China surprised the world by allowing the Yuan, it’s official currency, to float freely for the first time in 25 years. This quickly devalued it 3.6% in two days, which is a huge move. Interesting fact, the other name for the Yuan is the Renminbi, which is the local currency of “the people”.
This move is in defense of their slowing economy and tumbling stock market. In the last few weeks they have cut interest rates, eased reserve requirements, banned high frequency trading, and even made stock selling illegal in roughly 94% of the country’s free float. Even with these moves, their stock markets continued to fall.
So As a last-gasp maneuver China has made a desperate move by cutting the value of the Yuan. The government feels that by doing this so it will help boost to the economy by making exports cheaper, thus making local businesses more profitable and creating jobs.
In addition to bringing instability to the world markets, this decline violates a decade old secret agreement with the US government to allow a steady 3-4% a year appreciation of the Yuan against the dollar. This was designed to slowly eliminate the artificial under-valuation of the Yuan that gave them an unfair export advantage. This agreement is primarily responsible for the 20% rise of the Yuan since 2009.
Although I don’t think that this is going to be a lasting problem for stocks or investors, these uncertainties, along with the questions over the Federal Reserve’s interest rate decision in September and slower than expected US growth, is worrying worrisome to investors and adding increased volatility to the markets. This only serves as a reminder to investors that the markets are emotional and risk can increase on a moment’s notice, so always be prepared and invest ed properly, particularly if you are retired or close to it because you simply cannot replace this money nor can you afford to live through another crash with another 5 or 10 years trying to get it back again.
It all starts with the proper planning and the importance of working with a qualified retirement advisor who can help you create a customized master retirement plan for you and your family. This plan should incorporate a retirement income analysis, retirement tax strategies, Social Security optimization, a sequence of distribution and marginal tax distribution strategy as well as creating a portfolio that gets the best returns with the least risk possible so you can make money in any market and are prepared for the good times and the bad… …
and that’s where we can help. If you would like a FREE customized Retirement Income and Tax Strategy Analysis, simply click on this link or give us a call for a no obligation consultation today.