Plan, Grow & Create Wealth

Last Week's Recap:

A 0.75% rate hike was announced last week by the Federal Reserve. Currently, the short-term borrowing rate is between 3.75% and 4%, the highest level since January 2008. Locally, The CBUAE has raised its Base Rate from 3.15% to 3.90%.

This is the fourth consecutive 75-basis-point increase by the Fed. It stated that it will continue to increase the target rate.

It is considered a bear market when the market drops more than 20% and continues to fall for a sustained period of time.

The following is a look at some of the history of recent bear markets:

Back in 2020, the bear lasted only 33 days.
The biggest bear for 929 days (2000- 2002).
The current bear has been around for 288 days.
The average bear lasts 388 days.

About 3 months remain until the current bear market reaches its average. Is that a sign that it's nearly over? Nobody knows! Most importantly, make sure you stick to your long-term investment goals!!

S&P 500 hit a new low in 2022!

The S&P 500 has fallen -24.7% since January. There has been a decline of 21.4% in the Dow since its all-time high, while the Nasdaq has fallen by -33% since its November high.

The market isn't doing well, what's wrong? Fed rate hikes are causing investors to worry that the economy will enter a recession. Additionally, there are a few (major) concerns such as the war in Ukraine, the problems with European energy and currency, and sky-high inflation.

Another major interest rate policy decision was made by the Fed.

The Fed's conference highlights the following points:

-0.75% was added to the benchmark interest rate by the Fed.
-Rates will continue to rise above current levels.
-Currently, the federal funds rate is between 3% and 3.25%.
-It is expected that the Fed will reach an "endpoint" of 4.6% by 2023.
-Inflation is expected to fall to 5.4% this year, according to the government.

Immediately following the news, stocks plummeted and Treasury yields vaulted to their highest levels since 2007. The 2-year yield hit 4.1%.

A major announcement is expected this week, which investors are preparing to digest. Today's Fed meeting will determine tomorrow's interest rates.

The Federal Reserve is expected to increase interest rates 75 basis points. Some Wall street analysts, however, believe that a more aggressive hike of 100 basis points is possible.

The market is likely to be shocked if the Fed raises rates by 100 basis points because it would imply that the Fed is not confident in its own timetable for cooling inflation.

There are five main benefits to investing:

Investing builds wealth.
Investing helps with retirement.
Investing helps you reach long-term goals.
Investing comes with tax benefits.
Investing keeps investors ahead of inflation.

This week, mortgage rates rose above 6% in the U.S, the highest rate since 2008. Last year's 30-year rate was 2.86%, but this year's was 6.02%, a significant increase. While interest rates started out the year at 3.11%, inflation and recession fears consistently pushed them upward.

Sales are low when rates are high. Since last September, the number of home applications has plummeted over 80%.

https://www.nytimes.com/live/2022/09/13/business/inflation-cpi-report/inflation-came-in-faster-than-expected-in-august-even-as-gas-prices-fell?smid=url-share

Despite market expectations of 8.1%, the annual US inflation rate eased for a second straight month in August of 2022 to 8.3%, the lowest in four months.

The stock market plunged on Tuesday after the inflation report. A drop of almost 4% in the Dow Jones Industrial Average was the worst since June 2020, resulting in a loss of more than 1,200 points. In contrast, the S&P 500 - the index to which many 401(k)s are tied - dropped more than 4%, its worst day of the year. Over 5% of the Nasdaq's value was lost.

Inflation came in faster than expected in August even as gas prices fell. Overall inflation in the United States moderated less than anticipated in August and an index that strips out food and fuel picked back up, bad news for policymakers.

To combat red-hot inflation, the ECB raised interest rates for a second consecutive time. Last Thursday, the European Central Bank increased its benchmark deposit rate by 75 basis points to 0.75 percent.

Inflation expectations have been revised up to 8.1% in 2022, 5.5% in 2023, and 2.3% in 2024, respectively.

A historic move to weaken the dollar globally has been agreed upon between Russia and China to conduct their energy transactions in Russian Rubles and Chinese Yuan. Global order and economic systems have been profoundly altered by the war, pushing east toward a new geopolitical superpower and west toward NATO. We live in a rapidly changing world, and the transition will be challenging.

Will we witness the rise of the Petroyuan?

China to pay for Russian gas in yuan, rubles: Gazprom "A transition was made to making payments for Russian gas supplies to China in the national currencies of the countries -- the ruble and yuan," Gazprom said in a statement.

Saving requires discipline, high inflation and the rise in non-essential spending in the UAE made it difficult for residents to save. Budgeting is key here for long term financial goals, set a specific amount of money each month to be transferred into a systemic investment plan.

Why UAE residents don't have enough savings despite paying little to no taxes Here's how you can save up

EUR/USD fell to 0.9942, its lowest level since December 2002!! The price continues to be under pressure, testing levels below the support area of 0.9950.

Have you heard of the Investment Clock?

The Investment Clock below describes the interrelationship between the economic cycle and its various sectors that perform well.

Using this method, the team can find out where the economy is in terms of global growth and global inflation, and which stage of the business cycle we are in. Advisors should have a full knowledge of the investment clock to invest their client's money the right way.

Inflation is measured by the horizontal axis of the clock, and economic growth is measured by the vertical axis. To stabilize the economy, central banks use monetary policy to inflate or deflate the economy, as opposed to permanently controlling it.

The Investment Clock demonstrates that Investments have no specific time, one should always invest whether in inflationary or deflationary period. Asset Allocation is key for financial growth!

Where do you think we are currently on the Investment Clock?



Source: Royal London Asset Management, for illustrative purposes only.

Commercial Vs Residential Property Investment??

There are several key differences between commercial and residential property, despite the fact that they are both types of property.

In order to invest in either one, it is important to understand the market factors at work, the differences in financing requirements, property management arrangements, leasing terms, and the associated risks and drawbacks.

1) Financing:
In addition to being more expensive and having higher entry points to the market, commercial properties are also more difficult to finance initially. A commercial property's interest rate is generally higher than a personal loan or mortgage, which should also be taken into consideration by investors.

2) Property Value:
There are a number of factors that determine a residential property's market price, including supply and demand and the property's key features (the number of bedrooms, bathrooms, and square footage). Commercial properties, however, are valued differently. Commercial properties are valued primarily based on their revenue potential, rather than their location and features.

3) Financial Security:
In addition, the length of the lease contract differs between residential and commercial properties. Most commercial properties have much longer lease terms than residential properties. The lease agreement for a residential unit typically lasts for one year, but a leasing agreement for a company can last for 3-5 years. A longer period of guaranteed income gives investors greater security.

Picture: zricks.com

A 75-basis-point (bps) increase in the Federal Funds Target Rate was announced by the Federal Open Market Committee (FOMC) at its meeting on July 26-27.

There has been a 75 bps increase in rates in the last two Fed meetings. Additionally, the Fed continued to lower its record balance sheet in addition to raising its key interest rate. In mid-March, the balance sheet reached nearly $9 trillion, and by late July, it had fallen to $8.9 trillion. Recent Fed monetary policy decisions have been driven by historically high inflation levels.

Consumers are feeling the pinch as major U.S. price increases remain 40 years high, and stagflation fears are growing with the economy possibly slowing.

As shown by the DXY index below, which measures the US dollar against Yen, Euro, British Pound and other foreign currencies, the USD reached its highest level in two decades this past week. In light of the large interest rate hikes in the US, the dollar's appreciation isn't surprising.

Due to the currency's importance in global trade and transactions, this record holds a great deal of significance. The higher the USD value, the higher the global revenue for companies. However, in order to convert a specific USD value into their home currency, foreign companies or individuals need more of their home currency. Inflationary pressures can weaken their purchasing power, reducing the competitiveness of these goods or services.

Due to the fact that a substantial amount of profits are generated by international sources, this could eventually lead to lower earnings for US firms. In 2021, S&P500 companies generated 29% of their sales outside the country. Since global trade plays a large role in these nations' economies, the US dollar has a major influence on their economy. As a result of a stronger dollar, developing countries would need to trade more of their local currencies to buy basic services and products, which would eventually result in lower economic activity for all countries.

1/ 3 of S&P 500 companies will release their earnings numbers, highlighting their performance in an environment that hasn't been easy.

An additional rate hike will be communicated by the Fed. Even though many expected this, the focus will be on how much rates are increased, since the last hike broke a 40-year record.

This week, The Bureau of Economic Analyses will release data regarding the job market (one of the few positive aspects of the current economy) and the GDP.

DID YOU KNOW?

Gulf Cooperation Council annual report about financial advisory landscape reveals survey results. In the United Arab Emirates, 49 percent of expatriates save less than 5 percent of their income every month, and only 16 percent prioritize retirement planning.

A majority of UAE residents have almost no (or minimal) savings, making retirement planning a major issue for expatriates.

UAE's gratuity scheme provides end-of-service entitlements to expatriates, however the end-of-service scheme is not enough to cover for your future needs.

There are two reasons why you should worry about the 70-year-old you, even though it's far in the future:
- If you could live as comfortably as you do today in the future, what would it be like?
- It's possible to achieve financial freedom while you're still young enough to pursue new passions if you save and grow your money.

It makes sense to take advantage of the UAE's tax-free salaries by saving for retirement by setting up a retirement fund, especially for expats who choose to work here. Open an offshore investment account with exchange traded funds (ETFs) tracking indexes as a method of achieving this goal.

Should I buy a property in the UAE ?
Is it a good time to buy?
Is it a good investment?
Prices are inflated, should I wait for another time?

These are some of the questions I always get asked, and the answer to those questions depend on several factors. It mostly depends on your goal behind owning a property.
Are you looking for a source of passive income?
Are you looking for a house to live in?
Are you looking to take on a Mortgage?
And more.....

Knowing where we are in the real estate cycle is essential on macroeconomic and microeconomic levels. In many ways, the housing market cycle is closely tied to the economy overall.

The UAE government's recent policies made it easier for foreigners to live and work here have also boosted demand for real estate.

According to the Dubai Land Department, the emirate's real estate sector had its best quarter in more than a decade. Q1 sales transactions reached their highest level since 2010. However, price increases are expected to slow in 2023 and 2024, respectively, bringing stability to the market.

This year and next, there are several downside risks to the real estate market, including higher interest rates, a lack of affordable homes, and inflationary pressures.

So what is going to happen next...…?

5 Things to keep in mind when retirement planning in the UAE!!

Establishing a retirement fund means setting aside a portion of your income each month for investment. Currently, bank interest rates are low, and combined with inflation, your money won't buy the same things in the future as it does today.

When planning your retirement in the UAE, keep the following strategies in mind:

1. Don't wait until retirement to start saving
2. Retirement savings should be treated as an expense
3. Diversify your retirement assets into:
- Savings Account
- Onshore and offshore Investment Schemes
- Property
- Debt Investments
- Fixed Deposits
4. Create a life budget when retiring
5. Make adjustments to your retirement plans

If you follow the tips above, you will be well on your way to retirement planning regardless of your age. Even though younger people benefit from long-term portfolio growth, everyone can benefit from retirement planning. Any start is better than none at all.

6 Steps to achieve the path to financial wellbeing!

How would you define financial freedom? It is a goal everyone hopes to achieve, but it is too vague. You have to be more precise about amounts and deadlines. The more specific your goals, the more likely you are to achieve them.

Determine your three objectives:
1) What you need to live a comfortable lifestyle.
2) How much you should have in your bank account so that you can achieve the lifestyle you want.
3) When are you looking to retire.

Some of the habits that must be adopted in your day-to-day:

1) Set a monthly budget and stick to it! Maintaining a budget is the best way to ensure all your bills are paid and your savings are growing
2) Educate, and keep up with the latest financial news and updates.
3) Consumer loans with high interest rates are detrimental to wealth creation. Make it a habit to repay your balance in full each month.
4) Create an automatic savings account, a regular savings plan. The money for both the savings fund and a retirement fund should be automatically transferred from your account when you receive your paycheck, so it is never touched by your hands. Set a specific percentage of your salary that you wish to save depending on your monthly budget. Usually, minimum of 5%-8% should be allocated to your savings.
5) Invest and Invest your money wisely. The magic of compound interest alone will grow your money exponentially, but you do need a lot of time to achieve meaningful growth.
6) Get a financial advisor to help you stay on the right track once you've amassed a decent amount of wealth, either liquid or fixed.

Consistency and dedication are the key here!

The term bear market is used by investors to describe a drop of 20% or more from recent highs. We have entered a bear market since last month, although correction has been ongoing since January.

The average Bear Market phase lasted 1.4 years, with a loss of -41% on a cumulative basis.

A Bull Market is the opposite of a Bear Market, and it describes a 20% gain in stock price from the most recent low, with indications that prices will rise further.

The average Bull Market phase had a cumulative total return of 480% over 9.1 years!

Your money's best chance of appreciating in value is through long-term investing!! But doing so requires being composed when there is a lot of stock market turbulence, and keeping in mind that historically, markets tend to bounce back.

Graph Source: Yardeni.com