The uneven benefits arising from political certainty: A bad political environment will hurt your portfolio, but a healthy and beneficial political situation is only a prerequisite for investing success
A lot of people in finance and the investing world love to talk about politics and the geopolitical environment. They say how important it is for there to be a stable geopolitical environment for economies to perform well. This is true, but it leaves out too many vital details - a more useful understanding can easily be obtained.
Geopolitical certainty is less a beneficial item for investing and economic success - it's more of a prerequisite for a stable economy and an attractive environment for business. Geopolitical certainty is more of a necessary condition for good things to happen, NOT a sufficient condition. This means you need political certainty and a healthy geopolitical environment for business and the economy to be strong, BUT having a great political climate won't really help your portfolio.
The reason for this uneven distribution of benefits is because stocks aren't valued based on the geopolitical landscape - they are valued based on anticipated future cash flows, discounted at appropriate discount rates. Politics can influence this a bit, but far more so in the negative direction than in the positive one.
So, don't overdo it on how much you focus on politics, the global political landscape, and how this might impact your portfolio. A better approach is to monitor for signs of a terrible geopolitical situation on the horizon while prudently picking excellent investments to put your money in.
Cities vs. Nations - Cities have been and will continue to be the true drivers of economic growth and development in the 21st Century
Nations and countries are illusions at the most basic level of reality. Cities are too, but far less so. Where the idea of a nation like the United States exists only in our minds, the idea of a big city like NYC or Los Angeles exists both in our minds and in the immediate world around us.
Cities are were life and economics happen:
Cities are where stuff happens - countries have cities and benefit from them, but can you name things that happen economically in a country but that doesn't happen in a city? Asked differently, what can you point to that's economically beneficial that, at its core, is something that happens in a country but not in a city? It's hard to think of an answer because most economically beneficial activity happens within cities themselves - nations benefit, but it's not within the nation that these things originate. Think about this another way - if you're city was run by idiot monsters who made only bad decisions, what could the national government do to fix things? The answer - not much.
When news businesses are started, when new museums and coffee shops open up, when ideas are created and implemented, or when intelligent and driven entrepreneurs drive intense economic growth in an area, it's all city-based. Cities are the economic engine of the modern world and, therefore, way more focus should be placed on cities and far less focus should be placed on nations.
If people focused as much on mayoral and city council elections as they do on Presidential races, we'd start creating better cities. A city like Detroit, for example, will never be improved because of national decisions - more granular decisions at the city level (and by people who understand local dynamics) are required. People must take city life and the responsibilities that come with being part of an urban community far more seriously in the 21st century - through that, the nation will become great on its own.
Check out a UN Habitat piece on the economic role of cities here - it's an interesting piece on how cities are the driver of economic growth globally in today's world.
Although a tax return means you've given Uncle Sam an interest-free loan over the course of the year -- something that probably isn't the best thing to do if you're a mature adult who knows how to handle money -- it can be a financial boost for many individuals and family in the early part of the year. In a sense, you've been forced to save over the year (you can think of it as forced savings account) and now you are to decide what to do with that savings.
Don't make the mistake of thinking that your tax refund is some sort of windfall or a gift from the government or some sort of unexpected gift that you didn't earn - your tax refund is literally your own hard-earned money that you've been forced to pay the government over the course of the year. Keeping this in mind, you should treat your tax refund like you should treat all of your money: with care, planning, and prudence. Below are a few key things you can do with your tax refund to improve your financial situation and add a bit of financial peace to your life.
1. Start or Increase Your Emergency Fund
This is Number 1 on our list of things to do with your tax return because for most people a strong emergency fund is the single best first step then can take to securing a better financial life.
Those that have some sort of guaranteed income might not need a rainy day fund as much as everyone else because there is far less volatility in their monthly income - for the rest of the world an emergency fund stands in between you (and your family) and financial disaster, stress, and worry should something unpleasant happen (and in this life, something unpleasant usually does happen every once in a while).
Getting your emergency fund to a solid level (typically 3 to 6 months of living expenses) is usually even more important than paying back even high-interest debt. A person with a large amount of credit card debt and nothing in the bank at all clearly is exposed to a lot of suffering if he/she loses their source of income or if an unexpected event or emergency comes up. Of course paying down the debt is very important, but without an emergency fund, there is too much exposure to even the slightest financial emergency.
Without any money, a job loss, a flat tire, a leaky roof, prolonged sickness or any other of the many things that can go wrong, will lead to a lot of pain in your life. Having even $1000 in the bank will help shield you and having a full 3 to 6 months of living expenses in the bank will give you a very pleasant calm in knowing that you've got enough stashed away to make it through most financial emergencies.
If you don't have an emergency fund, a tax refund can be used to start one at your local bank - better yet putting that money into an online savings account where it's a bit harder to reach might be a better option.
2. Pay Down High-Interest Debt
If you already have a proper emergency fund in place, the next best thing to do with your tax refund is to pay down high-interest debt. Such high-interest debt can be credit cards, personal loans, consumer lines of credit, and car loans, etc. These all qualify as bad debt in most cases - things like student loans, mortgages, and business loans (although clearly undesirable) are better because they generally carry a lower interest rate (because they are backed by either tangible assets or are not-bankruptable) and are generally taken out for thins that increase in value over time. Paying down high-interest debt will save you money on interest, will strengthen your overall financial position, and will bring some peace into your financial life.
There are two options when paying down credit card debt:
Generally, either of the above will work and actually pay down debt aggressively is more important than which of the above methods you choose. However, you can decide how to approach paying down your debts based on your own understanding of your personality - if you're the kind of person that might need a momentum boost by seeing a credit card fully paid off, then maybe focusing on the smallest balance is better for you even though it's not the best approach from a purely mathematical standpoint.
3. Take Advantage of a Bank Bonus Offer
If you've already got your debt situation under control (meaning you don't have credit card debt or other high-interest debt as described above), then you might consider using your tax refund to get even more money via a bank offer where you get a bonus for opening up a savings account.
Online banks such as Capital One 360 and even brick-and-mortar banks such as Chase often offer bonuses for opening up a new savings account. The general gist of it is that if you deposit a certain amount of new money (eg. $10,000), you get a bonus.
One offer online was for a $200 bonus for a $10,000 deposit - this equates to an almost immediate guaranteed return of 2%. To get 2% in the markets you would have to expose your money to a bit of risk. To get 2% in a guaranteed way (like you're getting with this bonus) you would likely have to lock away your money (circa 2017) for a period of at least a couple of years. Clearly, an almost immediate 2% gain is quite lucrative a low-interest rate environment and taking advantage of such an offer could give you extra boos on top of your tax refund.
4. Open an IRA
If you don't have an Investment Retirement Account (IRA) or if you're not currently contributing the maximum amount allowed, opening an IRA could be a useful way to store your tax refund and it can help lower your tax burden next year (as long as your income during the year in which you're putting the money into the IRA at least is as much as your putting in). You might want to speak to your tax professional about the best way to approach it and if this is really a good idea for you, but for most people, an IRA can help lower taxable income and, thereby, lower the overall tax burden for next year.
5. Start a College Fund for Your Children
If your financial house is in good shape, it might be time to start thinking about college for your kids (or their financial future in general). Whether college is a few years away or whether you have a newborn, saving for college is always a prudent idea and it will greatly benefit both you and your children.
A good idea is to save the money in a place where it can be used for non-college expenses. The world is rapidly changing and if your child is very young, it is not easy to predict what the academic or occupational landscape will be like in 15 years - college might be drastically different and so might college expense. Therefore, it is prudent to save in a place where your hands won't be tied in terms of how to use the money and where you won't have severe penalties if you or your child chooses to use the money for non-academic expenses (eg. starting a business, paying for a wedding, buy a house, or whatever other hopefully useful endeavor he or she chooses to embark on).
And now, given the rise of cyrptocurrencies and crypto assets to quasi-mainstream financial assets, we're dedicated to providing quality, relevant, and interesting material on cryptocurrencies and cryptoassets. Articles on Bitcoin, Ethereum, Ripple, Cardano, and many more cryptocurrencies and cryptoassets can be found on Pennies and Pounds - all that in addition to a plethora of information on what cryptoassets are, how the entire crypto industry came to be, blockchain/immutable ledger technology, mining, proof of work, proof of stake, and how to prudently invest in crypto if you are so inclined (based on your risk tolerance and ability to withstand the volatility that will come with a crypto portfolio).