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Closed-End Funds: A New Investing Opportunity?

Despite being well-versed in the personal finance game, I have literally never heard of “closed-end funds” before. So when I saw an article on CNBC hyping them up, I just had to find out more.

Here is what a closed-end fund is, according to Investopedia:

“A closed-end fund is a portfolio of pooled assets that raises a fixed amount of capital through an initial public offering (IPO) and then lists shares for trade on a stock exchange. Like a mutual fund, a closed-end fund has a professional manager overseeing the portfolio and actively buying and selling holding assets.”

The CNBC article attempted to dive deeper into the advantages and disadvantages of closed-end funds:

“…while the share price might be related to the performance of the fund’s underlying assets, it is based on investor supply and demand. 

Thus, closed-end fund shares can routinely trade at a discount, or below their so-called net asset value (the bottom-line value of the fund’s assets divided by the number of outstanding shares). Or, they can trade at a premium (above that NAV).”

As of the end of 2018, there are a total of $278 billion in assets spread out across 500 closed-end funds. To me, this reveals a good amount of interest but not enough to rival the $21.3 trillion in assets spread across mutual funds. 

Unlike mutual funds, you have access to more “unconventional” assets and you can tap into the power of leverage for higher returns. But as you can imagine, this comes with far greater risk. 

Any gains given to you as a shareholder are subject to taxation. Expense ratios can range from 0.4% to over 2%, which is entirely dictated by the asset classes you are buying into. 

For this reason, the CNBC article advised to make no more than 5% of your total income portfolio consist of closed-end funds. Especially since closed-end funds have a tendency to get sold at the end of the year (depending on their performance). 

Have YOU ever heard of closed-end funds? If so, do you recommend looking into them or staying far away from them? Reply to this newsletter and share your experience with this investment option!

The Rise of “Ghost Kitchens” in an Age of Failing Restaurants

If you’ve never heard of a “ghost kitchen” before, here is how Wikipedia defines it:

“A ghost kitchen is a professional food preparation and cooking facility set up for the preparation of delivery-only meals. A ghost kitchen contains the kitchen equipment and facilities needed for the preparation of restaurant meals but has no dining area for walk-in customers.”

That first sentence should tell you everything you need to know… they’re basically the life-savers for independent restaurants who can only offer takeout due to the COVID-19 pandemic. And according to Technomic, the number of American restaurants relying on ghost kitchens have jumped up from 15% before the pandemic to 51% in May. 

Using a lower-cost model, they have been an essential service for struggling restaurants who are on the brink of collapse. It definitely saves them a lot of money on operating costs and eats less into their sales. But for thriving restaurant chains, ghost kitchens are merely a useful way to add another source of lucrative income. 

Reef Kitchens COO Carl Segal had this to say about the rise of ghost kitchens:

“When an independent restaurant closes its doors, they instantly sever their relationships with their customers. The customer just can’t access them anymore. Period. This offers a lifeline for independents to bring back those relationships by delivering their food to their customers’ homes.”

What can I say? Desperate times call for desperate measures…

Amazon Just Keeps Growing and Growing and Growing

Amazon seems to be virtually limitless in how big in can get. Not only will they continue to dominate more of the e-commerce space, but they will also continue to take over other industries completely unrelated to what made them famous in the first place. 

Just take a look at some of these staggering growth metrics:

  • 75% of all money spent on ads hosted on e-commerce channels goes to Amazon (projected to increase to 77% by 2022, according to eMarketer)
  • Sales from Amazon ads are up by 39.1% this year
  • Amazon is currently responsible for 38% of the ENTIRE e-commerce market share
  • Amazon’s capacity in grocery fulfillment via Whole Foods has gone up by 160% since March (as of mid June 2020)
  • Amazon has hired 100,000 new hourly employees just in September 2020

Meanwhile, brick-and-mortar giants like Walmart have found that they can’t expand their online sales without sacrificing on foot traffic. While their online ad sales will go up by 73.4% in 2020, their total transactions in the US were 14% lower on a year-over-year basis in Q2 2020. Advertising in their stores simply isn’t as valuable anymore. 

Meanwhile, Amazon can simultaneously expand their brick-and-mortar presence while exploding their online presence. They literally lose NOTHING from catering to people who still want to walk into a store to buy essential items. 

At this point, what could POSSIBLY stop Amazon from ever-lasting exponential growth?

Will the 1987 Stock Market Crash Happen Again in 2020?

History repeats itself, and so does the stock market. The causes may be different, but the market always operates in cycles. Boom, bust, boom, bust, and so on. The only eternal question is exactly WHEN each of these economic phases start and end.

The newest data from the US Crash Confidence Index (CCI) taps into this fear, asking people a very simple question every year:

What do you think is the probability of a catastrophic stock market crash in the US like that of October 28, 1929 or October 19, 1987, in the next six months, including the case that a crash occurred in the other countries and spreads to the US? (An answer of 0% means that it cannot happen, an answer of 100% means it is sure to happen.)

According to the latest results, 87% of survey respondents believe there is a greater than 10% chance of the market crashing, which leads to a numerical CCI value of 13%. This is as of August 2020, as the CCI for September 2020 was at 15%. 

But in a weird way, this is actually good news. Because when you look at the CCI for 2001 and 2009 (two years that immediately followed market crashes), that is when the “dip to buy” started happening. No single indicator can ever give you market certainty, however, and it’s entirely possible that people will start selling off due to a negative self-fulfilling prophecy.

Something to think about for the next 3-4 quarters ahead of us!

How Are Financial Advisors Prepping Wealthy Clients for the 2020 Election?

Even the richest investors in the world are uncertain about what to do with their money right now. And in trying times like the current year, the best thing for them to do is consult with their trusted financial advisors. 

A UBS survey indicates that 55% of investors in America are considering portfolio changes after the election, while 64% are going to make these changes before the election (hopefully they already have).

According to Forbes, here is how several advisors plan to play out the 2020 presidential election and its results…

George Mateyo, CIO of Keybank: Even though a second stimulus package is inevitable regardless of who is POTUS, a Biden presidency will lead to a much larger stimulus. However, we could see a repeat of 2000 where the markets tank due to a delay of several weeks in tallying up the official election results.

Angeline Newman, senior vice president at UBS: Clients nearing retirement are advised to have cold hard cash available ASAP. Also, she is advising investors to keep their portfolio free of any politics whatsoever. 

Stephanie Link, chief investment strategist at Hightower Advisors: A “blue wave” is bad news for FAANG stocks and pharmaceutical companies, who will likely face more regulatory control and government pushback. On the other hand, a Trump re-election would lead to an increase in share value for companies in the defense and finance sectors. 

I’m curious to know: What do YOU think will happen to the market after the election? Which sectors will benefit and which ones will lose value? And how do you intend to adjust your portfolio, if at all? Reply to this newsletter and share your predictions with us!

Netflix Subscriptions Are Now More Expensive but Their Stock Went UP!

One of the most difficult changes for any company to make is increasing their prices. If the justification doesn’t make sense, or if the price increase is too great, they risk alienating a substantial amount of their paying customers. Especially those who have been loyal to them for several years. 

Netflix is one of such companies, having increased their standard monthly subscription fees for their US subscribers. And it’s the first time they’ve done so since January 2019.

The standard tier went from $13/month to $14/month, which allows for two simultaneous streams. There was also another price increase from $16/month to $18/month for those in the premium tier, which allows for four streams to be playing simultaneously. 

(NOTE: If you are on the basic plan, with allows only one stream at a time to play, your $8/month fee in the US remains unchanged.)

When reached for comment, Netflix said that making the subscription fee more expensive will allow the company to add more movies and TV shows to their ever-expanding roster. 

The stock market seemed to love this, as their shares went up by 3.70% in yesterdays’ trading session. Movement was largely flat for the whole day before all of the gains were made between 3pm and 3:30pm (EST). 

It looks like investors are banking on the existing subscribers sticking around for this menial price increase, while simultaneously adding new subscribers. According to Netflix’s projections, the calendar year of 2020 will end with over 200 million paying customers worldwide. 

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