July 13, 2023

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Good day. About 77% of Americans have a credit card, but what percentage of those are using them solely for their benefits? a. 30% b. 47% c. 53%. Follow the wave 🌊 below for the answer.

Here are the topics for today:

Private Investors Are Just Snacking
Most People Buy the Wrong Life Insurance
Signs You Should Upgrade Your Credit Card

INVESTING

Private Investors Are Just Snacking

The implications of monetary tightening and bear markets spread much further than just publicly listed companies. Rather, market conditions influence all companies, and oftentimes private ones suffer the most in times like these.

Even in 2023 as the bear market has worn off in public markets, the overall sense of apprehension and contraction still lingers elsewhere — especially in private equity.

Zooming in on the deals

What is private equity? Not to be confused with venture capital, private equity is investments made by high net-worth individuals and firms into largely mature companies, often resulting in a full acquisition and 100% ownership of the company.
The two are closely related, and watching these industries' activity levels can give us some key insights into the overall state of the economy and investor appetite on the private level.
Capital inflows have been rather resilient, topping $458B globally last year. But, just because firms have the cash doesn't mean they're ready to spend it. This is evidenced by the roughly $1.24T worth of dry powder sitting in PE vaults globally.
Volume & value: Despite an overall slump, private equity deals remain down just 4% this year, totaling over 6,450 transactions so far and the third highest over the last few decades. Meanwhile, the average PE-backed deal value is just $65.9M, the lowest since 2009.
Risk is off: Despite a strong long-term outlook for the industry, the reality is that in the short term, investors have gotten more apprehensive. Money is no longer cheap, and neither is growth. Meanwhile, cash is attractive, traditional markets are doing well, and the banking system has been rattled — with many of the affected institutions having heavy ties to the risky worlds of startups and crypto.

Take this related lesson and earn 🟡 Dibs:

Private Equity Investing

Advanced Investing

7 mins

FINANCIAL PLANNING

Most People Buy the Wrong Life Insurance

The philosophical question of "What is life worth?" has been explored by nihilists and fundamentalist religions alike for thousands of years, and believe it or not, they still haven't figured it out. But someone else did though, and it wasn't Nietzsche, Camus, or even Jesus himself, it was actually...insurance companies.

And thus, enter the game of life insurance. It's a tricky game if you don't know your stuff, and there's a lot of "stuff" to know when it comes to these policies, which is why so many end up choosing the wrong kind.

Know these basics first

Kinds of life insurance: Generally, life insurance comes in two main forms — term and whole. Term LI is simple, it covers you for a set period of time for a set monthly premium based on your benefit. With whole life insurance, you're covered for your entire life, and these policies often come with a built-in "cash value" component where the insurer allocates some of your premium payments to "cash" where it's either invested or earns interest. Policyholders can receive this cash if they cancel the policy or make a withdrawal.
How common is it? Life insurance is most often utilized by folks with dependents, and the data bears that out. While about 50% of those in the U.S. have life insurance, only 34% of those ages 18-24 do, whereas 57% of those 65 and older have coverage.

How to pick the right life insurance

The most recent data from 2021 shows that roughly 60% of policies sold were whole, or permanent, life insurance. Although there are exceptions, this trend doesn't exactly mesh well with what most financial planners would advise.
For most people, term life insurance is the most effective way to take care of your loved ones and dependents in the event of an untimely death. A healthy, non-smoking, 30-year-old male would pay about $341 more dollars per month for a whole-life policy compared to a 20-year term policy, making term life extremely cost-effective.
Are there exceptions? Yes. For example, people with dependents who have disabilities or may require long-term financial support, those with health complications that may worsen at an unknown time in the future which would make them uninsurable, or even those that want to leave a large cash legacy to their family and/or charity of choice.

Deciding what you need

Firstly, you may not need any... yet. If no one depends on your income, i.e., no children, relatives, or significant other, then there's not much reason for you to be spending monthly on a policy. Life insurance isn't for you, it's for others.
Some advisors will recommend a policy that accounts for 10-15x your average annual income. For example, if you make $50,000 per year, you should probably be aiming for a policy with a death benefit ranging from $500,000 to $750,000. The higher the number, the higher the premium.
Cost of insurance increases as you age. The older you are, the more at risk you are of dying. Shocking, right? 40% of US policyholders wish they had purchased their policies at a younger age, not before it was needed, but at a younger age nevertheless.
And how much you actually need depends on your unique situation. If your only dependent is your spouse and you're both in your 60s, you may not need the full 10-15x benefit. If you're a 29-year-old with 3 children and a spouse, you might qualify as needing more than the 15x range.

Take this related lesson and earn 🟡 Dibs:

Life Insurance Fundamentals

Insurance

7 mins

MONEY TIP

Signs You Should Upgrade Your Credit Card

Credit card companies exist to make money like any other for-profit business, but they also have to put together a product offering that's compelling enough for new clients.

For experienced credit card aristocrats out there, the bare minimum offerings of cashback and flexible redemptions might not be enough anymore. If you find yourself in this predicament of outgrowing the offerings of your current card portfolio, it might be time to upgrade.

A few signs that it's time

It's a starter card: Your first credit card is one of the most important ones you'll ever have, serving as both a credit builder and an anchor for your credit history down the line. Unfortunately, these cards often fall short in terms of their offerings. If you've since gone on to develop a solid score, it may be time to look for an upgrade.
Your spending is unique: If you're using your everyday cashback card for travel expenses, that's kind of like letting your point guard play center — different cards come with different skills. Analyze your spending, if you find that you're spending more on a certain category that other cards offer much better perks for, it might be time to upgrade.
Heavy fees: The majority of consumer credit cards out there don't charge an annual fee, meaning it needs to be really worthwhile if you're paying one. For some spenders, the rewards outweigh the cost, but if you're paying that fee without reaping the benefits, it might be time to even downgrade.

🌊 BY THE WAY

💹 Answer: 47%. The most recent data indicates that roughly 47% of U.S. credit cardholders use them solely for their rewards. (Finder)
👻 Snapchat draws 4M users to its premium service in the first year (Axios)
📝 ICYMI. The commercial real estate problem (Finny)
🤖 There may be a new path for student loan forgiveness (CNBC)
📊 Finny lesson of the day. It's pretty common to not have life insurance, but is that the right choice? Take today's lesson of the day to find out:

To Life Insure Or Not?

Insurance

6 mins

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