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Unemployment in Kentucky, J&J Declares Bankruptcy, and Millennial Investors

I mentioned this last week, but the year is almost over. That means it's time to take your Required Minimum Distributions and make sure that your year-end tax planning has been done. If you have questions about what you should be doing to cover your bases, check out the Plentiful Wealth Podcast. I just posted an episode earlier today on year-end planning, which you can find here.

I'm hosting a webinar for retirees on Year End Tax Planning Strategies this Friday and if you're retired, or nearing retirement age, you should check it out. I'll be covering tax strategies that you won't hear from most other advisors. You can sign up here.

So what did I read this week?

Kentucky has two job openings for every unemployed person. On top of that, we led the nation in the quit rate back in August, the most recent numbers. So why is there such a disparity between job openings and hiring?

  • Employee skills don't match openings. Employers are often looking for skilled employees and many just don't have those skills.

  • Covid is still weighing on the minds of employees. Many jobs are in food service or other field with high potential exposure and potential employees don't want to take the risk.

  • Childcare is tough to find and expensive when you can find it. I can speak to this one personally, since I have a kid in daycare. It can be very hard to find childcare, especially at a reasonable price. For many, the amount spent on childcare is similar to their take-home pay.

So how do we fix this? Wages have to rise. Yes, I understand inflation and I don't discount it, but the market is showing that potential employees are going to require higher wages to come back to work. Minimum wage isn't going to cut it anymore, at least not in many areas.

Next up was a piece on Johnson & Johnson and their legal issues. Over the last few years, they've paid out nearly 2.5 billion dollars because their baby powder has been shown to cause a myriad of health issues, including cancer. While that's bad, the worst part is that since they've lost, they've gone through a fairly complex legal maneuver to shift the responsibility to a holding company, which then immediately declared bankruptcy. The end result of this is that those who have legitimate claims won't receive as much compensation as they deserve.

I find this troubling. Essentially, J&J is saying heads we win, tails you lose. Even though juries found against them, they're finding ways to shift and mitigate the losses. Maneuvers like this are one of the biggest reasons that many are frustrated by large corporations. Many corporations are happy to receive taxpayer funded incentives and pay lower tax rates than ordinary taxpayer, but when it's time to take responsibility for harm they've caused, they shirk responsibility.

I understand that this is probably the right business decision, if you believe that the fundamental role of a business is to maximize the value created for shareholders. Personally I don't believe that. I believe that businesses exist to maximize the value created for all stakeholders, whether they own a piece of the business or not. This includes shareholders, employees, and even customers. It's possible to do well by doing good.

There's a disconnect between the services Millennials want and what financial advisors are providing. In the past, advisors were differentiated by the products they could offer, such as separately managed accounts or access to IPO's. Before the internet, asymmetrical information was the name of the game. Advisors were seen as gatekeepers to Wall Street.

While some advisors still see themselves as oracles of finance, the truth is that the game has changed. Investments can be accessed at the tap of a finger through apps like RobinHood. Investing advice has effectively become commoditized as investors have realized that there really isn't a secret sauce. There's no point in paying a percentage of assets for someone to put assets into a cookie cutter model.

So what does have value? What is it that Millennials (and plenty of others) want? Advice. Not sales, not products, but unbiased advice. They want to know how to optimize their finances and they want to make sure they're on the right track towards hitting their goals. Their goals are often different than Boomers and Gen X'ers though. They're not interested in working till 65. They want to reach financial independence earlier than that, much earlier. Most of my clients are shooting to be financially independent in their 40's.

One way they're reaching for that goal is by turning traditional investment management on its head. As Warren Buffet said, concentration builds wealth while diversification protects it. Many Millennials are fine taking big risks. A lot of this can be traced back to their formative years, during the crash in '08. They saw their parents lose 30-50% of their portfolios, while still being invested in a diversified manner. They see that as an asymmetric risk / reward ratio. I don't really agree, but I've heard many Millennials say they want to take more risk, so they're looking to crypto or real estate.

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