It’s hard to believe that we passed the midpoint for 2023. From an investing perspective, this has certainly been a busy year. In March we navigated a banking crisis where several banks went into federal receivership. As it turns out purchasing interest rate sensitive bonds in a rising rate environment isn’t an effective cash management strategy. In May, the US raised its debt ceiling, albeit at the last minute. As of writing this post, the US stock market is up over 15% YTD. Looking ahead to the rest of 2023, below are 4 topics we decided to explore.
Student Loan Payments:
In March 2020, student loan interest and payments were paused due to the pandemic. This was a welcomed reprieve for individuals given the uncertainty of the pandemic and the magnitude of student loan balances. However, the pause will end in the coming weeks. Beginning in September, interest will begin accruing on loan balances and in October, payments will resume. Although the Supreme Court recently struck down the federal student debt relief plan, the SAVE (Saving on a Valuable Education) program will have some individuals see their monthly bills go down to zero or cut in half and remaining debt canceled after making at least 10 years of payments. In addition, borrowers may see certain changes to their federal student loans, including an increase in the protected income threshold, an interest limit on unpaid interest, lower payments for married borrowers, and automatic recertification.
Given that payments are set to resume in October, we have a couple strategies for borrowers. First, plan for the expense. This sounds obvious but many do not plan for an expense until it arrives. In addition, enroll in the SAVE program before repayments resume this fall should you have federal student loans. Lastly, be sure to contact your loan service provider to update your information and ask about the payment plan options. Automatic payments should be available and there are income-driven repayment plans available for those with federal student loans.
We generally recommend checking on your 401k at least twice a year. With the recent rally in the equity markets, it may be a good time to review your allocation and make sure your investments are aligned with your risk tolerance, retirement timeline and goals. If you have extra cash flow, consider increasing your contributions by a percent or two. Double check your beneficiaries (one of the most common mistakes we see are incorrect beneficiary designations, such as an ex-spouse). If there is a Roth option in the plan, it may be wise to contribute to this as Roth withdrawals are tax-free in retirement (under current tax law).
This has been one of the most common subjects as of late. Whether it pertains to investing or the workforce, interest in AI has exploded since ChatGPT launched in November 2022. We don’t pretend to be experts on natural language models or machine learning, but we do know it is predicted to be the next major technological innovation. In terms of investing, there are many ways to take advantage of the AI trend. There are several exchange traded funds available which track companies in the AI space. The advantage of using ETFs is that they are diversified, so they are likely to track the success/failure of the AI market, versus purchasing an individual stock where the success of the investment is dependent on one company. If someone does want to purchase an individual stock, we think it is more prudent to look at larger companies with strong balance sheets which are investing in the technology itself. Google and Microsoft are two companies which have invested aggressively in machine learning technologies.
(Bonus topic) High yield savings and money market funds:
This has also been one of the hot topics of 2023. With rising interest rates, cash is finally a yield producing asset class. As of writing this blog entry, many high-yield savings accounts are paying approximately 4%. High yield savings accounts are generally web based accounts and pay a variable interest rate based upon the fed funds rate. In addition to high yield savings accounts, money market funds also offer attractive yields. Money market funds generally invest in treasury bills, commercial paper, and short duration fixed income vehicles.
If you would like to discuss any of these topics in detail, please email us at email@example.com to schedule a consultation.