👀 What To Watch This Week

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2023 is almost finished, and if you’re ready to kick off next year with a head-start, NOW is the time to get prepared.

Let’s roll:

  • 👀 What To Watch This Week

  • The Right (And Wrong) Way To Invest For Kids 🤑

  • A Guide To An Ironclad Emergency Fund 👍

Today’s newsletter is a 4 minute read.

What To Watch This Week 👀

The major stock indices turned in their strongest week of 2023 on the back of cooler economic data and central bank standstill on interest rates.

This week the calendar is lighter but still active, with the following events on deck:

  • Q4 Senior Loan Officer Survey (Mon)

  • China trade data (Mon)

  • Reserve Bank of Australia’s rate decision (Mon)

  • Canada’s PMI data (Mon)

  • Fed Chair Powell speech (Wed)

  • US Consumer Sentiment gauge (Fri)

  • China’s Singles Day shopping event (Sat)

In addition to the above, Q3 earnings reporting season continues with key reports from major companies such as Uber, Disney, Rivian, Twilio, Unity, Roblox, Hubspot, Affirm, and more.

We’ll be watching to see if there’s any follow through to last week’s strength in stocks, bonds, and crypto prices.

We’ll also be watching these specific areas:

📈 Rising Last Week

  • - Small Caps (IWM)

  • - Banks & Financials (KBE / KRE)

  • - Real Estate (XLRE)

  • - Homebuilders (XHB)

  • - Semiconductors (SOXX)

  • - Retail (XRT)

  • - Airlines (JETS)

  • - Solar (TAN)

  • - Biotech (XBI)

  • - Bitcoin (BTC) & Ethereum (ETH)

📉 Falling Last Week

  • - Energy prices

  • - Gold (GLD)

The Right (And Wrong) Way
To Invest For Kids 🤑

(All information is based upon U.S. tax law)

Whether you’re a parent or an aunt/uncle, we all want the best for the children in our lives.

We want to set them up for success.

There are multiple options to invest for the beloved little ones in your life, and there is also a big mistake a lot of people are making.

A strategy has been circulating around the internet for a while: put money into a Roth IRA for your newborn/toddler.

But … there’s a problem with this:

Your child needs to have earned income from a job in order for any money to be contributed to an IRA on their behalf.

If you contribute to an IRA for a child that DOESN’T have earned income, you’d be making an ineligible contribution (subject to penalties).

A lot of people justify this strategy by saying their child works for their business, therefore, they have earned income.

This can surely work, depending on a few factors. A common example is if you are a photographer and your baby is a model. The problem is that justifying an infant has a job is a tough one in most cases.

You want to have a defendable position if you were ever questioned about the work your child is doing in your business.

So, what are the best ways to invest for your favorite children?

  1. UTMA/UGMA Account: This is essentially a taxable brokerage account for a minor. An adult manages the account for the child and when the child becomes the age of majority (usually 18), they legally have full access to the funds.

    Many adults don’t love the idea of a child being able to get ahold of the money and blow it. So, this is certainly an account to be chosen with the right goal in mind!

    Keep in mind, any capital gains, dividends and interest will be taxable in the year received. Also, these accounts are owned by the child, and can affect eligibility for college financial aid.

  2. 529 Plan: This is a plan that helps you invest for college on behalf of a child. But, it doesn’t stop at just college.

    Distributions for qualified education expenses come out federal income tax free, which is why people like investing in these accounts.

    You can even use up to $10,000 a year per child to pay for private school from K-12.

    If the beneficiary ends up not going to college, you’re able to change the beneficiary if needed.

    A new law has just been passed that allows unused funds to be rolled over into a Roth IRA (subject to a few rules and only up to $35,000 lifetime total).

As always, financial advice on social media isn’t always the more accurate. So, it’s good to double and triple check the information to avoid any large financial mistakes!

None the less, there are some great (legal) options out there for helping the kids in your life start out on the right foot.

A Guide To An Ironclad Emergency Fund 👍

You’ve probably heard about having an emergency fund for a rainy day (aka: your car breaks down or you have a big medical bill), but, you’d be surprised how many people strategize this incorrectly.

A sound emergency fund is probably the most important part of a financial plan. Without it, you start digging into precious long-term investments, or even worse adding high-interest debt to your balance sheet.

So here is a mini-guide on how to have an ironclad emergency fund that can get you through anything and give you peace of mind.

1. Determine how many months of living expenses you need. 

You have to determine what constitutes a “necessary expense” for you to survive if you had no income. If you want to add in Netflix that’s fine, just make sure you don’t short change yourself on what you’ll require (don’t forget about medicine and doctors appointments!)

Once you get this monthly amount then it’s time to decide how many months of living expenses saved will make you comfortable.

 The rule of thumb is 3 months of expenses for a dual income household and 6 months of expenses for a single income household.

I tend to think the number of months needed is more about your risk tolerance. Envision you losing your income, how many months would you feel okay having tucked away for expenses? A year might be more your sweet spot.

2. Don’t be obsessed with trying to invest your emergency fund. 

A lot of people make the mistake of trying to invest their emergency fund in stocks or try to get a big return on it.

Yes, I know it’s hard to watch a bunch of your money just sit uninvested, but, it’s necessary for this cash to be safe and liquid.

The good news is, it doesn’t have to go without earning interest.

In fact, I encourage everyone to make sure they get paid the max amount of interest possible. I cover where to do this in the next point.

3. Take advantage of high-interest strategies with your emergency fund. 

You can hold your emergency fund in a

1. High-yield savings account (bank)

2. Money market mutual fund (brokerage)

3. Short maturity Certificates Of Deposits (bank or brokerage)

4. Or my preference, a possible mix of these depending on how big your emergency fund is! 

The strategy is to keep a chunk of expenses in a high-yield savings account like at Ally Bank, Synchrony Bank or Marcus By Goldman Sachs just to name a few.

Just about every major institution is offering high-yield-savings accounts now. These accounts will pay way more interest than your traditional bank savings account.

For example, right now, Ally is paying 4.25% APY.

I also like the idea of “locking in” higher yields on a part of your emergency fund money with a short-term Certificate Of Deposit, but only if the yield is much higher than the high-yield savings account to justify the risk. Also, I need to put an emphasis on short-term maturity (think 3, 6 or 12 months)!

The CD strategy only makes sense when you have more months of savings and when interest rates are properly giving an arbitrage opportunity.

Money market mutual funds and high-yield savings accounts will have interest rates (aka: yields) that will change over time as interest rates change (variable).

4. Don’t forget about your business. 

If you’re a business owner, you have to have an emergency savings for your business as well.

You don’t want to be in a situation where you only can take care of your personal expenses, and not keep your business afloat during tough times.

So, be sure to consider having a cash buffer incase you have to keep paying employees, and other important business expenses.

5. Consider disability insurance “elimination periods” 

If you hold disability insurance, chances are, there is a period of time you have to wait to get your first payment from the insurance company.

It’s called an “elimination period”.

Make sure your emergency fund will get you through this time if you end up disabled.

The goal in personal finance is to start with a solid foundation so that you can use your excess cash to build your wealth.

So, don’t ignore this important puzzle piece to give you more peace of mind and flexibility!

Food For Thought 🧠

"Any person capable of angering you becomes your master.”
- Epictetus

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DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.