Citizens Investment Services
Risky Business
America has a reputation as a place where a business can
take chances. The country values the entrepreneurial spirit
and encourages people to make the most of their ideas. But
while risk has been always been the dynamo of small
businesses, many larger corporations have continued a
multi-decade withdrawal into safety—and American
workers may be suffering for it.
Playing It Safe
Since the 1970s, publicly traded companies have increased
their commitment to serve their shareholders. This
fundamentally changed the way most companies were run
and supplanted the idea that running a successful business
was “enough.” To ensure their interests were carried out,
boards of directors eventually started hiring CEOs that
focused on profitability, awarding them with stock options
to keep their interests aligned with shareholders.
However, raising profitability is about more than bringing
in more money. In the interest of increasing share value
and keeping their jobs, CEOs started looking for ways to
improve efficiency. Risky expenses needed to be brought
down and kept down.
As it would turn out, the changing job culture made
employees the riskiest assets a company had.
Employee Mobility
As part of this shift, employers began to rethink their
training. Before the 1980s it had been a given that
employers would need to invest in their employees to be
successful. A quality applicant fresh out of high school or
college was expected to be intelligent and hardworking,
not experienced. Why would they have experience?
But workers have become less committed to their
employers. The success of the 401(k) and the
disappearance of pensions meant that employees no longer
felt limited to spend their careers at a single company. The
desire to “work smart” drove people to focus more on
education, later relying on job-hopping as the way to
discover the “right” job for them. By some accounts,
Americans have average job tenures of one-half to onethird the length of European workers.
Eventually, employer and employee could no longer rely
on each other at all. Companies drastically cut back on the
amount of training they did, fearing they were just
enabling workers to switch companies. With higher
education the new de facto tool for evaluating
inexperienced workers, attendance (and tuition rates) at
four-year colleges jumped—creating young workers with
massive student debts and little real job experience.
When the Great Recession created mass unemployment,
things really broke down. Though the scarcity of jobs
meant employers were likely to keep the employees they
trained, fiscal limitations caused employers to cut training
even further. Soon it was the new norm to see job postings
for “entry-level” positions that still required multiple years
of experience. Young workers did not have the skills they
needed to get jobs, and employers weren’t going to risk
giving them out.
Waiting to Be Hired
It would be a huge boon to young workers if America
enthusiastically returned to a pro-training culture.
Businesses would benefit as well; a survey done by
CareerBuilder in early 2014 suggests that more than half of
employers have open positions lacking qualified
candidates. Unfortunately, restarting such culture is
difficult. Whichever company decides to go first in its
industry will almost certainly be taken advantage of by its
competition, effectively spending its own money to
provide all the members of its industry with trained
workers.
At the moment, it seems that internships may become the
primary component of future training programs.
Internships, both paid and unpaid, give individuals
(usually students) experience at a company while limiting
the resources the employer has to risk investing in them.
Many businesses have come to value this kind of
internship experience as the key qualification when a
person is looking for their first career job.
Although studies do show that money spent on training
basic skills has returned to a pre-recession level, more is
needed. The Bureau of Labor Statistics reports that young
people (age 18-29) still had an unemployment rate of over
15 percent in June—nearly two-and-a-half times the
national rate. As the economy recovers and new jobs are
created, the country will have to recognize the vast
workforce that has been waiting for businesses to risk
tapping its potential.
U.S. Large Cap
(Dow Jones Industrial Average)
17,098.45
(3.23%)
U.S. Mid/Small
(Russell 2000)
1,174.35
(4.85%)
Foreign Large
(MSCI EAFE Index Fund)
66.71
(0.18%)
Bond Market
(Barclays Aggregate Bond Fund)
109.98
(0.96%)
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
•
Mortgage lenders Fannie Mae and Freddie Mac announce quarterly income capable of producing $5.6B in dividends for the U.S.
government in September. Once this payment is complete, the two institutes will have given over $218B back to the government
for the $187.5B they borrowed during the financial crisis.
•
Global shipping giant Maersk announces a $1B stock buyback and upgrades its profit forecast by more than 12 percent for the
full year. Driven by a strong uptick in shipping needs, the improved forecast bodes well for international trade and the world
economy.
•
Burger King announces plans to purchase the popular Canadian restaurant chain Tim Hortons for approximately $11B. The deal
was orchestrated by Burger King’s majority owner 3G Capital and received $3B in financing from Berkshire Hathaway. Burger
King has said it plans to relocate its corporate headquarters to Canada.
•
S&P 500 closes above the 2,000 point level for the first time in history on August 26.
•
With consumer confidence still rattled over its infamous data breach, retail-giant Target Corp. releases another quarter of belowaverage earnings. Company profits have decreased more than 60 percent from the same quarter last year, though sales volume
has improved.
•
Bank of America reaches a $16.7B settlement with the U.S. Department of Justice for its failure to disclose the risks of certain
“toxic” debt securities it sold to Fannie Mae and Freddie Mac. In addition to the fine, Bank of America must also make a public
admission of wrongdoing—a punishment typically avoided by investment banks.
•
Housing growth shows marked improvement in July—after retracting in June—with housing starts climbing nearly 16 percent and
overall builder confidence moving up about 4 percent.
•
Following its public report of disappointing quarterly earnings, SeaWorld Entertainment admits its image and public
goodwill have been significantly damaged by months of animal mistreatment allegations.
6 Costly Myths
Engrained into People’s Minds
Conventional wisdom is a great thing. It’s often simple,
straightforward and built on decades of other people’s
experiences. Its guidelines help us to do things quickly
and efficiently without requiring us to sit down and
deal with the tedious task of figuring out a solution to
a problem.
Unfortunately, sometimes a rule of thumb is a bit too
good at staying lodged in society’s collective brain,
even if it’s outlived its usefulness or proven to be
wrong. What’s even worse, this mistaken wisdom can
chip away at a person’s time and money.
Let’s take a look at a few of the most persistent myths
that can hit people’s finances.
1: Get Your Oil Changed Every 3 Months
or 3,000 Miles
Yes, yes, I’m sure you’ve heard this debunked before,
but it bears repeating. This rule is from decades past
when motor oil was less stable and cars suffered
greater sludge buildup. Although oil makers and car
manufacturers openly admit the guideline is rarely
correct, it is still perpetuated by mechanics whose
business relies on regular service charges. Check your
car’s handbook for its recommended oil change
frequency—or keep following the old standard if you
want to throw extra support to your mechanic.
2: A Big Income Tax Return is a Good Thing
Yes, a large return avoids the unpleasantness of owing
more taxes, but it also means the government took a
loan from you and paid no interest. Additionally, if
your budget is tight but you are getting a large tax
return, you need to get your tax withholdings adjusted
to free up that money during the year. The extra cash
could help you avoid late payments and the
unnecessary charges they generate.
3: Buy, Don’t Lease, a Vehicle
It is often said that buying a vehicle is a much better
deal than leasing it. The issue is hardly that black and
white. Buying a vehicle is usually the best option when
you intend to drive it for many years. If you want to
switch cars every two or three years, leasing a vehicle
George Vranes
[email protected]
(262) 363-6571
http://www.citizenbank.com
301 N Rochester
Mukwonago, WI 53149
could actually be the option that saves you a lot of
money. Ultimately, the best option will vary from
person to person.
4: Buy, Don’t Rent, Housing
Despite the bursting of a major housing bubble in 2007,
convention says that buying a home is better than
renting because your monthly expense is helping you
build equity. Like vehicle leasing, this comes down to
the individual. A lot of money can be lost in buying
and selling homes if you end up moving around
frequently. Renting is also less likely to put short-term
strains on your finances by helping you to avoid
surprise home repairs.
5: Pay off All Debt as Fast as Possible
There is a lot of debate about what debt is “good” and
what debt is “bad,” but it seems like everyone says to
pay both off as quickly as you can. Holding debt
ultimately comes down to comparing the savings from
early repayment against your other expenses.
Especially in today’s environment of super-low interest
rates, it can be more useful for a person to hold back on
repaying a debt if the extra money can be better used
elsewhere. A person should also rethink early
repayment if it will trigger additional charges that
offset the money saved from early repayment.
6: Investing in the stock market doubles your money
every 7 years
This is a myth created by averaging historical return
rates on stocks in the S&P 500 index. Over the past 30
years, the average annualized return rate of the index
has been around 11 percent—a rate that would double
a principal in seven years (not adjusting for inflation.)
While this data makes the statement seem correct, its
accuracy is only skin deep. The market is
unpredictable and averages do not denote the
performance of any particular timeframe. In any given
period, the market could slow down or lose value for
investors. Future performance is never guaranteed.
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Financial or its licensed affiliates. The investment products sold through LPL Financial are not insured by
Citizens Bank of Mukwonago and deposits are not FDIC insured. These products are not obligations of the
Citizens Bank of Mukwonago and are not endorsed, recommended or guaranteed by Citizens Bank of
Mukwonago or any government agency. The opinions expressed in this material do not necessarily reflect
the views of LPL Financial.
This article was written by Advicent Solutions, an entity unrelated to Citizens Investment Services. The information contained
in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding
any tax penalties. Citizens Investment Services does not provide tax or legal advice. You are encouraged to consult with your
tax advisor or attorney regarding specific tax issues. © 2014 Advicent Solutions. All rights reserved.