July 07, 2022

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TOGETHER WITH

Happy Thursday. Can you guess what percent of young people (ages 18-44) say they should save more but are so stressed about their finances that they avoid thinking about them altogether? a. 45%, b. 55%, c. 65%. Follow the wave 🌊 below for the answer.

Let's get right to the money topics for today 👇🏽

Is there a cost to being single?
What is a lazy portfolio & does it actually work?
The rule of 72 and inflation

PERSPECTIVE

Is There A Cost To Being Single?

Being single comes with more than just an emotional cost for some people, but a real financial one as well. Families and spouses receive a lot of preferential treatment in a number of areas ranging from taxes to basic expenses, and those of us who are single often feel forgotten.

Twenty-eight percent of US households are home to just one person, meaning a total of about 37 million Americans live alone. 11 million homes also house single-parent families, a number that's been increasing exponentially over the last 6 decades.

The costs of being single

Taxes: If you make $172,750 alone, you’ll be hit with a 32% federal tax rate, whereas if you make the same amount as a married couple, your tax rate is just 22%. This is a basic example, but the list goes on to include family breaks like the child tax credit and more caveats that single filers miss out on.
Home-ownership: While recent, specific numbers are hard to track down, it’s widely known that the majority of first-time homebuyers, and homebuyers in general, are married couples or partners. Why is this? Mortgage payments have gotten exceedingly expensive over the last 6 months, a 47.6% increase to $2,550 per month on average, and dual incomes make a huge difference when it comes to affordability of housing, and of course all the expenses that go with it.
Monthly expenses: This is the simplest downfall of being single. Whether you’re living with your significant other, married, or even just living with a friend or roommate, spreading your monthly fixed costs across multiple incomes lifts a pretty big burden off your shoulders that many singles living alone carry themselves.

Can we do anything about this?

The costs associated with being single aren’t as easily remedied as other line items seen in your classic budget, and it’s obviously not quite as simple as just getting married to save some money. 👀

Despite the hurdles, there are some reasonable solutions to the financial pitfalls of being single like seeking out roommates, leveraging family plans for your subscriptions, and even pooling your money to buy a home, to name a few.

INVESTING

What Is A Lazy Portfolio & Does It Actually Work?

Giphy—Lazy Sloth

Almost all investing over the long-term has proven to be a viable option, and far less risky than not investing at all.

The reality for most though is that if you did nothing but invest in a few simple index funds and forgot about it, you’d be doing great a few decades later. And there’s actually a formal strategy for this, dubbed the three-fund portfolio. In theory, investors just hold a total US stock market fund, an international stock markets fund, and a total bond market fund, and be done with it.

Whether you want to adopt this lazy portfolio method as your entire portfolio because you hate researching individual stocks or not, it’s a viable investment strategy to consider. It’s a great way for new investors to prudently get their feet wet and a well-utilized method of investing for seasoned traders as well.

A few things to note

Customization is a-okay. The 3 fund portfolio is just one example of lazy investing that can work for you. You can create your own portfolio with an index and asset makeup of whatever you please and still have your own viable lazy portfolio that pays dividends over time.
Allocation will play a big role in your returns. Whether you decide that one total market fund or three funds suit you best, how you allocate your funds across those 1 or 3 makes a big difference in your returns. Make your allocations based on your risk tolerance, time horizon, and future financial goals you want to achieve.
You don’t have to abandon other investments. If you enjoy scouting out businesses' balance sheets like they’re NFL draft prospects’ highlight reels, then, by all means, keep doing that. Be aware of the risks you're taking with any concentrated bets, and consider adding a complementary lazy portfolio strategy if you aren't already.
And last but not least, the results of a three-fund portfolio have continued to shine compared to professionally managed endowment portfolios. Below we show the results of a 3-fund portfolio of Vanguard ETFs ("The Bogle Model" attributed to the Founder of Vanguard, Jack Bogle) compared to 800 college endowments. Over a 10-year period, The Bogle Method outperforms even the top-performing endowments.

💡 If you're interested in how you can build a simple 3-fund lazy portfolio, take this bite-sized lesson:

Create a Simple 3-Fund Portfolio

Investing Basics

6 mins

MONEY TIPS

Inflation & The Rule of 72

Inflation is getting so old that we might need to come up with a new term for it. It’s something that’s been ever-present in our lives for more than a year now, and if the end is in sight at all, it sure is foggy.

It’s gotten to a point where most of us are adjusting our lives in response to these historic numbers, and luckily, there’s a rule of thumb for sizing up the situation out there already. It’s called the Rule of 72, and it’s usually reserved for calculating how long it’ll take to double an investment, but now we’re applying it to our cash.

It works like this: You divide 72 by the percent value of an investment’s annual APY. So, an investment with a 2% yield would theoretically take 36 years to double, and a 12% yield would take just 6 years.

Applying that to inflation: It works much the same, just in reverse. If we’re averaging 9% inflation per year, by applying that same process, we’d show that our currency would probably lose approximately half its value in about 8 years.

Why does it work? Without trying to explain the math details, it’s derived from a logarithmic formula, even though it was actually likely noticed years before we used complex math to prove it. The actual number is 69.3, and some people prefer to round up and use the rule of 70 instead. Overall, it’s just an approximation, but it’s useful.

Take this related lesson on this topic and earn Dibs 🟡 you can redeem for rewards:

What is Inflation?

Investing Basics

6 mins

🔥 TODAY'S MOVERS & SHAKERS

Gamestop (+11.1%) as the video game retailer announced a 4-1 stock split. (Bloomberg)
AMC (+11.5%) shares are up even as no material information was released today; meme stocks are up today.
Amazon (+1.7%) as have teamed up with Grubhub to offer Prime customers free online food deliveries; it's only a year-long partnership that will automatically renew annually unless Amazon or Grubhub opt out; Amazon also has the option to acquire a stake in Grubhub's parent company. (NYT)
Bitcoin (+1.9%) to $20,928.30 (1D)
Ethereum (+3.1%) to $1,222.81 (1D)

This commentary is as of 9:30 am PDT.

🌊 BY THE WAY

💰 Answer: 65% of young adults (ages 18-44) say they should save more but are so stressed about their finances – they avoid thinking about them altogether (Fidelity)

🔌 Need energy assistance? How to apply for energy credits in the US this summer (Marca)
🛒 ICYMI. The 1.4x purchase factor (Finny)
🐁 5 Amazon Prime day sales traps to avoid (NYT)
🛁 Finny lesson of the day. With markets as volatile as they are, be sure you're aware of the IRS' wash sale rule:

What's the Wash Sale Rule?

Investing Basics

6 mins

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The Gist is Finny's twice-a-week (Tues & Thurs) newsletter covering personal finance & investing insights and money trends. Finny does not offer investment and stock advice or endorsements. The Gist content team: Austin Payne, Chihee Kim.

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