Inflation: Biggest Threat to Investors and Market

Posted on January 12, 2022 by admin

“Inflation is not going to be transitory.” Paul Tudor Jones, Tudor Investment Founder

Recently on CNBC, Paul Tudor Jones, founder and chief investment officer of Tudor Investment Corporation, was extremely critical of current Federal Reserve policy. He opined that current Fed monetary policy and Administration fiscal policy are creating persistent inflation, instead of fighting existing inflation.

In his opinion, inflation could be worse than feared and is not transitory. “I think to me the number one issue facing Main Street investors is inflation, and it’s pretty clear to me that inflation is not transitory,” Jones said on CNBC’s “Squawk Box”. “It’s probably the single biggest threat to certainly financial markets and I think to society just in general.”

Additionally, Jones opined that inflation will be the death to 60 percent stocks / 40 percent bond portfolios favored by retirees. In his opinion, the Federal Reserve policy is creating inflation instead of fighting it. Instead, the Fed should be aggressively fighting inflation.

Currently, the Fed is slow and late fighting inflation.

Jason Furman, the former chair of the White House Council of Economic Advisers and now a professor at Harvard University’s John F. Kennedy School of Government, contends that both economists, and the market, got inflation wrong in 2021. Furman explained that normal multipliers showed that the fiscal and monetary stimulus was well in excess of the economy’s potential to absorb. He expects inflation to remain “very elevated” because demand will be above trend, and the lag from Federal Reserve policy will mean any tightening won’t make an impact until next year anyway.

Consumer inflation expectations

A Sept. 2021 Federal Reserve Bank of New York survey shows Americans’ inflation rate expectations rising to their highest levels since the survey’s inception.

Consumer expectations for inflation rose to 5.3% over the next year and 4.2% over the next three years, according to the New York Fed. Both are the highest in the history of a data series that goes back eight years.

Powell has long held that inflation is being held in check by forces that the Fed has no control over – aging populations, lower productivity and advances in technology.

Powell’s five-point inflation checklist include:

Lack of broad-based pressures;
Lower moves in high-inflation items;
Low wage pressures;
Tepid inflation expectations, and
Long-lasting forces that have kept inflation low globally.

High technology companies stocks have underperformed the broader markets amid an increasing possibility of Federal Reserve rate hikes this year. Rising U.S. treasury yields have also recently put pressure on high growth tech names.

The valuations of many tech companies rely on the prospect of profits years in the future, and higher long-term Treasury yields typically discount the present value of future cash.

References:

Brain-Changing Benefits of Exercise

Posted on January 11, 2022 by admin

“The key to a happy life . . . is a healthy brain.” Wendy Suzuki

Exercise is the most transformative thing that you can do for your brain, says neuroscientist Dr. Wendy Suzuki, professor of Neural Science and Psychology at New York University.

Dr. Suzuki discovered through research and self examination that there is a biological connection between exercise, mindfulness, and action. With exercise, she believes that your body feels more alive and your brain actually performs better. And, Dr. Suzuki states that “you can make yourself smarter. Exercising is one of the most transformative things you can do to improve cognitive abilities, such as learning, thinking, memory, focus and reasoning — all of which can help you become smarter and live longer.”

Dr. Wendy Suzuki, explains the best way to exercise in order to improve brain function pic.twitter.com/MG6pPLU7UM

— Business Insider (@BusinessInsider) February 6, 2020

The way exercise boosts your brain health includes:

It decreases feelings of anxiety – Studies have shown that every time your move your body, a number of beneficial neurotransmitters, including dopamine, norepinephrine, serotonin and acetylcholine, gets released into your brain. These substances can decrease feelings of anxiety and depression. And, It only takes between 10 and 30 minutes of daily physical activity to instantly lift your mood.
It improves your focus and concentration – A single workout can help improve your ability to shift and focus attention. This is an immediate benefit that can last for at least two hours after 30 minutes of exercise. Activities that increase your heart rate, such as brisk walking, running, swimming, cycling, playing tennis or jumping rope are recommended.
It promotes the growth of new brain cells – One of the most significant benefits of exercise, scientists have found, is that it promotes neurogenesis, or the birth of new brain cells. This is essential to improving cognitive function. Exercise also can improve the health and function of the synapses between neurons in this region, allowing brain cells to better communicate.
It protects your brain from aging and neurodegenerative diseases – Imagine your brain as a muscle: the more workout you put into it, the stronger and bigger it gets. Longitudinal studies in humans suggest that regular exercise can increase the size of the hippocampus and prefrontal cortex, both of which are susceptible to neurodegenerative diseases such as dementia and Alzheimer’s. So while exercising won’t completely prevent or cure normal cognitive decline in aging, doing it consistently can help reduce or delay the onset of it.

So, get up and start your brain transformation journey.

Dr. Suzuki encourages people to get active and go to the gym since the science clearly demonstrates how working out boosts your mood and memory — and protects your brain against neurodegenerative diseases like Alzheimer’s.

To get the brain-changing benefits of exercise, you should do at least three to four 30-minute workout sessions a week, explains Dr. Suzuki. You’ll also get the most benefits out of aerobic exercise, which increases the heart rate and pumps more oxygen into the brain.

Essentially, exercise can improve your brain functions today and protect your brain from neurodegenerative diseases as you age.

References:

A Stock’s Price vs. a Company’s Intrinsic Value

Posted on January 10, 2022 by admin

“Stock prices fluctuate unpredictably. But company values stay relatively steady.” Kenneth Jeffrey Marshall,

Value investing is one of the most popular ways to find great stocks in any market environment. Value investing represents an approach to investing, where investors evaluate the fundamentals or intrinsic values of companies rather than estimating the future market prices of stocks. The definition of a value stock, for our purposes, is a stock that is underpriced by the market or due to volatility relative to its worth or fundamentals.

Value investing is about finding stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value (or intrinsic value). According to Investopia, intrinsic value is a measure of what an asset is worth. In short, it’s the underlying value of a company and its cash flow.

The idea of value investing involves purchasing great stocks of companies priced by the market well below their intrinsic values, which can give investors a margin of safety. The margin of safety comes from buying good companies at cheap prices. It comes from buying good companies that you understand, and to do so at a discount to companies estimated intrinsic value. That discount is where the margin of safety comes from.

Great stocks shouldn’t get cheap. But sometimes they are.

Value investing also allows traders to detach from their emotions of fear and greed when stock prices fluctuate. It enables them to hold the stocks for long-term rather than buying and selling if they’re feeling wildly optimistic or pessimistic because of stock price and market volatility.

Deep thanks to Brian Sullivan, Alex Rosenberg, and Joy Tutela for having me on CNBC today:https://t.co/D29t8pC4wy

— Kenneth Jeffrey Marshall (@KennethJeffreyM) September 25, 2017

Price and value differ:

Price is what something can be purchased or sold for at a given time. Price fluctuates.
Value is what something is worth, it fluctuates less.
Identify the right price at which to buy stock
Hold quality stocks fearlessly during market swings

Value investors understand that over time, the market price of a stock will converge with its actual fundamental worth or intrinsic value. But at a single point in time, it may not. And those single points are enough to purchase good companies cheap or below its intrinsic value.

Value investors also understand that there always comes a time when glamorous businesses stop getting priced like rock stars, and start getting priced like businesses.

Over time, the average price of an asset does converge to the average worth of that asset. But in the short term they can be wildly different, since stock prices fluctuate unpredictably. But company values stay relatively steady. This insight is the basis of value investing, according to Kenneth Jeffrey Marshall, author of the investing book, “Good Stocks Cheap: Value Investing with Confidence for a Lifetime of Stock Market”.

The occasions when a stock price is far away from a company’s intrinsic value is when a patient value investor acts.

Value investing is buying companies for less than they’re worth…their intrinsic value. According to the Kenneth Jeffery Marshall, professor, value investor, and the author of “Good Stocks Cheap”, best value investing procedures to utilize include:

Do you understand the company
Is it a good company:
- Has it been historically good
- Will it be good in the future
- Is it shareholder friendly
Is the stock price cheap or at what price will the company’s stock become cheap (margin of safety)

The secret of successful investing: Staying invested and patience. Stock prices can be volatile and can fluctuate unpredictably in the short term. But the intrinsic values of companies stay relatively steady. Thus, you should chose to invest in companies selling for less than they are worth (intrinsic value) and not over pay for a company.

One way to find companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. There are several key metrics that value investors look at, which include:

Price to Earnings Ratio (PE). PE shows you how much investors are willing to pay for each dollar of earnings in a given stock. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
Price/Sales ratio. P/Sales compares a given stock’s price to its total sales, where a lower value is generally considered better. This metric is preferred more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings. The best use of P/S ratio to compare it to the S&P 500 average. Also, you can evaluate the trend of the stock’s P/Sales over the past few years.

Price/Earnings to Growth ratio (PEG). PEG ratio is another great indicator of value. PEG ratio is a stock’s price-to-earnings (P/E) ratio divided by the growth rate of its earnings for a specified time period. The PEG ratio is used to determine a stock’s value while also factoring in the company’s expected earnings growth, and it is thought to provide a more complete picture than the more standard P/E ratio. A lower PEG may indicate that a stock is undervalued.

The reality is that some of your selected stocks will lose money. That’s why it is important to diversify your investments, so that losses in a stock may be outweighed by gains in other stocks.

Strength of value investing

Deep value factors, such as book-to-price or tangible book-to-price, usually rally first, when actual levels of rates are still low, says Boris Lerner, Global Head of Quantitative Equity Research. Other value factors, such as earnings yield or free-cash-flow yield, tend to pick up later, as rates rise above trend.

Rising interest rates are the primary reason value investing has staying power. When inflation and rising interest rates are trending higher, it can clip the wings of pricey growth stocks, whose valuations are predicated on future returns, which make pricier growth stocks less appealing. When rates go up, it instantly raises the bar on far-out profits needed to justify today’s stock prices.

Because value names are typically mature companies with valuations based on current cash flow, rising rates don’t have the same impact. At the same time, many traditional value sectors, such as financials, directly benefit from rising rates.

Put the strength of value investing to work for you. In a nutshell, the basic tenet of value investing is paying less for a company than its worth.

References:

Kenneth Jeffrey Marshall teaches value investing in the Masters in Finance program at the Stockholm School of Economics in Sweden, and at Stanford University. He also teaches asset management in the MBA program at the Haas School of Business at the University of California, Berkeley. Marshall is a past member of the Stanford Institute for Economic Policy Research; he taught Stanford’s first-ever online value investing course in 2015. He earned his MBA at Harvard Business School.

Margin of Safety

Posted on January 9, 2022 by admin

“If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger the margin of safety you’d need. If you’re driving a truck across a bridge that says it holds 10,000 pounds and you’ve got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay; but if it’s over the Grand Canyon, you may feel you want a little larger margin of safety.” Warren Buffett

Billionaire investor Warren Buffett, Chairman and CEO, Berkshire Hathaway, said, “The three most important words in investing are margin of safety.” Margin of Safety is a measure of how “on sale” a company’s stock price is compared to the true value of the company. You need to be able to determine the value of a company and from that value determine a “buy price”. The difference between the two is the margin of safety.

Effectively, margin of safety means you pay less for an asset than what it’s intrinsically worth. It means to buy $10 dollar bills for $5 dollars. That’s the secret to great and successful investing. The margin of safety is the difference between the intrinsic value of a stock and the current market price of the stock. The intrinsic value of an asset is its actual value, that is, the present value of the asset found by calculating the total discounted future income it’s expected to generate.

The intrinsic value is calculated based on the 10 year discounted free cash flow (DFCF).

In other words, if the stock price of a company is below the actual value of the free cash flow (income) and assets of a company, the percentage difference is the Margin of Safety. This is the discounted price at which you are buying a share in the company.

A higher margin of safety will reduce your investment risk. If an investor can buy a stock below its intrinsic value, the potential for a bad outcome, risk, is usually lower.

Warren Buffett likes a margin of safety of over 30%, meaning the stock price could drop by 30%, and he would still not lose money. Margin of safety is only an estimate of a stock’s risk and profit potential.

Buffett determines margin of safety by estimating the current and predicted earnings from a company from today and for the next ten years. He then discounts the cash flow against inflation to get the current value of that cash. This is the Intrinsic Value of the company. He bases intrinsic value on the discounted future free cash flows. He believes cash is a company’s most valuable asset, so he tries to project how much future cash a business will generate.

Margin of Safety is a value investing principle strategy. If the total value of all shares of a company is 30% less than the intrinsic value of that company, then the margin of safety would be 30%. In other words, if the stock price of a company is below the actual value of the cash flow and assets of a company, the percentage difference is the Margin of Safety. This is the discounted price at which you are buying a share in the company. Most value investors believe that the higher the margin of safety, the better. In reality, a margin of safety between 30% and 50% is reasonable.

The Margin of Safety is the percentage difference between a company’s Fair Value per share and its actual stock price. If a company has profits and assets that outweigh a company’s stock market valuation, this represents a Margin of Safety for the investor. The higher the margin of safety, the better.

Margin of safety is only an estimate of a stock’s risk and profit potential. Most value investors believe that the higher the margin of safety, the better. And, the larger the margin of safety, the more irrational the market has become.

One of the keys to getting a great margin of safety is to understand that price and value is not the same thing. Price is what you pay for something, but the value is what you get.

The stock market rises about four out of every five years or about 80% of the time, according to Nick Murray. Said another way, the market only falls 20% of the time. You can fear that 20% or cheer for it.

No one ever got wealthy paying full price or top dollar for financial assets, according to Buffett. Most successful investors got that way buying assets that were distressed, out of favor, and therefore on sale. Unfortunately, few people see it that way. You need to take advantage of the sale during market selloffs and corrections when it occurs. Your money literally goes further because you can buy more share at lower prices that lead to market-beating returns later on.

If you want to make good long-term investment returns, you need to minimize your risk by purchasing companies selling at a significant discount to their intrinsic value due to market volatility.

References:

The Three C’s of Credit

Posted on January 8, 2022 by admin

Borrowing (using credit) allows people to purchase goods and services that they can use today and pay for those goods and services in the future with interest.

Credit can be a powerful tool that helps you improve your finances, get access to better financial products, save money on interest, and can even save you from putting down a deposit. The benefits of a positive credit report and good credit score are extensive.

The biggest benefit of good to excellent credit is saving money. When buying a home, for example, good credit can easily save you tens or even hundreds of thousands of dollars in interest on a 30 year mortgage. Essentially, a lower interest rate means you pay less money. A higher interest rate means you pay more money.

Conversely, credit can be detrimental which entraps and burdens people financially. Access to credit may make it easier to pay for basic needs and cover emergency expenses, but it also simplifies buying expensive products you might want but not need. Psychologists have found that people often use credit unwisely due to natural human impulses.

Additionally, the interest rates on consumer credit are often staggeringly high and can force consumers to pay back several times the initial value of their purchases. The average annual interest rate on credit cards can be as high as 21 percent– more than five to eight times higher than the typical interest rate on a 30-year mortgage, which hovers around 2.5 to 4 percent.

Interest is what you pay for using credit or “someone else’s money”.

As you can see, using credit has both financial benefits and costs. At times, it can be a means to purchase assets with borrowed capital, but it can be also an indication that something has gone wrong with your money management and financial planning (spending too much and/or saving too little relative to your income). There are ways to use debt or credit sparingly and manage the use of credit.

People choose among different credit options that have different costs. Lenders approve or deny applications for loans based on an evaluation of the borrower’s past credit history and expected ability to pay in the future. Higher-risk borrowers are charged higher interest rates; lower- risk borrowers are charged lower interest rates.

Credit or loan providers may include banks, credit unions, car dealers, credit-card companies, or department stores. And, some things people often use credit or a loan to purchase vary but may include a house, car, college or travel.

The three C’s of credit (capacity, character, and collateral), assess the riskiness of lending to that individual based on these character- istics, and then decide whether or not to approve or deny the loan request.

Lenders expect all the money they lend to be fully repaid with interest. Thus, when deciding whether to make a loan or offer credit, lenders want to know the likelihood that the individual will repay the money. Thus, lenders want financial information about a person before lending that person money.

The three questions lenders generally want answered before granting a loan are factors known as the “Three C’s of Credit”: Capacity, Character, and Collateral:

Capacity: What is the individual’s ability to repay the loan?
Character: What is the individual’s reliability to repay the loan?
Collateral: What assets does the individual own that could be sold to repay the loan?

Each “Three C’s of Credit” factor attempts to provide a measure to help a lender answer each question about a borrower. The results vary from person to person, with a wide range of possibilities.

Capacity: The amount of debt a borrower has relative to his or her income is an indication of “capacity,” that is, that person’s ability to repay debt. For example, an individual with debt payments that are a large percentage of his or her monthly income would be less able to take on more debt than someone with debt payments that are a smaller percentage of his or her income.
Character: A credit score is an indication of “character” because it indicates a person’s reputation for paying bills and debts based on past behavior. A credit score is a number based on information in a credit report, which indicates a person’s credit risk. Credit scores are often called FICO scores. FICO is an abbreviation for Fair Isaacs Company—the first company to develop credit scores. Credit scores generally range from 350 to 850, with 350 indicating low reliability and 850 indicating high reliability. A low credit score indicates that a person has not been responsible with credit in the past.
Collateral: Collateral is property required by a lender and offered by a borrower as a guarantee of payment on a loan. Also, it can be a borrower’s savings, investments, or the value of the asset purchased that can be seized if the borrower fails to repay a debt. For example, a borrower who owns many other assets such as stocks, bonds, or real estate would be able to sell some of those assets to repay a loan if necessary. As such, lenders will see the loan as less risky than a loan to someone with few or no assets.

The three C’s affect each other by having a favorable rating on one C may help you have favorable ratings on others; for example, capacity may make collateral more likely. Lenders use this type of background information to make some lending decisions.

Borrowers who repay loans as promised show that they are worthy of getting credit in the future. A reputation for not repaying a loan as promised can result in higher interest charges on future loans, if loans are available at all.

Loans can be unsecured or secured with collateral. Collateral is a piece of property that can be sold by the lender to recover all or part of a loan if the borrower fails to repay. Because secured loans are viewed as having less risk, lenders charge a lower interest rate than they charge for unsecured loans.

Lenders make credit decisions based in part on consumer payment history. Credit bureaus record borrowers’ credit and payment histories and provide that information to lenders in credit reports.

Lenders can pay to receive a borrower’s credit score from a credit bureau. A credit score is a number based on information in a credit report and assesses a person’s credit risk.

“Debt is a trap, especially student debt, which is enormous, far larger than credit card debt. It’s a trap for the rest of your life because the laws are designed so that you can’t get out of it. If a business, say, gets in too much debt, it can declare bankruptcy, but individuals can almost never be relieved of student debt through bankruptcy.” Noam Chomsky

References:

Getting Started Investing

Posted on January 7, 2022 by admin

“Every investment is the present value of all future free cash flow.” Everything Money

Many people want to learn how to get started investing, but they allow emotion, fear of loss, and doubts about making a mistake stop them from taking that initial step of purchasing stocks and bonds.

Some common concerns regarding investing, according to Phil Towns, founder The Rule #1, include:

“I’m afraid I’ll fail and lose all my money.”
“There’s no way I can make time for investing in my day! I’m busy!”
“I don’t have the skills to invest.”

These are all popular rationalizations for why you may be dragging your feet on investing in assets, particularly equity stocks, bonds, mutual funds and exchange traded funds ((ETF).

Yet, investing in the stock market continues to be the best way to grow your wealth and to achieve financial freedom. To begin, you might consider investing in well-known companies’ or blue-chips stocks that are less volatile, which can avoid big stock price swings.

Many people started investing for the first time during the COVID-19 pandemic. While some people prefer trading stocks over short periods of time, you might want to consider long-term investing. The stock market on average produces around a 10% annual return. While this may seem easy, not many people actually achieve such returns. And one of the main reasons is because investors don’t stay invested long enough.

Admittedly, choosing the right stocks to invest in can be a time-consuming endeavor. This is true even for many seasoned investors. If you are new to the stock market, buying companies that you are familiar with, like Apple or Walt Disney, maybe a good place to start. It would be beneficial to have an idea of how the companies make its money. Besides, picking stocks with strong balance sheets and stellar growth prospects below its intrinsic value or worth could increase your chances of success.

Value investing

Great investors never stop learning

Do you understand the company
Is it a good company:

Has it been historically good
Will it be good in the future
Is it shareholder friendly

Is the stock price cheap or at what price will the company’s stock become cheap (margin of safety)

The reality is that some of your selected stocks will lose money. That’s why it is important to diversify your investments, so that losses in a stock may be outweighed by gains in other stocks.

If you had invested $1,000 in stocks like the S&P 500 or Apple (AAPL) 10 years ago, it would have grown and be worth $4,528.52 (S&P 500) and $11,149.68 (Apple) today, respectfully. Effectively, the S&P 500 rose 229.91% and Apple gained 1,062.82% gain. Theses returns exclude dividends but includes price increases.

Anyone can and should be invested in assets, but building a successful investment portfolio requires research, patience, and a little bit of risk. Thus, it’s essential to learn how to study and value companies to invest.

So, if you had invested in Apple ten years ago, you’re likely feeling pretty good about your investment today.

“The historic price of a stock does not determine the future price of that stock.” Kenneth Jeffrey Marshall,.

Additionally, according to the Kenneth Jeffery Marshall, there are four reasons in which a stock should be sold. The reasons are:

When company’s stock price flies past intrinsic value,
When a company thought to be good turns out not to be,
In buyouts, or
When a clearly better opportunity emerges.

Buy with a margin of safety means buying companies inexpensively which both increases investment returns and lowers risk. Basically, stocks tend to realize their fundamental value and potential in the long term. You have to be patient and stick with them.

References:

Beware: Apple AirTags Being Used to Track and Stalk

Posted on January 6, 2022 by admin

Apple launched its AirTag product, a small chip that can help people track lost items. But it’s already being used to track and stalk people without their knowledge.

An AirTag is a 1.26-inch disc with location-tracking capabilities that Apple started selling as a way “to keep track of your stuff.” The AirTags were released to deter us from making the mistakes we all do of misplacing our keys, wallet, purse and even luggage by allowing us to track them.

The tiny $29 AirTags have proved popular, selling out consistently since their unveiling.

There is growing concern that the AirTags may be abetting a new form of tracking and stalking, which privacy groups predicted could happen when Apple introduced the devices

Researchers now believe AirTags, which are equipped with Bluetooth technology, could be revealing a more widespread problem of tech-enabled tracking. They emit a digital signal that can be detected by devices running Apple’s mobile operating system. Those devices then report where an AirTag has last been seen.

AirTags, the small location-tracking discs, may be abetting a new form of stalking, posing a "uniquely harmful" threat given the ubiquity of Apple’s products. Privacy groups warned against this concern when Apple introduced the devices in April. https://t.co/hJoxjRRELH

— NYT Business (@nytimesbusiness) January 1, 2022

But AirTags present a “uniquely harmful” threat because the ubiquity of Apple’s products allows for more exact monitoring of people’s movements, said Eva Galperin, a cybersecurity director at the Electronic Frontier Foundation who studies so-called stalkerware.

“Apple automatically turned every iOS device into part of the network that AirTags use to report the location of an AirTag,” Ms. Galperin said. “The network that Apple has access to is larger and more powerful than that used by the other trackers. It’s more powerful for tracking and more dangerous for stalking.”

“AirTag Detected Near You.”

AirTags and other products connected to Apple’s location-tracking network, called “Find My,” trigger alerts to unknown iPhones they travel with. The AirTag product page on Apple’s website notes that the devices are “designed to discourage unwanted tracking” and that they will play a sound after a certain amount of time of not detecting the device to which they are paired.

After concerns about AirTag stalking and illicit tracking were raised, Apple instituted some security measures meant to discourage this practice. If an AirTag remains separated from its owner for eight to 24 hours, the AirTag will begin making a beeping sound to alert people nearby of its presence. When it does so within that time period is randomized, Apple says, to make it more difficult for bad actors to use AirTags to track others. However, people who said they have been tracked have called Apple’s safeguards insufficient.

If the person being tracked has an iPhone, their phone will notify them once it notices someone else’s AirTag has traveled with the person for some time, although Apple hasn’t specified how long that takes.

References:

Inflation and the Bond Market

Posted on January 5, 2022 by admin

The bond market—Treasuries, high-grade corporate bonds, and municipal bonds—are experiencing depressed yields in the 1% to 3% range and near-record negative real rates with inflation running at 6%. Barron’s

Real interest rates can be effectively negative if the rate of inflation exceeds the nominal interest rate, according to Investopedia. Real interest rate refers to interest paid to borrowers minus the rate of inflation. There are instances, especially during periods of high inflation, where lenders are effectively paying borrowers when they, the borrowers, take out a loan. This is called a negative interest rate environment.

The real interest rate is the nominal interest rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower and the real yield to the lender or to a bond investor. The real interest rate is calculated as the difference between the nominal interest rate and the inflation rate:

Real Interest Rate = Nominal Interest Rate – Inflation (Expected or Actual)

While the nominal interest rate is the interest rate actually paid on a loan or bond, the real interest rate is a reflection of the change in purchasing power derived from a bond or given up by the borrower. Real interest rates can be effectively negative if inflation exceeds the nominal interest rate of the bond.

There is risk for bond returns in 2022, when the Federal Reserve is widely expected to start lifting short-term interest rates to manage inflation.

And things could get worst for bonds if inflation persists. That could force the Fed to tighten more aggressively. It wouldn’t take a big rise in rates to generate negative returns on most bonds. The 30-year Treasury, now yielding just 1.9%, and most municipals yield 2% or less and junk bonds yield an average of 5%. Bonds would drop significantly in price if rates rise a percentage point.

The real interest rate adjusts the observed market interest rate for the effects of inflation.

“Cash has been trash for a long time but there are now new contenders for the investment garbage can. Intermediate to long-term bond funds are in that trash receptacle for sure.” Bill Gross, “Bond King”

References:

Create a Personal Sinking Fund

Posted on January 4, 2022 by admin

Create Your 2022 ‘Sinking Fund’

A personal sinking fund can be used to accumulate the funds or a set amount of money for a specific purchase at a set future time. For this purpose, a sinking fund allows you to accumulate funds to prevent the occurrence of debt. The “sinking” in the term “sinking fund” refers to the reduction in net obligation.

Sinking funds are different from general savings or emergency funds because of their specific purpose.

Since not all personal savings accounts are created equal, you can create a savings account (or personal sinking fund) for any big-ticket items you will purchase in the upcoming year. A sinking fund can be used to set aside money to pay off debt, to save for a planned investment, like areal estate or a major home renovation.

Essentially, a sinking fund is set up for a particular purpose. Using a sinking fund, you can allocate savings for each major expense in its own separate account. A sinking fund can be used by anyone who wants to save up for a large, planned purchase. You can begin a sinking fund for a wide variety of reasons, including:

Vacation
Car purchases
Holiday expenses
Home renovation
Wedding expenses
Down payment on a home
Property taxes

“Your sinking funds are automatic savings accounts that are building for something you know you’re going to spend money on this year,” said Chris Peach, founder of Money Peach. “What will you spend on Christmas next year, what will you need for your vacation this summer, or how much will you have to save up for your sister’s wedding across the country in November? Divide the amount needed by the number of months remaining and create an automatic savings plan for when that day comes. Do this for each major expense coming up and then rinse and repeat.”

Summary

As you can see, planning and savings can go a long way in helping you manage your personal finances. A sinking fund is the perfect way to make sure you are putting away the money you need to accomplish your long-term goals and that it will still be there when you need it.

Sinking funds work best for known future expenses that don’t fit nicely into your monthly budget and help consumers avoid debt.

References:

Be Grateful

Posted on January 3, 2022 by admin

“Gratitude is one of the most powerful human emotions. Once expressed, it changes attitude, brightens outlook, and broadens our perspective.” Germany Kent

Be grateful for everything you have. This can make you happier and more attuned with the peace and abundance of the world. It helps you find more joy in what you currently have and helps you manifest what you desire more easily, Dr. Wayne W. Dyer said, “Be in a state of gratitude for everything that shows up in your life. Be thankful for the storms as well as the smooth sailing. What is the lesson or gift in what you are experiencing right now? Find your joy not in what’s missing in your life but in how you can serve.”

Practicing gratitude can be a game-changer: it has far reaching effects, from improving your mental health to boosting your relationships with others. Living your life with gratitude helps you notice the little wins—like the bus showing up on time, a person holding the door open for you, or the sun shining through your window when you wake up in the morning.

Robert Emmons, psychology professor and gratitude researcher at the University of California, Davis, explains that there are two key components of practicing gratitude:

“We affirm the good things we’ve received
We acknowledge the role other people play in providing our lives with goodness.”

Research has linked gratitude with a wide range of positive health and emotional well-being benefits, including strengthening your immune system and improving sleep, feeling optimistic and experiencing more peace and pleasure, being more helpful and generous.

But there are very easy actions you can take to practice gratitude: At the end of the day, identity three things you are grateful for and write them down in a special gratitude journal. As you start to develop the habit and a heightened awareness of all you have to be grateful for, you can expand the number of things you try to observe at the end of the day.

“I don’t have to chase extraordinary moments to find happiness – it’s right in front of me if I’m paying attention and practicing gratitude.” Brene Brown

“Gratitude is one of the strongest and most transformative states of being, it shifts your perspective from lack to abundance and allows you to focus on the good in your life, which in turn pulls more goodness into your reality”, says Jen Sincero, success coach and author of “You Are a Badass: How to Stop Doubting Your Greatness and Start Living an Awesome Life”.

Taking a moment to be thankful and grateful for the good things in life can help you cultivate a healthy work life, manage stress and develop a deeper connection to people, especially in tough situations.

Gratitude is a positive quality that allows you to celebrate the present moment, set aside negative emotions and past experiences, reduce stress, and improve your self-worth and life.

May your day be filled with gratitude and good things.

References:

Brownlee Global: Gratitude to Greatness

Gratitude is a Powerful Tool That Can Help People Live the Lives They Want

Inflation: Biggest Threat to Investors and Market

Like this:

Brain-Changing Benefits of Exercise

Like this:

A Stock’s Price vs. a Company’s Intrinsic Value

Like this:

Margin of Safety

Like this:

The Three C’s of Credit

Like this:

Getting Started Investing

Like this:

Beware: Apple AirTags Being Used to Track and Stalk

Like this:

Inflation and the Bond Market

Like this:

Create a Personal Sinking Fund

Like this:

Be Grateful

Like this: