One about Charlie Munger, one about Taylor Swift, and one about a NASA astronaut who also starred (no pun intended) on the Big Bang Theory.
Charlie Munger’s Deathbed Regret
A few weeks before he died, Charlie Munger was asked if he had any regrets in life.
Only one, he replied.
“I would have paid any amount to catch a 200 pound tuna when I was younger. I never caught one,” he said in an interview with CNBC’s Becky Quick.
But at age 99, he didn’t have the youthful strength and vitality of a 96-year-old, he said.
“I am so old and weak compared to when I was 96 that I no longer want to catch a 200 pound tuna. It’s just too goddamn much work to get it in. Takes too much physical strength … Now if you give me the opportunity, I would just decline going after [the fish]. There are things you give up with time.”
Lessons:
At the end of your life, you don’t think about your net worth. (Charlie’s is estimated at $2.6 billion.) You think about experiences. Don’t trade the opportunity to enjoy experiences for the sake of clutching onto your cash.
If you’re under 96, stop complaining that you’re too old. The future version of yourself will regard your current age as young.
There’s no alternative but to act now. Opportunities are fleeting.
Munger also described fishing as a metaphor for investing:
“I have a friend who says the first rule of fishing is to fish where the fish are,” Munger said when he was 93. “The second rule of fishing is to never forget the first rule. We’ve gotten good at fishing where the fish are.”
Taylor Swift’s Windfall at Age 18
From TIME’s Person of the Year profile on Taylor Swift:
But some months later, at Swift’s 18th birthday party, she saw [Kenny] Chesney’s promoter. He handed her a card from Chesney that read, as Swift recalls, “I’m sorry that you couldn’t come on the tour, so I wanted to make it up to you.”
With the note was a check. “It was for more money than I’d ever seen in my life,” Swift says. “I was able to pay my band bonuses. I was able to pay for my tour buses. I was able to fuel my dreams.”
Most people, at 18, would spend that cash on a more comfortable lifestyle, or pay for college, or make market investments (stocks, crypto).
Instead, she invested in her fledgling music career. Tour buses.
Lesson:
The best investment is the one that you make in yourself.
In expanding your business or side hustle. In building your skills and smarts. In honing your craft. In strengthening your relationships. And even — dare I say — in your appearance.
No, the ROI can’t always be measured. I doubt anyone has plugged the cost of those tour buses into a spreadsheet and amortized those across her 15-year career.
But *YOU* are the investment with the strongest upside potential.
The Astronaut Who Almost Didn’t Make It
In this special Afford Anything podcast episode, former NASA astronaut Mike Massimino explains how YOU can take your own moonshot.
We met at a video studio in Brooklyn and spoke for hours about tenacity, drive, determination — and about sending the first tweet from space.
He described getting mocked by Seth Meyers on Saturday Night Live, joining the cast of the Big Bang Theory 💥, and how astronauts fart in space.
And he shared lessons that anyone can apply to their own life, as they chase dreams that society says aren’t “realistic.”
The stock market is hitting new highs. What should we make of this?
This week, the S&P 500 reached yet another record high — marking its fourth consecutive day reaching a new all-time high.
Last Friday (the first of these four consecutive trading days) marked the first time in two years that the S&P 500 finished at an all-time high.
Here’s an 11-minute video recapping what happened:
After two years of not achieving any new highs, the S&P 500 is now breaking records daily.
How do we interpret this? Here are a few things to keep in mind:
(1) The high is comprehensive.
The S&P 500 — which tracks 503 stocks — represents about 80 percent of the overall market.
It’s a more comprehensive indicator of the overall market than the Dow Jones, which tracks only 30 large companies. The Dow took a slight dip today, but both the Dow and the NASDAQ hit new highs in December.
The Dow is an excellent indicator of how large companies are faring. But the S&P 500, by virtue of tracking a much bigger basket, is a better reflection of how the overall market, including small and medium sized companies, are also performing.
(2) The tech sector dominates the all-time highs.
Tech companies make up the largest chunk of the S&P 500. Here’s a chart of the top ten companies by weight for SPY, an exchange-traded fund that tracks the S&P 500:
Source: slickcharts
The top ten companies in SPY are nearly all in the tech sector. This stands in contrast to the wider, more expansive range of sectors that comprise the top ten Dow Jones companies by weight:
Translation: while the overall market (including small and mid size companies) is doing well, the bulk of the gains are still being driven by tech.
The same small group of megacap companies — the “Magnificent Seven” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) — that drove much of last year’s growth continues to lead the way, fueled by hopes of an artificial intelligence boom.
But what’s interesting is that the equal-weighted S&P 500, in which every company within the index gets the same weighting, is only slightly lagging the standard S&P 500. Yes, equal-weighted is behind, but not by much. Translation: even without the oversized influence of the Magnificent Seven, the index is running strong.
The market has also priced in the expectation that the Federal Reserve will lower interest rates this year, which leads to the next point …
(3) The Fed will send new signals at the end of January.
The next Fed meeting is Jan 30-31, at which point we’ll know whether the Fed is ready to start cutting interest rates yet.
The Fed held rates steady during their last two meetings, held in September and November 2023.
They’re widely expected to cut rates in 2024, but the debate that economists and market-watchers are holding is when? — could it be as early as next week? (Unlikely, but possible.) Or will it happen during one of their following meetings on March 19-20 and April 30-May 1st?
Many analysts expect that the Fed will hold rates steady this winter and begin cutting in the spring or summer, but the substantial improvement in inflation data has some people feeling optimistic that these cuts might come sooner than later.
The Fed rate cuts are expected to unleash pent-up demand for everything from cars to houses and make capital more accessible for companies.
Homebuying, in particular, is expected to rise as interest rates drop, leading to a projected minor climb in home prices this year. (Mortgage interest rates are at their lowest point since last May.)
Summary: Big Tech is fueling record-high market growth, inflation is under control, and the overall economy looks resilient.
The average person is starting to feel better about their wealth.
The U.S. Consumer Sentiment Index is at its highest point since July 2021. As the name implies, this index measures how confident and optimistic people feel about their finances.
This survey, conducted by the University of Michigan, shows huge gains in households feeling more confident that inflation is behind us, jobs are strong, and income can keep up with expenses.
The index climbed a cumulative 29 percent over the last two months. That’s the biggest two-month leap since 1991.
That said, we’re still no where close to our 2018-2019 confidence levels.
What’s the takeaway from all of this?
Economic data is strong. Markets are on a tear. Consumer sentiment is improving. The year ahead has plenty of cause for optimism.
Blackstone CEO Steve Schwarzman, at the World Economic Forum in Davos, mentioned that he thinks “animal spirits” — the role emotions play in the markets — will be strong this year.
Given how much is riding on consumer confidence in this (almost) post-inflationary world, that’s particularly apt.
For more detail, watch the latest YouTube breakdown.
“OMG I missed it. I should’ve bought two years ago.”
“Am I too late? Are all the good deals gone?”
“Look at how much cheaper it used to be. I’m priced out now.”
“Isn’t my best bet to wait for a crash?”
Oh my dear friend.
Those sound like remarks made today … right?
Well, they’re not.
Those are the remarks I heard in 2015, even everyone was lamenting how much real estate prices had climbed, relative to 2012.
“Damn I should’ve bought back then! It’s too late now. Everything’s expensive again. I’ll just wait for prices to come down.”
I know, that seems silly in hindsight.
But put yourself in the shoes of an aspiring real estate investor in the year 2015. They had been thinking about buying a rental property for a year or two. But they hadn’t. And while they sat on the sidelines, prices skyrocketed.
The chart above covers January 2010 to December 2015.
In 2015, this was a prospective investors’ experience of the last 5 years. They saw home prices dip slightly from 2010 to 2012, and it scared them — “maybe there will be another crash!!” — so they sat on the sidelines.
Then the market boomed from 2012 to 2015, and by the end of that three-year period, they were kicking themselves to “waiting too long.”
“It’s too late!!!!!”
“The good deals are gone!!”
With the Great Recession in such recent memory, they comforted themselves with the idea that they could just kick back and wait for the next housing crash.
Nearly nine years later, they’re still waiting. And missing out on gains.
Here’s what the market did from January 2016 through May 2023:
Up, up, up, up, up.
Sliiiight dip for a few months in late 2022. Then up again.
The people who lamented that they’d “waited too long” and “it’s too late” psyched themselves out. They sidelined themselves. They missed those returns.
You see, pessimists get to make excuses. Pessimists get to validate themselves.
Pessimists get to be right.
Optimists get to be rich.
“The irony is that by trying to avoid the price, investors end up paying double,” Morgan Housel writes in his book, The Psychology of Money.
In that passage, he’s discussing stock investing, but the principle applies to real estate as well. Those who lament that real estate is too expensive, relative to its previous values, are the same people who eagerly buy an index fund without complaining that it, too, is substantially more expensive than it was a few years ago.
I’ve never heard anyone say: “VTSAX is 50 percent more expensive than it was five years ago! It’s too late to buy. The good deals are gone. I’ll wait for the next crash.”
Yet they’ll say that about real estate.
Sure, people might debate whether the stock market is overvalued. But if you’re a long-term investor, you dollar-cost average into the market.
You understand that a share of VTSAX will cost significantly more today than it did five years ago, because, well, assets appreciate over the long-term. That’s the point.
Ideally, real estate investors would be best-off viewing their properties through the same lens through which an index fund investor views their holdings.
Sometimes you’ll buy high. Other times, you might hold through a decline. But over the long-term, based on historic trends, both asset classes (real estate and index funds) significantly rise in value.
Yet often, would-be real estate investors seem to forget historical trends.
When the topic turns to rental properties, many would-be investors sideline themselves because they’re convinced that “I’m too late” and “the good deals are gone.”
Sure, you can’t blindfold yourself, throw a dart at a list of houses, and find one with an amazing cap rate, like you could in 2012.
Sure, you have to actually, erm, what’s that word … WORK.
Good deals are available for those willing to find them.
Back in 2015, I often heard people lament that they were “too late” because real estate prices had risen so much in the past three years. “I should’ve invested in 2012! The run-up has already happened. I’m too late. I’ll wait for the next crash.”
Nearly nine years later, they’re still waiting.
The question is: are you going to be one of those people who says “it’s too late! the good deals are gone!” and then sit on the sidelines for the next 30+ years? Or are you going to train and compete?
If you choose to leave the sidelines and get into the game —
The first step is to understand: It’s not too late.
The prices that existed five years ago are irrelevant.
The only question that matters: “Is this a good deal today?”
It’s easy to substantiate the belief that you’ve missed out on all the good returns — you can see how much home prices have appreciated over the past three years. You can see all the capital appreciation you could have had, if only you’d gotten started sooner.
Just like if you’d bought a ton of index funds in 2018. Or better yet, March 2009.
Assets appreciate.
Sometimes there’s volatility, and they drop a little bit. But historically, in the U.S., major asset classes — including stocks and real estate — have always risen over time.
We seem to have accepted this reality in the world of stock investing. We don’t reflexively lament *not* buying more index funds at 2012 prices.
We might occasionally joke about it — “awww man I shoulda bought Amazon in 1997!” — but we know that when we buy a stock, we’ve evaluating today’s fundamentals. Past is prologue.
When we evaluate stocks, we ask: “Is this stock a wise purchase at today’s price?” But we forget to ask this question when we’re dealing with a tangible asset class like real estate.
Real estate often fills people with fear:
It’s a single six-figure transaction; a larger dollar amount than an index fund.
You borrow money to get into the deal; leverage increases risk.
You assume you can’t dollar-cost average into real estate, like you can with stocks. (In reality, many rental investors *do* dollar-cost average into real estate by investing in one property per year, or one property every-other-year … some type of periodic pace.)
Real estate’s tangibility also makes it an inherently emotionally-charged asset class. We can touch it, smell it, see it, hear its creaks and noises.
And when emotions are involved, we rationalize rather than reason.
“Assuming that something ugly will stay ugly is an easy forecast to make,” Housel writes. “And it’s persuasive, because it doesn’t require imagining the world changing.”
Pessimism is tempting, but it’s also limiting — and its intellectually lazy.
It keeps you broke and uncreative.
Optimism, by contrast, keeps you asking “how can I?” — it keeps you solving problems, rather than lamenting them.
“How can I find properties with a solid cap rate and good cash flow located within a two-hour drive?”
“How can I improve my skills as a negotiator?”
“How can I analyze and cross-compare across multiple markets?”
“How can I save for a downpayment?”
“How can I get approved for a mortgage if I’m self-employed / if I don’t earn much?”
Ask “How can I?” rather than lamenting “I can’t because …” and you’ll find your world switch.
And if you want answers to the above questions, you’ll find them in Your First Rental Property, our flagship course.
Inside: Are you looking to maximize your rewards and credit card hacks? This guide will teach you the most effective methods for using your hacking, signing up for bonus rewards, and making efficient card purchases.
Credit card use extends beyond just making purchases. Savvy credit card users understand that with the right set of hacks and optimal usage, there’s a world of rewards that are ripe for the picking.
Money saved can be money earned, and this simple philosophy forms the cornerstone of these 25 credit card hacks you’ll be learning about today.
Why do credit card hacks matter? Well, I just received a $700 check for credit card rewards. That is enough to pay for a weekend trip away.
What are Credit Card Hacks?
Credit card hacks are creative strategies employed by credit card users to maximize the benefits and rewards offered by their credit cards while also potentially saving more money.
This trend has become more popular in recent years due to the rise in premium travel and cashback cards that offer lucrative ongoing rewards programs. Users who learn about these hacks can save you money on travel or just put cold hard cash back in your wallet.
With strategic approaches, these hacks provide an avenue to optimize rewards and navigate the financial landscape more effectively.
Proven Credit Card Hacks to Maximize Rewards
Tip #1 – Utilize sign-up bonuses
One of the most attractive features of credit cards is the sign-up bonuses they offer, which are essentially rewards that cardholders can earn after meeting a certain spending threshold within a specified timeframe. The bonuses can range from hundreds to even thousands of points, miles, or cash – favorably impacting your rewards balance.
To illustrate, if you take the Chase Sapphire Preferred® credit card, both partners in a household can get up to 50,000 extra points each as part of the sign-up bonus.
Bonus tip: Stagger your applications, so once one person gets the bonus after meeting the spending requirement, the other person can then apply and achieve the next round of bonuses.
Tip #2 – Increase credit limit
The principle behind this is simply buffering your “credit utilization ratio”, which is how much of your total available credit you are utilizing.
To illustrate how a credit limit increase will work, let’s consider an example: with a credit limit of $10,000 and a credit usage of $3,000, your utilization ratio stands at 30%. But once your credit limit increases to $15,000 with the same credit usage, your utilization ratio drops to 20% – which is a noticeable improvement.
Remember, when requesting a credit limit increase, some card issuers might execute a hard inquiry on your credit report, which could temporarily decrease your score. Hence, you should try to find out beforehand whether your issuer is likely to perform a hard or soft credit pull. Soft inquiries won’t affect your credit score, making them the preferable approach.
Tip #3 – Master balance transfers
A balance transfer, executed proficiently, can be an effective way to handle significant credit card debt. By focusing on reducing the cost of debt through lower interest rates, balance transfer can accelerate your debt repayment process while saving you considerable money over time.
This is what one of my clients did and the date when the 0% interest ended was very motivating to pay off their debt.
This process entails the shuffling of debt from one card (usually one with a high interest rate) to another card—preferably with a 0% promotional APR offer. With this interest-free period, you can focus on repaying the principal balance, hence clearing your debt faster.
As a finance expert, make sure balance transfers are only beneficial if you’re mindful of the terms, like how long your 0% rate will last and what fees are involved in the transfer to the new card.
Tip #4 – Purchase prepaid cards with credit
Need a way to spend a certain dollar amount by a certain deadline? Then, look at purchasing prepaid cards with a credit card as a strategy to earn extra rewards points. This method entails buying prepaid cards or gift cards using your credit card, and later using these prepaid cards to cover those expenses you typically will use.
In other cases, customers have reported that their credit card companies have clawed back rewards points that were initially given for gift card purchases. Double check their terms and conditions, many issuers, including American Express, explicitly exclude such transactions from earning rewards. 1
Tip #5 – Harnessing the 15/3 Methodology
The 15/3 Methodology is a credit card hack that intends to optimize your credit utilization ratio—one of the significant factors that impact your credit score.
Here’s how it works: You pay off a majority of your card’s balance 15 days before your statement date, and then pay off the remaining balance three days before the statement date. By doing this, you create the illusion of a lower balance, which can positively impact your credit score.
There is still a debate about whether or not this strategy improves your credit card score. Paying your bill on time will definitely improve your score.
Tip #6 – Strategies to earn additional rewards through third-party programs
An often overlooked but highly effective credit card hack is utilizing third-party apps and websites that offer additional rewards when you shop at participating retailers and restaurants. These rewards are additional to the cash back, miles, or points awarded by your credit card.
One such app is Dosh, a cashback app. By linking your credit card to your Dosh account, you can earn up to 10% cash back from participating retailers on top of the rewards earned from your credit card. Similarly, apps like Drop and Bumped give users points for every dollar spent, and these points can be redeemed for gift cards.
Furthermore, many airlines and hotels participate in dining rewards programs where you’ll earn extra rewards at select restaurants. Airlines like United, Southwest, Delta, and hospitality giant companies like Marriott and Hilton actively participate in such programs.
Tip #7 – Earn a credit card sign-up bonus then canceling the card right away
Also known as credit card flipping or churning, the tactic of earning a credit card sign-up bonus and then canceling the card right away has been employed by some savvy credit card users to maximize rewards.
However, this practice isn’t as easy or beneficial as it appears. While it sounds like an accessible system to generate easy money, it comes with several potential pitfalls that could make it a risky move.
Firstly, numerous card issuers have, over the years, implemented stricter rules to deter this practice. Chase, for instance, has the 5/24 rule indicating you can have only five new credit cards within the last 24 months. 2
Repeatedly opening and closing the same card can result in a declined application or rescinded bonus and hurt your credit score-perceived as credit misbehavior by the issuer.
It can also be viewed as unethical and potentially lead to you being barred from opening accounts with that issuer in the future.
Churning can negatively affect your ability to get approved for future credit cards and loans because lenders may think you’re a risky borrower.”
Tip #8 – Develop a multi-card system
This method aims to cover all your spending by using different cards that offer elevated rewards for certain purchase categories.
For instance, we have one card that pays an unlimited flat rate of 2% on all purchases. Then, another rewards card offering increased category rewards, with travel and gas. Then a there card that rotates through various categories each quarter.
Diversifying your spending amongst several credit cards can help you to earn the maximum possible rewards. However, endowing yourself with several credit cards is not for everyone as it requires careful financial management. In some cases, the potential of overspending can outweigh the benefits.
Tip #9 – Transfer points between multiple cards
Transferring points between cards (provided they are from the same issuer) is another useful strategy whereby you can redeem them at their maximum possible value.
The goal is to make your spending work for you and maximize the rewards you can earn from daily expenses. However, people should employ this strategy responsibly and ensure they’re not overspending just to earn rewards.
In such a strategy, points on traditional cashback cards can be transferred to airline and hotel partners when you also have a transferable points card like the Sapphire Reserve or Sapphire Preferred. So, not only are you earning cashback on your purchases, but you’re also accumulating lucrative points that can be redeemed for travel.
Tip #10 – Don’t use cash
In the world of credit card rewards, cash is no longer king. Whenever feasible, you should consider using your credit cards instead of cash or debit to pay for everyday purchases. This allows you to earn rewards on purchases you’re making anyway.
The best way to implement this is for you to bills with their credit cards instead of cash or debit and set this up on autopay. This serves a dual purpose of potentially earning rewards on these payments whilst also conveying a positive message to the banks about your money management skills, leading to possible credit score improvements.
However, this method works best when your spending doesn’t increase as a result. Only use your credit card for expenses that you’d normally pay in cash and for which you already have the money set aside to pay.
Tip #11: Time your purchasing
Being strategic about when you make your credit card purchases can help you wring out some extra benefits.
One way to optimize your earning potential and maintain a healthy credit score is to plan your large purchases around your credit card’s billing cycle. Making your most significant purchases immediately after your statement date ensures that you have the longest possible repayment period, effectively offering you a short-term, interest-free loan.
Furthermore, if your issuer has a rewards cut-off at the end of a calendar year, you can make larger purchases ahead of time to push yourself into a higher rewards bracket.
Tip #12 – Make Micropayments
Rather than making one full payment, consider making multiple payments over the billing cycle, commonly referred to as ‘micropayments.’ This helps keep your running balance low and, in turn, your credit utilization ratio – the percentage of your available credit limit you’re using – also low, positively impacting your credit score.
Plus it helps to keep your checking account at a more accurate level.
Tip #13: Have your spouse apply for the same credit card
Known informally as the “two-player mode” amongst credit card hacking enthusiasts, having your spouse or partner apply for the same credit card can be an effective strategy to earn double the sign-up bonus. This approach is based on the idea that instead of just adding your spouse or partner as an authorized user to your card, they should apply separately.
For instance, if a card like the Chase Sapphire Preferred® offers a 50,000 points bonus on sign-up, both partners can potentially earn up to 100,000 points collectively, essentially doubling the bonus.
But remember, this hack should be used strategically – you should stagger your card applications and ensure each of you fulfills the spending criteria to qualify for the bonus.
Tip #14 – Importance of prompt payment
Quite possibly the hack with the most significant impact on both your credit score and your pocket, prompt payment of your credit card bill cannot be overstated.
Making on-time payments can drastically improve your credit score since your payment history is the most heavily-weighted factor that credit scoring models consider.
Plus paying your balance in full each month can help you avoid interest charges and penalties, effectively saving you money in the long run.
Tip #15 – Know What Rewards you Want
Rewards such as travel miles, discounts at partnered retailers, cashback, or access to premium experiences like airport lounges or concert tickets are available, depending on your card.
By understanding and leveraging these varied rewards, you can get the most excellent value out of your credit card expenses.
Cautionary Advice on Credit Card Hacks
While credit card hacks can undoubtedly offer substantial benefits when done right, pitfalls can ensue if one isn’t careful.
Pitfall #1 – Overspending
For starters, these hacks can inadvertently lead to overspending or unnecessary purchases. Be wary of making purchases you don’t need or can’t afford in an attempt to earn more rewards or meet the spend necessary for a sign-up bonus.
Consequently, the pursuit of credit card rewards could also lead to accumulated debt if you’re not diligent about paying off your balance in full each month. The interest that you need to pay on balances carried over can easily eat up the value of any rewards earned.
Pitfall #2 – Impact on your Credit Score
Applying for multiple cards can lead to hard inquiries on your credit report, which can temporarily lower your credit score. Similarly, canceling cards after acquiring the sign-up bonus could harm your credit utilization ratio and your length of credit history, both key factors in your credit score calculation.
Additionally, irresponsible habits like ‘credit card churning’ and ‘paying for everything with credit’ may risk your relationship with card issuers. Some companies might close accounts or even ban individuals from opening new ones if they’re perceived as abusing the system.
While some of the top-tier reward and travel credit cards often come with hefty annual fees, not all of them are worth paying. This is especially true when a card’s annual fees outstrip the value of the rewards earned.
Before you sign up for a credit card with an annual fee, it’s advised to read the fine print and estimate what you can earn from it. You should evaluate whether the perks, bonuses, rewards, and credits offered offset the annual fee cost.
Personally, I don’t use any cards that have an annual fee.
Pitfall #4 – Paying interest
Credit card interest can significantly impact your overall financial health if you’re not careful. The money invested toward paying it off could be better used elsewhere – for saving, investing, or spending on your needs and desires. Hence, one of the best “credit card hacks” out there is to simply stop paying interest.
You want to focus on debt free living.
Pitfall #5 – Avoiding counterproductive habits like “balance surfing”
Balance surfing is a strategy where you continually move credit card debt from one card with an ending 0% APR promotion to another card with a new 0% APR offer. While this approach can potentially delay interest payments, it can become a dangerous cycle if you find yourself simply transferring debt instead of reducing it.
Meanwhile, the total debt remains the same. Without a consistent debt repayment strategy, this method can lead to an endless cycle of balance surfing.
What are some of the best credit card rewards and hacks for 2024?
As we venture into the new year, some credit card reward strategies remain timeless while others evolve in response to new credit card offers and updated reward programs. In 2024, here are some of the best credit card hacks worth considering:
Take Advantage of Updated Card Offers: Credit card issuers frequently update their card offers and rewards programs. Ensure you stay updated on these changes to maximize your card benefits.
Focus on Cards with Flexible Reward Categories: Some cards, like the Bank of America® Customized Cash Rewards credit card, allow you to choose your highest cash-back category (like online shopping, dining, or grocery stores). These flexible category cards can be more advantageous as you can adapt them to your spending habits.
Leverage Rotating Categories: Cards like the Chase Freedom Flex℠ and Discover it® Cash Back offer 5% cash back on up to $1,500 in purchases in various categories that rotate each quarter, once you activate. Plan your spending in advance to leverage these rotating categories optimally.
Remain Alert on Loyalty Program Partnerships: Many credit cards and airlines have partnerships with other brands. This can mean increased rewards when shopping with those brands, so always watch for new partnerships or promotions.
Revisiting Annual Fees: If your credit card perks no longer justify its annual fee due to changes in lifestyle or spending habits, consider downgrading to a no-fee card from the same issuer. This way, you can save on annual fees without closing your account which could potentially harm your credit score.
Diversify Your Rewards: While it may be tempting to concentrate all your spending on a single card, diversifying your rewards can make you earn more. Consider employing a multi-card system to maximize rewards across different spending categories.
Your credit card should be a tool to enhance your financial flexibility, not a burden that leads to financial stress.
Frequently Asked Questions (FAQs)
Deciding whether to focus on paying off a single card or distributing payments over several cards can seem complicated, but there are a couple of methodologies to strategize your payoff.
The Debt Avalanche method suggests focusing on the card with the highest interest rate first. Once you’ve paid this card off in its entirety, you then move on to the card with the next highest interest rate. This can potentially save you more money in the long term as it targets high-interest debt first.
Alternatively, the Debt Snowball method, proposed by financial guru Dave Ramsey, recommends paying off the card with the smallest balance first, then moving on to the card with the second-smallest balance. While you may not save as much money in interest compared to the debt avalanche method, the psychological motivation of paying off a credit card balance entirely may be more important for maintaining consistent repayment.
Either method requires you to make minimum payments promptly on all cards to avoid late fees and possible credit score damage.
Getting credit card points without spending any additional money may seem like wishful thinking, but there are certain strategies that you can employ to achieve this. Strategically managing your credit cards can turn your everyday spending into reward points, miles, or cash back.
Referral Bonuses: Many credit card companies offer referral bonuses to their existing cardholders who refer friends or family members. If the person you referred gets approved for the card, you can earn bonus points.
Cardholder Perks: Credit card companies often run promotions offering bonus points for certain activities. These can range from enrolling in paperless billing, adding authorized users to your account, or completing an online financial education course. Check with your card issuer to view any current promotions.
Shopping Portals: Many credit card issuers, and even airline and hotel rewards programs, have their own online shopping portals where you can earn additional bonus points for every dollar spent. If you were already planning on making an online purchase, consider making it through these portals to earn extra rewards.
Sign-up Bonuses: Some cards offer sizeable sign-up bonuses for new cardholders who meet a required minimum spend within the first few months. Although this technically requires spending money, it doesn’t require spending more money if you use your card for purchases you were already planning to make.
While implementing certain credit card strategies can potentially earn you higher rewards or save money, they can also unintentionally harm your credit score if not executed responsibly.
Several factors can contribute to this potential downfall:
Opening and Closing Accounts: A high frequency of card applications can lead to multiple hard inquiries on your credit report, which might lower your score in the short term. Closing credit cards, especially older ones, can affect both your credit utilization ratio and the age of your credit history, two significant factors in your credit score calculation.
Carrying a Balance: Maintaining a high credit utilization ratio—i.e., carrying a large balance relative to your credit limit—can negatively impact your credit score.
Late Payments: If these deadlines are not strictly adhered to, they could result in late payments, which can seriously harm your credit score.
Excessive Spending: Some tactics lead to unnecessary spending to earn more reward points or meet an initial spend required for a sign-up bonus. Not only can this increase your credit utilization ratio and potentially lower your credit score, it can lead to debt if these balances are not paid off in time.
While both rewards cards and travel rewards cards offer perks to their users in return for spending, the primary difference lies in the kind of rewards they offer and their target user base.
A Rewards Card generally offers cash back, points, or miles for every dollar spent, redeemable in a variety of ways. This is the type of card I prefer. For example, you may redeem your accumulated rewards as cash back into your account, use them to purchase products or services, or exchange them for gift cards. The flexibility of rewards makes these cards are suitable for people with varied spending habits and prefer a variety of redemption options.
A Travel Rewards Card, on the other hand, is designed specifically for frequent travelers. These cards earn you points or miles on specific travel-related expenses, like booking flights or hotel stays. The redeemed rewards are typically used towards further travel-related expenses like airfare, hotel stays, or car rentals. Travel Rewards Cards often offer additional travel-centric perks like free checked bags, priority boarding, airport lounge access, and more.
Consider your spending habits, lifestyle, travel frequency, and preference in terms of reward redemption.
Protecting yourself from credit card fraud is an important aspect of managing your credit card usage effectively.
Monitor Your Accounts Regularly: Keep a thorough watch on your credit card statements for any unauthorized or suspicious charges. Report them to your credit card issuer as soon as possible.
Use Secure Networks: When making online purchases, only shop on secure websites (look for “https” in the web address), and avoid using public Wi-Fi networks for transactions.
Keep Your Personal Information Safe: It’s important to dispose of old credit card statements properly, and avoid giving out credit card information over the phone unless you initiated the call and you trust the recipient.
Protect Your PIN and Password: Don’t share these with anyone, and avoid using easily guessable combinations like birth dates or the last four digits of your social security number.
Enable Account Alerts: Most banks now offer optional security alerts that can be sent via text message or email whenever a charge above a certain amount gets made to your account.
Protect Your Computer and Phone: Make sure your devices are equipped with up-to-date antivirus software and that your phone is locked with a secure password or fingerprint identification.
In case you become a victim of credit card fraud, know the steps to protect yourself – report it to your bank or credit card company immediately, file a report with the Federal Trade Commission, and report it to the three major credit bureaus, requesting them to put a fraud alert or a credit freeze on your account.
Also remember, credit cards don’t have routing numbers.
Making the Most of Credit Card Hacking
When used wisely, credit card hacks and reward strategies can play a significant role in stretching your budget and rewarding your spending. These secrets of savvy credit card use — from aligning your card to your spending habits, making the most of sign-up bonuses and reward categories, to understanding the ins and outs of your credit card’s rewards structure — can help maximize your potential rewards and save money.
Personally, we use all of our credit card rewards to pay for our travel expenses.
However, it’s paramount to remember that these tips and tactics should not encourage unnecessary spending or carrying a balance. Only spend within your means, ensure you pay off your balances each month to avoid interest charges and remember to safeguard your credit score by handling credit card applications and closures cautiously.
Ultimately, credit card hacks and rewards should fit within your overall financial plan and goals, adding value to your everyday spending habits and rewarding you for well-managed financial practices.
Remember your goal is to reach your FI number.
Source
Reddit. “American Express Clawing Back Points Earned From Gift Card Purchases.” https://www.reddit.com/r/AmexPlatinum/comments/14hywaq/american_express_clawing_back_points_earned_from/. Accessed January 19, 2024.
CNN. “What is the Chase 5/24 rule?” https://www.cnn.com/cnn-underscored/money/chase-5-24-rule#:~:text=The%205%2F24%20rule%20is,your%20approval%20odds%20with%20Chase. Accessed January 19, 2024.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
This week’s Afford Anything blog post is a well-balanced diet:
Robert Kiyosaki predicts a massive crash — [philosophical]
Sobering stats about the housing market — [analytical]
Secret strategies to save on seasonal shopping — [practical]
The Robert Who Cried Wolf
Famed investor Robert Kiyosaki, author of Rich Dad, Poor Dad, recently caused an internet stir by predicting “the start of the biggest crash in history.”
Of course he did.
Kiyosaki is constantly crying wolf. It’s good for (his) business.
Bad news travels faster than good news.
People who prioritize attention over truth will use that to their advantage. Kiyosaki is a shrewd businessman. He understands the profit potential in strategic pessimism.
But that’s bad news for his followers. Per the law of large numbers, it’s reasonable that some people have kept their cash on the sidelines, rather than investing in the markets, after heeding his warnings. And that has massive lifelong ramifications on their wealth and retirement.
Lesson: Beware of anyone who peddles *negativity bias* in order to stay relevant.
These economic fear-mongerers don’t hold accountability for their track record of wrong predictions.
Their followers are the ones who suffer.
This is why it’s critical to choose your mentors carefully — and it’s precisely why you should never blindly enroll in an online class that’s taught by some random person whose ideas you haven’t vetted.
If you’re curious how often Kiyosaki has made the wrong call, note that Stanford-trained data scientist Nick Maggiulli, our guest on Episode 375 of the Afford Anything podcast, shared this illustration on X:
Pessimism has a visceral appeal. It’s evolutionarily advantageous to be hyper-aware of threats.
Our ancestors didn’t survive the jungle or savanna by appreciating the beautiful flowers. They survived by staying hyper-vigiliant of danger. This explains why negativity bias is so innate, so intrinsic. It’s a survival mechanism.
But in the modern developed world, pessimism keeps us overly conservative. We choose the “safe” major. We take the “steady” job. We tilt too heavily into conservative investments when we’re young, and we panic when our 401k’s start to decline. We avoid real estate investing and starting side businesses because these seem too risky.
Pessimism stifles innovation, entrepreneurship, and creativity. It locks us into mundane careers and middling investments as we muddle through risk-averse lives. In the end, we haven’t endured huge losses, but neither have we *embraced a shot* of winning.
As Episode 284 podcast guest Morgan Housel eloquently said:
“Pessimists get to be right. Optimists get to be rich.”
No, The Fed Lowering Interest Rates by 25 Basis Points Is Not Going to Flood the Market with New Housing Inventory 🙄
A little history lesson:
Once upon a time, in 2008, there was a Great Recession. It scared many investors and homebuilders, and they stopped making new homes.
In the decade that followed the Great Recession, new construction reached its lowest point since the 1960’s.
By 2019, the housing shortage amounted to 3.8 million units. This means there were 3.8 million more families and individuals who wanted a place to live — either to rent or buy — than there were homes available.
Then the pandemic struck. The prices of copper, lumber and other construction items shot through the roof (no pun intended). Builders had to raise home sale prices due to higher materials costs. Prices soared.
In 2020 and 2021, people across the internet cried, “Why are they charging so much more than the home is worth?!” — not realizing that “worth” is a function of the cost of labor + the cost of materials + the premium of scarcity.
And when supply is curtailed — as it was by 3.8 million units as of 2019 — there’s an ample scarcity premium.
Then inflation climbed. The Federal Reserve raised interest rates 11 times during their 2022-2023 cycle, resulting in a rapid escalation of mortgage rates.
This created a “lock-in effect” among existing homeowners. Nobody wants to trade a mortgage with a 3 percent fixed interest rate for an alternate mortgage with a 7 percent rate.
Existing homeowners with a mortgage have a huge incentive to hold.
Sellers who *need* to get rid of their property — for example, because they’re moving to another country — list their homes on the market. But homeowners who simply *want* to upsize or downsize are, for the most part, staying put.
This has created even more housing supply pressure.
Meanwhile, homebuilders — who must borrow money to finance their operations — are seeing the cost of capital skyrocket. Many have curtailed new construction, putting further pressure on the supply pipeline.
So we have a long-running confluence of factors that, piece by piece, keep exacerbating the housing supply crunch.
And this leads to today’s takeaway:
No, this problem will not magically solve itself the moment that the Fed reduces interest rates.
The Fed is meeting today and tomorrow. They’re widely expected to hold rates steady. (They’ll make an official announcement at 2 pm on Wednesday.)
There’s rampant speculation that the Fed will lower interest rates in Q1 or Q2 of next year.
— And —
There seems to be a pervasive myth that once interest rates decline, those “locked-in” homeowners will rush to list their homes for sale, flooding the market with new inventory.
The supply-demand imbalance will tilt in the buyer’s favor, home prices will plummet, and housing will become affordable once again.
Yet that is pure fantasy, disconnected from the data.
Imagine 10 people. Nine of them have mortgage rates that are less than 6 percent. The stat is 91.8 percent of mortgaged homeowners, to be precise.
Wait.
Imagine those same 9 people, the 9 out of 10 who have a sub-6 percent interest rate. Here’s how they break down:
One has an interest rate between 5 to 6 percent.
Two have an interest rate between 4 to 5 percent.
Six have an interest rate below 4 percent. The exact stat is 62 percent.
Let me say that again:
Six out of 10 mortgaged homeowners have an interest rate that’s below 4 percent.
Meanwhile:
One-half of mortgaged homeowners (49 percent) say they’d consider listing their home only if interest rates fell below 4 percent, according to a Redfin survey conducted by Qualtrics.
So this myth that if the Fed lowers interest rates, the market will get flooded with new inventory? — That scenario isn’t likely to happen for a long, long, looooong time.
As of Dec 12, 2023, the current average 30-year fixed rate for a buyer with a 740-760 credit score is 7.4 percent. Multiple reductions in interest rates won’t begin to approach the sub-4 percent rates of yesteryear.
The “lock-in effect” will last for longer than you might expect.
Lesson:Don’t wait to buy a home based on speculation about the market. If you have both the money and desire to buy a home, DO IT NOW. Homes are likely going to get more expensive in the future, not less.
How to Not Flush AS MUCH Money Down the Toilet This Holiday Season
Yeah, I know.
The holiday season is custom-built for parting with your money. Every store is promoting sales, discounts, offers. Limited time only.
It’s scarcity on steroids.
Holiday deals tap into the part of our brain that says — “this deal is only available now; I should snag it while I still can.”
Our FOMO creates jobs and drives the economy.
Since holiday spending is human nature, let’s forgo the guilting, shaming and finger-wagging that’s so endemic to the personal finance and FIRE community.
It’s counterproductive. Guilt and shame over holiday spending doesn’t change human behavior, it merely robs the joy from it.
It’s like chowing down a piece of chocolate cake while simultaneously fretting about the sugar.
You’re eating the cake regardless. You may as well enjoy it.
Instead, let’s accept that some degree of holiday spending is normal, and let’s focus on how to find the best deal possible.
Here are four pointers. (If you have more to add, please share these with the Afford Anything community) —
#1: If you’re buying an item at a mid-size company’s website (i.e., a merchant that’s bigger than a mom-and-pop shop, but not a big box retailer like Target or Amazon) — move your cursor near the “back” arrow on the browser.
This is called “exit intent,” and it often triggers pop-ups with discount codes.
#2: For online purchases: Create an account, put an item in your cart, and then leave the website.
This is called “abandoned cart,” and often triggers an automation in which the company emails you a limited-time-offer discount code.
#3: If you’re buying something expensive (over $500 – $1,000 or more), track the price for a few weeks, especially around the holidays. On sites like Wayfair, I’ve seen prices fluctuate daily.
#4: The least useful savings tip: Googling discount / promo codes or pulling these codes from mass aggregator websites.
You may get lucky, but typically 9/10 are expired or don’t work; they just yield a bunch of extra open tabs on your browser.
There’s an enormous selection of third-party websites and browser extensions that claim to help with this, with varying degrees of efficacy.
I’m not going to recommend any specific tools; recommendations are both dynamic and better crowdsourced. Please share your experience with the community.
Nestled along the picturesque coastline of Connecticut, New Haven is rich with cultural heritage. Home to the prestigious Yale University, the city boasts a dynamic arts and music scene and a diverse culinary landscape. From historic architecture to downtown bustling shops and restaurants, New Haven offers a perfect blend of urban excitement and small-town charm. So whether you’re searching for apartments in New Haven, homes for sale, or want to learn more about what New Haven is known for, this Redfin article will be your guide.
1. Yale University
New Haven is known for being the home of Yale University, one of the most prestigious and oldest universities in the United States. The university is renowned for its academic excellence, beautiful campus, and rich history, attracting students and scholars worldwide.
2. New Haven style pizza
New Haven is famous for its unique style of pizza, known as “apizza.” This thin-crust, coal-fired pizza is characterized by its charred and crispy crust and is a beloved culinary tradition in the city. Locals and visitors flock to the numerous pizzerias in New Haven to savor this iconic dish.
3. Cultural and arts scene
With a thriving cultural and arts scene, the array of theaters, galleries, and museums in New Haven stands out. Notable among these cultural institutions are the renowned Yale Center for British Art, the Yale University Art Gallery, and the esteemed Shubert Theater, together offering diverse artistic experiences that enhance the city for its residents.
4. Historic architecture
New Haven’s streets are a living testament to history, adorned with iconic examples of colonial and historic architecture. From the stately structures within Yale University’s campus to the charming facades lining its neighborhoods, New Haven showcases a captivating array of architectural heritage.
5. Rich history
Being one of the oldest cities in the United States, New Haven is steeped in history. It is known for its significant role in the nation’s founding and its historic sites, such as the New Haven Green and the Grove Street Cemetery, making it a destination for history enthusiasts.
6. Thriving music scene
New Haven is renowned for its thriving music scene, with many live music venues and diverse musical performances. The city hosts numerous music festivals, concerts, and events throughout the year, like CT Folk, attracting music lovers and showcasing the talents of local and international artists.
7. Beautiful parks and green spaces
Offering a serene escape from the city’s hustle and bustle, New Haven provides residents and visitors a tranquil retreat amid urban life. East Rock Park, Edgerton Park, and Lighthouse Point Park are just a few of the city’s stunning outdoor destinations.
8. Innovative biotech and healthcare
New Haven is recognized for its innovative biotech and healthcare industry, with the presence of world-class research institutions and medical facilities. The city is home to the prestigious Yale School of Medicine and Yale-New Haven Hospital, contributing to healthcare and medical research advancements.
9. Celebrated festivals and events
From the International Festival of Arts & Ideas to the New Haven Jazz Festival, New Haven is known for its vibrant and diverse array of festivals and events, celebrating the city’s cultural heritage and community spirit.
10. Historic Shubert Theater
New Haven is home to the historic Shubert Theater, the birthplace of the American musical. The theater has a rich legacy of hosting world premieres of iconic Broadway shows. It continues to be a cultural hub for performing arts, attracting theater enthusiasts from near and far.
With four commission lawsuits in play, Illinois currently holds the title for the most commission lawsuits in one state. In addition to the long running Moehrl commission lawsuit, as well as the Batton 1 and Batton 2 suits, the Prairie State is now home to the Tuccori suit, filed in early December 2023 by James Tuccori against @properties.
The suit was originally filed in the Circuit Court of Cook County Illinois, but it was moved to the U.S. District Court for the Northern District of Illinois Eastern Division last Friday.
Like the other copycat commission lawsuits, the plaintiff James Tuccori, an Illinois resident who purchased a home listed on the local MLS in 2018 with the help of an @properties agent, is accusing real estate industry players of colluding to artificially inflate real estate agent commissions. The suit takes aim at the National Association of Realtor’s Participation Rule which requires listing brokers to make a blanket offer of compensation to the buyer’s broker in order to list a property on a NAR affiliated MLS.
“These anti-competitive rules permit Defendant and other NAR members to sustain buyer-agent fees at artificially high levels which would not exist in a competitive marketplace,” the complaint reads. “Defendant and the members of NAR further protect and promote their conspiracy by exerting control over and manipulating the MLSs, which constitute the gateway to homebuying and selling.”
“There is no pro-competitive benefit to the conspiracy,” the complaint adds. “Defendant and its coconspirators have effectively maintained and significantly raised the financial costs of buyerbroker commissions, despite the diminishing role of such buyer-brokers due to the emergence of third-party listing websites.”
As with all of the other commission lawsuits, Tuccori’s suit is seeking class action status. However, the suit is seeking both national and Illinois class action status for all persons who purchased a home listed on a NAR MLS with a buyer’s agent and or seller-agent employed or affiliated with @properties or any of its franchises, subsidiaries, or agencies between March 17, 2000, and the present.
The plaintiff is demanding a jury trial, as well as damages and a permanent injunction that prevents the defendants from continuing on with these practices.
In an emailed statement, a spokesperson for @properties Christie’s International Real Estate, the top brokerage in Chicago, wrote that the copycat suit was in response to the Missouri jury’s verdict in the Sitzer/Burnett suit.
“The Kansas City case was premised on those other brokerages controlling NAR by having their executives serve on its board of directors and executive committee, which allegedly created, implemented, and enforced the NAR rules at issue. In contrast, the Chicago complaint makes no specific allegation that @properties was or is involved in any such activities,” the spokesperson wrote. “In fact, while we are members of NAR, no @properties manager or executive has ever served in any role at NAR with any rule-making authority. This applies to Mabel Guzman, a former @properties agent who is mentioned in the complaint, but who was never an employee or manager with @properites and was never directed by @properties’ management in her volunteer role with NAR. We will move to vigorously defend against this complaint and believe that it will be resolved in our favor.”
Guzman moved to a Coldwell Banker affiliate in Chicago in 2020 and remains an active member of NAR. According to her official biography, she served as the NAR 2021 vice chair for the insurance committee and she also chaired the business insurance work group. In 2020, she served as vice president of association affairs at NAR.
In our latest real estate tech entrepreneur interview, we’re speaking with Daniel Shaked from Home365.
Without further ado…
Who are you and what do you do?
I am the CEO and Founder of Home365. We are a new breed of property management companies which leverages quite a bit of technology and artificial intelligence to make the entire process of owning real estate much more profitable, predictable and hassle free. First, we conveniently bundle a multitude of services for a one-rate fee, including management fees, repairs, maintenance, tenant placement and rent loss due to vacancies. To generate this fee, we look at the various data points of the home including the age, location, renovations, appliances, etc. But we also use this data and a series of sensors throughout the home to monitor systems so that we can predict any major issues and be proactive with maintenance. This saves landlords up to 50-percent in maintenances costs traditionally paid.
What problem does your product/service solve?
What we are really doing is offering refined communication between all the parties involved and improving customer service. Tenants, landlords and service providers communicate through Home365’s own app, which uses intuitive technology to report maintenance issues schedule repair visits and track the process from beginning to end. Tenants also have the ability to send video of the problem directly to the service provider. After scheduling an appointment, the tenants can track the movement of the maintenance worker through a map feature to save time and frustration. All fees are covered by Home365 without any additional cost to the property owner.
What are you most excited about right now?
I am most excited about our recent launch into the Las Vegas market which has a large number of property owners. We acquired Pangea Realty & Property Management, a Las Vegas company that currently owns over 300 single-family homes in Southern Nevada to begin our service.
What’s next for you?
My next step is to acquire more properties to use our service. My company is actively looking at deals in Florida, Texas and California.
What’s a cause you’re passionate about and why?
I’m really big on working with young entrepreneurs to get their ideas and businesses off the ground. I think it’s important to support the next generation pursuing new ideas. Most new businesses don’t make it, so it’s important for me to help them keep moving forward until they find the one that does. The momentum we have right now to help those ideas move to next steps is incredible.
Thanks to Daniel for sharing his story. If you’d like to connect, find him on LinkedIn here.
We’re constantly looking for great real estate tech entrepreneurs to feature. If that’s you, please read this post — then drop me a line (drew @ geekestatelabs dot com).
When most people talk about money management, they discuss tactics. Occasionally, you’ll encounter someone who elevates the discussion to strategy, rather than simply scattershot tactics.
But what’s missing from both conversations — both tactics and strategy — is a wider-lens look at how to become a better thinker; how to become a crisp, clear decision-maker.
How to think from first principles. How to better your brain. How to cultivate the wisdom to know the next move.
This series is an attempt to bring first principles thinking into the conversation around money. Welcome to the inaugural post.
Welcome back to First Principles, my series with an alternate definition of FIRE — Financial Psychology, Investing, Real Estate and Entrepreneurship.
Today we’ll dive right in with the question on everyone’s mind: is a recession looming?
Financial Psychology
Are we in a recession?
Short answer: Possibly. I may even go as far as to say “probably.”
A recession is defined as two consecutive quarters of negative economic growth, as measured by GDP. (Notice that recessions reflect the state of the economy, not the stock market. We’ll come back to that in a moment.)
By definition, a recession is only visible in hindsight, after two negative-growth quarters have passed. This means it’s possible we’re already in a recession. It’s also possible that one may be looming.
Why now?
What’s behind this (potential) recession? In a word: inflation.
As I’m sure you know, the Federal Reserve has been raising interest rates. (There have already been 5 rate hikes so far in 2022!)
The Fed is tasked with a “dual mandate” to control both inflation and the risk of recession; this “dual mandate” exists because controlling inflation necessarily carries a recessionary risk.
But why?
To control inflation, the Fed must make money more expensive to access. When borrowing becomes more expensive, people and companies do less of it, which slows spending and growth. This could lead to a couple of consecutive negative-growth quarters, which is, by definition, a recession.
What does this mean for you?
Recessions vary along three dimensions:
(1) severity
(2) duration
(3) frequency
It’s tempting to think that a recession will impact us in the same ways as the Great Recession of 2008.
This is due to a few cognitive biases, including:
Recency bias — our tendency to overestimate that an event that occurred recently will re-occur again, or to assign greater importance to things that have happened most recently.
Salience bias — our tendency to focus on events and facts that are remarkable (the headline-grabbers), rather than events and facts that are mundane.
Availability bias — our tendency to think that examples that most easily come to mind are more important or significant than they actually are.
The Great Recession of 2008 was (1) recent; (2) remarkable; and (3) easy to recall.
Its remarkability and ease-of-recall stems from the fact that the Great Recession was both high-severity AND long-duration. It felt personal; millions lost their jobs and homes, which meant that this recession impacted us in the most visceral, tangible ways possible.
For all those reasons, it’s easy to assume that every recession will look, feel and behave similarly to the Great Recession.
But will it?
Let’s turn our attention to 2022, and look at the many factors that are different this time around, including:
(1) Unemployment is at a record low. Despite the occasional warning headline (e.g. Tesla will be reducing its salaried headcount by 10 percent), the unemployment rate remains 3.6 percent as of May 2022, according to the U.S. Bureau of Labor Statistics.
(2) Housing prices continue to rise, despite higher interest rates, due to imbalances in supply-demand fundamentals. The cost of materials (such as lumber) remains high, which increases construction costs and therefore home values.
(3) Consumer spending remains strong, particularly in discretionary areas such as travel and dining. Despite higher fuel prices, airlines are seeing strong demand for flights.
What does this mean?
We may or may not already be in a recession, or enter one in the near future.
But if we do, there’s a chance this might be experienced as an “on-paper” recession, in which the daily lives of the average middle-class worker isn’t strongly affected.
If unemployment remains low, consumer spending stays strong, and inflation gets roped into check, there’s a chance that this recession will be forgotten. It might be long-duration, but low-severity.
Of course, this is one of a range of possibilities, and as you know, I’m not in the business of prognostication.
But it’s worth making the point that we shouldn’t let our cognitive biases lead us astray. Don’t assume that the next recession will resemble the conditions of 2008.
SPOTLIGHT ON…
Have you been interested in real estate investing for years, sitting on the sidelines watching the market go up and wishing you’d gotten in sooner?
I have a secret for you: it’s not too late to find good deals.
Even though parts of the US market are crazy, there are still good deals to be found; you just have to know where to look.
Soon, enrollment for my flagship real estate investing course, Your First Rental Property, will open for the ONLY time this year.
Want to get notified when we open the doors? Join the VIP list.
Join the VIP list
Investing
Recessions reflect the economy, not the stock market.
Let’s return to the definition of a recession: two consecutive quarters of negative economic growth, as measured by GDP. This definition doesn’t directly relate to stock prices.
But investors react in varied ways.
There are two popular styles of investing: growth and value.
Growth investors tend to sell (or not buy) during recessions. When companies expect lower profits, growth investors are usually unwilling to pay a high price for a share of that company, so stocks can fall.
But this is counterbalanced by value investors who pick up shares of the ‘winners,’ the companies and stocks that they believe have been maligned by the market and that will emerge strong during the recovery.
Hence, the volatility.
So let’s zoom out and look at what’s happening now:
Everything (except real estate) is falling.
Stocks are volatile. Crypto is depressed. Bonds are unattractive.
And that’s not surprising, given the liquidity patterns of the past two years.
At the start of the pandemic, $10 trillion in liquidity got pumped into the monetary system. Investors used that liquidity to buy all types of assets — stocks, bonds, crypto, housing — triggering a massive spike in the value of all asset classes across the board. (It’s no surprise that “meme stocks” like GameStop and AMC Theaters became a thing at the exact moment when millions received “stimmy” checks.)
Two years ago, people were already asking the question, “what should I invest in when everything is expensive?”
Last year, that question only became louder and more pronounced.
It’s reasonable that today, as liquidity is getting removed from the system and capital becomes harder to access, the values of these assets will gyrate for awhile, then stabilize at a “new normal,” with valuations that reflect market fundamentals such as earnings and expectations.
What does that mean for you?
Expect that the rest of 2022, perhaps 2023, could be volatile. Stocks, crypto and bonds may swing for awhile as investors try to figure out the “new normal.”
But these types of events are how the market cleans itself.
The poorly-run companies run out of money and fold. Better companies take their place. And the broad market, over the long-term, reflects the growth of the winners.
Many fantastic companies started during the Great Recession; many new companies will be created during the next one.
Real Estate
We created a massive, multi-day email series to deep-dive into recession and inflation in 2022 — and specifically, to talk about how it could impact the housing market.
It’s waaayyyy too detailed to summarize into this post, so I’d suggest signing up to get this multi-day email series.
If you’re even thinking about buying real estate, either as an investor or as an owner-occupant, you’ll find a ton of value in this free email series.
Get the free email series
Entrepreneurship
One of the most interesting stats to watch in coming months relates to the unemployment rate.
Right now, many entrepreneurs are struggling to hire talent. The labor market is tight. Small businesses are having a tough time competing with the salary and benefits packages offered by major corporations.
Many real estate investors (which is a specific subset of entrepreneurship) have spent years lamenting how hard it is to hire contractors — because many contractors are booked, busy, and in high demand.
Given the record-low unemployment, that’s not surprising.
If the labor market loosens, it might become easier to hire. And that will be a blessing for small business owners and real estate investors who are trying to find top talent, especially 1099 contractor talent.
Again, this is why many great companies tend to be launched during recessions:
One of the best times to create a business is when skilled talent is looking for work.
Hope you enjoyed this issue of First Principles.
I’ll see you in the next issue. Until then!
Click here if you want future posts like this straight to your inbox with more thoughts, ideas and insights on a new take on FIRE.
Living in Northglenn, Colorado, encapsulates the essence of suburban comfort intertwined with a vibrant community spirit. Northglenn offers a blend of modern conveniences and close-knit neighborhoods within the Denver metropolitan area. Whether you’re drawn to the homes for sale in Northglenn, apartments to rent, or want to learn more about what Northglenn is known for, this Redfin article will be your guide.
1. welcoming community
The city’s events, communal spaces like parks and recreational facilities, and active engagement among residents exemplify Northglenn’s commitment to fostering a sense of belonging for everyone who calls it home. Whether through volunteer efforts, cultural celebrations, or local gatherings, Northglenn’s embrace of diversity and unity underscores its reputation as an exceptionally welcoming community.
2. Outdoor recreation
Northglenn is renowned for its abundant outdoor recreational opportunities, including hiking, biking, and fishing. The city’s extensive trail system and around 500 acres of green spaces provide residents and visitors with access to the great outdoors, making it a popular destination for outdoor enthusiasts.
3. Community events
The community events in Northglenn, including festivals, concerts, and cultural celebrations, are noteworthy. For instance, the Food Truck Carnival will give you insight into Northglenn’s culinary delights. The city’s calendar is filled with various events that unite people to enjoy music, food, and entertainment, fostering a strong community spirit among its residents.
4. Public art
Northglenn is recognized for its impressive public art program, featuring an array of sculptures, murals, and installations throughout the city. The art pieces contribute to the city’s unique character and provide residents and visitors with opportunities to engage with creativity and culture.
5. Convenient location
Northglenn’s convenient location within the Denver metropolitan area makes it desirable to live and visit. With easy access to major highways and public transportation, residents enjoy the benefits of urban amenities while still experiencing a close-knit community atmosphere.