THE MARKETS

📈 Stocks rose sharply last week as the Fed held rates steady.

💼Economic News

Freddie Mac’s average mortgage rate dropped to 7.76%, marking the first decrease in seven weeks. This slight dip follows the Federal Reserve's decision to leave its benchmark rate unchanged.

Meanwhile, the National Retail Federation projects that holiday sales in November and December will increase by 3% to 4% annually, totaling between $957.3 billion and $966.6 billion. Nevertheless, due to rising prices, shoppers are expected to be more price-conscious this year, potentially impacting sales growth.

👀 What to Be on the Lookout for This Week

Keep an eye out for these economic reports:

• Tuesday: Balance of trade

• Wednesday: MBA’s 30-year fixed-rate mortgage

• Thursday: Initial and continuing unemployment claims

• Friday: Michigan Consumer Sentiment Index

Here are the major companies reporting earnings this week:

• Monday: DISH Network, Trip Advisor

• Tuesday: Uber, eBay, Squarespace, Robinhood, Cava

• Wednesday: Disney, Fisker, NYT, Roblox, Under Armour, Warner Bros Discovery, Lyft, Instacart

• Thursday: Oatly, Krispy Kreme

 📰 In Other News

Guilty Verdict Rocks Real Estate: In a blockbuster verdict, the National Association of Realtors (NAR) was found guilty of colluding to keep home prices artificially high. The NAR and real estate giants HomeServices of America and Keller Williams will be forced to pay $1.78 billion in damages to the sellers of over 260,000 homes in Missouri, Kansas, and Illinois.  

The root of the problem was broker’s fees — in particular, the seller's fee, which is paid to the buyer's agent. This fee is visible only to the buyer's agent and is typically hidden from the buyer's view. The plaintiffs argued that this practice creates a conspiracy to drive up property prices, as agents may guide their clients toward properties that offer higher compensation. 

This landmark class action lawsuit may be just the beginning. With the NAR's liability established, further legal action could unfold in other states, potentially reshaping the way we approach home purchases. This case could also potentially bring down the cost of buying a home by reducing broker’s fees. 

Guac Costs Extra Extra Now: In response to the state's new minimum wage hike to $20 per hour, both Chipotle and McDonald’s have announced an increase in prices in California. This change, set to take effect in April, results from a compromise between the restaurant industry and labor groups. While it means higher wages for fast-food workers in the Golden State, the increased cost of labor may be offset by higher-priced products. 

The Return Industry Booms: It’s no secret that Americans are avid online shoppers. The popularity of online purchases has given rise to an entirely new industry: handling returns. This past week, UPS acquired Happy Returns from PayPal to enhance the logistics company's return processing capabilities. 

The National Retail Federation estimates that 16.5% of retail purchases are returned, whether they were made online or in-store. This process can often be clunky, complex, and expensive for e-commerce businesses. However, companies like Happy Returns are simplifying the process by operating box-free return locations.

YOUR ECONOMY

🤫 The Real Secret to Financial Security?

The "Options" Fund

Most financial advisors will emphasize the importance of maintaining an emergency fund, or a cash reserve to cover emergency expenses. While emergency funds are crucial, it’s also a good idea to have an “options fund.” 

An options fund, as the name suggests, is a cash reserve intended to provide financial flexibility, allowing for more choices. For instance, in the event of a sudden job loss, the options fund is available to help you stay afloat until a new source of income is secured. The key here is that it eliminates the rush to accept any job offer, giving individuals the crucial option to turn down offers that are less than ideal. 

The main difference between the two is that an emergency fund is used as a short-term buffer when there is no other choice. In contrast, an options fund is used as a source of freedom, allowing individuals to make choices. Ideally, an options fund can also provide financial security for an extended period.

Benefits of an Options Fund

The main goal behind an options fund is to allow individuals to be more strategic with their life choices. It helps them avoid the “scramble mode” that takes place when facing a lack of alternatives and the ensuing desperation.  

An options fund allows individuals to maintain their, well, individuality.  

For instance, an options fund can go a long way toward a fruitful job search, as it gives the confidence not only to turn down insufficient offers but also to maintain a position of power while negotiating with future employers. Without this financial cushion, they might find themselves forced to accept the first offer, no matter how unfavorable it is. The options fund gives individuals the option to say “no.” 

While job loss is the most common scenario in which an options fund might prove valuable, there are numerous other situations where it could come in handy. For example:

• Leaving an unfavorable living situation

• Ending a relationship

• Relocating to a new city

• Taking an extended break from work

• Starting a family

These are all common scenarios where having the ability to say “no” until the right opportunity arises can be highly beneficial. 

Calculating the Size

The two main differences between an emergency fund and an options fund lie in how they're used and how much to save. 

To calculate how much to keep in an options fund, multiply your current monthly income by the number of months that you may want to take as personal time. For instance, if you earn $5,000 per month and wish to have the flexibility to take six months off, your options fund should be around $30,000. 

Incorporating an options fund empowers individuals to make decisions on their own terms, enhancing control over critical life choices. 

Saving this kind of money may not sound easy, especially for younger generations who are already burdened with hefty student loan debt. But the freedom that comes with having an options fund will be more than worth the short-term sacrifices. An options fund can help provide individuals with critical flexibility during their most vulnerable times and help them regain control and comfort over their lives, even when things are at their worst. 

💡 Did you know Allio's high-yield portfolios can help you save automatically? 

😵‍💫 Gen Z’s New Take on Retirement

What Is Soft Saving?

Conventional financial advice stresses the importance of constantly saving and investing for retirement. By diligently investing money now, we can look forward to a comfortable retirement in the future. (And take advantage of the powerful effect of compounding!) 

But Gen Z has adopted an interesting perspective on retirement. 

According to Intuit’s Prosperity Index, 75% of Gen Z prioritizes a higher quality of life over a larger bank account balance. Additionally, 41% of Gen Z hope to engage in some form of paid work during retirement. With these two figures in mind, many members of the generation born after 1997 have embraced the concept of “soft saving.” 

“Soft saving” is a preference for spending cash now rather than constantly saving for the distant future. It stands in contrast to the FIRE hustle culture mentality. The Financial Independence Retire Early (FIRE) mindset advocates limiting expenses to achieve early retirement. In contrast, the "soft saving" culture encourages enjoying life now, as many may need to continue working during their retirement years anyway.

Redefining Financial Habits

Members of Generation Z are known for prioritizing mental health and pursuing a low-stress lifestyle — especially in their approach to the workplace and income. Given their appreciation for a “soft” lifestyle, it’s no surprise this mentality has permeated their savings preferences, allowing them to focus on enjoying life now rather than constantly worrying about a retirement that's decades away. 

Interestingly, the spend now, save later mindset might be expanding beyond Gen Z. According to the U.S. Bureau of Economic Analysis, Americans as a whole are saving less in 2023. In August, the personal savings rate stood at just 3.9%, significantly lower than the decade-long average of 8.51%.  

Given this broader trend, the rise of soft savings could be attributed to recent events. As a whole, Americans have been increasing their spending in the wake of the pandemic, possibly as an effort to compensate for the reduced spending of the previous years. 

Another important factor to take into account is the firsthand experience consumers had with the rapid price increases during the record inflation that followed the pandemic. These dramatic price fluctuations may have motivated consumers to make significant purchases now before prices soar once more.

Striking a Balance

Soft saving can be a sound financial strategy — under the right circumstances.  

Treating yourself to a trip or a small indulgence can significantly reduce the stress associated with your finances. However, it's essential to avoid letting “soft savings” become “reckless spending.” In other words, it's never wise to spend beyond one’s means or fully neglect saving for retirement.

As with most aspects of life, retirement planning involves finding a balance. For many members of Gen Z, adopting soft saving helps them strike that balance between saving every penny for retirement and using their income to enjoy life in the present. 

As long as one stays current on bills and makes progress toward financial goals, and takes advantage of compounding to help build future wealth, there's no reason not to allocate a portion of income toward enjoying life.  

💡 Here are 7 tips to help you improve your financial wellness. 

POCKET CHANGE

Roughly 22% of Gen Z helps support their parents financially. This added responsibility can weigh down on the younger generation and influence their financial decision-making. 

President Biden signed a sweeping executive order regulating AI. This order requires AI models to go through safety testing before being released and AI-generated content to include a watermark. 

It’s more expensive to be single than in a relationship. Even though couples have higher expenses overall, having a dual income and splitting expenses helps reduce the amount that both partners pay. 

Employers are planning to increase salaries by about 4% in 2024, down from 4.6% in 2023. This could mean that budgets are about to get tighter, as inflation has outpaced wage growth for years. 

The rise of remote work has led to an increase in super commuting, or workers traveling great distances for their office commute, but only for a few days out of the week or month.