December 16, 2021

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TOGETHER WITH

TGI Thursday! Take a guess: what percentage of the world's population owns some cryptocurrency? a. 0.9%, b. 3.9%, c. 6.9%. Follow the wave 🌊 below for the answer.

Here are today's personal finance topics:

The state of equity wealth of US homeowners
Does crypto protect against inflation?
Money tips to combat rising grocery prices

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REAL ESTATE

The state of equity wealth of US homeowners

Did you know that nearly 40% of U.S. homeowners were equity-rich by the end of October (Q3), according to ATTOM Data Solutions? And that 5 of the top 10 zip codes with the greatest quarterly equity-rich properties were in the state of Utah?

What does equity-rich exactly mean?

It means your property is worth twice as much as your mortgage. And in this environment, that's thanks to historically low rates and all-time high home prices. For context, when ATTOM completed its first analysis nine years ago, only 18.5% of US homeowners were equity-rich.

The rise in home values also helped to reduce the number of seriously underwater properties too. These types of homes —defined as having a combined balance of loans secured by the property of at least 25% more than its market value— have fallen by over two percentage points over the past year. They now account for 3.9% of mortgaged properties or 1 in 29 US homes.

Now what?

We can only speculate on how the economic landscape will shake out and impact home prices or mortgage rates, but since it's uncertain, here are a few parting thoughts and suggestions that may strike a chord with you.

You have the freedom to decide how you want to live. You can sell your home or choose to rent it out.

If you sell your primary home now and lived there for the last 2 years, you won't have to pay taxes on gains up to $250K of profit if single ($500K if married filing jointly).
Juice up your passive income by renting your place out. If you can swing it, it might give you the extra income you need to meet some of your financial goals sooner than you thought.

Tap into your home equity. If you take out a home equity line or loan to make improvements to your existing home, the interest paid on it is deductible only if it's used to buy, build, or improve your home. But if you take it out to pay off other debt, it's not.

Buying a home is a long-term strategy to building wealth. It's not a get-rich-fast scheme. If you take care of a piece of real estate for 20 years, it could take care of you forever. And if you're watching on the sidelines, it's best to buy when ready and able—don't let FOMO rush you to buy a home prematurely.

INFLATION & CRYPTOS

Does crypto protect against inflation?

Back in the 70s when inflation was a real issue, the message for investors was to ditch stocks and bonds for commodities and other real assets like gold, real estate and currencies of stronger countries. Today though, the inflation landscape is different and it begs the question of whether traditionally known inflation hedges may be outdated and what other assets should be considered.

Crypto enthusiasts will go as far as to say that digital currencies are the "world's best hedge against rising consumer prices." It's natural to believe that cryptos may protect against rising inflation—the logic being that most cryptos either have a fixed number of coins or have capped their potential circulation growth, as opposed to an unlimited money supply issued by central banks. But does the argument realistically hold?

Depends on your inflation flavor

Slow economic growth. Some think that supply chain issues run deeper than just a short-term blip on the radar. The view here is that never-ending covid and disease rates would impact workers' willingness to work and economic output and efficiency, leading to fewer goods and services produced, and more stimulus. Takeaway: Investing in crypto isn't going to get you more goods produced but may protect against an inflated money supply.
Strong economic growth. Crypto is a new category with the first of its kind, Bitcoin, created only 13 years ago. Many crypto ideas are tech startups that would do well in a growing economy. Takeaway: If you think economic growth will come back and strengthen in a couple years' time, adding some level of crypto to your acumen could make sense.
US-specific concerns—loose monetary policy & high budget deficits. Making excuses for persisting inflation for too long will make it harder to combat it with the usual monetary or fiscal tools in our kit. But this hasn't happened yet because the average annual rate of inflation has been around 2.2% for the last 15 years. The breakeven annual inflation rate on the 10-year Treasury is 2.5%, so maybe it's too early to tell. Takeaway: If the prospect of the USD is your worry, look to park your money in other countries with better monetary policies or decentralized finance platforms like crypto. In fact, Bitcoin was started as a response to the world's overreliance on central banks and their ability to print money...

The role crypto can play

All said, crypto can play a role in an investment portfolio. It's far from a perfect hedge as cryptocurrency has other inherent risks and is usually invested in small doses within a diversified portfolio. While crypto has its advantages over traditional finance in times of financial turmoil, look to more established coins like Bitcoin and Ethereum if you're new to digital assets and still learning.

💡 Related micro lesson:

Bitcoin vs. Ethereum

6 mins

MONEY TIPS

Grocery prices on the rise

Your grocery bill has been creeping up for some time now, and as always, the usual economic influencers are pulling strings behind the scenes causing this to happen.

The Bloomberg Agriculture Spot Index, an index that tracks the cost of essential farming staples, has been on a surge this year, hitting its highest point since 2014. Rising costs of staple raw foods materials such as corn, wheat, soybeans have ripple effects—on the overall pricing of derived products, and on households, businesses and world economies just trying to recover from the last two years.

How to deal with this

So how do we deal with an increase in food prices that's already here and could be sustained for the better part of next year? Here are a few tips.

Avoid name-brand products if it's out of the budget. Is the quality difference between Grey Poupon mustard and the local store brand so different that it warrants the 30% higher cost. Before you blindly grab up your usual grocery goods, see what other options there are and ask yourself what you're losing by buying the cheaper brand.
Find a local farmer's market and give it a try. Some farmer's markets are actually more expensive than the supermarket. Don't go there. Get recommendations from your friends and online. Or, just find your nearest mountain range or middle-of-nowhere corner in a smaller town—that's where you'll locate a more subtle, reasonably priced farmer's market.
Create a savings account or savings bucket just for groceries. Start setting aside a bit of extra money, whatever you can afford, every week for the grocery budget. This is above and beyond whatever you normally allocate, created as an exception knowing the current pricing predicament.
Budget and stick to it. Ever picked up that candy bar or magazine right as you're checking out? Grocery stores strategically place products in the store after analyzing tons of data and considering what you are most likely to buy as an impulse purchase. So, try to set a budget for your groceries and stick to it.
Buy in bulk sometimes. It makes sense only to buy a smaller quantity of groceries that will expire soon. But if a 2 lb bag of pasta is way cheaper than four separate half-pound packs, and you happen to love pasta, buy in bulk.

📊 ASHU'S CORPORATE CORNER

Today's Movers & Shakers

Delta Airlines (+2.3%) after surprising the market with profit projections
Accenture (+6.7%) on topping revenues by 20% and profits
Regeneron Pharma (-1%) said its antibody treatment loses potency against the Omicron variant
Lennar (-6.3%), the home builder, missed on both top- and bottom-line estimates; supply chain issues will continue to impact their business
Novartis (+4%) will buyback $15 bn of shares by the end of 2023
Visa (+1.1%) is adding to its buyback by $12bn bringing the total to $13.2 bn
J.M. Smucker (+1%) will sell its natural beverage and grain business to PE firm Nexus Capital for $110 million
Intuitive Surgical (+1.2%) was added to the conviction list by Goldman Sachs
AT&T (+1.5%) was upgraded to buy by Morgan Stanley
Petco (+1.9%) received a buy rating from Needham as the sell-side firm began coverage
Shopify (+2.9%) was upgraded to outperform by Evercore

This commentary is as of 9:06 am EDT.

🌊 BY THE WAY

Answer. 3.9% or about 300 million people around the world own crypto. Top 3 countries with the highest number of crypto owners: Ukraine, Russia, Venezuela (TripleA)
🙋 Share with us: What were the craziest things that happened in the financial markets this year in your opinion? Let's see what this community comes up with⁠—we'll share the top 7 in this year's last edition of The Gist on Dec 30th. Send your response here, by email, or enter your response after voting immediately below!
🔎 Fidelity Digital Assets Taps Nexo's Crypto Credit Lines in New Partnership (Decrypt)
🧐 A bite worth reading. Is gold really the inflation hedge we think it is? (Finny Bites)
💸 Finny lesson of the day. Get a refresher on inflation and what it means by taking this game-based micro-lesson. Every correct answer earns you 10 Dibs or gold coins on Finny, and then redeem them for rewards.

What is Inflation?

Investing Basics

6 mins

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