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Are “High-Yield” Savings Accounts a Scam or a Goldmine?

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High-yield savings accounts are everywhere right now. Banks and online platforms promise rates that seem much better than what you’d get from a regular savings account. You might see ads for “5% APY” and wonder if it’s too good to be true. With so many people looking for safe places to grow their money, it’s easy to get caught up in the hype. But are high-yield savings accounts really a goldmine, or is there a catch? Here’s what you need to know before you move your money.

1. What Is a High-Yield Savings Account?

A high-yield savings account is a type of savings account that offers a significantly higher interest rate compared to traditional savings accounts. Most regular savings accounts at big banks pay less than 0.5% APY. High-yield accounts, especially those from online banks, can offer rates above 4% or even 5%. The main reason is that online banks have lower overhead costs, so they can pass those savings to you. These accounts are usually FDIC-insured, which means your money is protected up to $250,000 per depositor, per bank. This makes them a safe place to keep your emergency fund or short-term savings.

2. How Do High-Yield Savings Accounts Work?

High-yield savings accounts function similarly to regular savings accounts. You deposit money, and the bank pays you interest. The difference is the rate. The interest compounds, usually on a daily or monthly basis, so your money grows faster. You can access your funds when you need them, but there may be limits on how many withdrawals you can make each month. Most accounts are easy to open online, and you can link them to your checking account for easy transfers. There are no hidden tricks in how interest is paid, but it’s always a good idea to read the terms.

3. Are the Rates Too Good to Be True?

The rates on high-yield savings accounts are real, but they can change at any time. Banks set their rates based on the federal funds rate and market competition. When the Federal Reserve raises rates, banks often increase their savings rates. However, if rates drop, your high-yield account rate may also decrease. Some banks use teaser rates to attract new customers, then lower the rate after a few months. Always check if the rate is “introductory” or if it’s the standard rate.

4. What Are the Risks?

High-yield savings accounts are not a scam, but there are a few risks to be aware of. The biggest is that the rate can drop without warning. If you’re counting on a certain return, you might be disappointed. Some banks have minimum balance requirements or monthly fees that can eat into your earnings. Others may limit how often you can withdraw money. If you exceed the limit, you may incur fees or have your account closed. And while your money is safe from bank failure if the account is FDIC-insured, it’s not protected from inflation. If inflation is higher than your interest rate, your money loses value in real terms.

5. How Do You Find a Legitimate High-Yield Savings Account?

Look for accounts at reputable banks or credit unions. Make sure the account is FDIC- or NCUA-insured. Check the bank’s website for details, or use the FDIC’s BankFind tool to verify. Read the fine print for fees, minimum balances, and withdrawal limits. Compare rates from several banks, but don’t chase the highest rate if it comes with strings attached. Customer reviews can also help you identify potential red flags, such as poor customer service or hidden fees.

6. Are High-Yield Savings Accounts Better Than Other Options?

High-yield savings accounts are great for short-term savings and emergency funds. They’re safer than stocks or crypto, and you can access your money quickly. But they’re not the best choice for long-term growth. Over time, inflation can outpace your interest earnings. If you want to grow your money for retirement or achieve significant goals, consider alternative options such as index funds or IRAs. But for money you might need soon, a high-yield savings account is hard to beat for safety and convenience.

7. What Should You Watch Out For?

Watch for fees, minimum balance requirements, and withdrawal limits. Some banks require you to keep a certain amount in the account to earn the high rate. Others charge monthly fees if your balance drops too low. Ensure you understand the frequency of money transfers in and out. If you frequently need to access your cash, look for an account with flexible terms. And always check if the rate is variable or fixed. Most high-yield savings accounts have variable rates, so your earnings can change.

8. How Much Can You Really Earn?

The amount you earn depends on the rate and your balance. For example, if you put $10,000 in an account with a 5% APY, you’ll earn about $500 in interest over a year if the rate stays the same. However, if the rate drops, your earnings will also drop. Use an online calculator to estimate your potential earnings. Remember, the real value is in keeping your money safe and earning more than you would in a regular savings account.

9. Are High-Yield Savings Accounts a Scam or a Goldmine?

High-yield savings accounts are not a scam. They’re a useful tool for anyone who wants to earn more interest on their savings without taking big risks. But they’re not a goldmine either. The rates are better than traditional accounts, but they won’t make you rich. The real benefit is peace of mind and a little extra growth on your cash. If you use them wisely, they can be a smart part of your financial plan.

The Real Value of High-Yield Savings Accounts

High-yield savings accounts provide a secure way to earn a higher return on your savings. They’re not a get-rich-quick scheme, but they’re not a scam. If you understand the terms and use them correctly, they can help you achieve your financial goals more quickly.

Have you tried a high-yield savings account? What was your experience? Share your thoughts in the comments.

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How Easy Is It To Get A Loan From a Credit Union v/s A Bank

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When you need a loan—whether it’s for a car, a home, or just to cover an unexpected expense—choosing where to apply can feel overwhelming. Should you go with a traditional bank, or is a credit union the better option? The answer isn’t always straightforward, and the process can vary more than you might think. Understanding the differences between getting a loan from a credit union versus a bank can save you time, money, and a lot of stress. If you’ve ever wondered which route is easier, you’re not alone. Let’s break down what you need to know so you can make the best decision for your financial future.

1. Membership Requirements: Credit Unions vs. Banks

One of the first things you’ll notice about credit unions is that they require membership. Unlike banks, which are open to anyone who meets their basic requirements, credit unions are not-for-profit cooperatives that serve specific groups. This could be based on where you live, work, or even your family ties. While this might sound restrictive, joining a credit union is often easier than people expect. Many credit unions have broad eligibility criteria, and some even allow you to join by making a small donation to a partner charity. Banks, on the other hand, don’t require membership—anyone can walk in and apply for a loan. If you’re looking for the path of least resistance, banks might seem easier at first glance, but don’t let the word “membership” scare you off from credit unions.

2. Application Process: Streamlined or Stuck in the Past?

When it comes to the loan application process, both credit unions and banks have made strides in recent years. Most now offer online applications, quick pre-approvals, and digital document uploads. However, credit unions are often praised for their personalized service. If you have questions or need help, you’re more likely to get one-on-one attention at a credit union. Banks, especially larger ones, can feel more impersonal, and you might find yourself navigating automated phone systems or waiting in long lines. That said, big banks often have more robust online platforms and mobile apps, which can make the process faster if you’re comfortable with technology. Credit unions may make the loan process easier and less intimidating for those who value a human touch.

3. Approval Criteria: Who’s More Flexible?

Here’s where things get interesting. Credit unions are known for being more flexible with their approval criteria, especially for borrowers with less-than-perfect credit. Because they’re member-focused and not driven by profit, credit unions often look at the whole picture, not just your credit score. They may consider your relationship with the institution, your employment history, and your ability to repay. Banks, particularly large national ones, tend to have stricter guidelines and rely heavily on credit scores and debt-to-income ratios. If your credit history is a little rocky, you might find it easier to get a loan from a credit union.

4. Interest Rates and Fees: Where’s the Better Deal?

While the ease of getting a loan is important, so is the cost. Credit unions typically offer lower interest rates and fewer fees than banks. Because they’re not-for-profit, any earnings are returned to members in the form of better rates and lower fees. This can make a big difference over the life of your loan. Banks, especially larger ones, often have higher rates and more fees, which can add up quickly. If you’re looking for the most affordable option, credit unions usually come out ahead. For current average rates, you can compare data from Bankrate.

5. Speed of Funding: Who Gets You the Money Faster?

When you need money fast, the speed of funding matters. Banks, with their larger infrastructure and resources, can sometimes process loans more quickly, especially if you already have an account with them. Some banks even offer instant approvals and same-day funding for certain types of loans. Credit unions, while generally efficient, may take a bit longer, especially if you’re a new member or if your application requires a more personal review. However, many credit unions are catching up and can fund loans within a few days. If speed is your top priority, a bank might have a slight edge, but the difference is shrinking as credit unions modernize their processes.

6. Customer Service: Personal Touch or Corporate Machine?

Customer service can make or break your loan experience. Credit unions are famous for their friendly, community-focused approach. You’re more likely to deal with someone who knows your name and genuinely wants to help. This can make the entire process—from application to funding—feel much easier and less stressful. Banks, especially big ones, can feel more like a numbers game. While some banks offer excellent service, it’s not always consistent, and you might feel like just another account number. If you value personal attention and support, credit unions often make the loan process smoother and more pleasant.

Making the Right Choice for Your Loan Journey

So, how easy is it to get a loan from a credit union versus a bank? The answer depends on your priorities. Credit unions are often the easier and more rewarding choice if you want personalized service, flexible approval criteria, and lower rates. A bank might be the way to go if you need instant access, have a strong credit profile, or prefer digital convenience. Ultimately, the best approach is to compare both options, ask questions, and choose the lender that fits your unique needs. Your financial journey is personal—make sure your lender is on your side.

What’s been your experience getting a loan from a credit union or a bank? Share your story in the comments below!

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What If Your “Emergency Fund” Is the Reason You’re Still in Debt?

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Are you diligently saving for emergencies while carrying high-interest debt? This common financial strategy might actually be costing you thousands. Many financial experts recommend building an emergency fund before tackling debt, but this one-size-fits-all approach doesn’t work for everyone. When interest charges are draining your resources faster than you can save, your emergency fund might keep you financially underwater. Let’s explore why rethinking this conventional wisdom could be the key to breaking your debt cycle.

1. The Hidden Cost of Simultaneous Saving and Borrowing

When you hold cash in a savings account earning 1-2% while carrying credit card debt at 18-25%, you’re essentially losing money every month. This financial disconnect creates a mathematical impossibility: you cannot build wealth while the interest gap widens.

For example, a $5,000 emergency fund earning 1.5% annually generates about $75 in interest. Meanwhile, $5,000 in credit card debt at 20% APR costs you $1,000 yearly. That’s a net loss of $925 annually – money that could have reduced your principal debt and accelerated your path to financial freedom.

According to a Federal Reserve study, nearly 40% of Americans maintain emergency savings while simultaneously carrying high-interest debt, creating this counterproductive financial situation.

2. The Psychological Safety Net That’s Actually a Trap

Having money set aside feels secure – it’s human nature to want protection against uncertainty. However, this psychological comfort often comes with a steep financial price tag.

The emergency fund paradox creates a false sense of financial stability while interest compounds against you. Many people feel accomplished watching their savings grow to $1,000 or even $5,000, not realizing their debt is growing faster in the background.

This mindset trap keeps many stuck in a perpetual cycle: save a little, pay a little toward debt, watch interest accumulate, repeat. Breaking this cycle requires challenging conventional wisdom and recognizing when standard advice doesn’t serve your specific situation.

3. A Smarter Emergency Fund Strategy for Debt Holders

Rather than abandoning emergency savings entirely, consider a modified approach that balances protection against emergencies with aggressive debt reduction.

Start with a minimal emergency fund—perhaps $500-$1,000—enough to handle minor unexpected expenses. Then, direct all additional financial resources toward your highest-interest debt. This “debt avalanche” method mathematically optimizes your financial progress.

Once high-interest debts are eliminated, you can rapidly build your emergency fund to the traditional 3-6 months of expenses without the counterproductive interest drag. This sequenced approach accelerates your journey to financial stability.

In his book I Will Teach You To Be Rich, financial advisor Ramit Sethi suggests that people should “focus on the big wins” – and eliminating high-interest debt before building substantial cash reserves is precisely such a win.

4. Using Credit Strategically During Your Debt Payoff Phase

While building only a minimal cash emergency fund during debt repayment, you can strategically maintain access to credit for true emergencies. This approach requires discipline but can accelerate debt payoff significantly.

Consider keeping one credit card with a zero balance and high limit exclusively for genuine emergencies. As you pay down other debts, your credit score typically improves, potentially qualifying you for better terms or balance transfer opportunities.

Some financial experts recommend maintaining access to a home equity line of credit (HELOC) as an emergency backstop during aggressive debt repayment. While this strategy carries risks, it allows you to direct more cash toward high-interest debt elimination while maintaining emergency access to funds.

5. When Traditional Emergency Fund Advice Actually Makes Sense

The standard emergency fund advice isn’t wrong – it’s just not universally applicable. For certain situations, prioritizing savings before debt repayment remains the prudent approach.

If your debt carries low interest rates (below 5-6%), the mathematical advantage of debt repayment diminishes. Similarly, if your income is highly variable or your job security is questionable, a larger cash buffer provides essential protection against financial catastrophe.

Those with dependents or without safety nets (like family support) may also benefit from more substantial emergency savings, even while carrying some debt. The key is recognizing your specific circumstances rather than blindly following general financial advice.

Breaking the Chains: Your Path to True Financial Freedom

Escaping debt requires challenging conventional wisdom and making decisions based on mathematical reality rather than emotional comfort. By minimizing your emergency fund temporarily while eliminating high-interest debt, you create a faster path to genuine financial security.

Once free from the burden of high-interest debt, you can rapidly build substantial emergency savings, invest for the future, and create lasting wealth. The temporary discomfort of a smaller safety net paves the way for permanent financial stability.

Remember that personal finance is personal – your optimal strategy depends on your unique circumstances, risk tolerance, and financial goals. The emergency fund that keeps others safe might be the very thing keeping you trapped in debt.

Have you ever considered that your emergency fund might slow down your debt payoff journey? Share your experience with balancing savings and debt repayment in the comments below.

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15 Warning Signs You Should Refinance Your Mortgage

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Is It Time to Refinance

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Refinancing your mortgage can be a savvy financial move, but knowing when to pull the trigger is key. It’s not just about snagging a lower interest rate, it’s about improving your financial health in a meaningful way. From changing personal circumstances to shifts in the market, various signals suggest when it might be time to consider refinancing. This guide will walk you through 15 tell-tale signs that it’s time to give your mortgage a makeover.

1. Interest Rates Have Dropped

Interest Rates Have Dropped

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If the interest rates have gone down since you secured your original mortgage, refinancing could be a smart choice. A lower interest rate can significantly reduce your monthly payment and the total interest you pay over the life of the loan. Even a slight rate drop can make a big difference in long-term savings. It’s like getting a pay raise without having to switch jobs or ask your boss. Financial experts often suggest that a 1% rate drop should trigger a mortgage review.

2. Your Credit Score Has Improved

Your Credit Score Has Improved

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An improved credit score is like a financial level-up, it gives you access to better lending terms. If your credit score has gone up since you first took out your mortgage, refinancing could secure you a lower interest rate and better loan terms. Higher credit scores signal to lenders that you’re a low-risk borrower, which could translate into substantial savings. It’s like turning a good credit history into cash savings on your home loan. So, check your credit score and see if it’s time for a mortgage tune-up.

3. You Want a Shorter Loan Term

You Want a Shorter Loan Term

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Switching from a 30-year to a 15-year mortgage can save you a heap of money in interest over the long haul. Yes, your monthly payments will be higher, but the faster payoff means you’ll own your home outright sooner. It’s perfect for those who are eyeing retirement and want to reduce their financial burdens by then. If you can manage the bigger monthly bites, the total savings can be jaw-dropping. This move isn’t for everyone, but if you can swing it, the financial benefits are substantial.

4. You Need to Tap Into Home Equity

You Need to Tap Into Home Equity

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If your home has increased in value, you might want to tap into the equity with a cash-out refinance. This option allows you to refinance for more than you owe and pocket the difference. It’s a viable solution for funding major expenses like home renovations, college tuition, or consolidating high-interest debt. Keep in mind, though, that you’re borrowing more money, which means you’ll be paying it off longer. But if the numbers make sense, it could be a strategic financial move to free up cash when you need it most.

5. You’re Dealing with a Balloon Payment

You're Dealing with a Balloon Payment

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If your current mortgage includes a balloon payment that’s due soon and you’re not ready to pay it off, refinancing can spread those costs over a new loan term. This eliminates the financial stress of coming up with a large sum all at once. Refinancing to a more traditional loan structure can provide peace of mind and budget stability. It’s a practical move for those who want to avoid the pressure of a looming large payment. For many, it’s a financial lifesaver, allowing more breathing room in their finances.

6. You Have an Adjustable-Rate Mortgage (ARM)

You Have an Adjustable-Rate Mortgage (ARM)

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When you first took out your ARM, the lower initial rates were appealing. But if the adjustment period is ending and rates are on the rise, your monthly payments could start to climb, too. Refinancing to a fixed-rate mortgage locks in a rate for the remainder of your loan, providing predictable monthly expenses. It’s a great strategy for those who value budget stability over gambling with rate fluctuations. If the thought of rising payments makes you nervous, it’s time to consider switching to a fixed rate.

7. Your Financial Goals Have Shifted

Your Financial Goals Have Shifted

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Maybe you initially got a mortgage with features that no longer fit your life. Perhaps you’re making more money and can afford higher payments to shorten your loan term, or maybe you want to lower your payments to save for other investments. If your financial landscape or goals have evolved, your mortgage should evolve, too. Refinancing can adjust your financial commitments to better align with your current and future ambitions. It’s all about making your mortgage work for you, not against you.

8. There’s a Break-even Point in Sight

Tax Considerations

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Refinancing usually comes with upfront costs, but it’s worth it if you can reach a break-even point relatively quickly. This is the point at which the savings from your new mortgage offset the costs of refinancing. Calculate this timing carefully, if the numbers say you’ll save more over time than you’ll spend upfront, refinancing could be a financially sound decision. It’s like investing in your financial future: a bit of cost now for savings down the road. Make sure the math works in your favor before you proceed.

9. You Want More Predictable Costs

You Want More Predictable Costs

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If you’re tired of the uncertainty that comes with variable costs, refinancing a fixed-rate mortgage can smooth out your financial planning. Knowing exactly what your mortgage payment will be each month makes budgeting easier and reduces financial stress. It’s ideal for those who prefer stability in their financial life, especially if you’re planning for long-term goals like retirement. A fixed mortgage rate is like locking in your monthly expenses, giving you control over your budget. If predictability is a priority, it’s a good time to refinance.

10. Market Conditions Favor Refinancing

Market Conditions Favor Refinancing

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Sometimes, the financial market shifts in ways that make refinancing advantageous. Lower national mortgage rates, increased home values, or changes in financial regulations can all create perfect conditions for refinancing. Keeping an eye on market trends can help you decide when to make your move. It’s like catching a wave, timing is everything, and right now might be the perfect moment to catch that big financial swell. If the economic environment looks favorable, leveraging it could mean significant savings for you.

11. Major Life Changes

Major Life Changes

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Significant life events like marriage, divorce, or retirement might necessitate changes in your mortgage setup. These changes can alter your financial picture dramatically, making your current mortgage less suitable. Refinancing can help you adjust your home financing to better suit your new circumstances. It’s about adapting your finances to life’s twists and turns, ensuring your mortgage doesn’t hold you back. If life has thrown you a curveball, consider whether your mortgage still fits your needs.

12. You’re Eyeing Debt Consolidation

You're Eyeing Debt Consolidation

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If you’re juggling multiple high-interest debts, consolidating them into your mortgage through refinancing can simplify your finances and reduce your interest rates. This move can consolidate your debt payments into one lower-interest-rate bill, making your debts easier to manage. It’s not just about ease, though; it’s about cost-effectiveness. By folding high-interest debts into a mortgage, you could save on interest and clear your debts faster. If debt is dragging you down, refinancing might just be the lifeline you need.

13. Tax Considerations

Tax Considerations

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Sometimes, refinancing can offer tax advantages that align better with your financial planning. For instance, if the tax laws have changed or if you’re looking for ways to maximize deductions, adjusting your mortgage through refinancing might make sense. It’s important to consult with a tax advisor to see how refinancing could affect your tax situation. This is about strategizing financially, not just for today but for your annual tax returns as well. If you think there’s a tax break to be had, it might be time to look into refinancing.

14. Interest-Only Period is Ending

Interest-Only Period is Ending

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If you’re nearing the end of the interest-only period on your mortgage, your payments are about to jump as you start paying down the principal. Refinancing can help manage this increase more smoothly by restructuring your loan. This is particularly useful if you’re not prepared for the higher monthly outlay. It’s about preventing financial strain before it happens. If a steep increase in payments is on the horizon, refinancing could offer a more manageable pathway.

15. Financial Advisers Recommend It

Financial Advisers Recommend It

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If your financial adviser suggests that refinancing could benefit your financial health, it’s worth taking a serious look. These professionals can provide a detailed analysis of your financial situation and the potential benefits of refinancing. Their expertise can guide you through the complexities of mortgage refinancing, ensuring that it fits your personal financial strategy. It’s like having a financial detective working out the best route for your economic journey. When in doubt, trust the experts and consider their advice seriously.

 Is It Time to Refinance?

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Deciding to refinance your mortgage is no small feat, but recognizing the signs can lead to substantial benefits. Whether it’s to lower payments, reduce the term, or tap into home equity, the right reasons for refinancing can bolster your financial stability and future. Each sign on this list is a potential green light to explore refinancing options, so consider your circumstances and consult with professionals. It’s all about making informed decisions that pave the way for a healthier financial life.

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Managing High Inflation in Retirement

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Managing High Inflation in Retirement

Inflation is high. We all know that. I’ve been writing about it for months and it appears that it’s here to stay. With all of that said, I saw a question the other day about how to manage the high inflation when you’re in retirement, and I thought it was a good topic to talk about today. So we’re going to discuss high inflation in retirement, how it’s impacting retirees, budgeting strategies, investment strategy changes, and if inflation will be an ongoing concern for retirees.

Inflation right now

It’s high…no surprise to anyone. In January it was 1.4%, in April it was 4.2%, in July it was 5.4%, in October it was 6.8%, and in December it was 5.9%. That’s historically high. The highest it’s been in 40 years. Will that stay, only time will tell and we’ll get into that later.

How is it impacting retirees?

Things are getting expensive, so when you set a budget at the beginning of your retirement you account for the current price of the things you need. You should also account for increased costs of items as time goes on because there can be big or small increases…either way, prices costs will go up.

Groceries and energy are two prime examples of things that have gotten more expensive recently. So when those things went up in price, it probably pinched people’s budgets, and/or pushed forward costs that probably weren’t expected for several years. Odds are, they’re spending more money now on food and energy than they anticipated. Hopefully, people have been able to make adjustments already.

Budgeting Strategies

There really aren’t a lot of tips I can give you. The best thing I can really say is to cut costs where it makes sense to account for things that are now more expensive. The other tip, though this is more of a gamble, is to not make any changes now and make changes in the future when inflation comes down.

Investment Strategies

With your investment, you’ll need to reallocate some assets. I wouldn’t take any money out of stocks. What I would do is take some money out of your bond investments and put it into precious metals. The FED said that they plan on hiking rates three times in 2022. Bond prices will go down when interest rates go up. Increasing your stock allocation or putting some money in precious metals could be a good way to combat inflation.

High inflation here to stay?

No, I do think it will be here until the FED hikes rates, but my reasoning for that has to do with what happened in 2018. If the FED can raise rates without putting a cork in the recovery, then I think there’s a possibility that inflation and the federal funds rate will stay elevated until the bubble pops.

Related reading:

Why Asset Allocation Matters

The Factors Causing Inflation

How to Beat Inflation with Investment

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

What Currently Present a Risk to Markets?

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Where is the market going? What kind of risks do we need to be aware of? There are three or four things to pay attention to right now. The FED, interest rates, inflation, Covid, China, the government, and geopolitics. Do any of these present a risk to markets?

Okay, more than three or four things, but the first three can all be lumped together. Interest rate policy is enacted by the FED and what happens with interest rates has a direct impact on inflation. Furthermore, the government also has a chance to impact inflation.

And I apologize if we bounce around a little from topic to topic.

The FED, Interest Rates, Inflation

The government and the FED have a lot of control over what inflation is going to do. We had a lot of liquidity injected into the market because of the pandemic, and there’s a very good chance we’ll see more of that in the near future.

A $3.5 trillion bill is circulating through Congress right now. If this bill gets passed, we’ll have a lot more liquidity injected into the market. That’s likely to be a large tailwind for inflation (which is already running much hotter than expected). If the FED continues to provide an accommodative monetary policy, we’ll see inflation get out of control, and they’ll have to increase interest rates much sooner than they had planned.

Covid

Covid is still hanging around. 75% of the country has received at least one shot and now the administration is pushing booster shots. This is even after the CDC and the WHO have insisted on holding off on a third shot until less fortunate countries have a chance to get more of their first poke. The numbers need to level off soon or I fear lockdowns may rear their ugly head, and we all know how much the economy liked that the first time around.

China

China is a new story. Specifically, Evergrande. The ginormous real estate company is on the brink of bankruptcy. Comparisons have been made to the collapse of Lehman Brothers during the GFC (great financial crisis). We’ll see what happens and if the Chinese government decides to step in. Ripple effects through the global monetary system are possible.

Geopolitics

The last story is geopolitics. This has to do with the deal the US and Australia struck to help the Australian government build nuclear-capable submarines. It angered France because they already had a deal with Australia to help them build submarines (not nuclear-capable though). Britain feels pretty good because they helped broker the US/Aussie deal. Most likely, this will end up being only noise but could present a risk to markets. Something to keep your eye on.

Related reading:

What does an increase in yields look like?

The resurgence of Covid and what it means

Investment concerns and opportunities

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Economic Pressures

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There’s a lot of movement in the economy. Several different news threads and innovations have the ability to change the direction and velocity in which our economy moves. In today’s newsletter, we’re going to talk about some of those economic pressures, what they entail, and what they mean for our economy.

Taxing corporations and the wealthy

A news story recently came out about taxes. More specifically, this news shed light on how the wealthy manipulate the tax code in their favor.

I think the information shared in this story was well known already, or assumed rather, but served as a confirmation. A large number of wealthy individuals aren’t “paying their fair share” in taxes.

This will only add fuel to the fire. The fire I’m talking about is the tax overhaul in the tax code. The Biden administration has said that they want to increase taxes on corporations and wealthy individuals/families.

If they’re successful, it would mean more tax revenue for the federal government, which is a good thing. Is there a chance that the increase in taxes creates a disincentive for those corporations and wealthy individuals?

Perhaps, but I don’t think it’s very likely, broadly speaking. I have only one reason…those corporations and individuals are good at making money, and I believe that will continue.

Government spending

As I said, the change in the tax code will generate more income for the federal government. You may be thinking, “Great! We can reduce the national debt!”

I think that’s very unlikely. That may sound skeptical, and it probably is on some level, but both parties are spenders now. It doesn’t matter if it’s a Republican or a Democrat in the White House, they’re both going to print money to push forward their agenda.

Borrowing costs

I’ve talked about inflation a lot lately, and I promise I’ll tone down after I make this point, but I haven’t explained why runaway inflation is a bad thing.

Now don’t get me wrong, there are advantages (i.e. increased rates on savings accounts), but the disadvantage is higher prices. Households can run into trouble because they can’t afford necessities anymore.

The larger problem, however, is the cost of borrowing. Over the last, almost 15 years, rates have been low. And they’ve stayed low, other than an attempt to increase in 2018.

People and corporations borrowed a lot of money. Some bought things they didn’t need. Others to increase research, development, and innovation. Some people used record amounts of leverage to take part in the wild stock market (as of late).

With that said, the cost of borrowing will go up and the cost to service that debt will go up. The higher rates go, the more money that will be needed to pay for/down the debt. When that happens, less money will be spent on “productive” things.

That can slow growth and negatively impact the economy. That’s why central banks reduce rates in times of negative or low economic growth. It reduces borrowing costs and incentivizes people and companies to spend money instead of saving it.

Labor

The last thing I’ll say that has the ability to tie into the last point is the current labor shortage. There are more jobs available right now than people to take those jobs.

Small businesses, in particular, find it especially difficult to fill vacancies. Couple a labor shortage with a strong push from workers, unions, and government bodies to increase wages, and you get wage inflation.

When wage inflation becomes more prevalent, price inflation (CPI) becomes more likely. If companies have to pay their employees more, they need to account for that increased expenditure somehow. They turn to increase the prices of their products and/or services.

Demand is unlikely to suffer because of higher wages. People are making more money, so they should be able to afford higher prices, right?

Conclusion

If you read back some of my other posts, you’ll see I’m optimistic in select areas of the market, and I’ll stay optimistic in those areas no matter what type of economic pressures the country faces.

With all that I said, I believe there are enough economic pressures to cause a decline in the market and the economy, but there’s no telling when that’ll actually happen.

Related reading:

Employment, Stimulus, Rising Prices

Inflation, Gold, Semiconductors

Why Financial Literacy is Important

Disclaimer

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Inflation, Gold, Semiconductors

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There are a lot of moving parts in the economy right now. Inflation has become a concern, people are looking at gold more as a hedge, and there’s a shortage in semiconductors. In this piece, we’ll explore some of those dynamics and what some of the investment implications are.

Inflation

Inflation will most likely increase. Many projections estimate the FED will meet/beat their target of 2%.

I do believe that an increase in goods and services will not affect demand as it would have in the past. Stimulus payments to consumers created enough excess cash that people didn’t mind, or even notice, an increase in prices.

I do realize I’m painting with a broad brush here, and undoubtedly there will be some that will notice the difference. I’m simply stating that demand will not suffer from price creep as it used to, at least while the government continues writing checks.

Gold

We could see another uptrend in gold. There’s a certain recipe that makes the case for a bullish perspective on gold – inflation pressures, increased money supply, and low-interest rates.

The FED continues to supply the market with liquidity with its asset-buying program. An increase in the money supply dilutes the value of the dollar (USD). When the USD decreases in value, typically gold does well.

There is a caveat to that, however. Demand for US Treasury securities is weakening, specifically from foreign investors. To double down on that, foreign investors are net sellers of Treasuries. There have to be enough buyers to meet Treasury issuance, otherwise, the FED won’t have enough “reserves” to inject liquidity into the system.

With regard to low rates, that is a good sign for gold, but it’s also a good sign for equities (companies) with a high tendency to borrow. I’m mainly looking at the technology sector. Especially these unicorns that have high valuations, but low (or negative) profits.

Semiconductors

There’s also a current market disruption at play here…semiconductor shortage. Demand across many applications are at multi-year, sometimes multi-decade, highs. Personal computers, electric vehicles, autonomous vehicles, AI, and the like all use semiconductors.

A semiconductor shortage has many implications:

  • Decrease in production
  • Price increase
  • Nationalist mentality
  • R&D disruption

A decrease in production can hurt the bottom line. It all depends on when the shortage ends. If production reduces enough for a sustained period, adjustments will have to be made by corporations.

A price increase is likely because of supply and demand dynamics. The price of semiconductors will go up, so the price of the products they’re used in will also go up. This could hurt demand for those products and could hurt consumers.

There are a select few companies that supply the majority of the world’s semiconductors. This could have a similar effect as Covid had with regard to supply chain management. Companies relied on global trade and cooperation to sustain their supply chain operations. When countries shut down due to the pandemic, global trade suffered as a result. Countries might shift to manufacturing their own semiconductors instead of relying on supply from trading partners.

Semiconductors are only getting less expensive and more efficient. With a shortage, and possibly less money coming into the manufacturers, it’s possible that this dynamic of cheaper and better plateaus…at least temporarily. It’s also possible that the shortage improves operations and makes the manufacturers more agile. Some countries have a very unique ability to progress, strengthen, and adapt when a roadblock presents itself.

With that said, I believe semiconductors will be a great investment opportunity. Their demand is only going to increase because of the push to provide the world with electric vehicles and clean energy. I would, however, pay attention to the shortage and I might wait until that shortage ends and prices stabilize.

Related reading:

Does Economic Inflation Favor Borrowers or Lenders?

Is Gold a Good Investment?

What You Can Learn from Different Market Environments

 

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com