Monthly Review: What prices at the pump have to do with smoking, stocks and unemployment

If you haven’t already noticed at your last trip to the gas station, gas prices are the lowest they’ve been since the 90s– affecting everything from your stock portfolio, US unemployment, and cigarette consumption.

Here’s what happened

Gas prices are below $2 for the first time in a decade—and this has been going on for 25 days and counting. Americans across the nation are rejoicing—taking road trips, pocketing the extra spending money—smiles all around.

But wait—are we premature in our celebration? What do these falling gas prices really mean?

What it means for you

Well, for one, it means that people are driving more (the equivalent of 337 round trips from here to Pluto, in fact). And bad news, that means more traffic. The Texas A&M Travel Institute found that rush hour travelers spent an extra 42 hours on the road last year due to increased traffic. More time on the road has also has lead to an 8% uptick in motor vehicle accidents, which equates to 38,000 deaths— the largest increase in 50 years! This rise in accidents has had a financial impact on drivers; with the total cost of deaths, injuries and property damage totaling more than $400 billion last year.

There’s also been another interesting little side effect of slashed gas prices— cigarette sales are up for the first time in 9 years. Cheap gas has a disproportionate impact on cigarette sales because smokers tend to have lower incomes on average and the majority of cigarette sales (60%) take place at gas stations. Analysts have seen this increase in discretionary income (via savings at the pump) as the largest driving factor behind this spike.

On a more macro scale, a major factor that causes fluctuations in gas prices is the price of crude oil. And crude oil prices have been taking a dive lately—for reasons including depressed global demand for oil and excess supply as well as increased domestic production.

This dip in prices has also hit the oil sector hard—many of these companies are facing bankruptcies and consolidations this year, with dozens of small drillers having already filed for bankruptcy, and some of the larger operators predicted to follow in suit. The energy boom had been fueled by really expensive drilling tech that was paid for by lots of debt…. which is now becoming pretty tough to pay off. With all of these companies closing shop, about 250,000 people are now out of a job—and that number is growing every day.

And don’t think that if you’re not in the oil and gas business, you’re off the hook—this will affect your stock portfolio, too. As the price of oil and gas continues to go down, so does the stock market as a whole).

What you can do about it

• Actually save the money that you would have spent on gas— be conscious of how much you’re saving additionally and instead of letting it fall through the cracks, put that towards paying off your car, credit card, or student loans faster. Or use it to build up your emergency fund (psst… you can do that automatically through GreenShield—if your company doesn’t have an account yet, click here). Depending on how much you drive, these savings can actually make a pretty big difference in improving the overall health of your financial profile.

• Look into buying a fuel-efficient car. It sounds counterintuitive, as people are rushing to buy gas guzzling SUVs and trucks now that it’s more affordable to do so. But that means you might be able to snag hybrid and other fuel-efficient cars at a discount, which makes it a perfect time to buy. And another tip—gas prices won’t stay low forever—in fact, they’re anticipated to climb in the coming months as refineries make the switch over from winter gas to more costly summer gas—so it’ll pay off long-term for you when prices spring back up.

And as we mentioned in our last post—if you’re seeing your 401k take a hit, don’t panic. Yes, if your entire portfolio is comprised of oil and gas, you’ll probably see the overall value of your portfolio take a plunge. However, if you’re well diversified, you should probably see your portfolio go up overall over the long-term, as the market as a whole rises.

Questions? Let me know in the comments, via email at ashley@greenshield.io, or tweet at @getgreenshield.

Monthly Review: Stocks are off to their worst start in over a century

The biggest news this year is the roller coaster ride of the stock markets — recently, the stock market has been anything but predictable—setting many on edge.

Here’s what happened
Unpredictable is probably an understatement—stocks tumbled 10% in the first few weeks of 2016 and the first 12 days of 2016 were declared the worst-ever in terms of stock returns since 1897.

What it means for you
If you’re like most people, the recent stock market volatility may have made your stomach drop. It’s hard to watch your portfolio drop 10% and not want to panic and pull your money out. But as it turns out, that’s actually the opposite of what you should do. This might seem counterintuitive, but if you’re in you’re in your 20s, 30s, or 40s, this volatility might actually be a really good thing for you.

Yeah, you heard right— long-term investors might even see this as an opportunity to snatch up bargain stocks. If you’re 20, and assuming an average life expectancy of 80, you have a 60-year investment horizon. And the good news is: over the long-term, you’ll be fine. You have decades to recover from losses—what’s more, studies show that over periods of 18 years or more, there hasn’t been a period where the stock market hasn’t had higher returns than bonds or cash. So turn off the news, and tuck in for the long haul.

What you can do about it
Experts recommend that you take this opportunity to make sure that you have a risk-adjusted portfolio that is in line with a set investment strategy personalized to your goals and tolerance for risk. This strategy, called an “investment policy statement” should outline how much to invest in different asset classes (US small and large cap stocks, international stocks, investment grade bonds, and even alternative assets like real estate securities) given your personal preferences—and stays constant no matter fluctuations in the market. This statement, rather than your emotions, should dictate when you sell and buy to rebalance your portfolio.

This has been proven historically—in various market declines, investors who panicked and sold when the market dropped ended up missing out on opportunities to 1) buy at a deep discount, and 2) ride out the gains when the market recovered. As another side note—most of the market’s 10 best days over the last 20 years were within just 2 weeks of the 10 worst days. Again, unless you’re willing to bear the pain of market drops, you won’t be able to reap the rewards of eventual gains.

The only caveat here is that if you do have assets that you will need in the short-term (say, you’re looking to retire in a couple of years or need money as a down payment for a house you’re buying next year), you might need to tweak your strategy slightly. Best strategy here is to sit down with a financial advisor and figure out how much to pull from long-term accounts and invest safely—probably in lower risk investments such as short-term government bonds or a money market fund. Remember: the priority here is to minimize losses, not actively pursue gains.

What are employers doing to help their employees with financial wellness?

In our last post, we asked people what financial wellness meant to them—this time, we asked what they saw employers currently doing to help employees with their finances and what they thought employers could improve on—here’s what they said:

1) “Companies could improve on the matching of 401(k) plans. I’d also like to see companies give unlimited paid time off– employees could handle some of their financial obligations in that time. Companies could also train employees in how to handle their finances/provide direction to a service.” —Carl at NextSpace

2) “I don’t know what employers are doing to support their employees’ financial wellness.”— Trevor at GearFrontier

3) “Most companies that I deal with are really early stage, and not worried about helping their employees with financial wellness. I would say that just educating employees on all available options and making sure they’re optimizing is the most important part. Employers should make sure they’re putting their employees into the best 401ks possible with the lowest fees and educate their employees on the difference between things like mutual and index funds.” —Kris at Amplify

4) “I think employers help employees by setting up automatic payroll (direct deposit), retirement accounts (401ks, IRAs), and making sure their employees are taken care of in terms of insurance and liability. It would be nicer if employers could walk employees through on a personal level that teaches you what to be looking for when setting up retirement accounts—if you’re doing it for the first time, you have no clue what to do.” —Eric at Amplify

5) “Companies should put more emphasis on educating their employees via in-house workshops/seminars focusing on Financial Health/Well Being tackling topics such as money market accounts, IRA, 401K, etc.  Most people are in the “dark” regarding this subject matter.” —Mani at Machinima

7) “Companies provide retirement plans, match and sponsor 401ks and offer health insurance to their employees. I think companies could bring on expertise, and provide basic training for employees informing them of better options. Employees often do things that don’t necessarily mean that they’re going to get a return financially and are just unaware of it.” — Jacobo at Yoi
8) “Work should be a place of family and sense of belonging – it is in our human nature. The best companies are those that have achieved a culture of belonging and sense of caring from management that supports employees on every level—including financial.”—Patrick at Cogostar

What does financial wellness mean to you?

In our last post, we promised to share the responses of the people we surveyed about financial wellness—here’s what they said about what financial wellness means to them:

1) “Not having to be concerned with the most basic needs of living” — Pat at Clutter

2) “Being able to do the things I want to do comfortably and having an understanding of my finances. It’s not only being able to do well, but understanding where I stand with my finances.” – Matt at AlphaDraft

3) “Having control over one’s finances.”— Carl at NextSpace

4) “Job security maybe, comfort, being able to raise your family, being able to buy a house, stuff like being able to send your kids to college and go on vacations with them. Life where you can do the things that you’d want to do with less stress would probably be the best definition of financial wellness.” — Uzi at GearFrontier

5) “Being mindful of your finances and feeling comfortable with the decisions you make regarding spending money.” — Trevor at Gear Frontier

6) “Having all of my finances in order—it means I have a well diversified investment portfolio, no credit card debt, and I have enough cash in the bank to cover all of my expenses.” — Kris at Amplify

7) “Being financially secure, so I’m not worried that I can’t pay my debt obligations (mortgage, rent, etc.). It also means having good credit.”—Eric at Amplify

8) “Having your ducks in a row—having a road map. A budget of what you can spend, and a little more padding on top of that just in case. It’s being aware of your options and having a plan. “—Chris at Little Labs

9) “Making enough money to support my day to day needs (and desires if possible) while also saving for retirement.” —Cindy at Clarity Campaign Labs

10) “Having a considerable amount of money in reserve to sustain you for a ‘rainy day’ and understanding the opportunity cost associated with allocation of dollars. It means being in tune with your financial advisor to ensure your money accounts are placed most effectively to help achieve your financial goals.” — Mani at Machinima: Machinima

11) “Not having to worry about money.” — Jacobo at Yoi

12) “The ability to achieve certain key social metrics while indefinitely sustaining economic priorities and goals.” — Patrick at Cogostar

So what IS “financial wellness,” anyway?

When I tell people I work for a financial wellness company, I often get met with blank stares. Although I get the sense that people are becoming more familiar with “financial wellness” as a concept, I know that it’s still far from a household term.

I was curious how people would react if I asked them directly what financial wellness meant to them—so I set out to find out.

I went around and asked a dozen friends for their take on financial wellness.

Here are the top takeaways:

1) Security, comfort and understanding.

For the most part, it came down to being able to fulfill their desires and goals without having to worry about money being an issue.

“Financial wellness is not having to be concerned with the most basic needs of living” – Pat at Clutter

2) A desire to understand their financial situation and options

In addition to not worrying, some people also indicated that they wanted to have an understanding of their financial situation and options. Though many people I talked to spoke very generally, others noted specifics—such as having a good credit score, being able to pay down debt, having diversified investments, and setting goals such as paying for their kids’ education. Some people focused more on the immediate needs, while others also took a more long-term view and discussed being able to save for retirement.

“Understanding where I stand with my finances.” —Matt at AlphaDraft

“Stuff like being able to send your kids to college and go on vacations with them”—Uzi at GearFrontier

3) What employers are doing to help

In regards to what employers do to support their employees’ financial wellness, the most common thing that people talked about was providing 401ks/other retirement plans (plus matching). Others also noted giving unlimited PTO, incentives/bonuses, sufficient compensation, health insurance, and direct deposit. The non-401k responses went back to this idea of not having to worry/having peace of mind— basically making finances as easy and painless as possible.

“Companies provide retirement plans, match and sponsor 401ks and offer health insurance to their employees.”—Jacobo at Yoi Corp

““I think employers help employees by setting up automatic payroll (direct deposit), retirement accounts (401ks, IRAs), and making sure their employees are taken care of in terms of insurance and liability. “ —Eric at Amplify

4) What employers can improve on

A central theme here was financial education—helping employees understand not just how to manage their finances, but also understanding their options fully and making sure they are empowered to select the best option for them. The prevailing belief was that there is a severe lack of available resources for this and that most employees are “in the dark” about managing their finances.

“Employers should make sure they’re putting their employees into the best 401ks possible with the lowest fees and educate their employees on the difference between things like mutual and index funds.”—Kris at Amplify

“Companies should put more emphasis on educating their employees via in-house workshops/seminars focusing on financial health/well being tackling topics such as money market accounts, IRA, 401K, etc.” —Mani at Machinima

We at GreenShield would like to extend a big thank you to those who participated in our informal study!  In our next posts, we’ll share their full responses.