Investors need to know the risks and factor them into investment decisions

The relationship between the United States and China has been strained for some time, and tensions have only increased in recent years. The ongoing trade war, intellectual property disputes, and geopolitical competition have all contributed to a sense of uncertainty and unease.

While the full extent of the potential consequences of an increasing conflict with China is difficult to predict, equity investors are likely to face several risks. Here are five significant main risks to equity investors that an increasing conflict with China might bring.

Disruption to Global Supply Chains

China has become the world's largest manufacturer and exporter, and many companies rely on Chinese factories and suppliers for components and raw materials. If a conflict were to disrupt these supply chains, it could have severe consequences for companies' ability to produce goods and meet demand. This would lead to higher costs and delays, which would hurt companies' profits and ultimately impact equity prices.

Reduction in Chinese Demand

China is also a significant market for many companies, particularly those in the technology and consumer sectors. If a conflict were to reduce Chinese demand for these goods and services, it could hurt companies' revenue and growth prospects. This could, in turn, lead to lower equity prices as investors reassess their expectations for future earnings.

Increased Regulatory and Legal Risks

An increasing conflict with China could also lead to increased regulatory and legal risks for companies operating in both countries. For example, China could increase regulatory scrutiny of American companies operating within its borders or impose retaliatory tariffs.

In addition, companies with significant operations in both countries could face legal challenges related to intellectual property or other issues, which could lead to costly legal battles and reputational damage.

Currency Volatility

An increasing conflict with China could also lead to currency volatility, as investors reassess the strength of the US dollar and the Chinese yuan. This could impact companies with significant international operations, particularly those that rely on exports or imports. Currency fluctuations could also impact the value of foreign investments, which could impact equity prices.

Geopolitical Uncertainty

Finally, an increasing conflict with China could lead to geopolitical uncertainty, which could impact equity prices in several ways. For example, a conflict could lead to increased military spending or other government interventions, which could impact economic growth and corporate profits.

In addition, geopolitical tensions could lead to increased volatility in financial markets, as investors try to assess the potential consequences of a conflict.

Things Get Better With Age

In conclusion, an increasing conflict with China is likely to have significant implications for equity investors.

As such, it's important for all investors to consider these risks and factor them into their investment decisions.

By staying informed and monitoring the situation, you can make more informed choices and better protect your portfolio. Your financial advisor can help.

Copyright © 2023 FMeX.

The earlier you start saving, the easier it will be to send your kids to college

The month of August is when many parents are preparing to send children back to school this fall. While the checklists grow and the kids soak in the last few minutes of summer break, it’s important to remember college planning and back-to-school shopping. While getting an education can be difficult at times, paying for it can feel like climbing up an unending hill. More and more adults are going back to school, so this doesn’t just apply to kids.

According to the U.S. Census, in the 40+ years since 1980, college costs have increased by 169% – while earnings for workers between the ages of 22 and 27 have increased by just 19%.

Rising Costs of College

Today, the average cost for college – which can include tuition, room and board, supplies, student loans and lost income can exceed $500,000. Consider these statistics:

• The average private, nonprofit university student spends a total of $55,840 per academic year living on campus, $38,768 of it on tuition and fees.

• The average cost of college in the United States is $36,436 per student per year, including books, supplies, and daily living expenses.

• The average cost of college has more than doubled in the 21st century, with an annual growth rate of 2% over the past 10 years. 

• The average in-state student attending a public 4-year institution spends $26,027 for one academic year.

• The average cost of in-state tuition alone is $9,678; out-of-state tuition averages $27,091

• Considering student loan interest and loss of income, the ultimate cost of a bachelor’s degree can exceed $500,000. 

 

Planning ahead for your children’s education can alleviate the burden on your family when you or your student must write a check or take out an education loan.

College Savings Plans

College savings plans offer many great benefits. For example, some taxpayers are eligible for a state income tax credit of up to 20% of contributions to a 529 account, which can add up to thousands of dollar per year. With a 529 plan, you put away money that grows tax-free, as long as you use it on education.

These types of savings accounts are also very flexible. Just because a student has a 529 account set up in Kansas, doesn’t mean the assets cannot be used to attend a school in California or Texas, as long as the institution is eligible under the specific 529 rules.

Many plans allow for hundreds of thousands of dollars per beneficiary to be held in a 529 account, with few income or age restrictions.

Another great benefit of a 529 is the donor retains control of the account and makes the decision for when withdrawals are made and for what reason.

Talk to Your Advisor

It’s important to consult an advisor or a 529 plan manager with specific questions regarding how each state’s plan works.

Back-to-school season is a great time to teach children and young adults about budgeting and giving priorities to certain purchases. While parents get ready for that time of the year where they make sure lunches are made and homework is completed, it’s wise to look ahead and begin, if they have not already, planning for their kids’ college education.

With rising tuition costs, the earlier you start planning and saving, the easier sending a child off to school can be.

Copyright © 2023 FMeX.

Understanding the “chicken and egg” dilemma facing buyers and sellers

The dynamic real estate market has seen a significant slowdown lately. Those looking to buy or sell homes are feeling the pinch, but the question remains: what is causing this downturn? A recent Realtor.com report presents an intriguing explanation – a 'chicken and egg' problem. Let's unravel this conundrum.

The slowdown primarily stems from rising mortgage rates, which currently sit about 1 percentage point higher than last year, at around the mid-6% range. This increase presents a considerable hurdle not just for potential buyers but also for sellers who feel "locked in" to their existing properties due to lower mortgage rates they secured years prior.

The hesitation from both buyers and sellers has created a bottleneck in the market. Even homebuyers prepared to face higher rates are met with a scarcity of listings. May witnessed a significant 22.7% drop in new listings compared to last year.

Realtor.com Chief Economist Danielle Hale elaborates, "Many sellers report being concerned about finding another home, which may cause some of them to put plans to list on pause." This apprehension among sellers is leading to a limited pool of options for eager buyers.

Unravelling the “Chicken and Egg” Problem

This stalemate in the real estate market is being dubbed the 'chicken and egg' problem. In essence, the current market situation hinges on a paradox: sellers are reluctant to list their properties for fear of not finding another home, while buyers grapple with limited options and higher rates. This cycle feeds into itself, making it challenging to break.

Potential sellers are effectively 'chickens', unwilling to 'lay the egg' of putting their property on the market due to uncertainty. Buyers, on the other hand, are eager yet unable to find suitable 'eggs' in the form of new properties.

A Potential Solution

While this might paint a somewhat gloomy picture of the real estate market, it's essential to remember that markets are cyclical. Just as we've seen booms and busts in the past, this too will likely shift over time.

In the interim, it's important for potential sellers to remember that while their current mortgage rates might be lower, the higher selling prices could potentially offset the cost of higher rates on a new mortgage. Meanwhile, buyers might need to adopt a more patient approach, understanding that the market fluctuation is part of a broader cycle.

Navigating the Market as an Investor

As an investor, it's crucial to have a comprehensive understanding of the market dynamics at play. In times of a slowdown, exploring different strategies could prove beneficial. For instance, rental properties could be an attractive option, with a potential increase in demand as some potential buyers may choose to rent until the market stabilizes.

The 'chicken and egg' problem of the real estate market offers a clear lesson: the importance of flexibility and patience in any investment strategy. While the market might be slow for now, savvy investors know that it's all part of the cycle.

Understanding these patterns and adjusting strategies accordingly can help navigate these challenging times.

Copyright © 2023 FMeX.