Strong Considerations During Career Transition

No matter how hard we try, we all inevitably face career transition. Having had experience with my fair share of career transition, I thought I’d share some of the things that successful career-changers have implemented…

Podcast Details

Podcast Title:  Strong Considerations During Career Transition

Podcast Series: Financial Literacy Boot Camp

Link to Show Episode

No matter how hard we try we all will be inevitably faced with a career transition–whether that be within the same company but a new position, a new company altogether or a complete career change and the ever so famous “starting your own business”. Having had my fair share of career transition I thought I’d share some of the things that successful career-changers have implemented.

Here’s a list for your “consideration”…

They consist of the following:

Consider Cash Flow
This is what will kill a new business quick if you are an entrepreneur. And it is not necessarily your business expenses, but your personal living expenses [that don’t stop] when you are trying to get a new venture off the ground.  Or perhaps you are going to a high base salary to a more commission based job.  Whatever the scenario, you’d do well to have good cash flow management strategies in place prior to your transition. A good rule of thumb for your bank account is to have 3-6 months in living expenses. This can be more but not less.

Consider Your Company Benefits
If you split this into 2 categories–current considerations and future considerations–you might think of things like company benefits such as medical care as something to consider in your career transition. How similar is the coverage between Company A and Company B?  If this is misunderstood, you can be leaving benefits on the table.   In the future consideration camp, consider “deferred compensation” and 401(k) accounts as things to try and maximize without leaving much behind.  A lot of people leave the money in the plan because they don’t know what to do with it but this is not the best choice in most cases. Another thing could be vested shares of stock or options or other types of incentive pay. These all should be carefully reviewed for the ramifications of you leaving or transitioning from the company.

Consider Your Biggest Asset–Your Home
Buy/Sell/Rent my home?
Check out another version of this explanation from my Facebook post.
One of the best financial decisions I made before starting my company was to refinance my home mortgage from a 30 yr loan to a 15 yr loan. This freed up some monthly cash flow and ultimately was the best decision for me and my family based on our long-term plans. I’d highly recommend reviewing your long-term housing plans prior to career transition to see if it makes sense to find a way to reduce interest, make improvements, etc before you take a pay cut.  I often get clients caught in whether they should rent, buy or sell when they are forced to move to a new city. Well, there is some math to this. If you decide to rent out [a previously purchased home], consider if the all-in cost of renting will be less in what you could charge. And if so, is that difference big enough for you to become a full-time landlord or pay someone to manage the property. If not, save the land lording for a game of Monopoly and look to sell your home.

What if you are upside down?
When you are underwater on the mortgage, it may be best to just rent our previously purchased home because you have no other choice.  But if you’re in a career that has you moving frequently and you haven’t purchased a home, you may consider renting until you get more stationary. Believe me, I know the hassle more than most being a military brat, but at some point, you have to be smart about your finances. And buying and selling homes without making any money is not a smart financial transaction and it will negatively impact your net worth.

Consider Your Mate
Hopefully, it goes without saying that if you are in a marriage relationship, you need to get your spouse’s support on any move.  If you want to add unnecessary stress to your relationship, just ignore my advice here.  Having been married for over 20 years, there hasn’t been any major move I’ve made in my career without the support of my wife.  When things are not looking rosy, you’ll need the support of your significant other in those times especially.

#financialplanning #careertransition #newjob #finance #financialadvisor #financialtips #financialadvice #episode55

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About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

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Are We Winning the Fight for Financial Literacy?

Are we winning the fight for financial literacy–what do you think? What influences our purchasing decisions and is that “force” the loudest of all voices? I’ll tackle this important subject this week.

Podcast Details:

Podcast Title:  Are We Winning the Fight for Financial Literacy?
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.

Questions/Issues We’ll Address on this Episode:

The Question–“Are We Winning the Fight?” (2:25)

What drives or influences our spending decisions?  (5:30)

The influences that marketing has on us are undeniable.  We are constantly bombarded with the message of CONSUMPTION to, if not drive decision making, definitely influence our decision making.

What is US consumer spending?(8:00)
Domestic consumption of goods and services is near 70% (per the Bureau of Economic Analysis or the BEA).  This is measured by PCE or “personal consumption expenditures”. How much of that do you think is a result of the “Marketing Machine’s” influence?
What are the Facts? (9:40)
So how many people actually learn the basics around cash flow management, budgeting, saving or investing in high school?  or even college?  Here are some sobering statistics…
    • Per the WSJ, the US ranked 14th in a 2015 global study conducted with a grade of just 57%
    • As of May 2016, only 17 states require high school students to take a course in personal finance.
    • Another independent study that about 1/3 of students took a personal finance course in college
Two Articles from WSJ I reference:
Another Independent Study:
Past Problems (12:20)
 I think the most notable problem of the last decade was the US Housing crises where would-be homeowners were SOLD the idea through marketing that homeownership was good (which it is) regardless of your level of income and financial situation.  We needed more educated consumers back in the early 2000s (when was the bill passed?) that could have navigated the relaxed lending standards that allowed them to secure mortgages they couldn’t afford.  (What was the debt-to-equity ratio or the home ratio 1 or 2 back then compared to what it should be?)
Current/Future Problems (15:15)
Have we learned from our mistakes?  I don’t think we have or at least our children haven’t.  The next domino could indeed be something that is ironically enough, “in the name of education”–student loans.  Student loan debt is #2 on the list behind mortgages in the consumer credit market.  Per the St. Louis Fed, the number of student loans outstanding has increased 300% since 2006.
This all points to a problem of lack of education efforts towards financial literacy to keep consumers ignorant as to the consequences of their purchase decisions.
Solutions (19:30)
    • Start with earlier, more relevant education to younger students (my wife as a school teacher);
    • Financial services industry needs to take a more proactive to educate through pro-bono work;
    • Post-secondary lending standards need to be raised to stop the bleeding

#financialliteracy #finance #financialplanning #financialeducation #advice #financialadvisor #debt #studentloans #finlit #money

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Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

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The Retirement Solution: “Finding What You Love to Do”

Podcast Details:

Podcast Title:  The Retirement Solution: “Finding What You Love to Do”
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.

 

Questions/Issues We’ll Address on this Episode:
In today’s episode and maybe for the next couple weeks, I want to highlight some key takeaways from a few case studies that I’ve experienced in my years of practice around the subject of “retirement solutions”.  In addition to starting my own practice last year, I have had the benefit of serving about 600 families with another firm in the 6 years prior.  From that experience, I helped form several “retirement solutions” with several different financial planning strategies and techniques.  This week, I want to address a few key points that relate to success in determining a “retirement solution”.   This is such an important topic to address, so take the time to listen to see where you fit in.  I think everyone is concerned (or will be) about the amount of money they require to fully retire.  So I wanted to address that issue today.

Interesting Fact:  10,000 baby boomers will retire each day for the next 13 years and they will play a big role in wealth transfer over the next several years!

Take our FREE retirement assessment to see where you stand!

 

  • Challenges to the Retirement Solution
    • Changing Demographics (2:45)
    • The “new” Retirement Landscape (4:10)
    • Investment Environment (5:17)
  • Traditional vs. Non Traditional Retirement (7:50)
  • Case study of Ms. J (9:02)
    • Need to Save/Live Frugally (10:15)
    • Leverage Employer Benefits (15:37)
    • Delay Social Security Benefits (17:50)
    • Love what you do (19:25)

#retirementplanning #socialsecurity #financialadvice #financialplanning #financialliteracy

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Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

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Solutions to the Career Transition Problem with special guest Marques Ogden

Marques Ogden and I discuss the tools needed by young athletes to effectively transition from the gridiron to the boardroom!

Podcast Details:

Podcast Title:  Solutions to the Career Transition Problem with special guest Marques Ogden
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.

 

Questions/Issues We’ll Address on this Episode:
A discussion of “Solutions to the Career Transition Problem”and the tools needed by young athletes to effectively transition from the gridiron to the boardroom!

Marques Ogden and I continue our conversation on “Solutions to the Career Transition Problem” by having a very candid discussion on the tools he used after leaving the NFL to begin his transition into the business world.  We discuss the development of his thought process, a strategic plan, and a business network to launch his next phase in life.  We also cover in the discussion practical examples on what business owners can do to boost their networks during the start-up phase of their business.  We also discuss ways that young professional athletes should be leveraging their brand with non-monetary “human capital” while still playing.  Last, we cover some statistics provided by the CFP Board on financial literacy and savings rates among Americans.  Don’t miss this exciting episode of “Solutions to the Career Transition Problem” brought you DJH Capital Management.

  • Develop a Strategic Plan (3:15)
  • Develop a Network and Talk to People (4:50)
  • Join your Chamber of Commerce (6:30)
  • Leverage Your Brand (20:30)
  • 80% of Americans concerned about not saving enough…what about athletes? (25:35)
  • How to get out of your “comfort zone”? (28:55)

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Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

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#FinancialLiteracyBootCamp

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FLBC 032: Solutions for Fixing the Athlete Fraud Problem

Discussion with Chase Carlson and Jonathan Miller about the fraud problem in the athlete and entertainment world.

Podcast Details:

Podcast Title:  Solutions for Fixing the Athlete Fraud Problem
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.

 

Questions/Issues We’ll Address on this Episode:
My discussion with Chase Carlson and Jonathan Miller about solutions to fix the athlete fraud problem.

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About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

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#FinancialLiteracyBootCamp

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FLBC 031: Solutions to the Career Transition Problem

Marques Ogden and I continue our conversation about: “The Career Transition Problem” and how to re-brand and financially empower yourself!

Podcast Details:

Podcast Title:  Solutions to the Career Transition Problem
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.

 

Questions/Issues We’ll Address on this Episode:
Marques Ogden and I continue our conversation about:  “The Career Transition Problem” and how to re-brand and financially empower yourself!

Helpful Links:

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About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

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#FinancialLiteracyBootCamp

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FLBC 030: Financial Trends for 2017 & Beyond

Podcast Details:

Podcast Title:  Financial Trends for 2017 & Beyond
Podcast Series: Financial Literacy Boot Camp
Video and illustrations available on our YouTube channel here.

 

Questions/Issues We’ll Address on this Episode:
I  cover trends in investing, fintech, and regulation investors should be aware of.

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About Me:
Dominique Henderson, CFP® is founder of DJH Capital Management, LLC., a fee-only, registered investment advisory firm specializing in comprehensive financial planning and wealth management.

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#FinancialLiteracyBootCamp

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The Fallacy of Chasing Market Returns – Part 1

In the classic movie, The Wizard of Oz, there is the memorable scene that has the wizard being revealed as the small little man that he is. By this time though, Dorothy et. al. have gone through enough trials to have confidence in dealing with a “bully” as it were. The quote that I’m referencing is, “pay no attention to the man that’s behind the curtain”. And although I rarely do this, I’m going to give you the punchline of this blog right up front. Resist the urge to try to keep up with the markets. There you have it. I am proverbially “dropping the mic”, and exiting stage left. (For those of you that want just a little more, read on.)

As a veteran of the industry, I feel I should justify my position. After all, I ran a municipal trading desk for nearly five years and booked annualized returns of 7%, so I’m not talking out the side of my face. For years though, I felt the elixir that the financial markets was drinking seemed too good to be true.  And regardless of my gloating a few sentences ago, I realized then (and am acutely aware of now) that I was not the smartest guy in the room, so I often spent time asking [a lot of] questions of a lot of people. The majority of them echoed the same sentiment…”things are weird out there”. They meant in both the bond and equity markets. (I realize there are more asset classes than just those two, but they cover most of what retail investors have to choose from.) So that led me to evaluate what was so weird….

# 1 Weird thing…Equity markets have gone up [way] more than corporate profits.

So you might say, Dominique, this will always happen because investors look at P/E ratios and are essentially willing to pay for earnings that have yet to happen. But let me warn you, there’s a reason that “past performance is no guarantee of future results”.  So here are some facts for you.  Per the Shiller PE ratio, the market trades at an average 16x multiple, although it is currently at 27x.  Also, understand that on average, and a fairly recent average (e.g. 1984-2014), equity markets returned 10%.  So here comes the weird…I began to realize that nearly every investor, especially those with most of their investable net worth in company retirement plans: a) rarely has the option of building a fully diversified portfolio (more on that later), or b) has the discipline to stick with an investment strategy for more than one market cycle. So let me address two major issues that I just ran past. The first is that the market by nearly any estimation is overpriced as it relates to actual corporate earnings.  Next, is the lack of “real” choice in 401(k) plans combined with investor psychology. I’ve written previously on corporate profits and market valuations here, but the refresher course is that corporate profits have actually appreciated about 38% (since about July 2008, whereas equity markets [measured by the S&P 500] have appreciated about 87%.  Could it be that 401(k) deposits are pushing the market higher instead of corporate earnings? Quite possibly.  This wide variance can also be attributed to the result of a lot of stock buybacks by corporations due to the relatively inexpensive carry trade. Corporations have used the low-interest rate environment as an opportunity to issue debt at phenomenally low rates and use the tax shield provided by the interest deduction to lower their tax rates. This concoction allows company XYZ to raise a lot of cheap funds by issuing bonds while using the cash to buy their stock.  More buyers of stock, raises the price and begins to inflate valuations. Next point. Defined contribution retirement plans force most participants into a “long-only” [mostly equity] position regardless of their risk tolerance and time horizon with a menu of 10-15 funds (and I’m being generous). I’ve looked through several 401(k) plans and have been left scratching my head at the dilemma for plan participants.  And if after you finally decide on an allocation, then you get to read and hear all the “doom and gloom” of BREXIT, China’s economic implosion, Japanese helicopter money and the like.  The majority of investors are thrown into a panic in which they end up selling too low and buying back in too high. This is the reason that while the S&P 500 averaged 10% from 1984-2014, the average investor only made 3%.

#2 Weird thing…Short interest is high in equities and bonds.  

The smart money (as it is sometimes called) has seen the trends I’ve named above for years now and have promptly taken the other side of the trade.  So if not smart, definitely enterprising.  As Mr. Ray Dalio says, “if you’re at the poker table wondering who the sucker is, then it’s probably you”.  This crass use of Ray’s words will hopefully help me bring home a point I intend as a gut punch to all individual investors reading this blog right now.  There is a grand fallacy in trying to beat the market. Between all the computer programs that trade markets in hundredths of a second, and the mountain of institutional cash out there with access to up-to-date information, the average investor is up to an insurmountable task in trying to beat market returns. The collective market is hard to beat.  Then, why should you?  Before I answer that…I was saying, the smart money has taken the other side of the trade and sold short a lot of what the average investor might be buying in the company 401(k). Sorry if this was a big secret to you, but it is happening. I recently was reading that this year has only seen 5 weeks of positive equity fund flows, but yet the market is up 6% as of this writing. Well how is the market still going up in the face of so much selling? This is when it helps to realize that the buying that is taking place is actually the covering of short positions. How much short covering? A lot.

So what does all this mean? It means that trading in your 401(k)—regardless of how large it is—is up against a huge wall of money going the opposite way “in trend”. Which means that if you try to keep up with beating the market you might wind up feeling like the carpet has been pulled from beneath you before long. This necessitates you looking at your investment strategy totally different and with a disciplined perspective—not a in and out mentality.

#3 Weird thing……Low interest rates.

Now, low-interest rates are not exclusively weird since there has been precedent. Also, easy money policy or low-interest rate policy (“LIRP”) serves to induce spending to stimulate an economy and keep it from deflation. Trust me, when choosing between deflation or inflation you want inflation—see Japan. So, my point is that this is not a discussion on whether or not interest rates are artificially low (they are) or that the government is printing too much money (who cares). I want you to take a look at the macro picture which I feel is really the only thing that matters.  Think of the US Central Bank’s current monetary policy as potentially disruptive to global economic growth, since many countries are still attempting to recover from the 2007-2008 financial crisis. Most economies abroad are still having problems growing GDP (as are we). Let me back into the explanation….a country can’t raise its interest rates as long as growth is stalling. So instead, they lower interest rates to induce spending (and spur growth).  But what can happen as a result? First, your currency can depreciate which is not all bad because it can give you a competitive advantage with [relatively] cheaper goods to sell.  However, there are other ramifications to consider.  Alternatively (or co-currently), lower interest rates can drive investment capital offshore to higher interest rate economies.  Since capital generally seeks the highest return, this has been seen in some emerging economies.  This can dovetail into eroding the competitive edge gained by currency depreciation and cheaper goods.  The eroding effect happens when the foreign capital headed for “greener pastures” is due to be paid back in a devalued currency.  Quite literally, the cheap currency has bought an advantage that they can’t capitalize on because the interest and principal due on the foreign loans is much more than what was borrowed.  Ideally, a depreciated currency would have stimulated enough economic activity for the foreign capital to remain in the economy.

The fallacy of chasing market returns graphic

However, other factors in an interdependent global economy don’t allow for the ideal all the time.  A recent example of this was the commodity panic in 2015 on the back of lower oil prices.  Only the strongest of emerging economies have survived the revaluation of their currencies.This is what I feel is the most alarming about global economics and another reason why I maintain that the US is still the “cleanest dirty shirt”.

So what do I suggest? Well, that will have to be saved for part 2 because after nearly 2 decades in the industry I feel there is a way to overcome this market weirdness, but it has nothing to do with trying to beat the market.

(TO BE CONTINUED)

What the FED is Doing is Irrelevant and Here’s Why!

In talking to many clients, I realize there may be a false notion going around that suggests the FED is not doing a great job executing fiscal and monetary policy.  Actually, economic theory suggests that our government (separate from the FED) is responsible for determining fiscal policy (e.g. taxes, trade, etc.) while the FED is to carry out monetary policy. However, these two roles have been co-mingled over time, so it seems worth evaluating the question of whether the FED is doing a good job or not.  In the 1940s, an economist named Abba Lerner explored the doctrine of functional finance. It basically states that:

The first financial responsibility of the government (since nobody else can undertake that responsibility) is to keep the total rate of spending in the country on goods and services neither greater nor less than that rate which at the current prices would buy all the goods that it is possible to produce.

In that context (which I deem as very sound), let’s tackle some simple questions…

Q.  What is the goal of monetary and fiscal policy?  

A.  To keep aggregate demand (e.g. total spending in the economy) at the level of aggregate supply (e.g. total amount of goods and services in the economy).

Q.  What is the result of any imbalance?  

A.  This is a very loaded question.  But when aggregate supply exceeds aggregate demand this will result in unemployment since the level of goods and services being offered has not enough demand to consume them all.  The providers of those goods and services will then be forced to lower prices which will cut profits and cause less business expansion thereby reducing the need for labor (e.g. a decrease in the rate of employment).  When aggregate demand exceeds aggregate supply this will result in inflation since the level of goods and services being offered is not enough for all that would like to consume them.  Thus the providers of those goods and services will tend to raise prices causing the consumer’s purchasing power to be eroded.  Although inflation is always a much easier problem to handle (vs. unemployment) the government only has two ways to control it:  raising taxes (e.g. adjusting fiscal policy) which reduces the amount of income left available for consumption or raising of interest rates (e.g. adjusting monetary policy and carried out by the FED) which makes consumers less inclined to borrow to bring future consumption forward into present-day consumption.

Q.  How does the government get into the picture?

A.  When the FED is ineffective in employing its tools to regulate the economic cycle, economic theory would suggest the government get involved as a last ditch effort to “save” an economy from recession or depression.  One example would have been the Great Recession (2007-2009) where the government raised the level of consumption by purchasing government bonds.  How did this help?  When the government bought bonds the proceeds from the transactions where passed to the holders (e.g. banks, financial institutions) through “quantitative easing”, thereby giving these institutions the wherewithal to increase their lending facilities.  The more money a bank has on deposit the more it can lend to prospective borrowers.  This was designed to compel consumers to pull future consumption forward by borrowing more at much lower interest rates.  However, this has its consequences as inevitably interest rates can not remain artificially low for an extended period of time less too much borrowing occur or the effect of quantitative easing becomes moot.  I believe the last 7 years are evidence both happened.

Q.  What is the effect of too much borrowing by the government?

A.  Not much, especially if you subscribe to Lerner’s doctrine.  Ultimately the government’s control of how much currency is in circulation nullifies the rate at which it repays its debts.  The more important focus is the government’s use of borrowed money.  It is usually to increase aggregate demand or increase the level of spending.  The question is always then how effective is this employment of borrowed funds, not how much have they borrowed.

Q.  What is the effect of too much borrowing by non-government entities?

A.  Since low interest rate policies (“LIRPs”) don’t place restrictions on who can and cannot borrow, one popular outcome is the carry trade.  One example of this has been seen in the last several years, in which USD was borrowed at low interest rates to buy foreign securities and currencies that paid higher rates of interest.  The difference between the cost of borrowing and the interest paid was called the “carry”.  Many analysts believe this phenomenon artificially pushed up the value of securities in the global financial markets causing market valuations to trade well beyond their actual worth.  On the other hand, there is also evidence pointing to borrowed cash being “sidelined” or not invested and just hoarded inevitably waiting for the next financial collapse.  The latter theory is less popular, in that, in the short run this is a relatively costly trade because there is no return being earned on sidelined cash.

Q.  What is the “so-what” of all this?

A.  Ahhhh. A much easier question to answer with a definite answer.  Regardless, of all the economic theory that can be supposed, we are living in very unconventional times.  The need for investors to earn a return for assumed risk should be paramount, but has taken a backseat to the need to avoid market volatility. At the end of the day, financial market complexity may be at its apex thereby justifying the need for prudent asset selection with constant monitoring.  An investor should consider setting realistic goals in a systematic way with the assistance of a financial professional.  Whether you think the FED is doing a good job or that government spending is out of control, your investment plan will need to be constructed to withstand the test of time; inevitably requiring it to resist the ups and downs of several economic cycles.  Time after time, I’ve seen the most successful investors create a sound plan and remain with that plan to achieve their financial goals. In that context, it really doesn’t matter what the FED does as much as what YOU do.

Invest wisely!