TOGETHER WITH  | Good Tuesday to you. Can you guess what percentage work benefits make up of a US employee's total compensation (salary, benefits, equity, etc.)? a. 11%, b. 21%, c. 31%. 🌊 Check below for the answer. Here are the finance topics for today: - Investing Lessons From 2022
- This Housing Downturn Is Different
- Changes Coming To Your Retirement Plan
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INVESTING Investing Lessons From 2022 | | | | The Pareto Principle states that 80% of the effects come from just 20% of the causes. And in many ways, last year embodied this idea. Sometimes you learn a little, sometimes you learn a lot, and sometimes you learn a lot at once. We often learn the most when life happens fast, and 2022 was one of those years when it comes to investing. It was probably a 20% year. 2022 doctrines - Rates matter: We've grown accustomed to a low-rate environment for the last decade or more, and 2022 retaught many of us that interest rates can still be a force to be reckoned with. Debt finally costs money again. Rising rates have trickled into the cost of debt instruments across the board, with mortgages being hit the hardest. Homebuyers will now be paying roughly $443,000 of interest on top of their home cost if they lock in a 30-year fixed rate right now.
- Think macro: The one who can afford to ride it out almost always wins. Having a long-term investment horizon means that bad days, weeks, and even years in the market don't matter to you and have no bearing on your strategy. Sure, it'll still hurt sometimes, but there's a great comfort to be found in knowing it'll all be okay in the long run.
- Always opportunity: When it's hard to make money in the markets, it forces us to look elsewhere for ways to improve. Luckily, there's always room to optimize your investing. 2022 serves as a reminder to take the time to rebalance, research, diversify, and sometimes do nothing.
- If it looks like a duck, it probably is. The last two years saw a lot of investors make a lot of money on things that seemed too good to be true, and 2022 brought a reality check. The deep drawdown seen by certain cryptocurrencies and NFTs has served as a mundane but important reminder — only invest what you can afford to lose.
Take this related lesson on this topic and earn Dibs 🟡 while you're at it: | | | |
HOUSING This Housing Downturn Is Different | | | | Murmurs of a housing market downturn are often seen as a bad economic omen, causing us to harken back to the dark days of the late 2000s and recall the last time this happened. This isn't so much the case this time. In fact, many even welcome it now, recognizing that a housing downturn in our current situation might just be what we need. But why is that the case? Aren't we afraid of another 2008? Not really. Looks like a bubble? - Such a run: The median sale price of homes across the US increased by roughly 38% between Q4 2019 and Q3 2022 — an unprecedented jump. Leading up to 2008, that same metric rose only 12.2%.
- Cost of ownership: Home prices are a leading indicator of affordability, but there's a lot more that goes into the cost of owning a home. Amoung prices, insurance, taxes, and interest rates, the monthly mortgage payment on a median-priced home has basically doubled to about $2,768 in just two years.
This time's different - Not afraid of a dip: All of this looks inherently unsustainable and bubbly on the surface, but the fact of the matter is that inventory is short, demand is high, interest rates will likely fall, and the tax code still favors homebuyers. The support is still there.
- Confidence is up: Fannie Mae's monthly housing sentiment index is up from November to December. Falling home prices have given consumers the confidence that this overheated market is finally cooling. More consumers are betting home prices will continue to fall this year and more also said they believe mortgage rates will come down.
- The big picture: Housing price growth will likely continue to slow its roll substantially as consumers' budgets grow weary of these high prices, but a nationwide shortage of inventory will likely keep the market stable and in relatively high demand. Most analysts expect a slight slump in the near term, but that overall prices will still be up noticeably over the next five years.
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FEATURING SAGE | | | | Employee benefits are hard to understand. Until now. Enter Sage, a personalized benefits guidance platform to help employees understand their benefits and how to use them. And Sage was created by the Finny team (yes us!) and we just launched the product. Check Sage out and support us on Product Hunt today! | | | |
FINANCIAL PLANNING Changes Coming to Your Retirement Plan | | | | Millions of people in the US are meandering toward retirement without saving enough to maintain their lifestyle once it arrives, largely because some are unable to. Recent market performance has also hurt those looking to retire soon, with the average 401(k) balance lower by $29K (23%) during 2022. Congress is looking to try and combat these realities with a few subtle changes that will arrive for retirement accounts and their savers in 2023 and beyond as they passed the Secure Act 2.0 in late December. Changes coming - RMDs: This new legislation raises the starting age for required minimum distributions to 73 beginning in 2023 (from 72) and up slowly to 75 in 2033. This will be a welcomed change for those who don't yet need the funds or want to waive that tax onus for later.
- Auto-enrollment: To boost participation and promote retirement savings, auto-enrollment will become a thing. Starting in 2025, newly created 401(k) (and other employer-sponsored) plans will begin automatically enrolling account holders in a retirement contribution plan ranging from 3% to 10% of their pay, and increasing by 1% annually until it reaches 10% to 15%.
- Ease of administration: Matching from your employer to your traditional 401(k) goes directly into your account, whereas with a Roth 401(k), matching is deposited into a separate, tax-deferred 401(k) account. However, starting in 2023, employers can offer employees the choice to receive their vested matching contributions directly into their Roth accounts. The caveat: it may take the IRS and custodians some time to work out their procedures and processes before employers & employees can actually take advantage of this.
- Emergency savings: Starting in 2024, retirement plans may offer linked emergency savings accounts (ESAs) that allow non-highly compensated employees to make Roth contributions to a savings account within the retirement plan.
- Early withdrawals: Stating this year, those who are terminally ill or victims of disaster will be able to withdraw from their retirement accounts early (before age 59.5) without incurring the standard 10% early withrdrawal penalty.
Take this related lesson on this topic and earn Dibs 🟡 while you're at it: | | | |
🌊 BY THE WAY | - 💰 Answer: On average, benefits make up 31% of an employee's total compensation (BLS)
- 💵 The hidden costs of couponing (FinMasters)
- 🧮 ICYMI. Dollar-cost averaging—pros & cons (Finny)
- 🥗 Here's how to eat to live longer, new study says (CNN)
- 📝 Finny lesson of the day. It's the start of a new year, and it may be worth re-submitting your W-4 as it determines how much in taxes should be withheld from your paycheck. If you haven't updated it since the form itself was updated by the IRS in 2020, review what changes were made and how to fill it out:
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| Finny is a financial wellness platform for employees. The Gist is Finny's twice-a-week (Tues & Thurs) newsletter covering personal finance, market trends and investing insights. The content team: Austin Payne, Carla Olson, Chihee Kim. Finny does not offer investment and stock advice. Please support our brand sponsor—Sage—as they make rewards on our platform possible. If you're is 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. | | | | | | | |
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