October 11, 2022

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Good day. If you're a homeowner and thinking about selling your home, painting your front door a particular color could add up to $6,500 to your house value, according to real estate experts. Can you guess what color that is? a. red, b. indigo, c. black. Follow the wave 🌊 below for the answer.

Today's money topics are:

The pension fund problem
Home builders are selling in bulk
Keeping financial secrets

ECONOMY

The Pension Fund Problem

The UK just put on our closing act of Q3, and unfortunately, the curtains of an already grim quarter were closed on an ominous note.

What happened?

The British bond market along with the Pound took a precipitous tumble to close out September. Triggered by surprise news of unfunded tax cuts, this announcement spooked markets into widespread selling as prominent pension funds in the UK began falling prey to margin calls.
Why? Pension funds use what’s known as a liability-driven investment strategy (LDI) to ensure they can pay retirees. These strategies involve holding stocks, bonds, alternatives, and derivatives in enough quantity such that their value matches the fund’s liabilities — what they owe retirees. Funds have to post cash as collateral against their holdings, and the amounts fluctuate with the value of their assets.
Bailouts: So, when the bond market plummeted, pension managers needed to post a lot more cash and fast. As a result, the Bank of England decided to go against the grain on its monetary tightening path, buying millions of pounds of bonds in this temporary rescue mission.

Why we’re concerned

Pension funds are big players with a big influence in the markets. The exact numbers are unclear, but we know these funds own and weigh on large swaths of both the stock and bond markets, meaning what happens to them matters to us.

Watching something like this unfold across the pond sends a warning signal to the rest of the world, and the US is no exception with data pointing to dropping asset values across funds, and subsequently declining funded ratios too.

Ultimately, all of this serves as yet another reminder that we’re still surfing the ripples of the pandemic and all of its economic side effects years later. It won’t be as straight of a path back to “normal” as we had hoped.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

How Bonds Work

Investing Basics

6 mins

HOUSING

Home Builders Are Selling in Bulk

After setting the woods on fire for over two years now, the housing market saw average home prices surge over 40% during that time. Fueled largely by bidding wars and a fervent demand outstripping the supply, we’re only now seeing some relief.

Cooling off

Demand drop: Demand elasticity is finally back in the housing market this year. August marked the 7th straight month we watched existing home sales decline — the longest-tenured slump since 2007. Sales were down 0.4% month-to-month and almost 20% year-over-year.
Rates hurt too: Every purchase comes with a cost-benefit analysis, and homes are no exception. With rates topping 15-year highs and pushing 7%, it just got a lot more expensive to buy a home. A 30-year mortgage on a $400K house would’ve cost about $1,940 per month back in early 2020, but now that number is more like $2,568, and over $220K in extra interest over the life of the loan.

But at what cost?

More inventory, more problems: We had 14% more homes under construction this August compared to last year. Elsewhere, the median days on the market for any given home has been rising since July, and our monthly supply of new houses is at its highest peak since 2010.
Falling into the wrong hands: With many families being pushed out of the market by rising rates, home builders are having a tougher time selling properties, and as a result, they’re offering them in bulk to investors at a discount. Inventory is blooming and demand is drying, but families might not be the ones getting a break.

Taking a step back

These happenings shouldn’t come as a revelation to us, and it’s a natural course of action for both parties involved to take.

It doesn’t mean the end is nye and all homes will soon be owned by giant real estate investors, but it does have the potential to somewhat complicate, and prolong, the cooling off that both homebuyers and renters are desperately hoping for.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

Home Buying Power Tips

Housing

5 mins

FEATURING FINMASTERS

A Dollar-a-Day: Understanding The Power of Compounding Interest

One of the best things you can do in investing is to invest consistently—put some money into the stock market every day or every month.

Many have struggled to understand this concept, so that’s why the team at FinMasters came up with an illustrative calculator called a Dollar-a-Day. This calculator allows you to visualize the return you’d be generating had you consistently invested a dollar each day since your birth date.

Dollar-a-Day illustrates the power of compounding interest—a key rule in investing. Some people call it math magic.

You can use this calculator to show your family and friends that investing a small chunk of money every day can help you build a fortune over time. In fact, that’s how many people get rich.

Check out Dollar-a-Day by FinMasters. It’s fun, educational, and free.

LOVE & MONEY

Keeping Financial Secrets

For better and for worse, money is an integral part of our modern way of life and is ultimately necessary to help facilitate the world as we know it. However, that can also cause problems too, as money’s importance means it both gives and takes away depending on our relationship with it.

It’s the number one cause of divorce, and undoubtedly a common pain point of arguments too. Much of these situations arise from a lack of healthy communication though, especially when we keep secrets.

A recent survey shed some real light on this

Good with the bad: It’s inevitable for money to come up at some point, but how we talk about it matters. The data shows that 83% of American couples do talk about money, but only 10% say they’ve never had a conflict over it, 20% are afraid to discuss it for fear of starting one, and 50% said they had kept financial secrets from their partner.
How it’s divided: 46.3% of couples surveyed said they managed their money together whereas about 31% did so separately. The number of couples managing their money together increased to 66% among married people, but a popular alternative was a combination of the two, which also accounted for 22.8%.
Money reveals things: About 15% of survey participants found some degree of difficulty to discuss finances with their partner. Similarly, about 15% of respondents also said talking about money had a negative impact on their relationship, pointing to some differences that should be addressed.

Our take

In most cases, making money work together for both parties is a requirement for making the relationship work. Talking about money can reveal differences, and it opens the door to reconciling them.

Even if you find that talking about money has no significant impact on your relationship dynamics, it’s probably still a positive thing to do.

🔥 TODAY'S MOVERS & SHAKERS

LYFT (-10.3%) and Uber (-8.5%)—both ride-hailing apps—are lower today on reports that the US Department of Labor (DOL) will soon release a proposal to make companies reclassify independent contractors as employees.
Weber (+12%) as shares of the US manufacturer of outdoor grills and accessories are higher on no new reports today and on the heels of USB's report that the stock poses downside risk.
S&P 500 Index (-0.3%) to $3,599.49 (1D)
Bitcoin (-0.2%) to $19,095.10 (1D)
Ethereum (-0.3%) to $1,287.58 (1D)

This commentary is as of 8:30 am PDT.

🌊 BY THE WAY

◼️ Answer: Black. If you're researching 'what adds the most curb appeal,' you are likely to hear a lot about the power of a front door. A black front door can simultaneously improve your curb appeal – and your house value ($900 - $6,500 more than similar homes in the area), according to Kerry Sherin, a consumer advocate at home valuation company, Ownerly (Homes & Gardens)
📱 Parental tech support: everything you should fix on a senior’s phone (Washington Post)
👍 ICYMI. The 28/36 mortgage rule of thumb (Finny)
📦 Amazon Prime Day: what to expect from the Early Access Sale (Yahoo Finance)
🎢 iPhone 14 crash detection feature reportedly dials 911 from roller coasters (Fox Business)

💰 Finny lesson of the day. As we settle into Q4 and look back at our losses and gains this year, refresh yourself with some of the special US rules for taxing capital gains and losses:

Capital Gains & Losses

Taxes

7 mins

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Finny is a financial wellness platform on a mission to make your money work for you. The Gist is Finny's twice-a-week (Tues & Thurs) newsletter covering personal finance & investing insights and money trends. The content team: Austin Payne, Carla Olson, Chihee Kim. Finny does not offer investment and stock advice.

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