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The Long-Term Investor - September 2023



Navigating Financial Wellness: Welcome to "The Long-Term Investor" Newsletter


In a world saturated with sensationalized financial news designed to trigger quick clicks, we offer a refreshing approach with our newsletter – one aimed at enhancing your financial education and well-being. Our commitment is to serve as a reliable source of insights, empowering our readers to foster a deeper understanding of their finances. Welcome to "The Long-Term Investor," where we prioritize substance over sensationalism.


Seeing the Forest and the Trees

It's easy to get lost in the details and miss the bigger picture. "The Long-Term Investor" is here to ensure that doesn't happen. While we engage with timely topics and current events, we aim to help you step back and view your financial landscape from a broader vantage point. By doing so, you'll be equipped to navigate the complexities of the financial world without losing sight of your overarching objectives.


In conclusion, our newsletter's purpose is clear: to provide you with the tools and insights needed to enhance your financial well-being. "The Long Term Investor" seeks to be your trusted companion on this journey, providing a steady stream of valuable content that empowers you to make meaningful financial choices. Say goodbye to sensationalism and embrace a newsletter dedicated to your financial growth. Welcome aboard!


 

Capitalizing on Changing Tides: Navigating Higher Interest Rates


In March 2020, as the COVID-19 pandemic brought the entire world nearly to a halt, central banks around the globe raced to drop interest rates to almost zero, with some going as far as having negative interest rates, which is as crazy as it sounds. In addition to the low-interest rates, the money supply in the United States increased by over 25% from February 2020 through the end of 2021, which subsequently caused the highest inflation since the early 1980’s.

M2 Money Supply Since 1959

Inflation measured by CPI since 1960

In response to the predominantly self-induced surge in inflation, the Federal Reserve and other global central banks have initiated some of the most rapid rate hikes in recorded history. The effective Fed Funds rate shot up from 0.05% in April 2020 to 5.12% by July 2022. Given these rapid shifts in rates and their resultant economic effects, how can you leverage the current high-interest rates to your advantage?

Fed Funds Rate since 2000

Is Your Bank Keeping Pace with Changing Times?

Since the aftermath of the 2009 Great Financial Crisis, interest rates have clung to historically low levels. This prolonged phase of minimal rates for savings, money market, and checking accounts has conditioned us to expect near-zero returns. Yet, a significant shift has occurred over the past year and a half – an opportunity ripe for the taking: ensuring your savings earn a fair interest rate.


Seizing the Opportunity:

If your bank's interest rate falls short of 2-3%, it's time to reassess your options. With rates on the rise, it's worth securing a competitive rate for your savings. Numerous banks now offer at least 4% interest on savings and money market accounts, with no minimum balance requirements. While these rates are subject to change, capitalizing on them while they're available can be rewarding.


Making the Numbers Work for You:

Consider this scenario: You have $10,000 in emergency savings. A 1% APR from your current bank yields a mere $100 yearly. In contrast, a move to a bank offering 4% APR multiplies your interest fourfold, resulting in a substantial $400 after a year. That's a $300 difference – a prudent decision that takes less than an hour to execute. After all, what's a better way to earn $300 in such a short time?


Your financial growth is within reach. Seize the reins and make your money work harder for you.


Strategic Debt Management: Capitalizing on Shifting Rates

Adjusting your debt strategy in response to changing interest rates is essential. With interest rates dropping before and during the pandemic, it was an opportune time to leverage the favorable climate. This included actions like securing a low-rate fixed mortgage or refinancing higher-rate mortgages. As we move beyond the era of artificially low rates, what steps can optimize debt management to harness the benefits of higher rates?


Maximizing Low-Rate Benefits:

If you capitalized on low-interest rates – for a fixed mortgage, auto loan, or other credit – there's wisdom in savoring these advantageous terms. If you're comfortably locked into a fixed-rate mortgage of around 4% or lower, paying off the loan prematurely is typically not advisable. Instead, consider the following advantages of not paying off low-interest debt early:


Yield Advantage: In many cases, funds directed towards paying off a low-rate loan could yield more in a high-yield savings account, as mentioned above.


Enhanced Liquidity: Maintaining the loan affords greater liquidity, offering access to extra cash for potential future needs.


Strategically navigating your debt landscape can lead to enhanced financial flexibility and capitalization on changing market dynamics.


 

Company Spotlight: Apple


Apple is currently the largest company in the world with a market cap currently just shy of $3 Trillion – to put that in perspective, it is roughly the same as the GDP of France. The iPhone maker has a storied history of innovation led by the late Steve Jobs and had plenty of ups and downs as a company prior to the launch of the iPhone in 2007, including nearing bankruptcy in the late 90’s. Today, however, Apple is one of the most financially sound companies in the world.


So, what makes Apple so valuable, and why is it a great company to own? As Warren Buffett puts it, “If you’re an Apple user and somebody offers you $10,000 but the only provision is that they’ll take away your iPhone and you’ll never be able to buy another, you’re not gonna take it, if they tell you if you buy another Ford car, they’ll give you $10,000 not to do that, you’ll take the $10,000, and you’ll buy a Chevy instead,” Mr. Buffett is clearly a firm believer in the company as over half of his public company holdings through Berkshire Hathaway are currently in Apple alone.


In my opinion, Apple is likely the greatest consumer products company of all time; as I am writing this newsletter on my MacBook, I would be lost without my iPhone (no, I would not take $10,000 never to own another iPhone again), and used Beats headphones at the gym this morning (acquired by Apple in 2014). I love my Apple products and know I'm not alone, as Apple has over 2 billion active devices. Apple has also successfully turned its hardware products into recurring software subscription revenue, with over 1 billion paid subscriptions.



Despite five drawdowns of at least 20% in the stock price since 2013, including a 43% drop in 2013, patient Apple shareholders have benefitted greatly as the stock has followed the company's long-term success.

Apple (AAPL) Historical Returns (as of 8/30/2023)

  • 1-Year: 18%

  • 5-Year: 248%

  • 10-Year: 1,136%

  • 20-Year: 54,080%

Apple is an excellent example of the benefits of looking past short-term noise, zooming out, and focusing on the long term.

 

Homeowner’s Insurance Review



The rapid escalation of home prices, as indicated by the S&P/Case-Shiller U.S. National Home Price Index, has changed the financial landscape for many homeowners. With home prices jumping by over 40% since 2020, reassessing your homeowner's insurance coverage is more critical than ever. Your home is likely one of your most valuable assets, and ensuring it is adequately insured is vital for financial security.


Why Reevaluate Your Homeowner's Insurance?

The rising value of your home doesn't just potentially increase your equity or resale value; it also affects the cost to rebuild or repair your home in the event of a disaster like a fire, flood, or other calamities covered under your insurance policy. Replacement costs can include not just rebuilding but also the costs of current building materials, labor, and compliance with any new building codes. If your insurance policy doesn't reflect your home's increased value, you could find yourself underinsured when you need coverage the most.


The 80% Rule and its Implications

The "80% rule" in homeowner's insurance stipulates that your insurance policy should cover at least 80% of your home's total replacement cost. Failing to meet this threshold can result in a reduced payout when you make a claim. The insurance company may only pay a proportionate amount of the loss, meaning you'd have to cover the shortfall out-of-pocket. For example, if your home's current replacement value is $500,000, but you're only insured for $350,000, you'd be covering only 70% of your home's value. If you incur a loss of $100,000, the insurance might not cover the full amount, and you could be left to cover a significant portion yourself.


Regularly review your homeowner's insurance policy, especially when you notice a change in local real estate trends or after making significant changes to your property.

Consulting with an insurance advisor can ensure your coverage meets your current needs.

 

Unlock Your Financial Potential with Eighth Wonder Investments

Thank you for joining us in the first edition of "The Long-Term Investor." As you can see, financial well-being isn't just about market trends or investment returns; it's a holistic approach encompassing smart decisions about your home, debt, and day-to-day financial management. Just like you wouldn't leave your home underinsured, you shouldn't navigate the complex world of finances alone.

That's where Eighth Wonder Investments comes in. Our skilled financial advisors are here to guide you through every facet of your financial journey. Whether it's optimizing your portfolio to take advantage of changing interest rates, offering personalized debt management strategies, or ensuring you're making the most out of your assets like your home, we provide a comprehensive suite of solutions designed to meet your unique needs.

Why Consult with an Eighth Wonder Financial Advisor?

  • Personalized Investment Strategies: Tailored to your risk profile, financial goals, and life circumstances.

  • Holistic Financial Planning: Covering retirement, education, wealth transfer, and tax optimization.

  • Expert Market Insights: To keep you ahead of economic trends and opportunities.

  • Accountability and Progress Tracking: So you know you're not just meeting your financial goals, but exceeding them.

As a reader of "The Long-Term Investor," you already appreciate the value of in-depth, actionable financial insights. Now, take the next step in your financial journey by consulting with professionals who can transform those insights into a tailored plan just for you.

Ready to Elevate Your Financial Future?

Don't wait for opportunity; create it. Schedule a one-on-one consultation with one of our trusted financial advisors today, and let us work together to realize your financial aspirations.

We look forward to partnering with you to achieve your financial dreams.


See you in the next edition of "The Long-Term Investor"!


 

Disclaimer: All information provided in this newsletter, including references to past performance of investment strategies, market segments, or individual securities, is purely for informational purposes and should not be construed as investment advice, nor does it constitute an offer or solicitation of an offer to buy or sell any securities or adopt any investment strategy. It is important to note that past performance does not indicate future results. Investments can go up and down in value, and you could lose money or not gain as much as expected. Every investment has its own set of risks which could adversely affect results. Before making any financial decisions or investments, readers should consult with a qualified financial advisor to assess the appropriateness based on individual objectives, financial situation, or needs.



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