As we close out the 3rd quarter of 2020, markets have continued their rebound since the public health and economic shock we all experienced this year. We have no crystal ball into the future (nor does anyone else). Political, economic, and public health uncertainty remains high and markets have experienced volatility as a result. We don’t expect that to change anytime soon. However, if this year has taught us anything, the adage “save like a pessimist, invest like an optimist” is the best advice in uncertain times.
Below are the topics for this weekend’s reading.
One consequence of the Federal Reserve’s policy actions starting in March was a major reduction in interest earned on all types of fixed income investments, including cash and other money market instruments. As a result, people have been hesitant to hold emergency savings paying little interest. On the flip side, the Federal Reserve’s actions have lowered mortgage rates (as well as other borrowing) to historic lows, so anyone with outstanding debt would find this environment ripe for refinance.
This article makes a very valid point regarding emergency savings. It is not meant to be a driver of returns to begin with. So, whether it earns 1.0% or 0.1%, an emergency fund should be viewed strictly as a buffer in the event of a major life event. The interest earned on that buffer should not have an impact on a long-term financial plan. If you have any questions as to how much cash you should be holding, please feel free to reach out to our office to discuss further.
Amazingly, the housing market has experienced a rapid expansion this year, despite the sharp drop in economic activity resulting from the pandemic. Many attribute the housing boom to low interest rates, urban flight, and pent up demand among millennials. Whatever the cause, the housing market has been robust. In August, sales of existing homes jumped to a 14-year high.
The author suggests that the housing market may be a proxy for the general economy. This makes intuitive sense, as home purchases have a ripple effect in the economy – building material, home furnishing, electronics, etc. We are optimistic this is the case. Ultimately, job and wage growth will have to continue their respective rebounds for the housing boom to sustain.
We hope everyone has a happy and safe weekend. Please give us a call if you have any questions.
This newsletter contains general information that may not be suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.
Links to third-party web sites are provided as a convenience. Stokes Family Office, LLC does not endorse nor support the content of third-party sites. By clicking on a third-party link, you will leave this website where privacy and security policies may differ from those practiced by Stokes Family Office, LLC.