USA Today - 26.08.2019

2B z MONDAY, AUGUST 26, 2019z USA TODAY MONEY

One week oil is spiking as Iran at-
tacks tankers in the Strait of Hormuz–
threatening to wreck the global econo-
my. The next month, oil drops because
tariffs allegedly whack Chinese demand
and – you guessed it – wreck the global
economy. Tune out these scare stories.
They’re both bricks in this bull market’s
wall of worry.
Tariffs I’ve addressedin this column
before. Even with subsequent escala-
tions, all threatened and newly enacted
tariffs since 2017 total just 0.3% of glob-
al GDP. Too tiny to render recession.
Firms skirt many of these tariffs. Amer-
ica’s soaring Vietnamese and Taiwan-
ese trade shows the sidestepping effect.
Relax.
Consider Iran. Today’s fears seem
stuck in the 1970s, when the Arab oil
embargo contributed to worldwide
shortages, stagflation and a ghastly re-
cession. We presume Iran has the power
to gyrate prices now by remembering
that huge influence back then.
But times changed. Yes, the Strait of
Hormuz is a critical oil chokepoint. The
Energy Information Administration
(EIA) estimates one-fifth of global oil
consumption passes through it daily. If
it shuttered, prices, which are set glob-
ally, would soar. But Iran probably can’t
shut the Strait alone. While its seizure of
a British tanker stole headlines, that is
one ship among many traversing the
Strait daily. The U.S. and British navies
effectively ensure safe passage for the
vast majority.
Then too, this isn’t Iran’s first time
threatening traffic. The 1980s “Tanker
War” between Iran and Iraq hit scores of
oil transports. But prices didn’t jump.
Not only was it a fraction of total traffic,

but oil production grew outside the Mid-

dle East, offsetting the tiny impact.

That’s the history we’re repeating

now – not the 1970s. In the 1980s, the

supply offset came from Europe – the

North Sea.

Now, it comes from U.S. shale fields

including Texas, New Mexico and North

Dakota. According to BP’s annual oil re-

port, U.S. production soared by 2.2 mil-

lion barrels per day in 2018 – the largest,

single-country rise ever. The EIA sees

domestic output jumping another 1.

million barrels this year. Unlike pro-

ducers elsewhere, U.S. rigs can pump

profitably at lower prices, thanks to

massive efficiency gains.

And if I’m wrong? If prices soar?

Again, this isn’t the 1970s. The days

when high oil prices could wreck our

economy are as gone as disco and bell-

bottoms. Our economy is far less ener-

gy-intensive now, thanks to the service

sector’s ascendance. In 1970, heavy in-

dustry was 32.1% of annual output, ver-

sus 65.5% for services and 2.4% for ag-

riculture. Now? Heavy industry is just

18.5%, while services are a mighty

80.7%. Services simply use less energy

than factories. But even manufacturing

has cut energy use in recent decades

through enhanced efficiency.

Yes, America consumes lots of oil,

and it gets lots more GDP for each barrel

of oil consumed. In 1990, we got $13.

million in inflation-adjusted GDP from

every thousand tons of oil consumed.

Now, it’s $23.8 million.

Services’ rise debunks one other lin-

gering oil fear: that last year’s weaker

demand outside China, India and Amer-

ica reflects a weakening world. In reali-

ty, it simply reflects weaker manufac-

turing – widely discussed and priced in.

Meanwhile, services kept the global

economy growing reasonably. They still

donow. All this reminds me of 2015 and

2016, when oil plunged to $26 per barrel.

Yet GDP in the U.S. grew all the while,

rising 2.9% in 2015 and 1.6% in 2016.

Only oil-reliant nations hit the skids.

So don’t sweat oil’s swings. They’re

false fears that are priced into stocks

now. Fear of false factors or tiny negativ-

es is always bullish. The bull market

continues.

Ken Fisher is founder and executive

chairman of Fisher Investmentsand is

No. 200 on the Forbes 400 list of richest

Americans. Follow him on Twitter:

@KennethLFisher. The viewsexpressed

in this column do not necessarily reflect

those of USA TODAY.

Oil price swings won’t burn 401(k)

Ken Fisher

Columnist

USA TODAY

This British-owned oil tanker was captured July 19 by Iran’s Revolutionary Guard in the Strait of Hormuz. BASIL M. KARATZAS/AP

was made possible by the passage of the
Pension Protection Act in 2006.
Now, if you didn’t choose how to in-
vest the money, most of the time – near-
ly 68% of plans – your 401(k) automat-
ically will be invested for you in target
retirement date funds, according to the
latest data from the Plan Sponsor Coun-
cil of America.
“Most people don’t consider them-
selves to be sophisticated investors,”
said Katie Taylor, vice president of
thought leadership at Fidelity in Boston.
So, she said, the target date fund can
fill that gap by offering a prepackaged
mix of stocks, bonds and cash that takes
on more risk when you are younger. Over
time, the fund gradually rebalances as
you age and move closer to retirement.
The theory is the younger you are, the
more risk you can afford to take.
Target date funds are far more com-
mon in 401(k) plans today than they
were during the stock market meltdown
in 2008-09. They’re not a perfect solu-
tion; some can have higher expenses, for
example.
But a target date can help someone
who is stumped when it comes to build-
ing their own mix of stocks and bonds to
create a balanced portfolio, said David
Blanchett, head of retirement research
for Morningstar Investment Manage-
ment in Chicago.

How much risk can I stomach?

If you’re young, a target date fund
takes on a good deal of risk.
Someone who plans to retire in 30
years, for example, might automatically
be investing all their 401(k) money in a
Target Date 2050 fund.
The catch: A target date 2050 fund
might have a mix of 90% stocks and 10%
bonds.
Yes, you could be investing 100% of
your money into a fund that’s 90%
stocks.
It’s fine if you’re comfortable holding
on during a bear market – when you’d be
buying stocks at lower prices anyway.
But if you’re not willing to look at huge
losses on your statements at some
point, you could sell out at the wrong
time.
What’s the financial – and psycho-
logical – risk? What happens if you’re
hyper-sensitive to a 20% or 30% loss in
your retirement savings?
If you know you couldn’t stand losing
that much money, you could pull back
some risk, Blanchett said, and opt to put
money in a more conservative mix of in-
vestments that’s geared for someone

nearing retirement.

ATarget Date 2025 fund, for exam-

ple, might have a mix of 65% in stocks

and 35% in bonds. Target funds offered

through different mutual fund compa-

nies offer a different mix.

Remember, you’re not required to in-

vest in a target fund that’s closest to

your expected date of retirement.

What you’re trying to do is keep in-

vesting and find a level of risk that can

help you avoid panicking when the stock

market tumbles.

Should I move some money

around in my 401(k)?

Maybe – or maybe not.

“My first response is don’t do any-

thing,” Blanchett said. “It’s really hard to

time the market.”

Someone who has 20 years or more

before they retire has time to recover

from a selloff in the stock market.

Someone who just retired should take

into account that they could live another

20 years or more. Most experts say you

don’t want to put all your savings in a

money market account, which won’t of-

fer big returns.

“Personally, I think you should have

as much in equities as you can stand,”

said Kevin Granger, senior vice presi-

dent and senior investment adviser for

PNC Wealth Management in Troy.

Many people in their 30s or 40s,

though, only remember the bear market

that ran from October 2007 through

March 2009. The Standard & Poor 500

index lost about 50% of its value. Many

people lost their jobs, saw homes go into

foreclosure and lost a good deal of their

retirement savings.

The Great Recession was truly brutal.

But the next slowdown might not be as

bad. “Recessions aren’t always deep,”

Granger said. “Who knows what the

next one might bring?”

Realize that there can be more mod-

est downturns for stocks and still pre-

pare accordingly.

“Individuals have to have a game plan

for what they’re comfortable with,”

Granger said.

So if you’re really, really nervous, ex-

perts acknowledge that it’s OK to take

some simple – not drastic – steps to take

a little risk off the table.

Experts suggest: Lock in some gains

in long-term bond funds or some higher-

flying stock funds and set some of that

money aside in short-term bond funds.

Look at dividend-paying, blue-chip

stocks.

How do I know if the wild ride

on Wall Street is over?

Although the Dow regained some

ground from last week’s carnage, Fri-

day’s 623-point slide signaled that more

sharp swings may be on the horizon.

No doubt, we can expect more vola-

tility in the months ahead as Washing-

ton and Beijing try to find a way out of

the trade war. And of course, the reces-

sion threat continues.

“Right now, the underlying economy

still appears to be relatively strong,” said

Keith Harder, a principal and financial

adviser in wealth management at Reh-

mann in Troy.

But concerns about a possible global

recession, as well as uncertainties about

tariffs, could trigger other triple-digit

losses at some point.

“The trade negotiations are a pretty

critical thing in this,” Harder said.

For someone who is retired, he said,

it’s important to have enough cash in a

safe spot, such as a money market fund,

to cover about two years of income that

someone may need to withdraw soon

out of retirement savings.

“What we want to avoid when we’re

in a distribution phase is selling at a

loss,” Harder said.

Investors need to take into account

how their money is invested now, as well

as their short-term and long-term plans

for their retirement savings.

Is it time to pay down debt?

Now, there’s a thought.

If a recession is in the cards – and the

jobless rate climbs higher – you don’t

want to be looking at a stack of old bills

that you could have addressed when

times were good.

If you’re paying a 25% annual rate on

credit card debt, you can save a good

deal of money by tackling that debt and

paying it off as quickly as possible.

How nervous should I be?

We are seeing some signs of econom-

ic trouble ahead.

U.S. Steel Corp., for example, will

temporarily lay off hundreds of workers

at its Ecorse facility because of “market

conditions and recent reductions in cus-

tomer demand.” The layoffs, which

could last more than six months, reflect

weakening demand for steel from the

auto industry and farm machinery busi-

ness.

Some market watchers still expect

that stock prices overall could head

higher in the next six months to 12

months. But the same can be expected

when it comes to higher levels of vola-

tility, according to Sam Stovall, chief in-

vestment strategist for U.S. equities at

CFRA Research in New York.

It’s possible that the Federal Reserve

could cut rates a second time in 2019 at

the next two-day policy meeting on

Sept. 17-18, giving the economy a boost,

too.

All bear markets – and all recessions

• aren’t as horrific as what we witnessed
  more than 10 years ago. “Not every
  downturn is created equal,” said Matt
  Dmystryszyn, director of investments at
  Southfield-based Telemus.
  The U.S. economy isn’t facing the
  same financial risks now that it did be-
  fore the Great Recession, he said. Con-
  sumers aren’t overloaded with debt. The
  housing market isn’t in a bubble. A re-
  cession isn’t imminent.
  “The softness in the economy is real-
  ly stemming from trade and the slow-
  down overseas,” Dmystryszyn said.

Recession

Continued from Page 1B

Wall Street’s fallout in August – and its quick rebound – have savers worried

about what to do next with their 401(k) plans. Above, specialist Anthony Matesic

works on the floor of the New York Stock Exchange on Aug. 16. RICHARD DREW/AP