Good day. Attending college has become the norm in recent decades, with only 10.7% of Americans age 25+ having been a college graduate or more back in 1970. Can you guess what that number looks like now? a. 25.2% b. 37.5% c. 48.9%. Follow the wave 🌊 below for the answer. Here are the topics for today: - Does Tech's Dominance Represent a Problem?
- Your Student Loans Aren't Forgiven — Now What?
- How to Pick The Right 529 Plan
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MARKET OUTLOOK Does Tech's Dominance Represent a Problem? | | | | What started as a concentrated rally quickly became a broader bull run across the market. More stocks across different sectors have joined the green wave, indicating that maybe this rally isn't fully tech-reliant after all. Think again though. Yes, things have broadened, but tech's luminous presence still reigns supreme. The question is — does this represent a problem? Some data on the matter - Broadening: If we look back 5 months to March, roughly 42% of the S&P 500's stocks were above their 200-day MA — that number is now more like 66%. A rising tide lifts all boats, and this indicates more stocks across the index are being lifted by the overarching bull market.
- But this doesn't change the fact that tech stocks still dominate the landscape. Roughly 27% of the S&P's weighting comes from 7 major tech stocks while the Nasdaq 100, even after a rebalance, derives about 46% of its weight from 8 major tech companies.
- Tech's gravitational pull makes a huge difference in returns. Year to date, the market-cap-weighted S&P 500 has returned over 18% whereas its equally weighted counterpart has yielded almost 8%, and a similar discrepancy can be found in the Nasdaq.
Some considerations - Is this even a bad thing? It's completely normal and healthy for investors to worry about concentration risk — it's why we're taught the importance of diversifying. Conversely though, we also know better than to look a gift horse in the mouth, and this year's returns are certainly that so far.
- Thinking about the future, it's also worth noting the naturalness of tech's increasing dominance. The world is changing, advancing, automating, and becoming wholly reliant on technology in many areas. As we continue to progress, it makes sense that a vast majority of the most important companies in the world are going to fall under the "tech" classification in some way or another.
- What to do with your own portfolio: Sometimes the hardest thing to do is nothing, but we know that the "set it and forget it" time in the market method to investing is tried and true thus far.
- If you're really concerned about being over-exposed to tech for your situation, consider diversifying further into other sectors, bonds, and income-generating assets. If you're searching for recommendations, don't shy away from consulting with a planner you can trust either.
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FINANCIAL PLANNING Your Student Loans Aren't Forgiven — Now What? | | | | Student loan repayments and interest accrual has been in suspension for what seems like ages — dating back to March 2020. This fall though, that longstanding moratorium will finally come to a close as a result of an agreed-upon provision in the debt ceiling deal. Student loans will resume accruing interest on September 1st, and payments will begin coming due on October 1st. Politicians are still vying for alternative efforts toward forgiveness, but from where we stand now, that's all an obscure long shot. The worst thing borrowers can do is to wait around in hopes of a rescue boat — it's time to enact a plan to handle the return of their repayments. Here's what you need to do - Start from square one: After a several years-long break, it's time to refamiliarize yourself with your loan details. Log into your Federal Student Aid and loan servicer accounts and get acquainted with things like — the number of loans you have, their interest rates, due dates, and current repayment schedules.
- Get on the right repayment plan: If you're not already enrolled in an income-driven repayment plan, now is the time to consider it if you're concerned about budgeting for your monthly payment. The Biden admin has made big adjustments to the terms on which you can repay your loans, terms that are heavily dependent on your income. In fact, if you make below a certain amount, your payment could be $0.
- Evaluate your situation: While IDR plans (aside from the new SAVE plan) are great for those that are on a path toward forgiveness sometime soon (meeting the qualifying payments by paying for 20-25 years), they might not be the best for everyone. If you're not paying enough, IDR plans can result in racking up the interest charges and subsequently seeing your loan swell in value.
- Understand SAVE: There are several types of IDR plans, and one of them, formerly known as the REPAYE plan, is now becoming the "SAVE" plan. Under SAVE rules, which begin in July 2024, those who borrow less than $12K will see their debts forgiven after just 10 years of repayments, not 25, and recalculates how much people must make in a minimum monthly payment, and ensures that even if the payment isn't enough to cover interest that the loans do not go up in value.
- Consider refinancing: Interest is a thing again, so if you find a private lender that offers a stand-out rate in exchange for refinancing with them and you don't have any unique benefits tied to your federal student loans (i.e., access to loan forgiveness and special repayment plans), it's certainly an option worth looking into.
- Stay informed and proactive: The whole student loans situation is in flux right now with political and moral agendas being waged right and left. News on the matter is coming out consistently, and it pays to be informed on the latest happenings so you can plan accordingly.
- Don't be afraid to seek out professional assistance through your workplace's financial wellness offerings – take full advantage of any financial benefits available to you.
Take this related lesson and earn 🟡 Dibs: | | | |
MONEY MINDSET How to Pick The Right 529 Plan | | | | The most recent data from the United States Department of Agriculture (USDA) approximates the average cost of raising a child from birth to high school graduation is about $234,000, or about 3.5x the median annual household income, and breaks down to about $13,000 per year. But these costs don't even account for one of the most expensive aspects of life — secondary education. College can get extremely expensive, the average student attending a public 4-year school will pay roughly $26,027 per academic year. What's the best way to combat these costs? By getting ahead of them. The best way to do that? A 529 plan. Picking the best 529 plan for you — things to consider - Tax-free growth: While 529 plans aren't tax-deductible on the federal level, there are several states that do provide deductions for their own plans. Elsewhere, 529 plans also afford contributors tax-free growth as long as the gains are used for qualified education expenses.
- Picking the state: Almost every state has its own 529 plan of some kind, and you don't have to invest in your own state's plan. In some states, there may be certain benefits for investing in your own state's plan and equal penalties for transferring it out of state. Unless you're contributing to a pre-paid plan, the state you choose does not have to be where the beneficiary attends school, and you can choose your 529 plan in the state that offers the best tax treatment for your situation.
- Investment specifics: Some 529 plans come with minimum initial investment limits, so pick a plan that suits your budget. Elsewhere, not every plan will allow for the same investment options as others, so review the details of the plan to ensure it allows for the investment strategy you prefer.
- Fees associated: Suppose you have $10,000 to invest in your newborn's education fund. You're comparing plans that have expense ratios of 0.50% (industry average), and 0.15% respectively. Despite the seemingly small difference, in the first year, you'd pay $50 in the first plan and $15 in the second one. Consequently, this discrepancy will end up compounding over time as your balance grows and the years go on.
Take this related lesson and earn 🟡 Dibs: | | | |
Are you managing finances for a family? View our live webinar! | | Financial Planning for Families 8/15 at 9 am PST | 12 pm EST Register here Join us as we learn how to manage money for a family. This session will cover unique financial planning strategies for families including budgeting, saving for household financial goals, and tax planning opportunities. We'll review how to leverage popular employer-provided benefits to provide for your family. Finally, we'll provide resources to help you raise financially savvy children. | | | |
🌊 BY THE WAY by the way | - 🎓 Answer: 37.5%. As of 2020, 37.5% of Americans 25+ had at least a bachelor's degree, representing a 250% jump from 1970, and also meaning that holding a degree is still kind of rare (Statista)
- 🛍️ TikTok's new "TikTok Shop" vies for e-commerce legitimacy (Bloomberg)
- 👋 ICYMI. Signs you should upgrade your credit card (Finny)
- 📲 Spam calls — even the government is stepping in now (USA Today)
- 📚 Finny lesson of the day. One of the key tenets of investing is to avoid being overly concentrated. One way to do that? Alternative investments:
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