December 02, 2021

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TOGETHER WITH

Hope your Thursday is going great!

Can you guess which of the following everyday items had a 51% price increase in the last 12 months? a. bacon, b. eggs, c. gasoline. Follow the 🌊 below for the answer.

Here are the money topics for today:

Zooming in on emerging markets
Should we be freaking out over persisting inflation?
Buying nothing is the hot new trend

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INVESTING

Zooming in on emerging markets

Emerging markets (EM) can arguably be a powerful complement to a largely US-based investment portfolio but they are often misunderstood. What are they exactly, and what are their benefits and tradeoffs? If you're an investor who's not familiar with emerging markets, we'll attempt to simply break it down for you right here.

What's an "emerging" market?

Emerging markets usually refer to economies showing strong economic growth while showing some characteristics of a developed economy. In other words, they are countries in transition, usually from a place of "developing" to "developed."

Which countries are emerging?

Research organizations and data providers each have slight variations in what they determine as an EM country. For example, the IMF has classified 23 nations as emerging, the S&P picked 23 and MSCI has 26 countries on the list.

What's the appeal?

Economies and markets mismatch: We may be underestimating the benefits of EM because the size of their financial markets are usually small relative to the size of their economies. For example, emerging countries account for 45% of the world's GDP, but their stock markets are worth only 29% of the world's total.
Bright outlook: Strong global GDP growth is expected, according to the IMF. They forecast an average annual GDP growth of 5.5% for emerging markets in 2021-2023, compared with 3.5% for developed economies. That's positive for emerging market equities, which tend to perform better when demand for commodities and exported goods is strong.
Diversification for US investors: EM markets are less correlated with US markets, and can also offer currency diversification, which will come in handy when the US dollar is weak.
The long-term growth trends: According to Schroders, EM represents 87% of the world population, 45% of global consumer spending, and in less than 20 years, they are expected to account for 57% of the world's total GDP. Other growth drivers include urbanization, tech & industrialization driving economic growth and the rising middle class driving consumer spending.

What's not so appealing?

Higher risk, higher volatility: EM stocks are generally more volatile than developed market (DM) stocks. Over the last ten years, the standard deviation, which measures volatility, was 30% higher for EM than DM stocks, according to Morningstar.
Now about that higher volatility: It stems from higher economic risk, political risk, currency risk and liquidity risk. For example, consider the persistence of the Chinese government's checks and actions towards internet-related companies. And when an EM currency is declining, your investment is worth less when converted to USD. There's also the risk it may be easy to bring money in, but not always to get it out.

Ways to get EM exposure

First, determine whether going the passive or active route serves you and your long-term goals best. Do you want to go the way of a low-cost index mutual fund/ETF or pay for the expertise of an active manager? Do you want broad and diverse EM or a single EM country exposure? How much does your risk tolerance allow you to allocate? How long is your time horizon?

If you do decide to undertake investing internationally on your own, as always, don't forget to rely on some old-fashioned due diligence. And if you don't have all day to scour the internet for their life story, consider a broad-based basket of emerging market countries through an index fund or ETF.

💡 Related broad-based EM fund ideas: iShares Core MSCI Emerging Markets ETF ($IEMG), Vanguard Emerging Markets Stock Index Fund ETF ($VWO), iShares MSCI Emerging Markets ETF ($EEM)

What is Risk Tolerance?

Investing Basics

7 mins

ECONOMY

Should we be freaking out over persisting inflation?

Giphy

Death, Taxes, and inflation. That's how the old adage deserves to be modified after 2021, a year where all of us probably learned a thing or two about inflation and its threats as the numbers have climbed higher each month.

It was supposed to be transitory though, right? Well, the vagueness of it had been a blessing for economic prognosticators and prophets alike as inflation persists past the originally anticipated timeframe.

The current state of affairs

CPI data comes out about 10-13 days into each month. Our last report came on November 10th, and the November numbers will be in about a week, next Friday. *Fingers crossed.* Our most recent report left much to be desired, and many investors are uneasy at the record numbers.

October data showed a 6.2% year-over-year increase in prices, which was the largest leap the CPI has taken over a 12 month period since 1990 as it racks up its fifth straight month over 5%.
During the month of October alone, the CPI rose almost a full percentage point, more than doubling its September weigh-in.
This week, Fed Chair Jerome Powell said that the central bank will discuss accelerating its tapering plans at its December meeting. This shouldn't come as a surprise as we see new developments factor in: the omicron variant and the fact that Powell has been reappointed to Fed chair.

The causes and effects

Certain areas have been hit harder than others. Gasoline prices, new and used vehicles and food headline the list, but few things are exempt. One survey showed that 60% of small business owners said they had to raise prices in the last 90 days, 80% reported higher labor costs, and 72% said vendors had increased prices as well.

As usual, these implications have been derived from an array of causes, as we continue to see from the headlines. Catalysts like supply chain log jams, and shortages spanning from employees to semiconductors needed for a long list of products all eventually have downstream effects on the end-user and their wallets.

All things considered, inflation seems hesitant to dry up until the things providing its spark are resolved first. We can't foresee the future, but as we evaluate the present situation, let's remember that cooler heads and staying objective prevail.

MONEY TIPS

Buying nothing is the hot new trend

Now that you've been refreshed on the numbers on our current inflationary predicament, it would seem fair to assess that buying things is just kind of... not the move at this moment, right?

Right. If there's one surefire way to avoid paying a built-in inflation tax right now, it's to simply not buy anything. Sounds ridiculous of course, because we all have things to buy, but surprisingly enough, people are coming together to make it possible through giveaway groups, with movements like the "Buy Nothing Project" hitting over 4.2 million members.

Buying nothing isn't always feasible though, so here are some quick tips to sidestep the inflation tax.

Buy in bulk: Turn your weekly list into a monthly list. Buying items in bulk is almost always cheaper than consistently buying smaller amounts anyway, but it can also save you even more in the event that inflation continues to push higher, and that gets priced into your weekly shopping list too.
Procrastinate discretionary spending: Assuming this upward price pressure will eventually be alleviated, we should anticipate that prices on everyday goods and discretionary items will also eventually regress a bit as well, or maybe at least by then wages will keep up. In this way, procrastinating the purchase of things you don't really need can save money, even if you can afford it.
Store your money somewhere with an ROI: While it is prudent to keep your emergency fund in something like a savings account where it's accessible in times of need, anything excess you don't need to tap into should probably be moved elsewhere that actually has a noticeable ROI. It's tough to find a savings account offering anything above 0.5% these days, and there are plenty of safe alternatives with better returns.

💡 7% yield on a US savings bond, anyone?

📊 ASHU'S CORPORATE CORNER

Today's Movers & Shakers

Snowflake (+13%) on strong revenue beat
Apple (-3%) has told its suppliers that the demand for iPhone 13 is softening
Boeing (+4%) after Beijing cleared the Max to return to flight
Signet Jewelers (+3%) posted better than expected earnings and revenues
Five Below (+9%) on strong revenues and profits
Okta (+2.5%), the identity firm, reported a narrower loss and beat on revenue numbers
Lands' End (-14%) on weaker revenue and weaker guidance
Dollar General (-1.7%) will open 1,000 pop-up stores by 2025

This commentary is as of 8:48 am EDT.

🌊 TRENDING ON FINNY & BEYOND

Answer: The price of gasoline had a 51% price increase in the last 12 months, bacon had a 20% increase, and eggs had a 12% increase (Visual Capitalist)
Supply of these 2 grocery items is dwindling, reports say (Eat This, Not That)
Finny lesson of the day. How does inflation impact your wallet? If you haven't yet, take this bite-size lesson:

What is Inflation?

Investing Basics

6 mins

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