In partnership with

Hey Money Maniacs,

Welcome back to another edition of 5 Fact Friday! Here are this week’s biggest stories in the world of money:

1. S&P 500’s Best Q1 Since 2019 🚀

Last week, the S&P 500 wrapped up its best first quarter since 2019, soaring to a 10.3% gain.

This rally began with an AI frenzy, boosting tech giants like Nvidia and Meta. But these AI darlings weren't the only stars.

By the end of the quarter, more than 70% of stocks had positive returns. This broad market movement came courtesy of strong corporate earnings and the anticipation of interest rate cuts.

Seeing growth beyond the Magnificent Seven (the tech behemoths that dominated last year's headlines) suggests a healthier market landscape and more widespread confidence among investors.

However, history offers a mixed bag when it comes to interpreting what a strong Q1 means for the rest of the year.

According to Deutsche Bank’s Jim Reid, Q2 through Q4 tends to moderate Q1’s returns. Declines often follow exceptionally strong performance, and rallies often follow weak performance.

Reid says “The sweet spot for the rest of the year does seem to be somewhere between 5-15% in Q1. If you were in that zone, the average move over the remainder of the year was +9.3%.”

Q1 falls right in the middle of that range, so historical patterns appear to be on our side here. But, of course, past performance is not always a reliable indicator of future results.

Here’s to cautious optimism in Q2!

Relax About Retirement

Saving for retirement can be intimidating, but you don’t need to go it alone. A report from Vanguard shows that investors who work with a financial advisor see a 3% increase in net returns. That could be a million dollar difference in spending money for retirement. Not too shabby…

Advisor.com lets you compare expert financial advisors to grow and safeguard your nest egg. There’s no fee to try it, and all of the advisors are highly vetted by their pros.

Get matched with a fiduciary advisor today.

2. Smart Moves With Your Tax Refund 💸

This tax season brings a silver lining: the average tax refund has climbed to $3,182, marking a 5.1% increase from last year's $3,028.

With this unexpected deposit, it's tempting to splurge. Instead, consider these financially savvy moves to make the most of your windfall.

1. Keep ~$1,000 in a checking account. Having a small buffer fund can ease cash flow and help you avoid overdraft fees.

2. Tackle high-interest debt. Reducing your debt by $3,000 could save you upwards of $600 per year in interest payments. Plus, it will improve your credit score and financial health.

3. Build an emergency fund. Aim for 3-6 months of necessary expenses, stashed in a High-Yield Savings Account (HYSA). This will keep your funds productive and accessible.

4. Start investing. If your financial foundation is solid, think about investing in stocks, ETFs, or bonds to grow your nest egg over time. With a 10% annual return, your $3,000 one-time investment could balloon to $20,000 in 20 years or $50,000 in 30 years.

5. Splurge, a little. Yes, it's okay to treat yourself – just keep it under 10% of your refund to balance enjoyment with responsibility. Making smart choices now can pay dividends (literally and figuratively) down the road.

3. The Lowdown On Low-Paying Majors 🎓

The cost of attending college in the U.S. is spiraling out of control. Given the opportunity cost of lost income and student loan interest, the total price tag for a 4-year degree may be as high as $509,434.

That’s why, like every half-million-dollar decision, the ROI of a college education should be carefully considered.

A huge factor in that calculation is future earnings, which can vary wildly based on your field of study.

A recent analysis by the New York Federal Reserve throws the spotlight on the 16 majors trailing at the bottom of the salary scale.

Many of these highly educated graduates will find themselves barely reaching the U.S. personal income median of $40,480 as of 2022.

What’s the deal with these fields?

1. Many of these majors don't directly tie into revenue-generating roles.

2. Often, there are more graduates than there are high-paying jobs available. For instance, the arts see a glut of talent but not enough demand, pushing wages down.

3. Education majors face the "teacher pay penalty." Their government salaries haven’t kept pace with inflation, leaving them as the lowest earners mid-career too.

On the flip side, the highest-paying careers tend to be in STEM (science, technology, engineering, and mathematics). These fields pay roughly 2x as well.

STEM salaries are driven by direct contributions to the growth of some of the world's most profitable companies. Plus, the historically steep competition between these companies pushes wages up.

Now, your choice of major is personal and it should reflect passion. But it’s worth noting that college is much easier to afford with a major that pays an extra $1,000,000+ over your career.

4. The Fed Remains Patient 🧘

On Wednesday, Federal Reserve Chair Jerome Powell spoke at Stanford’s Graduate School of Business.

Powell emphasized that despite recent data, the overall economic picture remains “one of solid growth [with] a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path.”

Powell also highlighted the Fed's apolitical stance, reassuring that rate decisions would be made independently of the presidential election cycle.

However, the Fed finds itself in a complex situation.

On one hand, the robust economic growth and strong consumer spending suggest less need for the stimulus of rate cuts. On the other, the U.S. government's mounting interest payments might benefit from such cuts.

This delicate balance has Powell and the Fed waiting for further confirmation of slowing inflation before making a move.

With core PCE inflation at 2.8% (still above the 2% target), nearly half of Fed officials are now predicting two or fewer rate cuts this year – a more conservative outlook than the market's expectation of three.

Loretta Mester, president of the Federal Reserve’s Cleveland branch, considers three cuts still reasonable, albeit a "close call." Meanwhile, Raphael Bostic, president of the Atlanta Fed, anticipates just one rate cut towards the year's end, due to persistent inflation.

This divergence in expectations highlights the challenge of predicting economic trends while managing both growth and inflation.

Ready to elevate your investing journey to new heights?

Unlock the power of informed decision-making with our daily newsletter, tailored to empower investors like you. The Early Bird delivers crucial insights that keep you ahead in the stock market, ensuring you make profitable decisions. Sign up today.

5. Asset Classes: Volume 7 - Private Equity 💵

Private equity (PE) involves investing in companies that are not traded on public stock exchanges. 

Private equity firms specialize in identifying opportunities, raising funds from passive investors, buying companies, increasing their profitability, and then selling them for a profit. It’s like flipping houses – but with entire companies!

Why invest in private equity?

1. High returns: Private equity investors aim to buy low, improve the business, and sell high. In general, this strategy has outperformed public market investing.

2. Diversification: Private businesses have a relatively low correlation with stocks and bonds.

Why is private equity criticized?

1. Reliance on debt financing: PE firms typically use debt to fund acquisitions. This leverage can amplify returns but it also increases the risk of bankruptcy.

2. Ruthless cost-cutting: To boost profitability, PE-owned companies may undergo aggressive cost reductions, sometimes at the expense of jobs and long-term investment in the business.

3. Carried interest: The tax treatment of carried interest – the share of profits PE managers earn – is a hot-button issue. Critics argue it allows wealthy PE managers to pay taxes at an unfairly low rate.

How to invest in private equity

Due to its high minimum investment requirements and long investment periods, PE is dominated by institutional investors.

However, individual investors can gain exposure through:

• Publicly traded PE firms: Companies like Blackstone, Carlyle, and KKR can be found on the stock market.

• Private equity ETFs: Some funds, like PSP and PEX, focus on investing in publicly traded PE firms. However, I would be cautious of the high fees and relatively low assets under management here.

• Direct investment: If you’re an accredited investor, you can invest directly with a PE firm or through a platform like Yieldstreet.

In short, private equity comes with substantial risks surrounding leverage, liquidity, and operations. But for investors with the right risk appetite and patience, there is the potential for market-beating returns.

That’s all for today! For more insights, follow me on Instagram, Twitter, and at TheMoneyManiac.com.

Also, I’d love to hear your feedback. So please reply with comments – I read everything.

Until next time,
Daniel

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell assets or make financial decisions. Please be careful and do your own research.