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June 2023

Donna Cournoyer
In Reading Recommendations

The Science and Art of Longevity

Peter Attia is a physician who focuses on longevity. In his recent book, Outlive: The Science and Art of Longevity, he explains that longevity has two components: how long you live, which is your chronological lifespan, and how well you live (the quality of your years), which is called healthspan.

His goal is to create an operating manual for the practice of longevity. His belief is that, with time and effort, individuals potentially can extend their lifespan by a decade and their healthspan possibly by two decades.

Specifically, Attia’s research focuses on actions that individuals can take to mitigate risk associated with four chronic diseases of ageing: heart disease, cancer, neurodegenerative disease, and type 2 diabetes.

Attia was recently profiled in a New York Times Magazine article: Want to Live Longer and Healthier? Peter Attia Has a Plan. He also hosts a podcast entitled The Drive, which addresses personal health and longevity topics.

As a complement to this reading, I recently came across the map below in The Daily Shot, an economics newsletter.

I was surprised to see such a wide dispersion of life expectancies across regions of the US.

In its most recent report on life expectancy in the US, the Centers for Disease Control and Prevention (CDC) pegged life expectancy for a newborn at 76 years.

The CDC report, released in August 2022, states that US life expectancy experienced a 2.7-year decline during the 2020 – 2021 period due to the pandemic.

JP Morgan has also published additional longevity-related data that you might find interesting:

  • 65-year-old females today have an average life expectancy of 84.5 years
  • Non-smoking females in excellent health have a 1-in-3 chance of living to age 95
  • 65-year-old males today have an average life expectance of 81.9 years
  • Non-smoking males in excellent health have a 1-in-5 chance of living to age 95

Longevity is a key input to the process that we use when we build financial plans for clients, and understanding longevity trends in the US is a good starting point.

In the end, though, individual factors such as family history and lifestyle choices are likely to be more informative when responding the question: “how long do you expect to live?”

If you are interested in extending your lifespan and healthspan, it’s encouraging to know that there are concrete steps, such as the ones Attia suggests, which you can take that are likely to ‘bend the curve’ in your favor and advance the goal of a long, healthy life.

-RK

Donna Cournoyer
In Financial Planning

Have a Social Security COLA and a Smile

Social Security recipients could get a 3.1% increase next year in their benefit, compared to the 8.7% Cost of Living Adjustment received in 2023.

The Social Security Administration will announce the actual cost of living adjustment for 2024 in October.

To arrive at the figure, SSA will compare the average consumer-price index from the third quarter of 2023 with the average data from the same period last year.

The Senior Citizens League, a nonprofit organization, estimated the underlying data that goes into the calculation to arrive at 3.1% and will update its projection monthly until the actual adjustment is announced in the fall.

In its May press release, the Senior Citizens League posted some interesting statistics on inflation, specifically regarding the fastest growing costs for older Americans.

The note highlights that between January 2000 and February 2023, Social Security COLAs increased benefits by 78%, averaging 3.4% annually, while the cost of goods and services purchased by typical retirees rose by 141%, averaging about 6.2% annually over the same period.

For many retirees, Social Security income is significant, but only part of their total income picture.

However, this information highlights the pernicious effect of inflation, the need to keep an eye on recurring expenses, and the importance of a long-term financial plan that takes into account the effects of rising costs over time.

RK

Donna Cournoyer
In Economy

Debt Ceiling Relief and Debrief

Congressional leaders came to an agreement in late May to suspend the debt ceiling until January 1, 2025 – removing the near-term risk of a US default and sparing the American people political wrangling on the issue for the next 18 months or so.

According to projections made by the Congressional Budget Office, the Fiscal Responsibility Act of 2023 reduces budget deficits by $1.5 trillion over the next 10 years, mainly by imposing caps on discretionary spending.

In terms of the Federal budget, roughly 1/3 is discretionary and funded though the annual appropriations process, where Congress must pass bills to provide money to carry out the programs.

The other two-thirds of the Federal budget comprises mandatory spending, such as Social Security, Medicare, and interest on the federal debt. Mandatory spending is ongoing and occurs each year absent a change in an underlying law that provides funding.

The debt ceiling deal does little to put our federal finances on a path of long-term sustainability, since the budget is far from balanced. But it does ensure our federal obligations will be met.

And thankfully a government-induced, calamitous outcome for the financial markets has been avoided.

RK

Donna Cournoyer
In Investment Strategy

Should Investors Fear Recession?

Global Pandemic, Supply-Chain Breakdown, War in Europe, Inflation Flare Up, Crypto Crash, Bank Collapses, and US Debt Ceiling Debacle. A lot has been thrown at the financial markets, and at investors, during the past three years.

Stock and bond markets buckled in 2022, but eventually stabilized. So far this year, the tone and direction of the financial markets has generally been constructive. And investors have remained resilient.

As we look toward the back half of 2023, a main concern is: will the economy fall into a recession?

Some prognosticators are convinced that recession is the next shoe to drop, and that an economic downturn will lay the financial markets low once again.

David Rosenberg, a prominent Wall Street economist who currently runs his own research shop, is one of the economic bears.

In Rosenberg’s assessment, the odds of a deep recession starting in 2023 are 99%, and the stock market is likely to decline by 30%.

Morgan Stanley’s chief US equity strategist, Mike Wilson, is another naysayer.

In Wilson’s view, lots of economic uncertainty and over-optimism regarding corporate profit growth (meaning companies’ results are likely to disappoint in the quarters ahead) are cause for pessimism. He sees stock price declines ahead.

Billionaire hedge fund founder Cliff Asness, of AQR Capital Management, sees the possibility of a recession that “wouldn’t be mild” and concludes that stocks “are a scary place” to be.

These are smart and successful people (at least by Wall Street standards), so should we heed their warnings and steer clear of stocks? Or at least own fewer of them, if we believe a recession is nigh?

Implied in that question is the assumption that stock prices fall when a recession hits. So, is this true?

The answer is: sometimes, but not always. More accurately, the answer is: recessions have coincided with stock price declines half the time.

Researchers at Renaissance Investment Management have dug deep into the data and have concluded: timing your stock market exposure around a recession is harder than you might think.

The table below, from Renaissance, shows the twelve recessions that occurred in the post-World War II era along with US stock market performance during the recessions.

Interestingly, the stock market rose in six of the twelve observances of economic contraction.

So even with perfect economic foresight at the start and end of a recession, selling stocks at the beginning of a recession and buying them back at the end would have resulted in being better off (by preserving capital) only half the time.

In the other half, the investor with prescience regarding economic events would have foregone stock market gains.

The historical record is worth knowing, especially if you’re prone to worrying about your portfolio when the economy slows down. One interpretation is that market timing can work – if you’re lucky.

But a better approach for long-term investment success (and one that doesn’t require luck to yield satisfactory results) is determining an appropriate asset allocation plan for your individual circumstances – and sticking to it.

Donna Cournoyer
In Investment Strategy

AI, AI, Oh! – Enthusiasm for Artificial Intelligence Abounds

The stock market gains so far in 2023 have been pleasing, with the S&P 500 index of large-company US stocks gaining 9.7% through the end of May and advancing further during the early days of June.

Investor enthusiasm about the potential benefits to companies from Artificial Intelligence (AI) has been the main driver recently of the S&P 500’s gain.

According to research from Goldman Sachs, the seven largest technology-company constituents in the index – Apple, Microsoft, Alphabet (owner of Google), Amazon, Nvidia, Tesla, and Meta (owner of Facebook) currently make up about 27% of the S&P 500 index. These ‘tech seven’ have surged 53%, compared with a net zero gain for the remaining 493 stocks.

While this very sizable outperformance of just a few stocks may be unusual, a wide divergence in performance among sectors of the market is typical from year to year. Also, market leadership tends to rotate on a sector basis over time.

While many investors find it helpful to have some perspective on evolving market trends, it’s important to keep in mind that a diversified portfolio is a time-tested way to participate in the positive market trends of today, and limit downside when the market leaders of the moment eventually fall out of favor.

Donna Cournoyer
In Market Updates

May 2023 Market Recap: Stalled Momentum

Financial market momentum stalled as the threat of a default on US government obligations intensified in May.

An agreement by Congressional leaders and the President to raise the debt ceiling until 2025 addressed default risk, allowing market participants to breathe easier at the end of May.

For the month of May, the S&P 500 index of large company US stocks rose by 0.5%. Foreign stocks had a tougher go and declined by 4%. Year-to-date as of May 31, US stocks gained 9.7% and foreign stocks were up by 7.7%

Bonds lost some ground as interest rates rose. The Bloomberg US Aggregate Bond Index fell by 1.1% last month. Through the end of May, bonds returned 2.6%.

Below is a summary of May returns.

RK

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