Robert Walker - Pass The 65: A PLAIN ENGLISH EXPLANATION TO HELP YOU PASS THE SERIES 65 EXAM - UPDATED FOR THE JULY 1, 2016 CHANGES TO THE SERIES 65 EXAM

Even though I started investing later than I should have, I am proud to report that my retirement accounts are now showing light at the end of the tunnel. If I keep funding the accounts and investing wisely, I could shave several years off my working life. On the other hand, if I get too lazy to make contributions, or if I invest those contributions foolishly, I could end up adding several years to my career, whether I want to or not.

What about you? Maybe you are already saving and planning through a 401(k), IRA, or other retirement account. If so, your financial future is subject to inflation, interest rates, yield curves, the business cycle, economic indicators of all sorts, and both fiscal and monetary policy.

Lets start with inflation.

Some of my ancestors came to Chicago long before American banks were insured by the FDIC and never really trusted the banking system. Several of my aunts and uncles would make purchases for washers & dryers or even new cars by pulling out a coffee can and grabbing a roll of twenty-dollar bills. Unfortunately, if you put your extra cash in a coffee can, prices are probably rising throughout the economy. That means you are losing purchasing power as your money just sits there. Even when you park your money in an FDIC-insured bank deposit, you usually find that the low rates of interest the bank pays do not keep pace with inflation . It might look as if youre earning more dollars, but because of inflation those dollars cant buy as much as they used to. You used to be able to afford a dozen eggs. Now because of inflation you can only afford eleven.

Inflation is sometimes described as the result of too many dollars chasing a limited supply of goods and services. Inflation is system-wide, where the overall level of pricing for all consumer goods is increasing. Since many workers in the American economy have little ability to raise their own paychecks, inflation is a real problem. At first, maybe consumers will have more money for gasoline by cutting back on snack chips. Maybe they can pay the power bill if the whole family agrees to brown-bag their lunch for a few months. While its always nice to see American families pull together like that, the fact is we dont like to see the snack chip company or the local restaurants lose revenue, as those companies represent hundreds or thousands of working families, as well.

A loss of purchasing powerinflationis a problem, but sometimes economists worry about the opposite scenario: deflation . Deflation occurs when the supply of goods and services suddenly is greater than demand. While inflation can make things too expensive for consumers to buy, deflation can make things ever cheaper. With deflation at work profit margins at businesses will be squeezed, as the companies pay last months prices for raw materials and then struggle to sell their finished goods at next months cheaper prices. Thats assuming they can sell anything to anyonewould you rush out to buy something today if you knew it would be cheaper tomorrow? Wouldnt we all be tempted to put off our purchases indefinitely, waiting for the prices of cell phones, clothing, and automobiles to drop in our favor? That would lead to lay-offs. And then those workers would have less money to spend and less confidence in their ability to buy anything on credit.

About two-thirds of the American economy is driven by consumer spending, so if consumers arent spending, thats a problem. Therefore, the Federal Reserve Boards Federal Open Market Committee ( FOMC ) is forever monitoring and manipulating short-term interest rates in an attempt to find the right economic temperaturenot too hot, not too cold. An inflation rate of about 23% is generally considered ideal, although it isnt as if theres a magic button they can push to adjust the economy.