Low for Long, Loans to Kids

Genevieve Signoret

Letter from the President

Low for Long

Before I say a word about money management I need to talk about the Fed. Remember, nothing matters to your liquid wealth more than what the Fed will do in the next two years. This is true even if your entire portfolio holds Mexican securities exclusively.

Yesterday’s FOMC communiqué prompted no change in our view as to the timing of the next Fed decision: we continue to expect the first rate hike to occur some time next summer, with risks tilted toward an earlier hike.

To hike is to tighten. That’s obvious. But I’m much more comfortable with the term “normalize” than “tighten” for the first batch of rate hikes. By my reading, the Fed intends to move from a period of extraordinary stimulus—zero interest rate with quantitative easing—to a period of ordinary stimulus.

What does “ordinary stimulus” mean? “Ordinary” means rates higher than zero, but “stimulus” means low. Put the two together and I’d be shocked if the Fed moved rates above 1.00% next year. With inflation around 2.00%, this would still be a negative rate in inflation-adjusted terms (1.00% minus 2.00% equals –1.00%).

In our view, once the Fed has engineered the transition from extraordinary to ordinary stimulus, a long pause will ensue. We and others sum up this view with the phrase “low for long”. “Low”, remember, refers to stimulus.

It is this view—that rates will remain low for long—that drives our opinion that the bull market won’t be ending soon.

Loans to Kids

One of the first things we work on early on with Elite wealth management clients is documenting their outstanding loans to children, other family members, and friends. We simply write up the terms of the loans in promissory notes, which the parties then sign. It makes things so much simpler and more harmonious for the heirs when our clients pass away. It also promotes family harmony in the meantime.

One obstacle to drawing these up can be unclear or inconsistent policies on loans to children. Parents must decide first of all what types of things they’re willing to lend money for. Graduate school? A first car and house or only a car?

Then they must establish terms. Will they charge interest? At what rate? With or without grace periods during times of hardship or a transition from school to work force?

Any vagueness or seeming arbitrariness on these questions have the potential to lower everyone’s quality of life; they can foment inter-sibling or child-parent friction.

We lay out options for our clients and then help them draw up a brief, clear loan policy statements to circulate among their children.


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