Stuff To Know
July 3, 2018
Work or Retire Sign — Fishers, IN — Norwood Economics

He had a guy that seemed to be doing just fine with his investment portfolio. When asked if he’d ever had anyone do retirement planning for him, he paused and then repeated that this guy (that his brother had recommended) seemed to be doing okay with the investing.


Retirement planning is about much more than investing. Investing is what you do with your savings to earn a return. You save and earn a return on your savings in order to have sufficient funds to meet your spending goals in retirement. You can’t retire and continue to consume without a retirement income, such as social security and savings. You need savings in addition to social security because social security is designed to only replace about 40% of your income. While it is true that the more you earn on your savings the less you need to save, it is not true that you will have a successful retirement 100% of the time as long as you beat the S&P 500 index return. You need to also save enough. Retirement planning is, in part, about determining an adequate savings rate.


Retirement planning is about much more than saving at an appropriate rate and investing your savings in a manner that will maximize the probability of meeting your spending goals in retirement. Retirement planning is also about contingency planning. No one knows how their future will play out, not in any real detail. Do we meet our savings goal or is it derailed by the loss of a job, illness, a divorce? Effective retirement planning includes contingency planning: What if this happens? What if that? A good retirement plan is stress tested after the basic model is built. A good retirement plan is robust enough to withstand life’s little jokes.


I had a woman tell me that her 401(k) plan had added a Roth option. A Roth IRA allows for after-tax savings, tax-free accumulation and tax free distributions. A traditional IRA allows for pre-tax savings, tax-free accumulation and taxable distributions. Tax uncertainty (not knowing future income tax rates) argues for putting money into both a Roth and Traditional IRA. The woman asked me if she should invest in the new Roth option, or continue to put money into a target-dated fund. Of course, that isn’t the choice. The Roth option isn’t an investment; it is an account that holds money that can then be invested in the same options as in the traditional 401(k) account. IRAs and Roth IRAs are not investments; they are investment accounts, with certain tax characteristics, into which you can place savings with which to invest.


I had a man tell me he didn’t want to just use index funds because he didn’t want to put all of his eggs in one basket. Index funds are now ubiquitous and can range from passively tracking a concentrated basket of investments, to tracking a broad, highly diversified basket of investments. Presumably, he meant he didn’t want to only invest in low-cost, passively managed funds, but instead wanted to also invest in higher-cost, actively managed funds as well. However, the choice between using index funds and actively managed funds has nothing to do with diversification. It is very easy to build a properly diversified index fund portfolio if that is your goal. Index funds are not an asset class; they are a type of money management style.

Credit Cracks and Falling Liquidity

By Christopher Norwood • October 20, 2025
Executive Summary The S&P 500 rose 1.7% last week to finish at 6664.01 The Nasdaq & the Dow Jones rose as well last week We had an inside day last Monday, then an inside week Earnings season is here The four credit events might snowball into something more serious Credit spreads have started to react, widening over the last two weeks Bond yields fell (yields down, price up) last week The dollar index is also falling The Federal Reserve has been draining excess reserves from the system since 2022 It appears as if the Fed has no choice but to end its Quantitative Tightening (QT) program The Stock Market The S&P 500 rose 1.7% last week to finish at 6664.01. The Nasdaq 100 was up 2.4% and the Dow was up around 1.5%.

The “Great AI Buildout"

By Christopher Norwood • October 13, 2025
Executive Summary The S&P 500, Nasdaq & the Dow Jones fell last week President Trump tanked the market Friday with a post about trade talk troubles with China The S&P 500 still has a lot of momentum, though Bond investors aren’t expecting a recession any time soon The Atlanta Fed GDPNow tool is estimating 3.8% real GDP growth for Q3 The AI boom is increasingly dependent on circular cash flows The U.S. stock market has a lot of exposure to AI The Stock Market

The Federal Reserve and the Federal Government Must Walk a Fine Line

By Christopher Norwood • October 6, 2025
Executive Summary The S&P 500 rose 1.1% to close the week at 6715.79 The Nasdaq was down 0.3% last week The Dow Jones Industrial Average was up 1.99%. The government shutdown materialized on Wednesday The Fed is expected to cut the funds rate by another quarter point in October Unemployment isn’t rising, and consumers are still spending Recession red flags The last 18 years have been unusual A recession is not Norwood Economics’ base case

Artificial Intelligence Does Not Change Economics

By Christopher Norwood • September 29, 2025
Executive Summary The S&P 500 fell 0.3% last week to finish at 6,643.66 The Dow, Nasdaq, and Tech sector ended lower as well The S&P average annual total return is 7.9% since the 2000 market peak The economy grew 3.8% in Q2 (third estimate), up from the prior 3.3% second estimate Financial conditions remain loose The 10-year Treasury yield has little room to fall from current levels The elderly and poor suffer most from the impacts of inflation Norwood Economics manages diversified portfolios This time is NOT different The S&P might see negative returns over the next decade Economic growth is the lowest in the past 25 years There are no piles of cash sitting on the sidelines The Stock Market

Rightsizing Your Portfolio Risk Before the Next Bear Market

By Christopher Norwood • September 22, 2025
Executive Summary The S&P 500 rose 1.2% last week to finish at 6,664.36 The S&P 500 is up 13.31% year-to-date The S&P is expensive The Fed updated its “Dot Plot” The 10-year yield rose last week despite the Fed’s rate cut The Fed is signaling at least two more rate cuts by year's end A pullback of 10% or so wouldn’t be unusual, but there’s no data signaling recession yet The top ten most expensive S&P 500 companies make up over 39% of the market cap UBS economists estimate a 93% chance that the US will slip into a recession this year Investors should review their portfolios before the next bear market The Stock Market

A Lower Federal Funds Rate Means Less Income For Consumers

By Christopher Norwood • September 15, 2025
Executive Summary The S&P 500 rose 1.6% last week to finish at 6,584.3 The stock market rises long-term due to earnings growth and interest rates A stock is ownership in a business Investors are willing to pay more for a dollar’s worth of earnings today than in the past Profit margins are already near record highs The Volatility Index (VIX) closed the week at 14.76 The market is setting new highs The CME FedWatch tool places the odds at 100% for a rate cut Wednesday The August jobs report and last week’s jobs revision are driving rate cut expectations Cutting the fed funds rate isn’t the answer to slower job growth Higher long-term rates will negate any benefit from a rate cut The Stock Market

Risks are Rising as the Economy Slows

By Christopher Norwood • September 8, 2025
Executive Summary The S&P 500 fell 0.3% last week to finish at 6,481.50 The CAPE ratio is currently at its second highest reading ever Valuation is a lousy timing mechanism, but an excellent predictor of future returns Interest rates declined last week The 2-Year Treasury yield fell to 3.51% by the close on Friday The 10-Year Treasury yield also fell, ending the week at 4.10%. The CME FedWatch tool has the odds at 73% of a Fed funds rate of 3.50% to 3.75% or lower by year's end The weak jobs report on Friday showed that only 22,000 new jobs were added in August Unemployment rose to 4.3% from 4.2%. The aggregate weekly payrolls index fell to 4.4% in August “We’re back in that world of uncertainty," states Art Hogan, chief market strategist at B. Riley Wealth  The Stock Market

The Jobs Report Friday Could Spark a Rally or Sell-off

By Christopher Norwood • September 2, 2025
Executive Summary The S&P 500 finished down 0.1% at 6,460.26 last week The S&P is up 9.8% on the year. Industrials and Communication Services are leading the way Personal income rose in line with expectations for July, climbing 0.4% up from 0.3% the prior month A weak payroll number on 5 September means a Fed rate cut on 17 September Unemployment is expected to rise, but it is still low relative to history Wage growth close to 4% will make it hard for inflation to fall to 2% The predictions market has the odds of a recession at 8% The ICE BofA US High Yield Index spread is near all-time lows A bear steepener is increasingly likely. A bear steepener is when the yield curve falls at the short end but rises at the long end

One of Financial Planning's Most Important Inputs is the Expected Average Inflation Rate

By Christopher Norwood • August 25, 2025
Executive Summary The S&P 500 rose 0.3% last week to close at 6466.91 The CME FedWatch tool initially raised the chances of a September rate cut to 84.7% The stock and bond markets opted to buy Fed Chairman Powell’s Friday morning speech Investors now seem certain that the Fed will start cutting again The current five-year breakeven is 2.48% The 10-year breakeven is 2.41% The core Consumer Price Index (CPI) is 3.1% Disinflation appears to be over as the inflation rate is no longer falling The St Louis Fed’s Financial Stress Index is negative 0.8153. A negative number means below-average financial market stress The real 10-year interest rate is falling. Money is getting cheaper. The Fed’s balance sheet is shrinking, but is still 22% of GDP An indebted economy can’t withstand high interest rates  The Stock Market

Overvaluation is a Poor Market Timing Tool

By Christopher Norwood • August 18, 2025
Executive Summary The S&P 500 rose 1.01% last week to finish at 6,449.80 The stock market keeps hitting new highs Market strategists are expecting earnings growth to accelerate in 2026 Margins remain near record highs Corporate profit margins will likely take a hit from tariffs Passing tariff costs on to the consumer means raising prices Core CPI rose by 0.3% in July The PPI jumped 0.9% last month, the largest monthly increase in more than three years Buffett says it’s dangerous when the market cap rises to more than 140% of GDP. Currently, the ratio is above 200%. The massive increase in the Fed's balance sheet over the last 25 years has led to financial asset price inflation The Stock Market