Today's big stories

Goldman Sachs reckons US stocks might still be better value than bonds, despite this month’s record highs
Here’s how the falling value of the world’s most important currency could impact you – Read Now
The US Federal Reserve has given its inflation policy an update

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Ridin’ High

What’s Going On Here?

This here stock market’s had some ups and downs this year, but according to Goldman Sachs, there are still more rootin’ tootin’ returns to be had. Yeehaw!

What Does This Mean?

Goldman’s math is based on the “equity risk premium”, or ERP: that’s the extra profit investors expect to earn from risky stocks compared to theoretically risk-free government bonds. So while stocks are currently at record highs, Goldman reckons the ERP is too – suggesting they’re still a better bet than bonds.

Here’s why: there’s an inverse relationship between bond yields and the ERP, so as bond yields have fallen to record lows, the ERP’s climbed close to all-time highs. What’s more, those low bond yields would ordinarily suggest investors are worried about weak future economic growth, which is usually a sign to sell their stocks. But since central banks – which have been buying up bonds to prop up their economies, driving yields down – are largely responsible, investors have carried on buying stocks anyway.

Why Should I Care?

For markets: Relationship goals.
Goldman’s worked out that, in Europe, a one percentage point decrease in bond yields theoretically adds 30% to the value of European stocks, thanks to the corresponding increase in the ERP (tweet this). That relationship’s even stronger in the US, where 90% of the ERP’s rise can be explained by falling government bond yields. And given that the Federal Reserve just hinted it’ll keep the US’s interest rates – and, by extension, bond yields – low for longer, US stocks might now be even more promising than Goldman thinks.

For you personally: That’s so next year.
Based on Goldman’s math, stocks should offer positive returns relative to bonds for the next 12 months. But in a year’s time, Goldman isn’t expecting there to be anything to choose between US stocks and bonds – though in Europe, stocks might still be outperforming bonds.

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2/3 Premium

The Dollar’s In The Doldrums

What’s Going On Here?

The weakening US dollar has caught everyone’s attention, including analysts at Nordea, who explained what it means for you if the world’s most important currency keeps falling.

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💵 Wallets, but not as you know them

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3/3

In Fed We Trust

What’s Going On Here?

Late last week, the US Federal Reserve (the Fed) revealed changes to how it’ll think about inflation, jobs, and the country’s interest rates for years to come.

What Does This Mean?

One of the Fed’s responsibilities is to maintain stable prices, and it reckons that’s when they’re increasing by 2% every year. But after years of that inflation sitting below its target, the central bank said it’d be willing to let the measure track above 2% for a while as long as, over time, it’s 2% on average.

In practice, that means the Fed won’t be as quick to increase interest rates as it’s been in the past. Higher interest rates, remember, discourage spending by making saving more appealing, and any subsequent drop in demand for products keeps prices from rising so quickly. But that means higher rates have also historically slowed companies’ hiring. So if rates are staying low, there’s less reason not to bring fresh faces in – good news for the 11% of unemployed Americans.

Why Should I Care?

For markets: Arise, Sir Stock Market.
Low rates should help stocks too: they offer more potential returns than bonds, which aren’t paying out much interest right now. Then again, the US’s biggest tech companies have been responsible for most of US stocks’ recent gains, and it remains to be seen whether a rising tide lifts the smaller boats too. Investors might fancy emerging markets as well: stocks in those countries are cheaper on average than elsewhere globally, and their bonds – often denominated in US dollars – might get cheaper if the dollar stays weak.

For you personally: Home is where the heart is.
Low rates also make buying a house more attractive since your mortgage will probably be cheaper for longer. Of course, you don’t have to splash out on bricks and mortar: investing in real estate either via listed trusts (a.k.a. REITs) or new-age fintech platforms are ways to get involved with smaller sums.

Take action: Three ways to know it’s time you stepped onto the property ladder.

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💬 Quote of the day

“Chains of habit are too light to be felt until they are too heavy to be broken.”

– Warren Buffett (an American business magnate, investor, and philanthropist)

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🤔 Q&A · RE: Rick Rollsed

“What will Rolls-Royce do if it can’t raise enough money by selling off parts of its business?”

– William in Durban, South Africa

“One mooted option from earlier in the summer was selling new shares to raise extra cash, William. But that’s probably an option current investors would rather Rolls avoid: the sale of new shares would dilute the percentage of their holdings if the number of shares they own remains the same. And in Rolls’ situation, new shares are often sold below the current share price, meaning current investors would also typically see the value of their stakes fall to match the lower value of the new shares.”

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📚 Leave them Finimizers alone

Pink Floyd once told us we don’t need no education, but allow us to respectfully disagree. In fact, we made an event specifically because you do need a financial education. We’re waiting to hear if Syd Barrett will be joining us, but we’re hopeful.

🇺🇸 USA: Improve Your Financial Literacy – 12.30pm Miami Time, September 1st
🇦🇷 Argentina: The Future of Fintech in Latam – 11am Argentina Time, September 2nd
🇬🇧 UK: Ladies Investing Book Club – 6pm UK Time, September 2nd
🌎 Global: Healthy Financial Habits for Expats – 5pm UK Time, October 15th

📚 What we're reading

We could all do with an alter ego sometimes (BBC)
This guy’s really into Legos (Smithsonian Magazine)
Efficiency isn’t all it’s cracked up to be (Psyche)

Finimize - 💪 Goldman goes big on stocks

Today's big stories

Ridin’ High

What’s Going On Here?

What Does This Mean?

Why Should I Care?

The Dollar’s In The Doldrums

💵 Wallets, but not as you know them

In Fed We Trust

What’s Going On Here?

What Does This Mean?

Why Should I Care?

📚 Leave them Finimizers alone

Older messages

🤑 Bring on the IPOs

🍏 Apple strikes again

♻️The Rise of Sustainable Investment

🏘 Airbnb's new neighborhood

📈 US stocks hit record high

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