“An investment in knowledge pays the best interest.” – Benjamin Franklin
Every year, June 19 marks Juneteenth, a federal holiday and a day of remembrance of the African-American culture, specifically Emancipation Day. On June 19, 1865, General Order No. 3 was read by Union General Gordon Granger in Galveston, Texas. The order informed enslaved Africans in America that they were free.
There are several ways to celebrate the holiday, no matter how much you do (or don’t) already know. Start a book, watch a documentary, and spend the day listening and learning about what the day means to the Black community. Click here to read more
Buying cost $1,000 more per month than renting
The gap between renters and buyers is growing — in favor of the renters.
The monthly premium on home ownership is up to $1,030 per month, according to the latest report from John Burns Real Estate Consulting. That’s up 17 percent from this month last year, when the difference favored renters by $884 per month.
Both the housing and rental markets surged during the pandemic, Rents have shown some signs of peaking, however, while home prices remain high and mortgage rates are still significantly higher than they were 15 months ago, when the Federal Reserve started hiking interest rates.
The thousand-dollar threshold is significant, but things have been worse for buyers. The peak came in October, when the premium favored renters by $1,188 per month.
Renting has been historically cheaper than buying, as the latter includes an expensive down payment — even when spread over decades — and owners typically front the costs for repair and maintenance, unlike renters. After the 2008 Great Recession, however, buyers briefly held the upper hand.
In 20 of the most populous markets analyzed by John Burns, renters held the advantage in every single one. The size of that advantage differed greatly from market to market, though, especially in the Midwest.
Austin was most unforgiving to owners when compared to renters of a single-family starting home. It costs $1,664 more to own than rent per month in Texas’ capital. Ownership premiums above the national mark were also recorded in Denver, Miami and Dallas.
On the other side of the spectrum, the gap was the closest in Indianapolis, where renters only held a $117 monthly advantage. The only other market where the gap was within $200 was Cincinnati.
Fed Holds on Rate Hike for June
As expected, the Federal Reserve paused rate increases for the first time in 15 months and maintained the benchmark interest rate after 10 consecutive increases. Future rate hikes in 2023 remain a possibility. However, the CRE sector still faces additional rate shocks from other factors.
Short-term sigh of relief: It’s a long-awaited day for CRE as the Fed finally hits the pause button on rate increases. While this is good news for struggling borrowers and landlords, the Fed didn’t necessarily give everyone a warm and fuzzy feeling about the rest of the year. Chairman Jerome Powell clarified that the Fed expects they will need to raise rates again this year if inflation isn’t under control. The pause in rate increases comes after a BLS report showed a 4% annual rise in consumer prices for May, the smallest increase since early 2021.
From the horse’s mouth: “Nearly all committee participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Fed Chairman Jerome Powell said in post-meeting remarks. “But at this meeting considering how far and how fast we have moved, we judged it prudent to hold the target rates steady to allow the committee to access additional information and its implications for monetary policy.”
Long-term uncertainty lingers: Most of CRE has been hit hard by the Fed’s rate hikes, which began way back in March 2022, resulting in banks pulling back lending activity, depositors making a redemption run on regional banks, and, in some cases, banks collapsing altogether. The rate hikes also coincided with increased cap rates and lower cash flows. Many fear that a CRE slowdown that persists for the rest of the year could trickle down to more regional banks, leading to a real recession and perhaps finally ending the stock market rally.
➥ THE TAKEAWAY
Zoom out: The Fed’s temporary rate halt provides short-term relief, but the unresolved debt ceiling crisis has had a severe impact on the market. Lending rates depend on short-term Treasury bill yields, with lenders seeking higher profitability than safer government investments. For instance, the 26-week Treasury bill issued on March 30, 2023, initially yielded 4.83%, while the upcoming June 15 bill will yield 5.38%, a significant 55-basis point increase. However, clarity from the Fed regarding the endpoint of rate hikes is crucial for boosting confidence in refinancing and property acquisitions.
Why Saving Money Doesn’t Actually Make You Rich
Saving money is considered a major building block of financial success. We’re frequently advised to cut expenses, budget diligently and put aside money for the future.
While saving is undoubtedly important for financial stability, savings alone does not guarantee true wealth or richness. Let’s dive into the reasons why just saving money may not lead to becoming rich and explore alternative approaches to building wealth that go beyond simple savings.
Paw Vej, COO of Financer.com, shares that inflation is the main culprit that eats away at your savings.
“When you put your money into a long-term savings account, the value of your money decreases over time due to inflation,” said Vej, adding that the problem with relying solely on savings is the interest earned is usually quite low and may not keep pace with inflation. “This means that even if you diligently save, the rising cost of goods and services erodes the purchasing power of your savings. For example, when I was saving for a house deposit, the increasing housing costs outpaced our savings, making it difficult to reach our goal.”
Small Amounts Are Easy To Spend
Vej made an intriguing observation that many of us can relate to: Do you ever find yourself hesitating when it comes to spending larger bills, such as $50 or $100, while readily parting with smaller bills or change for everyday purchases like coffee or snacks? Similarly, when your savings account holds only a small amount of money, it may not exhibit substantial growth, making it tempting to spend it at the first available opportunity.
According to Nate Nead from Invest.net, if you solely focus on savings, you might overlook alternative investment opportunities such as stocks or real estate, which have the potential to generate significantly higher returns. (We’ll get into that more later.)
The experts agree everyone should keep some money available for everyday spending and emergencies — according to Vej, the super-wealthy people he knows keep between 5% to 10% of their money liquid — but what should we do with the rest?
What To Do Instead
Invest, Invest, Invest
Vej shares that the key is to “make money while you sleep.” Thomas Maluck, an NFEC Certified financial education instructor out of Columbia, South Carolina, said interest rates for savers in the form of high-yield savings accounts and money market funds are good deals right now. He added that T-bills are offering nearly 7% return at the moment.
Maluck said for individuals aiming to grow their wealth, it’s advisable to capitalize on low-risk treasuries and savings account rates. However, it is equally important to incorporate a diverse index fund like the S&P 500 or a total market fund. This way, savers can avoid being left behind during future market rallies and maximize their potential returns.
Additionally, Faris Khatib of Ideal Tax told GOBankingRates it’s a good idea to contribute aggressively to your 401(k). “Rather than a general savings account, a 401(k) is designed to grow in the long term and can be less daunting than investing in stocks,” he said. “This helps your money grow and will help your financial future.”
Take Advantage of New (and Old) Business Opportunities
Baruch Silvermann, the CEO of The Smart Investor, highlighted that it’s crucial to recognize that the amount you can save is limited by your income and expenses. Instead of relying solely on saving a fixed portion of your income, it’s smart to think of ways you can grow your current income. He suggests things such as securing a promotion at work, starting your own business, or beginning a side hustle. By actively seeking ways to enhance your income, you open up more opportunities to accumulate wealth.
Make Passive Income
Passive income refers to earning money without significant effort on your part, according to many of our experts. This can be accomplished through avenues such as investing in rental properties, participating in peer-to-peer lending platforms, or creating digital products that generate income without requiring continuous effort. By harnessing the power of passive income, you can significantly enhance your financial prospects.
To Build Wealth, Do All of the Above
“Ultimately, building real wealth requires taking a comprehensive approach and implementing a well-rounded strategy,” said Michael Collins, CFA of Endicott College in Beverly, Massachusetts. “It’s important to save your money, but you’ll also want to think beyond just saving in order to capitalize on the power of compounding and the many opportunities for accelerated wealth growth.”
What To Do With Your 401(K) From Your Old Job
Ever since the “Great Resignation” started, more people have been switching jobs (over 50 million in 2022) and with that, former employer retirement funds need to be considered. What should you do with that old 401(k) when you leave a job?
Check out this episode of Adam Live where IRA Financial founder, Adam Bergman, Esq. discusses your options for your 401(k) funds when you separate from your job including rolling over to an IRA, transferring it to a new job, and taking a distribution.