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Recession Worries, I Bonds, and More Listener Questions Thumbnail

Recession Worries, I Bonds, and More Listener Questions

Market volatility. Inflation. Supply chain issues. Midterm primaries. War. Record gas prices. Rising COVID cases.

There's a little something to make everyone nervous about our global economic picture right now. That's why I thought it was important to devote another episode of our podcast to answering some of the questions that we've been fielding at Keen Wealth.

I hope that our perspective on these important issues will provide counterbalance to some of the headlines you might be seeing on social media and cable news. That's not to say everything is rosy right now in our economy. But if you step back and take in the whole picture, there are some positive indicators flying slightly under the radar and, potentially, some opportunities that could be advantageous for your long-term financial planning.

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Bill Keen ·Recession Worries, I Bonds, and More Listener Questions

1. Should I be buying I bonds?

Series I savings bonds earn interest that's based on a fixed rate plus an inflation rate. Right now, you can purchase these bonds from TreasuryDirect.gov through October of 2022 and earn 9.62% for six months after the date of purchase.

Free money, right?

Well, the catch is that interest rate only applies to the first $10,000 you buy per 12 months. So is it worth a few minutes of your time to set up a Treasury Direct account and buy $10,000 worth of I bonds to earn $962?


For starters, whatever you earn on an I bond is subject to federal tax.

Also, while you can hold the bond for 30 years, if you cash it before five years you lose the previous three months of earned interest.

And finally, the inflation part of the bond's earning formula is reset every six months. Is this bond still going to be earning 9.62% in the Spring of 2023? Or will inflation have gone down by then and you'll wish you had that $10,000 available for a different type of investment?

The questions around inflation rates are also affecting traditional government bonds, despite their reputation as a haven when the markets are in flux. I would recommend that you talk to your financial advisor or get in touch with Keen Wealth before you start buying bonds solo. Sure, the risks may be relatively low if held to maturity. But within the broader context of your overall financial plan, other moves could be better right now.

2. How bad is this current round of market volatility?

Here's a typical headline you may have seen the week of May 15th:

"Dow Drops 1,100 Points, Biggest Drop Since 2020"

Click on that scary headline and, buried somewhere in the article, you'd read that 1,100 points on the Dow equates to about 3.6%.

So why do you think your news providers prefer "Dow Drops 1,100 Points" to "Dow Down 3.6%?"

Because being down 1,100 sounds a lot scarier! And these folks know that you're more likely to click on the scary headline.

That's not to say that a 3.6% drop is insignificant. The markets have been in correction mode for most of 2022, due to all those things I mentioned at the top. But don't forget that the markets ended 2021 up for the year. Any drop is going to be the "biggest since 2020" because we're starting with bigger numbers.

In this environment, buying low on securities is often the best move for a lot of folks. Instead, some people are making emotional decisions to get out of the markets because of those big, scary drop numbers, and because of another question they're seeing on social media and cable news...

3. Are we headed for a recession?

Right now, the markets are reacting to a bunch of different factors that are in constant flux. For example, no one can predict what's going to happen tomorrow in Ukraine, or if the rise in COVID cases will build into a wave that starts disrupting businesses again.

With that big caveat, our current analysis suggests that even if we do pull back into a bear market, the U.S. may avoid a major recession.

One positive indicator that you may not be hearing much about lately is the job market. Usually, a rise in layoffs is a red flag before a recession. Instead, companies are still fighting tooth and nail to hire folks in the wake of COVID and the Great Resignation. Unemployment is low, and job openings are at a record high. Competition for workers usually leads to higher wages ... which leads to more consumer spending ... which leads to higher corporate profits ... which are a key driving force of market returns.

Of course, that same cycle also contributes to rising consumer prices. Again, I'm certainly not arguing that inflation and market volatility aren't serious. Folks all over the country are struggling to pay their monthly bills, feed their babies, and fill up their gas tanks. And, like many of you, I'm frustrated that our deep partisan divisions in Washington could be preventing our leaders from finding some common ground and working on solutions.

However, I'm also concerned that the nonstop barrage of scary headlines people are consuming will lead to some rash financial decisions and irreparable damage.

If you feel like you need to tighten your belt for the next couple months to compensate for high gas and grocery prices, then you're probably making a positive, proactive decision.

But if you're so worried about inflation that you're thinking about scaling back your monthly retirement contributions or, even worse, pulling a significant amount of your assets out of the markets, please call up my team at Keen Wealth before you make that move. We can go into more detail on the state of the markets and work out an action plan that will help you feel more confident in your financial future.

About Bill

Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

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