Instead of pretending to understand these terms, let’s break it down and learn together what this financial jargon means and how it impacts you.
There’s a lot of jargon in the financial world, so today we will tackle five different terms that you might have wondered about. We’ll talk about inflation, recession, dollar-cost-averaging, bonds vs. stocks, and capital gains and losses so you can gain a better understanding about each of these topics.
Everybody has been hearing more about inflation lately, but what do you really need to know? Inflation comes about for a few different reasons, including too much demand. If you think about the cost of lumber recently or labor costs, you’ll see why we are facing inflation today. We also had a massive amount of stimulus during COVID, which then turned into supply chain issues. We’ve had low inflation for over a decade, and now we’re seeing a big jump in inflation. But is inflation good or bad? David says a little bit of inflation is good but persistently high inflation is a bad thing. What can we do about it?
Another topic that’s starting to cross everyone’s minds is a recession. A recession is commonly described as two consecutive quarters of negative GDP growth but officially it’s a recession whenever the National Bureau of Economic Research declares it. To identify it potentially coming, look at leading economic indicators such as job loss claims, a purchasing managers index, retail sales, and the yield curve. Typically, during a recession there are lots of layoffs and business closures. It’s important to be prepared for when the next recession comes.
If you’re younger, dollar-cost averaging is your friend. With your 401(k), IRA, or personal investments not being used toward saving for a home purchase, dollar-cost averaging of systematic investments allows you to buy stocks on sale as the price goes down. When the market is going down, that’s not a time to be fearful if you’re in your 20s, 30s, and 40s. When you’re retired though, you don’t benefit from reverse dollar-cost averaging. Make sure you avoid the negative impacts from reverse dollar-cost averaging by having a year or two of cash or bonds in your account. What are the differences between stocks and bonds? David explains what it means when you hold a stock vs. a bond.
Finally, do you understand the rules when it comes to capital gains or losses? Depending on your tax bracket, how will you be taxed? With tax-loss harvesting, you can offset you gains with your losses. Do you know the timeline you need to hold the asset? Or what to expect to pay in taxes? It’s really important to understand the rules to make sure you do it in a way that benefits you.
If you ever want your question spotlighted on the show or to ask David something about your retirement, email him at [email protected]
Listen to the entire episode or skip ahead using the timestamps below to skip to a particular question.
0:33 - There’s always something to look forward to!
2:20 - What financial jargon should we know more about?
3:44 - What causes inflation?
8:08 - What does a recession look like?
13:36 - How does dollar-cost averaging work?
17:01 - What are bonds vs. stocks?
21:27 - What are the rules with capital gains and losses?
“The recession outlook is important. It’s important to be prepared for when the next recession comes, not that you can do anything about stalling it off, but it might help you more mentally prepare. "
– David Dickens
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CONTACT US
OUR LOCATION
10975 Grandview Drive
Building 27, Suite 190
Overland Park, KS 66210
Get Directions
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