5 min read

Keeping Your Head Above Water

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Welcome to June!

It’s been a rough few weeks for the market and the world in general, and we hope you’re taking some healthy breaks from the news cycle. (No surprise that the hottest trend in podcasting is…waitforit... white noise.) The Fed’s fight with inflation and recession fears are weighing on the stock market, and consumer surveys say many Americans are tapping into their savings to cope with rising costs as their favorite snacks shrink.

Below we introduce a golden rule of money management that is especially relevant now. Also, don’t forget that the basics of investing do not fly out the window during hectic times. We’ll keep updating key resources that can help you as you start out on your values-aligned investing journey. Some that we’ve found particularly relevant (and grounding) over the past few weeks:

And when terms and acronyms pop up that make your eyes glaze over: our ever-growing glossary of common terms.

News you can use

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  • Americans will soon be able to add solar panels to their IKEA haul. The iconic Swedish retailer has partnered with SunPower Corp (SPWR) to offer home solar products so that buyers can generate their own renewable energy. A 2019 study found that solar energy systems can boost a home’s value by an average of 4.1%, thanks to the future energy cost savings.
  • June is Pride month! It’s a celebration of the LGBTQ+ community and commemoration of their struggles, and we can expect the usual (sometimes cringe) marketing campaigns. Over 90% of Fortune 500 companies now explicitly include sexual orientation and gender identity in their non-discrimination policies. This figure was a mere 3% in 2002. You can see a full list of HRC’s Best Places to Work for LGBTQ+ Equality here.
  • Chocolate is getting more sustainable at Hershey’s. The company that always seems to tempt us just after we make a “eat healthy month” commitment is making progress on its sustainability goals. US-based Hershey (HSY), a company with a really interesting history of community engagement and employee support thanks to founder Milton Hershey, just released an ESG report that showed significant progress on a variety of fronts.

Cashing In

Graphic of hands catching coins falling from above.

“Water, water everywhere and not a drop to drink.” English poet Samuel Taylor Coleridge was talking about being surrounded by salty ocean water in this famous line, but it’s also a great metaphor for an important financial concept: liquidity.

As you start to save and invest, you’ll learn there are a lot more places to put your money than your sock drawer and your first checking account. For example, there’s saving accounts, stocks, bonds, gold, real estate, cryptocurrencies, and even works of art (the NFT and physical kind). Different asset types have different returns, risks, and barriers, and your portfolio should be a mix of them.

In times of economic turbulence, assets that can be quickly converted to cash and sold at a reasonable, stable price are important. These are called liquid assets. The opposite of this is illiquid or fixed assets, and if you have all your money in them at the time of an emergency, you’d be like the parched sailor in Coleridge’s poem: — “Money, money everywhere and not a dollar to (easily) spend.”

What determines “liquidity”?

How fast you can access your money depends on the investment type and finding an appropriate buyer. If it’s cash or a cash equivalent, you can tap it any time without worrying about incurring costs or losses. But if the asset needs to be sold, like stocks or ETFs, a market with a lot of trading and low volatility improves your chances of getting a fair price and the asset is considered more liquid.

Money that is locked away for a fixed period in an investment plan also tends to be less liquid because of all the rules attached to it. Early withdrawals from tax-advantaged retirement accounts, like 401(k)s and IRAs, savings bonds or certificates of deposits may force you to pay a hefty penalty or taxes.

Here’s a list of popular asset types and where they fall on this spectrum:

Liquid: Physical currency, checking/savings/money market accounts, no-penalty certificates of deposits, your PayPal/Venmo balance

Fairly liquid: Stocks and ETFs, corporate bonds, mutual funds, Treasury bills and other short-term government bonds, Roth IRA contributions

Illiquid or Fixed: Cryptocurrencies, individual retirement account (IRA) or 401(k) plan, savings bonds, traditional certificates of deposits, home, car, gold, art.

How “liquid” should I be?

While investing your money to maximize long-term returns is the best way to build a retirement nest egg, it’s advisable to maintain some liquid reserves for when life throws you a curveball. Emergency savings are especially important during periods of inflation and economic uncertainty. An emergency fund can offer you peace of mind right now as food prices rise, stocks and other asset values fall, and a looming recession could threaten your job and livelihood. You always have the option of borrowing in case of an emergency, but interest rates on such debt are usually high and will set you back in reaching your financial goals.

Experts recommend maintaining an emergency fund worth three to six months' worth of essential living expenses. You can use an online calculator like this one to figure out what’s right for you. Keep it safe and liquid in checking or savings accounts, money market accounts, or a no-penalty certificate of deposit. Compare interest rates to find the best options, check to see if your deposits are FDIC insured, and make sure you have a debit card, ATM, or checks to easily access your money if or when you need it.

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Before you go -

With vacations from the daily grind at a premium, yet the economic and environmental cost of travel skyrocketing, are you looking for something to do that is low impact and close to home? How about Goat Yoga! We got a kick out of creating the FWIW Goat Yoga map.

Tell us if you have any favorites you would like to add.

** FWIW team members own shares of SunPower Corp.