The Finatical
Week of May 10th, 2022 - Net Worth, Growth of Penny Stocks in 2022, Semiconductor Chip Shortage
Topic Breakdown - Net Worth
Many people believe that net worth is simply the total amount of money that someone has, but it is actually a little more complex than that. In today’s newsletter, we will be uncovering what net worth truly is and how understanding it can benefit you!
An Introduction
Firstly, net worth is determined by deducting all debts from all assets. An asset is everything you own that has monetary worth, but debts or liabilities are financial commitments that drain your resources, such as mortgages and borrowing money. Essentially, net worth is not just how much money you have, but instead how much money you have plus the value of everything you own (that is paid off) minus the amount that you owe (such as a loan).
Its Importance
Now, you might be wondering why it is important to understand net worth. This is most important because net worth can give you a good idea of whether or not to invest in a certain company. It is a key indicator for assessing a company's health since it provides a valuable picture of the company's present financial state. A rising net worth implies strong financial health and would signal that it is likely safe to invest in that company. Declining net worth, on the other hand, is a reason for concern since it may indicate a reduction in funds relative to liabilities, so you probably shouldn’t invest in the company. Aside from investments, knowing your own net worth can be crucial in understanding your personal financial situation, and planning for the future. Knowing your net worth is crucial since it might assist you in identifying areas where you are overspending. You don't have to buy anything just because you can afford it. To avoid unnecessary debt, decide if something is a need or a want before making a purchase. Your necessities should account for the bulk of your spending in order to prevent wasteful spending and debt, and this could help in increasing your net worth. Net worth is also a big indicator for financial planning such as acquiring a property or company and even helps in developing a retirement plan.
Increasing Net Worth
Since net worth is a good indicator of your financial well-being, you should aim to increase your net worth, and there are many ways to do this. The first step in increasing your net worth is to pay off your debts, as this is subtracted from your assets to calculate net worth. Also, smart investments are one of the best methods to build your net worth. Purchasing a reasonable car, purchasing or renting a property in an area that fits nicely into your budget, and keeping unnecessary costs to a minimum are all crucial steps in increasing your net worth. Furthermore, you should try to max out your retirement fund. This is important because many private firms provide 401(k) retirement plans, which offer significant tax benefits for saving and investing money. Many workplaces provide investment matching plans that will help you increase your contribution and develop money quicker than you could on your own.
Financial Trends
Growth of Penny Stocks in 2022
Investors are always looking for bargains when they are interested in purchasing stocks. As there are stocks that are extremely expensive that can cost up to thousands of dollars, investors can purchase penny stocks for share prices less than $5! Penny stocks are usually stocks that are associated with smaller companies and investors have started to realize in 2022 that these small companies have a larger potential to grow compared to companies that are large and have expensive share prices.
The key things that investors have been doing when investing in penny stocks are determining the maximum investment that the investor is willing to risk, avoiding paying commissions, getting a second opinion on the penny stock, and being realistic with the expectations of a penny stock. Despite penny stocks being volatile and a risky part of the stock market, investors have started to focus on them as long-term investments instead of short-term investments. The reasons why there is still some hesitancy of some investors towards penny stocks in 2022 is because they are small companies, penny stock companies are unproven, penny stocks are not traded on major stock exchanges yet, and appear to some investors as a “hyped up” investment that usually never lives up to it. With all these doubts regarding penny stocks, investors are still investing in penny stocks and remain a stock that has been very popular so far in 2022.
Semiconductor Chip Shortage
As the digital landscape and demand for digitalized products continue in 2022, semiconductor chips are in the highest demand that they have ever been. However, due to the shortage of semiconductor chips that emerged as a result of the pandemic disrupting supply chains, every industry that depends on them has been impacted, from electric motor vehicles to consumer electronics. Many people believe that the solution to the shortage of semiconductor chips is to just make more, but it is not as easy as people seem to think it is. It takes a long time and billions of dollars for building semiconductor factories where they are produced, and semiconductor chips are continuing to become more complex, resulting in longer times to produce them.
A report by the U.S. The Department of Commerce on a semiconductor supply chain produced data that showed a 17% increase in the demand for semiconductors compared to last year in 2021. Additionally, according to the U.S. government, the median inventory of semiconductor chips has fallen from 40 days to less than 5 days. There have been multiple reports from financial institutions that state that this shortage of semiconductor chips will continue throughout 2023 and as of right now, customers are waiting 10-20 weeks to receive semiconductor chips. Despite all the shortages of semiconductor chips, global sales of them have increased by nearly 29% up to $574 billion.
Financial Guidance
"Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas." - Paul Samuelson
Investing is a long-term process, where you invest in a company or industry that has the potential to grow over a long period of time. Don’t expect results right away, and allow yourself to gain a long-term picture.
Money Fact
Why is money green? This is done so that it is more difficult to create counterfeit money. Using traditional ink colors such as black makes it easier to simply print more money, but using green ink makes it so that designs on paper money are harder to replicate using photographs.