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Economic Cycles: Preparing for Rainy Days and Harnessing the Sunny Ones

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Hey there, money-savvy friends! Today, let’s dive into the fascinating world of the economic cycle and how it can shape our financial journeys. The economic cycle, also known as the business cycle, is like a dance between growth and contraction in the economy. It affects everything from jobs and investments to the prices of goods and services. So, buckle up and get ready to ride this cycle with confidence, guided by your trusty friend, Wellthi!

Stage 1: Expansion – The Exciting Growth Spurt đŸŒ±

During this stage, the economy experiences a thrilling phase of rapid growth. Interest rates are low, businesses are booming, and job opportunities are aplenty. Picture yourself riding a wave of positivity and progress. Ah, it feels good, doesn’t it? Well, during expansion, the indicators of economic growth, like employment rates, wages, and corporate profits, are on the rise. Money is flowing, and life is good. Just watch out for inflation, which can sneak up during this phase.

Stage 2: Peak – The Zenith of Success ✹

Now we’ve reached the peak, where growth hits its highest point. It’s like reaching the summit of a mountain, taking a deep breath, and enjoying the view. At this stage, the economy stabilizes for a moment before taking a downward turn. Peaks can create imbalances that need correcting, so businesses start reconsidering their budgets and spending habits. It’s like hitting pause to catch our breath before the next adventure begins.

Stage 3: Contraction – Facing Challenges and Bouncing Back 📉

As growth slows down, we enter the contraction stage. Jobs might be harder to find, and prices may stagnate. Demand decreases, and businesses struggle to adjust their production levels, resulting in oversaturated markets. This oversupply can lead to falling prices. If the contraction continues, it can even slide into a recession or, heaven forbid, a depression. But remember, tough times don’t last forever. They’re just a pit stop on the road to recovery.

Stage 4: Trough – Rising from the Ashes 🚀

Welcome to the trough, the lowest point in the cycle. It’s like hitting rock bottom before bouncing back with renewed strength. During this stage, the economy bottoms out, and both supply and demand hit their lowest point. It might not feel great, but here’s the silver lining: the trough is an opportunity for individuals and businesses to regroup and prepare for the upcoming recovery. It’s a time to reassess our financial strategies and make the necessary adjustments.

Making Sense of the Economic Cycle

How do we measure all these waves and twists? Well, we’ve got some trusty metrics to help us out. The National Bureau of Economic Research (NBER) is our go-to source for marking the official dates of economic cycles in the U.S. They keep an eye on factors like GDP, employment rates, and consumer spending to determine where we are in the cycle. With their expertise, we can plan our financial moves like seasoned pros.

But here’s the catch, my friends: economic cycles aren’t like clockwork. There’s no fixed timetable for these waves. They can last anywhere from a few years to over a decade. It’s a wild ride that keeps us on our toes! The key is to stay informed, adapt, and make strategic moves based on the ever-changing economic landscape.

Riding the Economic Waves like a Pro

So, how can you ride these waves and make the most of each stage? Well, your financial guru, Wellthi, has some insights to share:

  1. Expand during Expansion: When the economy is booming, seize those opportunities! Look for promising investments, especially in the technology, capital goods, and energy sectors. Ride the wave of growth and position yourself for success.
  2. Prepare for the Peak: As the peak approaches, it’s time to be cautious. Keep an eye out for any imbalances in the economy and adjust your financial sails accordingly. Don’t be caught off guard when the tide turns.
  3. Navigate the Contraction: When the economy slows down, it’s time to batten down the hatches and weather the storm. Look for stable investments like utilities, consumer staples, and healthcare. They tend to hold up well during tough times.
  4. Rise from the Trough: As we hit rock bottom, take this opportunity to rebuild your financial fortress. Revamp your strategy, reassess your finances, and be ready for the next exciting ride of growth.

Unveiling the Secrets of the Economic Cycle

There are different theories out there trying to explain the driving forces behind the economic cycle. Monetarists link it to the credit cycle, where changes in interest rates impact consumer spending and economic activity. On the other hand, Keynesians suggest that changes in aggregate demand, driven by investment demand, are responsible for the ups and downs we experience. It’s a fascinating debate, and the truth probably lies somewhere in between.

To sum it all up, the economic cycle is like a rhythmic dance that our economy performs. It moves through stages of expansion, peak, contraction, and trough. Each stage brings its unique opportunities and challenges. By understanding these stages and the indicators that drive them, we can make informed financial decisions to support our goals.

Remember, the economic cycle doesn’t have to be intimidating. Embrace the adventure, make informed decisions, and ride those waves of prosperity like a boss. You’ve got this! Together, let’s reach new financial heights and make your money dreams a reality. Wellthi has your back every step of the way.

Stay tuned for more exciting financial tips and tricks from your go-to personal finance pal, Wellthi. Happy riding!

DIG DEEPER

  1. The Balance – What Is the Business Cycle?: Link: https://www.thebalancemoney.com/what-is-the-business-cycle-3305912 
  2. Federation Of American Scientists- Introduction to U.S. Economy: The Business Cycle and Growth.https://sgp.fas.org/crs/misc/IF10411.pdf
  3. The White House: How Do Economists Determine Whether the Economy Is in a Recession? https://www.whitehouse.gov/cea/written-materials/2022/07/21/how-do-economists-determine-whether-the-economy-is-in-a-recession/
  4. Corporate Finance Institute.Economic Cycle. The fluctuating state of an economy from periods of economic expansion and contraction. https://corporatefinanceinstitute.com/resources/economics/economic-cycle/
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S.O.S! Your 401k Is Having a Wardrobe Malfunction – Here’s How To Dress for Retirement Success In a Rocky Market

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Honey, your 401k is calling, and it’s in need of a makeover!👠 Just as you would never dream of wearing last season’s fashions with mismatched accessories, you absolutely cannot afford to have your retirement savings out of vogue. There’s $9 trillion adorning the closets of over 100 million Americans in the U.S. 401k retirement plan market, as reported by the US Department of Labor. But, darling, there’s a snag in the fabric.

It wasn’t long ago that retirement savings accounts performed like a chic ensemble at a pre-pandemic rooftop party. Well they’ve lost that sparkle, and at an alarming rate. According to Vanguard, the average balance in 401k accounts has slipped down the runway by about 20% – from $141,542 in 2021 to $112,572.

Did you know? By creating goals and sharing them in public with your friends and family, you’ll increase your chances of success! You can download the Wellthi app here, if you act by July 3, you could win $10,000 for just posting your financial goal in the app!

The median balance isn’t strutting any better. Picture yourself sashaying through New York with a stunning designer bag; now imagine it’s contents vanishing. That’s right, my dears, the median balance has cascaded from $35,345 in 2021 to a humbling $27,376.

But let’s not be fashion victims. This 401k issue is like that little black dress waiting to be styled to perfection. The primary culprit, as per Vanguard, is lukewarm equity and bond markets recently. They’re like that outfit you adored, but now it just doesn’t light up the room.

As your confidant, I urge you not to panic. It’s time to be your own investment stylist. How about diversifying, honey? Like pairing those Nike kicks with a chic blazer. Or, go on and explore the world of IRAs, real estate, or even the bold and edgy cryptocurrencies. Whatever you choose, make sure to do your homework, and better yet consult with a financial advisor.

Now, let’s get together with our besties and venture through this together. The Wellthi app is your virtual brunch squad – always there for you. It’s the sparkling jewelry to your 401k’s little black dress. đŸ„‚

Take a page out of Carrie Bradshaw’s book – when life trips you on the runway, pick yourself up, adjust your tiara, and keep walking with grace and determination. Accessorize your retirement plan, don your financial stilettos, and let’s take on this 401k drama together, head held high. đŸŽ©đŸ’–

You can download the Wellthi app here, if you act by July 3, you could win $10,000 for just posting your financial goal in the app!

Go Deeper

  1. Understanding 401k Investments: A guide by Investopedia that explains the basics of 401k and how to make the most out of your retirement savings. Link
  2. Diversifying Your Retirement Savings: A piece by Fidelity on why diversification is essential for managing risk and enhancing returns on retirement savings. Link
  3. Cryptocurrency for Beginners: A beginner’s guide to cryptocurrency by Investopedia that covers the essentials of crypto as an investment option. Link
  4. IRA vs. 401k: A side-by-side comparison by The Balance to understand the differences between IRA and 401k, to make an informed decision. Link
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Breaking Up with the Market: How the 60:40 Portfolio is like Your Most Reliable Ex

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Are you ready for a dive into the deep end of the finance pool? Hold onto your pool noodles, because we’re about to splash around the concept of “regression to the mean” like it’s a Marco Polo game on a hot summer day.

Picture this: the 60:40 portfolio is like that old reliable friend you always went to parties with in college. They were usually a good time (consistent returns), but last year they had a major party foul (a 23.4% loss). They tripped over the keg, spilled their drink all over the host, and broke a priceless family heirloom (if those happened to be represented by the Vanguard Total Stock Market ETF and the Vanguard Long-Term Treasury ETF, of course). Not their finest hour, and certainly not their norm.

But hold the phone, because 2023 is turning out to be quite the comeback tour for our friend. As of the end of May, they’re turning heads and impressing the crowd with a stellar annualized pace of 17.6% – a major glow-up from their historic average return of 7.7% since 1793. It’s like they aced their mid-terms after weeks of partying. Impressive, right?

Increase the odds: By creating goals and sharing them in public with your friends and family, you’ll increase your chances of success! You can download the Wellthi app here, and act by July 3, you could win $10,000 for just posting your financial goal in the app!

Now, before you start thinking they’re the life of every party, remember this: ‘Regression to the mean’ is as relentless as your mom asking when you’re going to settle down and get married. It basically means that over time, super impressive performance is likely to settle back down to average – kind of like how all-nighters become less appealing once you’re out of college.

So, while our friend the 60:40 portfolio is hitting it out of the park this year, that doesn’t mean it’ll keep this pace up. Heck, it might even lose a bit of steam next year.

Remember, the 60:40 portfolio isn’t some slick player you’re trying to time for maximum gain. It’s more like that long-term, steady relationship where the attraction doesn’t burn bright and extinguish fast, but instead, lasts over the years. Just look at its trailing 20-year annualized return – it’s practically snuggled up with its two-century average of 7.7%.

So, should you be excited about the 60:40’s recent glow-up? Sure, it’s great news for now! But always remember, investing isn’t a sprint; it’s a marathon (or a very, very long Netflix binge). The market might be a rollercoaster of ups and downs, but your plans should be more ‘chill on the couch with a good book’. And if you’re ever in doubt, we’re here to help guide you through it.

Until next time, keep your financial chill, Wellthi fam.

You can download the Wellthi app here, and act by July 3, you could win $10,000 for just posting your financial goal in the app!

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Unraveling the Money Magic: How Your Deposits Empower Banks

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Hey, Money Maven! Have you ever paused while sipping your Starbucks latte, pondering what happens to your money once it snuggles into your bank account? Let’s get our inner Carrie Bradshaw on, swapping Manolos for money matters: where does your cash go after it hits the bank?

In the tumultuous wake of Silicon Valley Bank’s demise in March 2023, it’s essential to know how your hard-earned money is managed. Just like picking the perfect pair of Jordans, you need to know what’s going on inside the box—or, in this case, the bank vault.

When you make a deposit, your bank operates like a fashion-forward thrift shop. Picture this: You’ve just donated your gently used items. These items are then sold to shoppers, generating revenue for the store. That’s pretty much what your bank does, but in a more complex and sophisticated way, and with loads of federal oversight.

Did you know? By creating goals and sharing them in public with your friends and family, you’ll increase your chances of success! You can download the Wellthi app here, and act by July 3, you could win $10,000 for just posting your financial goal in the app!

Your deposited money doesn’t simply lay around like an unloved sweater at the back of your closet. Banks use your deposits to make loans and investments—this is their runway, their spotlight moment. They’re attempting to strut back more profits than what they pay you in interest.

Let’s demystify the banking world’s equivalent of the Devil Wears Prada: bank reserves. In simpler times, reserves were tangible cash stored in bank vaults, just like a hidden treasure of Jimmy Choos. Today, most reserves are digital and kept safe in accounts with the U.S. Federal Reserve Bank—less visually exciting, perhaps, but safer and more practical.

So, how does your bank get its Miranda Priestly on and make money? Your deposited funds could be loaned out to others in various forms, such as credit card issuances, personal loans, mortgages, or business financing. Additionally, your bank may buy bonds—like a bank’s equivalent of a classic little black dress—predictable, safe, and a solid choice.

Now, let’s chat about how your bank plays the role of your loyal Samantha Jones, ensuring your funds are available whenever you need them.

Capital reserves, daily withdrawal limits, and deposit insurance coverage are your bank’s strategy for ensuring your funds remain as safe as a diamond in Tiffany’s vault. Your bank’s reserves make sure it can cover daily withdrawal requests and keep the lights on. Daily withdrawal limits help balance customer access with a bank’s need to generate income. And deposit insurance acts as your financial safety net. No customer has ever lost funds under the FDIC insurance limit since its inception in 1933.

Picture this financial safety net like your trusty pair of running shoes—always there to support you on any terrain. The thought that your bank uses your money to fund loans and invest might initially feel like you’re rocking high heels on a cobblestone street. However, understanding the basics behind it is as empowering as strutting the street in your favorite ensemble.

So, next time you’re sipping that latte, remember: like the perfect outfit, financial confidence comes from understanding the intricacies behind the scenes.

Wellthi Tips:

  1. The FDIC only insures your savings up to $250k. If you have more than that, you might consider multiple accounts, adding beneficiaries &/or banking relationships. 😉
  2. Shop for high yield  interest rates, some banks are offering more that 4% for savings accounts, while ordinary checking accounts pay next to nothing.
  3. If you don’t need your savings right away (like 24 months or more) consider a CD or short term bond, like a 2-year Treasury bill. It’s a brilliant way to ensure that your money is making money.
  4. You’re not a baller unless you have at least 3 months of emergency savings. Real Talk. 

Embrace the power of knowing where your money goes and how it grows. Stay fabulous, and remember that every deposit you make is like adding a new accessory to your financial wardrobe—making your money work in style.

You can download the Wellthi app here, and act by July 3, you could win $10,000 for just posting your financial goal in the app!

Go Deeper

  1. FDIC Deposit Insurance: Understand the full details of the FDIC deposit insurance and its coverage limits.
  2. Understanding Bank Reserves: A guide by the Federal Reserve on bank reserves and how they’re used.
  3. Interest Rates by Bank: Compare interest rates offered by different banks and find the highest yield for your savings account.
  4. Introduction to Bonds: A comprehensive guide to understanding bonds and their role in a diversified investment portfolio.