The debate of a $15 minimum wage has been in the news lately and seems to be a talking point for most politicians.  However, taking politics out of this, would this truly be better for the United State economy? According to statistics there are approximately 1.7 million workers who work for minimum wage.  That is approximately 2.3% of US workers.  The industry that employs the most minimum wage workers is leisure and hospitality. Frankly, the industry that has been hit hardest by the pandemic. Raising the minimum wage to $15 would more than double the US Federal minimum wage of $7.25.

There are people that believe that by increasing the minimum wage this would help to stimulate the economy by giving workers more money that they spend which could very well be the case. This could also allow some workers to provide a better livelihood for their families.  However, by implementing these changes this could cause sweeping job cuts and reduction in the work force.  When talking to several business owners they were very opposed to this proposition because of the impact it would have on their workforce. They expressed that by doubling the minimum wage this would cause business owners to have to cut back on their staff. Not only would this cause stress for the employees that are laid off, but also added stress for the remaining staff. The reduction in employees would force workers still employed to take on extra duties and responsibilities that they may not have had to do before.  This would also cause many to wonder that if they are laid off, where could they find additional work.  

A doubling of the minimum wage could be a big hurdle for companies that are struggling to make it through the pandemic.  This would cause them to close their doors.  Another effect of this would be the increase in much of the food and products we eat and use.  Many believe this would cause widespread price increases making it harder for families to afford basic goods.  Some companies in the private sector have taken it upon themselves to issue their own minimum wage, such as Amazon and Walmart that have implemented $15 minimum wages.  These companies have the size and scale to increase minimum wage.  Other companies have already started to increase automation and the use of machines to run their business. Simply look at the self-checkout lanes and ordering kiosks to see what the future could look like.

Below is an article that shows what other financial advisors have to say about a $15 minimum wage.

Where financial advisers sit on the $15 minimum wage divide

This is a recent study by the Congressional Budge Office that goes into details about what a $15 minimum wage would mean.

https://www.cbo.gov/system/files/2021-02/56975-Minimum-Wage.pdf

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Over the course of two blog posts I will be cover the topic of investing in innovative disruption.  It has been said that the pandemic has drastically sped up the adoption of technology and innovation. This thought could be seen amongst the stocks that many considered to be the “stay at home” stocks. Examples of these stocks include: Zoom, Peloton, Etsy, Netflix and Wayfair. These stocks had tremendous returns over the past 12 months.  Many have stated that they may have just frontloaded the growth for these stocks and have them all in one year as opposed to the growth they would have seen over the next 3-5 years. However, looking beyond just these stay at home names, 2020 has introduced certain trends that will be here to stay. Although many believe these stocks might be overvalued many now have a fear of missing the next best innovative stock or company. One investment company that is tapping right into this innovation trend is Ark Invest. Ark Invest is an investment manager that invests solely in disruptive innovation.  As their website states: “ARK’s thematic investment strategies span market capitalizations, sectors, and geographies to focus on public companies that we expect to be the leaders, enablers, and beneficiaries of disruptive innovation. ARK’s strategies aim to deliver long-term growth with low correlation to traditional investment strategies.” You can visit ARK’s website here: https://ark-invest.com

Ark invests with a long term perspective in mind and since inception in 2016 this approach has paid off handily for investors. Some of Ark’s (symbol ARKK) top holdings are: Tesla, Roku, Spotify, Crispr Therapeutics, Square and Teladoc Health. This fund now has around $22.6 Billion in assets.   One of the ways that ARK helps to educate it’s investors is through the publishing of their “Big Ideas” for the year. They published their “Big Idea’s” insights back in January of 2021. Today I will cover 3 topics that jumped out to me while reading their big ideas for 2021.

1.Electric Vehicles (EV)

ARK forecasts that EV sales should increase roughly 20-fold from 2.2 million in 2020 to 40 million units in 2025.  One of the major reasons for this increase is that the cost of the electric vehicles will start to cost the same as the gas-powered vehicles. This will be driven by the decreasing costs of the battery that is used in EV vehicles. The mass production of these batteries is starting to drive down the cost of the battery. Image of EV costs.

ARK believes that Tesla will still lead in the electric vehicles space in both the United States and China. They also see Baidu playing a significant role in the EV space. 

2. Bitcoin

Ark was an early investor in bitcoin and they have been investing in bitcoin through the ETF symbol: GBTC.  Bitcoin has started and continued to gain adoption and credibility throughout 2020. Bitcoin has gain credibility through major institutions starting to invest their cash and also accepting bitcoin as payment.  There are several appeals to bitcoin and one of them is the decentralization of bitcoin as a truly global currency.  Most recently we have seen Tesla make an investment in bitcoin and allow for the use of bitcoin to buy their cars.  Another situation was Mass Mutual adding bitcoin to its balance sheet to the tune of $100M dollars.  Bitcoin is one of the only asset classes that has consistently low correlations to other asset classes. ARK believes that bitcoin has now earned a spot in well diversified portfolio. This chart demonstrates how the incorporation of large institutions using bitcoin can have an effect on the price of bitcoin.

3.Multi Cancer Screenings

According to ARK’s research use of innovative technologies has pushed the cost of multi-cancer screening down by 20-fold from $30,000 in 2015 to $1,500 today and it should drop to $250 by 2025.  The ability to have these multi screened cancer studies can lead to early detection through a more robust testing process. The Big Idea’s template states “Routine blood-based, multi- cancer screening combined with improvements in single-cancer screening could prevent 40% of metastatic diagnoses and increase loco-regional diagnoses by 10%.”  This could also move the recommended age of cancer screenings from 45 down to 40 to help with early detection.

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I recently read the book “Everything you need to know about saving for retirement” by Ben Carlson Link to book and enjoyed the simple but not easy suggestions he makes to lead to a strong financial foundation.  I recommend the book for anyone interested in personal finance.  Today I wanted to discuss a few things that were mentioned in the book that everyone should take some time to consider evaluating.  Those three items are: your savings rate, your asset allocation and your investment plan.  These items should be evaluated in that order and that is where they rank in level of importance.  These three things are simple to evaluate but can take time to tweak and get right.  In the paragraphs below I will cover what you should be looking at when you evaluate the three items I mentioned above.

1. Review your Savings Rate

The percentage that you are saving is the single most important metric when you are considering establishing financial independence. This obviously goes hand and hand with your income and spending. Your savings rate is the first step to investing and to becoming financially independent.  The earlier you can start saving the better. This comes in many different forms including saving for retirement, saving for a large purchase, saving for education expenses and saving for health care expenses.  In general, your goal should be to save 15-20% of your gross income.  This can be hard to do for most but can be something that is worked up to. This amount of savings will give you a cushion for when life throws you curves.  Here are some steps you can take to actively increase your savings: treat it like a bill, automatic increase through your retirement plan, ask for a raise.  Mastering a skill and learning how to sell yourself are vitally important. The impact of asking for a getting a raise can pay immense dividends over the course of your career.

2. Review your Asset Allocation

The next most important item to review is your asset allocation. This is your mix of stocks, bonds and cash. This determines the level of risk you are taking in your portfolio. This is a high-level view of your investments. The old adage of investing: the higher risk, the higher potential review, speaks to asset allocation.  The amount of your money that you are looking to grow should be allocated to equities and the amount of money that you are looking to preserve should be allocated to bonds and cash.  Determining your goals, time horizon and risk tolerance are the first steps in determining your asset allocation.  In general, the younger you are the more risk you can afford to take on. This is due to the fact that the longer you stay invested the higher likelihood will be that you will have a positive return, as the chart below demonstrates.  David Swenson, manager of the Yale Endowment fund and author of bestselling book “Unconventional Success, A Foundational Approach to Personal Investment”Link to book he determines that asset allocation is the 3 sources of return behind savings rate and market return. It is also one of the variables that is in your control as an investor. He states that asset allocation will determine 90% of the investors return, therefore, much more emphasis should be placed on your overall allocation than picking stocks.  This is due to the fact that most investors will be in a broadly diversified portfolio.

3. Review your investment plan

Financial writer Nick Murray once said “A portfolio is not, in and of itself, a plan. And a portfolio that is not in service to a plan is just a form of speculation; it can have no other goal than to beat most other people’s portfolios. But “outperformance” isn’t a financial goal.”

The plan is the foundation that drives the implementation of your investment portfolio.  Your investment plan determines expectations on risk and return; therefore, you plan drives how your assets should be allocated.  Someone that is nearing retirement and looking to have their money last the rest of their life should not be trying to keep pace with the returns of the S&P 500 index.  Instead, they will need to have a portion of their portfolio protected from the downside risk of a stock market correction.  Alternatively, a younger investor who is in the early stages of their career needs their money to grow and accumulate over time. Therefore, their plan should be to be properly allocated to risk.  Picking stocks may be more fun to talk about at parties or with your friends but having the right asset allocation and investment plan will lead to long term success.

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2020 was obviously a very chaotic year for the country and for the stock market. Even through all the headline risk of this year the market still stock market still averaged double digit returns. Do you know the performance of your portfolio for 2020? You can use this article as a way to benchmark the performance of your account verses that of the overall market.  Here is a quick look at how the market performed.

If the performance of your account is not keeping up to par with that of the stock or bond market reach out to me I would love to discuss some areas of opportunity for you. 

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Automating your finances is one of the most reliable ways to maintain solid financial habits and to build wealth.  We often use automation to pay our lenders, utility companies and service providers so why not automate to pay yourself first.  Automating your savings and investing allows you to direct your money first to accomplish your goals instead of wondering where your money is going every month. By having automatic savings, contributions, and investments this will free up time that might have been spent manually moving the money over and investing it yourself. Also, with the ups and downs that we saw in 2020 this can help to remove the emotion out of investing and ensure your money has more time in the market to compound instead of on the sidelines in cash. Also, by paying yourself first this can remove the temptation to make frivolous impulse purchases that can detract from your more important financial goals.

What you can automate:

Now that I touched on the importance of automation we can begin to look at what can be automated. Here is a list of items where you can setup and have them be automated every single month.

1. 401(k) Contributions – these are a simple way to set a contribution rate and have this contribution pulled directly from your paycheck.
2. 401(k) Automatic Increase – check with you company 401(k) plan provider and see if your plan allows for this. An automatic increase can be set so that every year your contribution can be increased by 1%
3. HSA Contributions – similar to your 401(k) HSA accounts can be setup through your employer and contributions can be made directly from your paycheck.
4. Roth IRA Contributions – the brokerage firm that holds your Roth IRA will be able to setup automatic contributions online for your Roth IRA. Please be aware of the phase out rules and contribution limits for Roth IRA’s when you are setting these up.
5. 529 Plan Contributions – this is a simple and easy way to ensure your education planning goals are staying on track. Check with your service provider to setup these automatic contributions and also be aware of the contribution limits each year.
6. Brokerage Account savings – a brokerage account can be a great way to invest your after tax money so that they money can grow and also still provide you with flexibility to withdrawal the money as you need it. Like the other accounts mentioned above these automatic contributions can be setup online with the brokerage firm that holds your account.
7. Investing and Trading – above I mentioned how you can get the money saved into your accounts and this step allows you to get the money invested instead of having that money simply placed in a money market.  The automatic investment feature allows you to move the money into a mutual fund of your choice automatically after the money has been placed in your account.  If you work with a financial advisor or use a robo advisor such as Betterment they will be able to invest this money for you right away.
8. Account Rebalancing – setting up automatic account rebalancing ensures that your accounts maintain the asset allocation that you have desired. Many firms will offer annual automatic rebalancing of your accounts so that your accounts stay on track for your current goals and risk tolerance.

Summary

Automating your finances is one of the simplest ways to build wealth, and once setup, can remove any additional effort on your part.  Check with your investment account providers to see if or what options you have to automate your accounts and your investments.

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