January Market Recap
Volatility struck the market as a blowout December jobs report ignited concerns that the Fed may alter its interest-rate policy this year. Bond yields have climbed since October, with the 10-year Treasury yield approaching 4.8% (the 10-year yield was 3.6% in September), putting further pressure on all asset classes.
If companies continue to hire at a healthy pace, that should provide an additional boost to the economy by way of consumer spending. The question now is: Will the “hot” economy translate into inflation and, therefore, push the Fed to reverse course? Fortunately, December’s CPI report reaffirmed a cooling inflation trend in the economy and stocks marched to record highs.
Investor enthusiasm in tech was tamed after Chinese company DeepSeek released its own AI model. DeepSeek’s results are comparable to the best ones from its Silicon Valley counterparts, but at a fraction of the cost. The Nasdaq fell more than 3% on Monday, January 27, and ended the month up 2.3%.
Maximize Your HSA Benefits
Since the inception of Health Savings Accounts (HSAs) in the early 2000s, HSAs have grown from a niche offering to a major component in many Americans’ health insurance coverage. That said, many HSA accounts are still primarily sitting in cash, and they are often subject to maintenance fees too.
What makes HSAs particularly attractive are the unique tax benefits they offer:
- Contributions are tax deductible
- Earnings grow tax deferred
- Distributions used for qualified medical expenses are tax free
To truly take advantage of what your HSA has to offer, consider the following strategy (provided that an eligible high-deductible health plan, or HDHP, is suitable for your situation):
- Open an HSA account at a low-cost custodian (Fidelity has been named a top provider1);
- Invest the funds for growth;
- Pay medical expenses out of pocket and maintain a record of them;
- Reimburse yourself in the future of the total amount.
Interestingly, a surviving spouse named as the beneficiary of an HSA can continue the account as his/her own, much like an IRA. Such treatment is not available to non-spouse beneficiaries. Therefore, a prudent strategy is to spend down the HSA funds before death.
Alternative Investments - Real Estate
Real estate is, perhaps, the most common type of alternative investment. After all, real estate was long in existence before stocks and bonds. Many of us own some form of real-estate investment, whether it’s our primary residence, a vacation property, or rental property.
While real estate lacks the liquidity of more traditional investments, it has plenty of benefits of its own. Real estate has low correlation to stocks and bonds, and its value fluctuates less. Real properties are tangible, hard assets that can be “touched,” giving investors a sense of comfort and security. Some investors enjoy taking on projects and management, plus the added tax benefit of depreciation write-off.
If sweat equity is not appealing to you, but real estate is, many well-established real-estate investment trusts (REITs) offer access to various types of real estate, including the following:
| Type | What It Is | Thesis |
|---|---|---|
Multi-family | Large apartment complexes | Consistent demand and cash flow |
Office | Office spaces of all sizes and qualities | Offices are a place for ideas to cultivate |
Retail | From strip malls to regional shopping centers | Consumption powers the US economy |
Industrial | Warehouses and logistic hubs | Movement of goods amid growing e-commerce |
Other REIT offerings include professional medical buildings, self-storage facilities, data centers, cell towers, student housing, as well as various mortgage REITs who issue short-term loans backed by underlying properties.
As with any investment, you should consider all relevant factors when deciding whether real estate is appropriate for your unique situation. However, much like owning a rental home in your city, many of these REITs do not trade on the public market. The investment companies behind them are the only “buyer” should you wish to redeem your investment. On top of investment management fees, there are other costs such as performance fees if a predetermined set criteria is met, custody fee, and potentially added accounting costs.
Investing Myth Debunked: The Market is Too High
