The Finatical
Week of February 1st, 2022 - CD Bank Accounts, Crypto Crash, Short Sellers Profiting
Upcoming Events
Finatic is proud to announce that we are hosting The Youth Financial Summit, the first-ever all inclusive event for young finance enthusiasts.
Hosted online through Zoom on Saturday, February 26th, the summit allows participants to learn about hot financial topics, win cash prizes, compete against students from all over the nation, and network with like-minded individuals.
The summit includes over $2000 in prizes, a guest appearance by billionaire and legendary investor Howard Marks, and a presentation by distinguished UCLA finance professor, Avanidhar Subrahmanyam.
The summit will include a portfolio construction competition where competitors will have to create a portfolio that balances risk and reward that will then be graded through a variety of metrics and a portfolio back-tester. A combined $750 will be given in prizes.
The summit will also include a Quiz Bowl where participants can answer rapid-fire questions individually or in a team of up to 4 on a wide variety of finance questions. A combined $1000 will be given in prizes.
Note: Registration and participation is completely free. Attendees are not required to take part in every competition or speaker event.
Click below to learn more about the event and access the official event website.
FinaticTips - Learn about Certificate of Deposit Bank Accounts
A certificate of deposit (CD) is a product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time. Almost all consumer financial institutions offer CDs, although it’s up to each bank which terms it wants to offer, how much higher the rate will be compared to the bank’s savings and money market products, and what penalties it applies for early withdrawal.
Shopping around is crucial to finding the best CD rates because different financial institutions offer a surprisingly wide range. Your brick-and-mortar bank might pay a pittance on even long-term CDs, for example, while an online bank or local credit union might pay three to five times the national average. Meanwhile, some of the best rates come from special promotions, occasionally with unusual durations such as 13 or 21 months, rather than the more common terms based on three, six, or 18 months or full-year increments.
CD or Savings/Money Market Accounts?
Certificates of deposit are a special type of savings instrument. Like a savings or money market account, they provide a way to put money away for a specific savings goal—such as the down payment on a house, a new vehicle, or a big trip—or to park funds that you simply don’t need for day-to-day expenses, all while earning a certain return on your balance.
But whereas savings and money market accounts allow you to vary your balance by making additional deposits, as well as up to six withdrawals per month, CDs require one initial deposit that stays in the account until it reaches its maturity date, whether that’s six months or five years later. In return for giving up access to your funds, CDs generally pay higher interest rates than savings or money market accounts.
CD Ladder
Smart CD investors have a specific tactic for hedging against rate changes over time and maximizing their returns. It’s called a CD ladder and it enables you to access the higher rates offered by 5-year CD terms, but with the twist that a portion of your money becomes available every year, rather than every 5 years.
At the outset, you take the amount of money you want to invest in CDs and divide it by five. You then put one-fifth of the funds into a top-earning 1-year CD, another fifth into a top 2-year CD, another into a 3-year CD, and so forth through a 5-year CD. Then, when the first CD matures in a year, you take the resulting funds and open a top-rate 5-year CD. A year later, your initial 2-year CD will mature, and you’ll invest those funds into another 5-year CD. You continue doing this every year with whichever CD is maturing until you end up with a portfolio of five CDs all earning 5-year APYs, but with one of them maturing every 12 months, keeping your money a bit more accessible than if all of it were locked up for a full five years.
Withdrawing Money Early
Even though opening a CD involves agreeing to keep the funds on deposit without withdrawals for the duration of the term, that doesn’t mean you don’t have options if your plans need to change. Whether you encounter an emergency or a change in your financial situation—or simply feel you can use the money more usefully or lucratively elsewhere—all banks and credit unions have stipulated terms for how to cash your CD out early.
The exit won’t be free, of course. The most common way that financial institutions accommodate a premature termination is by assessing an early withdrawal penalty (EWP) on the proceeds before your funds are distributed, according to specific terms and calculations that were set out in your deposit agreement when you first opened the certificate. This means you can know before you agree to the CD if the early withdrawal penalty is acceptable to you. Most typically, the EWP is charged as a number of months’ interest, with a greater number of months for longer CD terms and fewer months for shorter CDs.
FinaticTrends - Financial Trends
Cryptocurrency Crash
After Bitcoin hit an all-time high of $68,000 in November, the cryptocurrency dropped to $34,000 on January 22nd. The cryptocurrency is continuing to drop from its value in November as it has now shed about 50% of its highest value. It dropped its value by 7.2% and according to Kraken Data, other digital assets, such as Etherum, Bitcoin Cash, Litecoin and Monero have also started to drop in value. Any investor that bought into Bitcoin’s hype at the start of the year has now seen their investment lose more than 24% of its value within three weeks.
The recent declines in the prices of cryptocurrency is due to the volatile session that occurred on Wall Street on Friday, where stocks were fluctuating from early gains to selloffs, and as investors continued this pattern of gaining and selling, it resulted in pushing the Nasdaq Composite deeper into correction territory. According to Naeem Aslam, chief market analyst at AvaTrade, “The pessimism continues to grow among investors and traders when it comes to riskier assets and this is chiefly influencing the price of equities and bitcoin”. Russia, which is one of the worlds largest bitcoin mining locations and has joined China in banning any Bitcoin activity occurring in the nation. The recent drop projects a danger with Bitcoin’s price continuing to drop for the rest of this year.
Short Sellers Profiting
Short sellers are reaping huge profits so far this year, as the stock market’s devastating fluctuation is fueling theri bearish bets. The sell-off market for this year has been severe, as the S&P 500 briefly dipped into correction territory this Monday, which was a 10% drop from its record high. Technology shares were the shares that were affected the most because the Nasdaq Composite dropped 12% in January, and is currently 15% below its all-time high. The central bank has signaled interest rate hikes this year, along with the tapering of asset purchases and a balance sheet reduction.
The potential outcome for these decisions could result in an aggressive interest rate hike for the Fed, just after two years of issuing stimulus checks to support the economy due to the pandemic. Short sellers are seeking to make a profit by anticipating the deadlines in the value of securities. A short seller borrows a share of stock and sells these borrowed shares to potential buyers that are willing to pay the market price. As the stock price drops, the trader would buy it back at a lower price, and keep the profit. The most profitable short bet this year has been against Tesla which has seen a 12% decline in the value of its stock. Short sellers have also been making profits off of Netflix, as the shares have dropped by 35%, resulting in a $1.6 billion gain for short sellers.
Financial Guidance
“Money never made a man happy yet, nor will it. The more a man has, the more he wants. Instead of filling a vacuum, it makes one.”- Benjamin Franklin
Money Fact
The richest 1% in the world have more than double the wealth of 6.9 billion people.