December 01, 2022

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TOGETHER WITH

Happy Thursday. Enrolling in work-offered benefits for 2023 is winding down this month for millions of US employees. Can you guess how long the average employee spends enrolling in their work benefits (e.g., healthcare, insurance, financial, perks, etc.) every year? a. 18 minutes, b. 81 minutes, c. 108 minutes. Follow the wave 🌊 below for the answer.

Here are today's money & finance topics:

US mid-terms & the markets
The state of our personal finances
Financial planning blunders to avoid in 2023

MARKET OUTLOOK

U.S. Midterms & The Markets

As investors, we're naturally inclined to wonder how anything and everything impacts the markets as we search for any possible catalyst — whether positive or negative. One of the most prominent events we often overanalyze are elections, and the role politics could play in the performance of our investments.

The US has been in the midst of its biennial "midterm elections," which are senatorial elections that come right in between presidential ones, or every two years when a third of the Senate rotates. What role do they play in the markets? Probably less than you'd think.

2022 mid-terms

Results: With a few races still hanging in the balance and one headed to a run-off, the Democratic party currently has a razor-thin edge in the Senate with 50 seats over the Republican party's 49.
Market movement: Vanguard did a study on this. Accounting for data ranging back to 1860, theyp found that there's little to no significant difference between a midterm year and a non-election year. In non-election years, the traditional 60/40 portfolio yielded an average return of 8.2%, and 8.1% in the years where there was a midterm or presidential election. And elections aren't indicative of volatility, which was found to be below average in the months surrounding elections.
Party lines: Vanguard also found that this same 60/40 portfolio also performed similarly regardless of party leadership differences. Since 1860, 95 years with a Republican president have yielded an average return of 8.3%, while 65 years with a Democratic president yielded an average of 8.4%.
Worth considering: Vanguard's data centers on the 60/40 portfolio which is built to be less volatile than a true 100% equity portfolio. Looking at the raw market, the S&P 500 averaged a 16% return in a year following an election where the presidential party did not change, and only 5.14% after a switch. The markets don't like change. Also worth noting is the S&P's average return of 9.18% with a Republican President, and 14.94% with a Democratic one.

What do we do with this info?

If you're investing for the long term, trying to play on events like this can easily get you into a state of analysis paralysis. While there are trends that can be exploited on a small scale when it comes to elections, it's not worth considering if your outlook is decades.

MONEY MINDSET

The State of Our Personal Finances

A lot has happened in just the last few years, and almost all of it has happened emphatically — making big waves in the process. Our finances have been taken for a rollercoaster ride, and the data reflects this.

Only recently have things begun to seemingly smooth out a bit, and we can now get a clearer picture of where things stand as the dust settles. There's a lot to check on, so buckle up as we tour a myriad of data.

Surveying the terrain

Personal savings: The personal savings rate is calculated by taking savings as a percentage of disposable personal income (DPI). Before the pandemic, the historical average savings rate was 8.95% but spiked to over 30% during times of stimulus. It's since fallen a lot — down to 3.1%. Why is this? We can look to inflation and higher debt payments, both of which eat into DPI.
Debt: Due to things like higher credit card usage and heavier mortgage balances, Americans increased their consumer debt at the fastest pace in over 15 years this Q3 — ratcheting up by $351B. And this isn't exactly because we're making more money or being more productive, it's come during a period of economic contraction and amidst recession fears.
Wages: Inflation is up, and Americans are starting to realize just how expensive the cost of living has gotten. As a result, wages are being forced to jump amidst a labor shortage, with the average hourly rate nationwide rising 9.8% to $32.58 over the last two years.
Employment: The US unemployment rate averaged 5.74% from 1948-2022, but now sits at 3.7%, representing a full labor market despite worker shortage. That seems like good news for both productivity and employees, but economists are anticipating up to 175,000 job losses per month next year due to the perceived slowdown.
Mortgages: It's a good time to already be a homeowner, and a bad time to want to become one. As mortgage rates have returned to near their historic norms, mortgage originations have plummeted, with the most recent data showcasing a 42% drop between Q2 of last year and Q2 of 2022.

MONEY TIP

Financial Planning Blunders to Avoid in 2023

Whether from over-action and eagerness or inaction and complacency, it's deceptively easy to make mistakes when it comes to financial planning. It's certainly okay to mess up, but it's also critically important to catch ourselves before those mistakes compound.

Some paramount pitfalls can quickly exceed the damage of others if not caught early enough, and we're laying them out as our top financial blunders to avoid in 2023.

The most important things to not do

Wait until next year: Compound interest is the 8th wonder of the world, and investors who started sooner rather than later can attest to this. If you invested $6,000 per year at an average return of 8% annually for 40 years, you'd end up with a total of $1,684,686. But if you waited just one year and cut your timeline to 39 years? Your total would be $1,554,339 — a difference of over $130,000.
Investing without a goal: Consistency is important for your long-term returns, and doing a lot of flip-flopping on your holdings can significantly cut into your balance in the big picture. It's important to take the time to establish a thoughtful, well-articulated plan that accounts for your goals and priorities.
Not having an emergency fund: Personal savings rates are nearing another low again, and it's commonly reported that only about 5% of Americans have more than $10,000 saved. No matter your financial situation, having a buffer against the inevitable unknown is one of the smartest things you can do and it'll allow you to build a foundation for your other financial goals.

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

Investing Basics (Part 1)

Investing Basics

8 mins

🔥 TODAY'S MOVERS & SHAKERS

Lands' End (-29.5%) as the US clothing and home decor retailer reported an unexpected quarterly loss. Supply problems and higher transportation costs continue to pressure its business.
Designer Brands (-22.2%) as the retailer of designer shoes and accessories missed earnings for the latest quarter while cutting profit forecasts; it cited a volatile environment applicable to most retailers.
Dollar General (-8.1%) as the discount retailer reported an earnings miss and lowered its guidance for the year citing supply chain costs eating into profits.
S&P 500 Index (-0.2%) to $4,074.32 (1D)
Bitcoin (-1.2%) to $16,976.50 (1D)
Ethereum (-1.5%) to $1,274.93 (1D)

This commentary is as of 10:00 am PDT.

🌊 BY THE WAY

⏱️ Answer: Employees spend 18 minutes, on average, reviewing their benefit selections during open enrollment. "They spend more time deciding what to watch on Netflix," according to Rob Grubka, CEO of Health Solutions for Voya Financial (CNBC)
🍟 McDonald's is giving people the chance to win free food for life (CNN)
📈 Feeling the impact of rising prices and worried about holiday shopping? See what Americans had to say about it in this October survey (FinMasters)
✨ ICYMI. Benefits open enrollment tips (Finny)
₿ Fidelity begins opening retail Bitcoin trading accounts (Bitcoin Magazine)

⚕️ Finny lesson of the day. Do you feel like health insurance plans are complicated and confusing? If you are selecting health insurance through open enrollment right now, here are a few tips to help you decode some of the jargon:

Selecting Health Insurance

Insurance

6 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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