The global economy is in a challenging state. After a tough few years with Coronavirus, it appeared that we had gotten through the worst of it – on the face at least. The stock market rebounded absurdly fast after the March 2020 crash, whilst most major economies only dipped into a technical recession briefly before recovering.
However, issues remained under the surface. Mostly within global supply, there were still shortages and logistics issues. Anybody chasing after the latest PlayStation 5 would have experienced this in full force. Today, we have even more severe supply issues with an energy crisis, made worse by the Russian invasion of Ukraine, which has caused sky-high inflation around the world.
Ramifications on the weaker European economies
High demand-pull inflation is something that developing countries often experience as part and parcel of fast growth. This isn’t always a bad thing unless it gets out of hand. However, cost-push inflation, as currently being experienced, brings with it very little reward.
When looking at who is experiencing the worst inflation in Europe, it is developing countries that top the list. Turkey and Moldova are in crisis, with 78% and 31% inflation respectively, whilst Ukraine, Belarus, Bulgaria, Romania, Macedonia, Bosnia, Kosovo, and Montenegro all have between 13% and 20% inflation.
It is arguably the weaker economies in the EU that are the cause of the ECB’s hesitation over raising interest rates. To still have negative interest rates in an EU that is currently suffering 8.6% inflation, does seem absurd. And although there are now plans of a slight increase, the reluctance to raise rates in alignment with the Fed’s is perhaps because the struggling economies would struggle to repay their debts – debts that were exacerbated over lockdowns.
As a result, the USD has reached parity with the Euro. Whilst the dollar is usually sought after during a crisis, the continuous rise in rates in the US is a huge factor in the weakening of currencies around the world. In fact, the Guardian has pointed out this is a selfish move by the US, in which dollar-denominated loans – which are common among developing countries – are becoming unsustainably expensive to repay.
It could be argued that the EU is merely anticipating a worse recession than the Fed, and so is reluctant to be heavy-handed with its contractionary monetary policy. Regardless, the weaker economies within the EU are seeing their purchasing power decline twice-fold: once through inflation, and again through a weaker currency. On top of this, they’re also seeing any dollar-denominated debts become rapidly more expensive.
Worldwide investors bet against emerging markets
As mentioned above, in turbulent times, the USD is often seen as a safe haven – unless it’s a US-centric crash, then gold is favoured. Emerging markets are a volatile asset class, so traditionally they’re avoided when a recession is on the horizon. MillionDollarJourney, among others, are not recommending emerging market ETFs for this reason.
In order to understand the other reason why investors are betting against emerging markets is to ask, who are the investors? Participants of the stock market have changed substantially over the past 5 years, with retail investors now playing an increasing role in total transactional volumes.
Well, it’s no surprise that western retail investors lack the time and knowledge to invest in emerging markets. For some, even the known risk of their own economies is more compelling to invest in than the unknown risks of an emerging economy.
If we look at a map of business cycles around the world, it seems that the only economies that are experiencing growth at the moment are emerging economies. Though, this isn’t the same as saying all emerging economies are experiencing growth – many are also at risk of a recession, along with the threat of devastating inflation figures.
Deciphering through which emerging markets offer promising prospects and which simply carry too much risk is inherently difficult because emerging markets are in a unique moment unlike developed economies. This in and of itself is the risk that many are unwilling to take, not least on the bring of a global recession; the US dollar, commodities, and energy stocks just seems a safer bet right now.
Recessions hurt the poorest
We can get too caught up in talking about the stock market. But, in the event of a crisis, it hides the truth of what is going on underneath: mass redundancies, late wage payments, mortgage defaults, and small businesses folding. In moments like these, we realise why the Kenyan Shilling declining against the dollar is important.
It is the stock market activity that can turn an emerging market on its head, through shorting its currency (and thus artificially debasing its currency overnight) and pulling billions worth of investments out of the economy.
In general, it is the asset holders and investors that lose the least. They lose the most in terms of nominal value – a $20,000 decline in value of their stock portfolio – but they lose the least because they’re wealthy enough to have surplus assets.
Holding onto assets until they rebound in value is possible unless your cashflow dries up, but clearly, it’s the poorest who are most vulnerable regarding cash flow. Those with poor job security and minimal disposable income will struggle to repay their increasingly expensive debt repayments.
Kenya’s position in the global economy
Kenya’s political and economic reforms are seeing the fruits of their labour right now. In the face of a global crisis, Kenya marches on with economic growth with an inflation rate in-line with the average developed European economy. Plus, some of that inflation is legitimately demand-pull.
Growth is expected to continue, albeit decelerated, into 2022 and 2023. The rise in fuel cost has expected impacts on inflation, though, and is hitting the poorest. Nobody knows the outcome of the 2022 election – or the impacts of global warming – just as we don’t know how the deceleration of the growth will impact foreign investment into Kenya. Very quickly, the cost of living could become more severe due to the depreciating Shilling, prolonged inflation, and investors becoming hesitant.
Top Tips to Repay Your Student Loan Debt Fast
Do you remember your first student loan payment? It must be a doozy, to say the least. It was also a wake-up call that you just need to make some changes if you want to get out from under the weight of your debt in a few years. These six steps will help you save money on interest payments and pay off your loans faster than ever before. Check below for how to get out of student loan debt tips:
Pay more than the minimum
If you’re like many people, your student loan debt can feel overwhelming. The good news is that there are steps you can take to lessen the burden of repayment. One of them is paying more than the minimum amount due each month.
If you pay more than the minimum amount due, it will help reduce your principal balance faster and lower your monthly payments. In addition, having a lower balance means that less interest will accrue on future payments—which ultimately leads to paying off your student loans sooner!
Look into refinancing
You can also look into refinancing your student loans to lower your monthly payments. This is an excellent option if you have high-interest debt because it allows you to consolidate multiple loans and get a lower interest rate.
The process involves applying for a new loan with one of the major private lenders of student loans or with a bank or credit union (depending on your credit history). Still, there are lots of factors that go into determining whether they’ll approve you. For example, “If refinancing is something you are looking for, consider SoFi” experts.
Put extra money toward your loans
The first thing you can do to pay off your student loan debt quickly is put extra money toward your loans. This is called a lump sum payment, which can be the difference between having debt for years and having it paid off in months.
You should start by paying off the loans with the highest interest rates first. The more you pay on those loans, the more time and money you’ll save in interest payments down the road—which makes repaying those loans even easier!
Another thing you can do to get rid of that debt is to use a student loan calculator (like this one) to see how much faster paying more than just the minimum each month will help you get out from under your student loan burden.
Look for work with student loan repayment benefits
Several jobs offer student loan repayment benefits, including positions such as those in the healthcare, education and public service sectors. In addition to these areas of work, other industries can help you get your student loans paid off faster by letting employers pay a portion or all of your student loan debt. One example is military service, where some branches provide this benefit for their service members.
Enroll in autopay
Setting up autopay is the best way to stay on top of your student loans. This way, you’ll never have to worry about missing a payment and paying late fees. Automating payments also helps reduce the chance of falling behind on your loan(s).
They’re just the beginning, though—it’s important to remember that many other resources can help you make smart choices about repayment. Of course, you should always do research before making any big financial decision, but in this case, it could save you years of financial pain.
What Are the Types of Federal Student Loans?
If you’re a student, there’s a good chance that you need to borrow money in order to pay for your education. You may also be wondering what types of federal student loans are available so that you can make an informed decision about how to fund your college education. Are federal student loans secured or unsecured? Experts like Lantern by SoFi say, “Most federal student loans don’t need a credit check, allowing the student to borrow in their name. An unsecured federal student loan is an attractive option for many borrowers.”
In this article, you will learn about the different types of federal student loans and how they work so that you can make the best choice for your financial situation.
Direct Subsidized Loans
Direct Subsidized Loans are available to students with financial needs. This means they are awarded based on the student’s FAFSA, not their credit history. The federal government pays the interest while you are in school and for six months after you graduate or drop below half-time enrollment.
Suppose your parent(s) have an income below $23,000 and the other requirements are met for “Independent Student Without Dependent Children” status. In that case, you may also be eligible for additional funds under this program.
Direct Unsubsidized Loans
The Unsubsidized Direct Loan is a great choice for students who need more money than the Federal Stafford Loans can provide. This loan may be used to pay tuition and fees at any eligible school, as well as living expenses while you’re studying.
Since the government doesn’t pay interest while you’re in school (as it is with subsidized loans), this can be an excellent option if your degree program requires you to take out many loans throughout your undergraduate career.
Direct PLUS Loans
Direct PLUS Loans are available to parents and graduate and professional students. If you’re a parent borrower, you can borrow up to the full cost of attendance at your child’s school minus other financial aid he or she receives. A credit check isn’t required for this type of loan.
You’ll need to be able to prove that your income is within set limits based on the number of people in your household and where you live, but there are some exceptions depending on circumstances such as disability or if you’re on active duty with the military.
Direct Consolidation Loans
Consolidation loans are a type of federal student loan that allows you to combine all of your eligible federal student loans into one loan. The benefits of doing this include the following:
- A fixed interest rate and payment for the life of the loan (the amount you’ll pay each month is determined by how much money is borrowed).
- No origination fees, which are sometimes charged with other types of federal loans.
- More flexibility in choosing repayment plans, including income-driven and forbearance options, if you get behind on payments or want to pause payments for a short period.
In this article, they’ve covered the types of federal student loans available to students and prospective borrowers. These loans are a great way to finance your college education, but it’s important to note that there are many other options as well.
You may want to consider whether student loan refinancing could help you save money on interest payments or consolidate credit card debt into one lower payment each month. If so, contact its experts today!
Diversification: What it is And Why it is Crucial in Investments
Diversify the portfolio to mitigate the risk related to the market volatility
There are old sayings that are never wrong. For example, “Don’t put all your eggs in one basket” can be a useful guideline for those who want to invest.
In fact, if something happens to the egg basket, you lose everything and, even if you are not a farmer, this bit of wisdom could be very useful and prevent you from risking all your money in one single investment.
In practice, for an investor, this old saying means to diversify the portfolio to mitigate the risk related to the market volatility. That’s why it’s important to comprehend the benefits of diversification in the financial sector, in particular for first-time investors.
As previously stated, diversification allows to reduce risk by allocating money across different financial products and areas. In this way, the investor might be able to minimize potential losses, since each area of investment reacts differently to the same event. Thus, to obtain a diversified portfolio, it’s important to mix different investments which aren’t related to each other. But how it is possible to achieve this result and create a solid portfolio?
Divide your investment
The first thing to know about portfolio diversification, it is the possibility to spread your money among different kinds of financial vehicles. For example, many people decide to invest tax wrappers, such as SIPPs or ISAs. For the latter, you should know that there are many types of Individual Savings Accounts, which serve diverse purposes and allow you to save or invest in different assets, such as stocks, bonds, etc. You can have as many ISAs as you want, but you can only open one type of ISA variant per tax year. And how many ISAs can you pay into in a year? Similarly to the number of each variant you can open in a year, you can only pay into one type of ISA variant in the same tax year. However, you’ll still be able to contribute to the other ISAs variants, but the total sum must not exceed the annual allowance, which is £20,000 for the current tax year (2022/2023).
According to your preferences, needs and risk tolerance, you might consider to invest in an array of assets, by mixing different financial areas which appear to complement one another. For example, many investors choose alternative investments, such as real estate, private equities and commodities. Regardless of the type of financial product, it is recommended not to invest all the money in a single stock, funds or industry. Maybe, another way to mitigate the risk could be to invest in a few companies or in financial funds you are familiar with.
Use the dollar cost averaging
This passive investment strategy might also help investors to diversify their investments. The technique involves to invest the same amount of money in securities at regular intervals over a certain period of time, regardless of the prices. Thus, this strategy may allow the investor to lower the average cost per share and reduce the impact of market volatility. As a matter of fact, deletes the effort usually required to time the market to buy the shares at the best prices.
Choose the assets according to your portfolio and risk tolerance
A diversified portfolio according to your needs should be balanced. That means it’s critical to regularly review your financial portfolio: in addition to monitoring the growth of your investments, you should verify that all of your assets are according to your objectives and life achievements. If you are not an expert in this field, you should consider to seek the help of a financial advisor.
It should not be understated that certain factors, such as attitude toward risk, should also be taken into consideration when it comes to arranging your investments. Perhaps some people are more willing to take risks, and this also could depend on their family background and economic situation, of course. Factors such as liquidity, industry and market trends should also be taken into consideration.
Anyway, study and experience could help you to sharpen your intuition in choosing which investments may be proper for your portfolio.
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