The Daily Brief
Generation X

Gen X Saddled with Debt

Generation X’s debt is hurting long-term planning, alternative fund fees dwarf traditional mutual funds and Guggenheim predicts the next recession.

Members of Generation X continuously struggle with debt, which hinders long-term planning, according to the new Generations Ahead Study from Allianz Life. Gen X’s non-mortgage (credit card and student loan) debt has increased 15 percent since 2014, and nearly half believe they can’t start saving for retirement until such debt is paid. What’s worse, 42 percent of Gen Xers believe that accruing debt to manage day-to-day purchases is “just a fact of life” and 63 percent believe everything will “just work out,” up 10 percent from 2014. “While our study revealed some positives in how boomers and millennials are preparing for retirement, Gen X’s saving and spending habits were concerning, especially since retirement is not far off for many in this group,” says Paul Kelash, vice president of Consumer Insights for Allianz Life. “More worrisome than their debt, however, is their lack of planning. Gen Xers are becoming more careless with credit, yet at the same time less committed to proactively addressing their retirement security.” On the bright side, 39 percent of Gen Xers currently work with a financial professional, and the same percentage of those without are “open to receiving professional advice.”

Morningstar: Alternative Fund Fees Are Significantly Higher than Other Mutual Funds

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A recent analysis by Morningstar shows that alternative fund fees are about twice as high as fees on other traditional, actively managed equity and bond funds. “High fees and additional costs render most liquid alternative funds as relatively unattractive investments. But there are some funds worth holding. Investors using alternative funds should determine what role the fund will play in a portfolio, assess the fund’s ability to deliver this objective, and determine if the fees are justified,” says Patricia Oey, Morningstar senior analyst and manager of research. Not only are fees high, but alternative funds are the only fund category to show rising costs over the last year. In the last three years, fees on more traditional funds have been trending lower, as flows have moved into passively managed, low cost funds. Morningstar acknowledges the logic behind alternative funds’ attraction, even with the higher fees, as diversification, low correlation to equity and bond markets, and the chance of “alpha,” which attributes such ideas of why these funds haven’t had ”large inflows into passive funds.” Also, those objectives, alpha and low correlations, are hard to provide, so alternative funds’ price in this “scarcity premium.” Oey advises that investors should check to see whether they are, in fact, getting anything special.

Guggenheim: Recession Coming in Late 2019

Guggenheim Investments released a whitepaper Wednesday that predicts the next recession is due in late-2019 to mid-2020. The asset management firm used two new analytical tools to come up with the timeline. Its Recession Dashboard tracks six leading indicators that a recession is near, while its Recession Probability Model predicts the probability of a recession over six-month, 12-month and 24-month horizons. One sign: In the last five cycles, the S&P 500 has rallied an average 16.2 percent in the penultimate year of the expansion before falling 3.8 percent in the final 12 months of the cycle. If history is any indication, investors should turn defensive in 2019 and position for widening credit spreads and falling equity valuations, Guggenheim says.

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