of saving not for 20 or 30 years but for 50, 60 years, you’d be amazed how much wealth you can create.
The Growth Of The Gig Economy
Gamm pointed out a person can also create wealth by having a “side hustle” as opposed to a 9-to-5 job. Edelman agreed. “Thanks to the gig economy, the shared economy, you have the ability to make money on a part time basis with very low risk, very low barrier to entry,” he said. “Anybody can do this, and an awful lot of Americans are.”
He said 16% of American workers are strictly working as contractors who work only when they feel like it.
Will The Trump Rally Continue?
Noting that some people might be afraid to invest in the markets, Gramm asked Edelman what he thinks of the Trump stock rally. “We’re going to see a continuation of this for the next several decades,” Edelman said.
Over the last 50- or 60-year period, the DJIA has increased. “There’s no reason to think that won’t continue, in fact, financial technology makes that easier,” Edelman said. “We’re going to see incredible profits in the United States as well as globally.”
In his first market update to his clients last month, Edelman noted that the DJIA was up 11 percent since the election, and the S&P 500 index was up 9 percent. If this pace continues, he said stock prices will gain 24 percent this year alone.
He acknowledged there is concern that the “Trump Rally” will fizzle, and that it’s simply the “honeymoon period” new presidents typically experience. Trump’s failure to repeal the Obamacare also fuels this concern since Trump promised he would repeal Obamacare.
Should Trump also fail to reform the tax code and rein in the budget, will stock prices fall?
Why Trump Doesn’t Own The Rally
Edelman claims it’s incorrect to believe that the rise in stock prices is only due to Trump. While the election has excited investors since he’s seen as a business-friendly president, that’s not the only reason stock prices are up. Edelman points to the following economic factors fueling rising stock prices:
• U.S. corporate earnings increased 8% in the fourth quarter. Profits from overseas operations, meanwhile, rose 14.5% compared to the same period the prior year. This marks the biggest advance since mid-2010, according to the U.S. Commerce Department.
• Individuals, not just companies, are now making more money. Personal income is up 4.6% compared to the prior year. Salaries and wages are up 5.5%, according to the Bureau of Economic Analysis.
• The overall economy is growing. According to the Bureau of Economic Analysis, gross domestic product increased 2.1% in the fourth quarter.
• Consumer confidence rose in March to its highest level in 16 years, according to The Conference Board.
When people are confident they will continue to make more money, they are willing to spend more, Edelman noted.
Hence, sales of newly-built homes increased 6% in February, marking a 20% gain over February 2016 and the largest increase in five years.
The president cannot claim responsibility for much of the improvement, Edelman noted. But his positive attitude and his statements that please Wall Street contribute to the country’ economic improvement.
Trump wants to:
• reduce corporate and individual tax rates
• reduce regulation
• increase jobs
• bolster U.S. competitiveness in foreign markets
• repatriate billions U.S. corporations have overseas
• spend $1 trillion on infrastructure
Such positions please investors since they support an environment for improved corporate profits which translates into higher stock prices.
What If Stocks Fall?
The question remains: if Trump fails to pass his policies, will stock prices fall?
This is possible, Edelman noted. Hence, he gives the following advice:
He reminds his clients that portfolio diversification is important since it helps manage risks if stock prices fall. His company’s managed asset program is not totally invested in U.S. stocks.
Strategic rebalancing is also important. Most Edelman managed asset portfolios have been rebalanced this year. The company has been a seller, not a buyer, of over-performing funds. This is a way to maintain proper asset allocation.
Third, Edelman reminds clients of a core market truth. A stock price decline is not synonymous with a loss. Investors should consider what happens after a decline. History indicates stock prices move only in two directions: up and down. If prices drop, sit back and wait. Because markets move in cycles, prices eventually rise. It is always important to remember, however, that past performance does not guarantee future results.
Fourth, keep in mind every new president suffers slips in his early days, and Trump is no exception.
President Clinton failed to pass a health care overhaul in his first term. George H.W. Bush sent commodities prices into a spiral by saying he hates broccoli. The stock market survived such “crises.”
Fifth, keep in mind the stock market has increased dramatically in the last six months. Even if the Dow fell 10 percent, it would still be ahead of where it was on Election Day.
Consider All Aspects Of Financial Security
Lastly, consider that a person’s financial security will not be determined primarily by any president or Congress. A person determines their own future.
Every individual must focus on the aspects of their personal finances that they can control. This includes making sure wills and trusts are up to date, that too much in interest isn’t being paid on the mortgage, that one has the right kind and amount of insurance, the right amount of cash reserves on hand, and proper contributions are being made to retirement plans.
Edelman is chairman and CEO of Edelman Financial Services LLC. He has a radio show, six books, a column, conferences and nearly half a dozen appearances on Oprah. His books include “The Truth About Money; Ordinary People, Extraordinary Wealth” and “The Lies About Money.”
Gold Still Beats Bitcoin, According to Goldman Sachs… But What About Price Independence?
Goldman Sachs has expressed interest in starting a bitcoin trading operation, but it’s not drinking the Kool Aid just yet. In a note to clients, the Wall Street investment giant said gold beats bitcoin in almost every way.
Gold Wins, Says New York Bank
“Gold wins out over cryptocurrencies in a majority of the key characteristics of money,” Goldman said this week in a note to clients, as reported by CCN and others.
The company also described bullion as being the “best long-term store of value,” as demonstrated by its long history as a unit of value.
“The use of precious metals is not a historical accident – they are still the best long-term store of value out of the known elements,” it added.
Although bitcoin clearly isn’t gold, the two asset classes share similarities. They are both finite , and can be converted into fiat currencies rather easily. They are also portable and offer anonymity. Some analysts have also compared bitcoin’s store-of-value capability relative to gold’s.
One of bitcoin’s primary advantages over gold is correlation – or lack thereof. This is actually an astonishing feature of the digital asset, and one of the strongest arguments in its favor.
Whereas most asset classes are correlated, bitcoin’s price movements are completely independent. This essentially means it isn’t impacted by other markets. Stocks, commodities, currencies and commodities have nothing to do with how bitcoin is priced. Bitcoin’s price independence was discussed at length in Ark Invest’s whitepaper Ringing the Bell for a New Asset Class.
According to authors Chris Burniske and Adam White, “Given its unique politico-economic characteristics, bitcoin’s price should behave differently relative to other assets as it is pushed and pulled by distinct market forces.”
This suggests that investors who swap a small percentage of their holdings into bitcoin can lower their exposure to pricey correlations over time.
Of course, price independence doesn’t mean there’s no volatility. Bitcoin, like other cryptocurrencies, is highly volatile. This has actually worked in favor of the bulls over the past ten months, as they’ve purchased the dips every single time.
This also aligns with the findings of the ARK researchers, who studied bitcoin’s risk-reward profile using the Sharpe Ratio. This ratio measures returns based on per-unit risks. Using this as a methodology, the BTC token has exhibited a superior returns in three of the five years examined.
Featured image courtesy of Shutterstock.
Jamie Dimon May Hate Bitcoin, but J.P. Morgan Is Embracing Blockchain
J.P. Morgan Chase CEO has made it abundantly clear that he hates bitcoin, but that hasn’t stopped his firm from adopting the technology that underpins the digital currency system.
J.P. Morgan Launches Pilot Program
On Monday, America’s biggest bank rolls out the next phase of its blockchain pilot program. The effort will facilitate a faster, more secure transfer of cross border payments between J.P. Morgan and other banks, including Royal Bank of Canada and Australia and New Zealand Banking Group.
Although the new program will not trade cryptocurrency, it will use the landmark record-keeping technology that underpins it. The Wall Street Journal reports that J.P. Morgan will use the same blockchain technology behind digital currency Ethereum.
Despite widespread concern over cryptocurrency, financiers are enamored with blockchain. They, like many others, say the technology can significantly increase the speed of cross-border payments. The system currently in place is extremely complex, and requires multiple streams of communication between various participants. The blockchain has the potential to cut down transaction time from as much as 15 days to mere hours.
The pilot program aims to achieve a secure distributed ledger across financial institutions, enabling banks to work together to process transactions. Connecting transaction data through a shared network will greatly reduce the number of steps it takes to verify and process transactions.
J.P.’s embrace of blockchain doesn’t mean he’s going to warm up to cryptocurrency. His latest criticism of bitcoin came on Friday when he said it had “no actual value” and that “governments are going to crush it.” He did, however, give a glowing review of blockchain.
“We actually use it. It will be useful for a lot of different things,” Dimon said at a conference in Washington, as quoted by The Wall Street Journal. “God bless the blockchain.”
Featured image courtesy of Shutterstock
Cryptocurrency Adoption Will Lead to Free Money Transfers, According to Top Tech Investor
The rapid adoption of cryptocurrency will soon pave the way for free global money transfers, according to a top technology investor.
Cathie Wood, the CEO of Ark Invest, says cryptocurrencies like bitcoin are going to spearhead a system of free money transfers worldwide. She cites the already huge reduction in conversion fees from fiat currencies into crypto and back again. The current rate for those transactions is 2-3%, which is a fraction of the 7-8% money transfer services like Western Union charge.
But Wood says crypto transfer fees could soon fall to zero as companies prioritize valuable transaction information above anything else.
The cryptocurrency market approached record highs over the weekend, hitting a total value of $176.6 billion. Bitcoin’s market cap surged above $90 billion last week and reached a high of $96.7 billion recently. That surpassed the capitalization of major equities like Goldman Sachs and Morgan Stanley.
If bitcoin were a stock, it would be the 15th largest member of the Nasdaq and the 58th largest on the New York Stock Exchange.
Computing Power as a Commodity
In Wood’s view, that the growing value of cryptocurrency will lead to the commoditization of bandwidth and computing power.
“It’s interesting that you’ve got corn and oil and copper trading on the exchange but you don’t have computing power, and bandwidth, and storage,” Wood said, according to CNBC. “Well we think that’s going to happen because of blockchain technology and all of the cryptos that are coming along.”
Woods has placed special emphasis on Ethereum, a unique platform that operates more like a “cryptocommodity” than anything else.
Ark Invest is the author of the widely cited whitepaper, Bitcoin: A Disruptive Currency. In it, the firm argues that cryptocurrency has the potential to be the most disruptive development since the Internet. The investment manager controls $1.7 billion of asset funds focused exclusively on emerging technologies.
Featured image courtesy of Shutterstock
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