July 18, 2023

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Good day. Real estate is often overlooked as an investment, but its presence is actually quite larger than we perceive — recent data even suggests that Americans own more real estate than stocks. Can you guess how much? a. 54% b. 63% c. 71%. Follow the wave 🌊 below for the answer.

Here are the topics for today:

A Few Ways to Catch Up Your Investments
FYI on the Supreme Court's Student Loan Decision
How to Add Real Estate Exposure to Your Portfolio

INVESTING

A Few Ways to Catch Up Your Investments

In a recently published survey, researchers found that 64% of working Americans felt confident about their financial prospects in retirement — a 9% decline from last year's results. Only 18% of respondents felt "very confident," down from 30% last year, and confidence amongst the already retired dropped as well.

The good news is that if you're feeling behind, there's still a chance to get on track.

Tried & true methods

Consolidate: It's difficult to catch one rabbit if you're chasing three, and that metaphor applies very well to investing. You might think that having your 401(k) here, an IRA there, and a brokerage account too is a good way to diversify, but you may actually be robbing yourself of concentration and focus, causing you to fall behind the mark while also missing out on tax advantages.
Know your net: Your net worth is the sum of all assets minus liabilities, and knowing this can greatly benefit you in putting your current situation into perspective. By calculating this, you give yourself a reference point to look at in relation to where you want to be, and this is what sets your plan in place.
Know your number: How can you catch up without knowing how far there is to go? For that, you'll need to find your number. Your "number" is an estimate of what you think your net worth would need to be in order to achieve your goal. Whether that's FIRE, freedom, or just retirement, you have to do the math and visualize that number in your mind as a reference point.
Set a standard: Once you know where you are now and where you need to go, the final step is to craft a strategy to get there. For example, say your net worth is $100,000 at age 30 and you want to reach $1M by 60 — how do you get there? By adding $30,000 to your net worth each year. From there, you break it down further into how you can not only add $30,000 per year, but how you could potentially go beyond this.
The obvious, specific answers are also there to help too. Max out your retirement accounts, take advantage of catch-up contribution limits if you can, diversify into alternatives with care, and of course, talk with a professional about other steps that could benefit you if needed.

FINANCIAL PLANNING

FYI on the Supreme Court's Student Loan Decision

Student loan repayments and interest accrual has been in suspension for what seems like ages — dating back to March 2020. This fall though, that longstanding moratorium will finally come to a close as a result of an agreed-upon provision in the debt ceiling deal and the Supreme Court's ruling on forgiveness.

Student loans will resume accruing interest on September 1st, and payments will begin coming due on October 1st.

But, things aren't exactly going back to the way they always were — student loan repayments are changing, and becoming more flexible in the process.

What to know

A new path to forgiveness? Biden's initial plan for student loan forgiveness was legally predicated on the 2003 Heroes Act, but now that door has closed. The admin says they're working on an alternative route, one that they'll try to pursue under the Higher Education Act of 1965. Could it work? Maybe, but the process will be lengthy, and likely to be met with similar lawsuits as the prior.
New changes to repayments: The student loan repayment structure is also getting a revamp, replacing the previous "REPAYE" plan with the new "SAVE" repayment option. The full benefits won't go into effect until July 2024, but already there are new considerations.

The SAVE plan will

Raise the threshold of income exempted from repayment, shifting it from 150 percent of the Federal poverty guidelines to 225 percent, ensuring no borrower earning less than 225% of the federal poverty level has to make monthly payments.
Elsewhere — reduce monthly payments for undergraduate loans to 5% of discretionary income, shorten the loan forgiveness period to 10 years for borrowers with original loan balances of $12,000 or less, and waive interest charges for borrowers with low income, even if their monthly payment is $0.

A one-time adjustment

An extra $39B in forgiveness is en now route for 800,000+ borrowers in the coming weeks as a result of an adjustment ordered by the Biden admin last year.
Under the Higher Education Act, student loan borrowers enrolled in an income-driven repayment plan would be eligible to have the remainder of their debt forgiven after 20 to 25 years of payments, with the exact number of years depending on when the loan was originally accepted.
That sounds great, but this system has allowed some borrowers to fall through the cracks over the years by inaccurately counting the months of qualifying payments that they've made. Last year, the Biden administration announced a one-time adjustment to rectify these errors, and now that payments are set to resume, so is this balance sheet cleansing.
The adjustments (and potential forgiveness) apply to those who are or were on an IDR plan, in the PSFL program, or those that have Direct and/or Federal Family Education Loans that are held by the U.S. Department of Education.
For some borrowers, they'll get credit for enough months to have the rest forgiven, others will be in a surplus and get a refund, and some will have time remaining but now be closer to forgiveness under the 20-year rule.
A 12-month on-ramp is also part of the changes. This adjustment period will prevent those who are unable to make payments from being in default or having their credit negatively impacted for up to 12 months after payments resume.

INVESTING

How to Add Real Estate Exposure to Your Portfolio

When we think of portfolio composition, what usually comes to mind is something like the classic 60/40 — a certain mix of stocks and bonds that adjusts itself as we age. But that's just one guideline, and the actual breakdown can be much, much more unique.

One of the most popular slices to add to the pie — real estate. Despite its ups and downs, real estate is one of those asset classes that, in the aggregate, generally appreciates over time, making it a viable source of diversification.

Luckily though, we don't have to buy any actual properties to get involved.

"Real estate investment is not solely limited to the traditional path of saving for a down payment on a single-family home. Clients in expensive housing markets can explore paths to investing in real estate with a lower barrier to entry such as purchasing a real estate mutual fund or ETF. This approach comes with an additional benefit of diversifying your investment into multiple real estate properties." Heather Comella, CFP® of Origin

A few ways to add real estate to your holdings

REITs: REIT stands for real estate investment trust, and it works by pooling capital from individuals or institutional investors and putting that cash to work in the real estate world. They invest in income-generating properties and return most of the profits to their shareholders in the form of dividends. REITs often trade on the open market like stocks, making them highly liquid and flexible while still generating real estate oriented profits.
Stocks & funds are another hands-off approach to diversification into real estate. While public real estate companies and mutual funds/ETFs aren't exactly known for their speculation or adrenaline-pumping returns, they provide exposure to the industry in a stress-free way.
Property itself: If you'd rather go straight to the source and can afford to do so, it's hard to beat buying actual property. Becoming a landlord or a commercial investor comes with plenty of pros to surpass its cons, but whether or not this is for you depends heavily on your unique situation.

Take this related lesson and earn 🟡 Dibs:

What is a REIT?

Advanced Investing

7 mins

Want to learn more? View our live webinar!

Want to learn more? View our live webinar!Buying Real Estate 7/19 at 11 am PST | 2 pm EST Register here

Learn helpful information to make the best plans for a home purchase. This session will discuss key considerations and planning strategies for budgeting and purchasing a new home. We'll also review decisions you'll need to make when obtaining a mortgage and notes for shopping interest rates. Finally, review alternative methods to invest in real estate.

🌊 BY THE WAY

by the way

🏠 Answer: 63%. While roughly 54% of Americans say they own stock, 63% say they own real estate — down from 69% in 2004. (Financial Samurai)
💌 Stamp prices just went up again, USPS's third price hike in the last 12 months (Axios)
💲 ICYMI. Money biases to avoid (Finny)
🚘 Flying cars are now a thing, even if they are a couple of decades late (CarBuzz)
📊 Finny lesson of the day. Real estate is often an afterthought in our portfolios, but perhaps it shouldn't be. The best place to get started? With the basics.

Real Estate Investing Basics

Investing Basics

5 mins

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