3 Things 9-23-24
Thing One
Three Charts
As we alluded to last week, the Federal Reserve’s Open Market Committee did cut its federal funds rate by a half a percentage point to between 4 ¾ and 5 percent. One obvious question is what happens now to investment portfolios? And the obvious answer to that is, it depends.
Researchers at Morningstar have done some analysis on the dependent nature of what happens next by parsing post-rate-cut-market returns into three segments: average returns after a rate cut in all cases, average returns after a rate cut when a recession follows, and average returns after a rate cut when no recession follows.
The charts below tell the story quite well. As you might expect, the returns are much better in the near, medium, and long terms when there is no recession. And, if there is a recession, there is typically major near-term pain. But we find it worth calling out, once again, that if you have a longer-term investing horizon, you shouldn’t worry too much or adjust too much what you do when the Federal Reserve cuts rates. In times like these, you can consider the flurry of activity that affects the market in the near term just “noise” to be ignored.

Thing Two
Credit Cards Are Black Holes
We all generally understand how credit cards work. You buy something using a bank's money instead of your own. If you use the bank's money out of convenience and pay the money back before the interest clock starts to tick, you'll be just fine and will never experience the phenomenon described in the title. On the other hand, if you weren't just borrowing out of convenience and actually didn't have the money, the bank allows you to pay the money back over time. In fact, they are so intent on easing your financial burden that they will even allow you to make minimum payments, which are typically between 1% and 3% of the outstanding balance. But if you opt to take advantage of that added convenience, you'll end up paying back much more than you initially borrowed. As an example, a $5,000 purchase made at 20% interest (typical on credit cards) where only a minimum payment of 3% is made will cause the borrower to make total payments of $10,990 and not clear the debt for 21 years! That's what a financial black hole looks like.
P.S. Any company in the credit card business hopes you don't ever think about this too hard. We hope you do.
Thing Three
Just A Thought
"Do not be too moral. You may cheat yourself out of much life. Aim above morality. Be not simply good; be good for something." - Henry David Thoreau
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