TOGETHER WITH  | Good Tuesday to you. The latest inflation figures are out—the good news is inflation was lower than expected for November. The consumer price index (CPI) increased 7.1% in November, versus an expected 7.3%, from a year earlier. Of the following goods & services, can you guess which one had the greatest year-over-year price increase? a. eggs, b. pet food, c. health insurance. 🌊 Check below for the answer. Here are today's money topics: - The SPAC collapse
- What to do with your old 401(k)
- Crypto precautions to take during the chaos
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MARKET OUTLOOK The SPAC Collapse | | | | Like a lot of things, SPACs had their heyday back in 2020 and 2021 as markets plugged along with fervor. But in 2022, everything has come back down to earth and SPACs have hit the ground hard. Quick, what's a SPAC? Special purpose acquisition companies are publicly-traded shell companies backed and funded usually by renowned investors. Commonly known as "blank check companies," SPACs are created to acquire a private company and take it public without going through the more onerous, traditional IPO process. The challenges - Turbulence: It's been a rough sea for any company to set sail this year. Sure, SPACs have made up roughly 77% of total IPOs in 2022, but that's no bragging matter. After 2021's banner year, IPOs are down over 82% in 2022 with only about 170 — our fewest since 2012.
- Call it off: SPACs have been calling it quits all year, and it hasn't been just a pruning of the dead branches. No, even well-respected SPACs with well-known investors behind them like Chamath Palihapitiya, Alec Gores, and others have all been forced to cancel deals and wind down their SPACs this year.
- How many? There are 400+ shell companies still seeking acquisition targets at the moment, but thus far at least 65 have called it quits this year, with 55 being canceled purchases.
- Performance: CNBC's SPAC Post Deal Index, which tracks the performance of SPACs after they've completed their mergers, has fallen approximately 66% this year. A situation-by-situation analysis will also yield countless results of former SPACs that are down some 50%, 60%, and 70% or more. With the way their peers have been looking, it's hard to blame the newcomers for steering clear.
As for the future The whole market is undergoing a bit of curtailing during this contractionary period, and those on the fringes (like SPACs) are getting the brunt of it. In all likelihood, what we're seeing here probably isn't the death of SPACs, but a refinement of them. Take this related lesson on this topic and earn Dibs 🟡 while you're at it: | | | |
FINANCIAL PLANNING What To Do With Your Old 401(k) | | | | Whether it's quitting, getting laid off, a career transition, or old-fashioned retirement, there are a lot of reasons why you and your 401(k) might become estranged. We talk a lot about investing and retirement planning, but what about contingency planning? What happens when you and the 401(k) sponsor are no longer together? Well, there are a few options. Choose your player - Leave it: You can leave your 401(k) under the management of your former employer as long as your balance is north of $5,000. This is a convenient option, but one with some drawbacks — you won't be able to make additional contributions to it anymore. It might work for some time, but eventually, you might grow tired of keeping up with multiple retirement plans.
- Transfer it: If you're transitioning to a new company and they happen to offer a retirement plan analogous to your former employer's plan, rolling your account over to the new plan is an option. After surveying the options available with your new plan, you'll need to contact your plan coordinators on both ends and fill out the necessary paperwork — now you can get back to investing.
- Roll it over: Another version of the rollover tactic involves taking things into your own hands and rolling your 401(k) to an IRA. If you're retiring, taking a career break, or simply not moving to a company with similar plan benefits, this might make sense for you. Keep in mind, Roth accounts can't be rolled into traditional accounts, and if you decide to move a traditional 401(k) to a Roth IRA, that will be a taxable event.
- Take distributions: If you're over 59.5 and retiring, you may decide to begin taking qualified distributions from your 401(k) instead of making any moves. Remember, this option will also be taxed at your ordinary income tax rate.
- Cash it out: Cashing out a 401(k) is rarely the go-to recommendation, but there are scenarios where it makes sense. If your balance is under $5,000, you really need the cash, or you have a secondary retirement account that's slap full too, cashing out might be okay. Keep in mind — if you're doing so under age 59.5 you'll be hit with the ordinary income tax + a 10% penalty, and your plan manager is required to withhold 20% of the funds to send to the IRS.
Take this related lesson on this topic and earn Dibs 🟡 while you're at it: | | | |
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 fortune over time. In fact, that's how many people get rich. Check out Dollar-a-Day by FinMasters. | | | |
CRYPTO Crypto Precautions to Take During the Chaos | | | | Crypto has been a roller coaster since 2020, taking passengers on a tour of both all-time highs, frightening drops, and now, extreme uncertainty. No matter your stance on crypto at the moment, the happenings of this year have taught a common lesson that all can agree on — taking precautions is more important than ever in this space. The most important protections - Storage: When you leave your crypto in an exchange's hands, you're assuming you'll have access to it. A spree of contagion bankruptcies, bank runs, and mismanagement has proven that this isn't always the case, and we should assume the worst to be safe. This emphasizes the importance of using a cold storage wallet to store some or all of your crypto, taking the onus off of the exchange and transferring responsibility to yourself.
- Healthy skepticism: If you've been tuned into the crypto space for long enough, you may realize it's kind of a wild west. There's always a new coin or project that has the potential to revolutionize the space and go to the moon, but most never do. That's how it is with nascent markets, and it's because of this reality that we must exercise healthy skepticism about any investment we consider making.
- Risk management: It's pretty unsettling just how easy it is to find worst-case scenario stories online about how investors have lost their livelihood's speculating in crypto, especially lately. This is a reality that can happen in any form of investing, but it's something to be taken even more seriously in an unsettled, budding place like crypto. For most of us, crypto should be a secondary investment of sorts that takes a backseat to our essential investing and something that only discretionary income is allocated towards.
Take this related lesson on this topic and earn Dibs 🟡 while you're at it: | | | |
🌊 BY THE WAY | - 🥚 Answer: The price of eggs increased 49.1%, pet food jumped 15.7%, and health insurance increased 13.5% from a year ago. Here's the rest of the inflation breakdown for November, in one chart (CNBC)
- 🎁 About 60% of Americans plan to buy fewer gifts and to purchase presents for fewer people as inflation hits, according to a Harris poll. A similar percentage is reducing holiday travel. And more than one-third are skipping gift-giving completely due to cost (FA Mag)
- 💰 401(k) 'hardship' withdrawals hit a record high, Vanguard says — another sign households feel the pinch of inflation (CNBC)
- 🛍️ ICYMI. BOGO & the retail trap (Finny)
- ⚡ Just 8% of Americans have a positive view of cryptocurrencies now (CNBC)
- 🌴 Finny lesson of the day. Review your withdrawal options with a 401(k) before you retire:
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| Finny is on a mission to simply finances & benefits for employees. 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. Finny does not offer investment and stock advice. Please support our brand sponsor—FinMasters—as they make rewards on our platform possible. If you're interested in sponsoring The Gist, please reach out to us. And if you have any feedback about this edition or anything else, please email us and we'll be sure to respond. | | | | | | | |
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