Note: Growth in a national economy is measured in Gross Domestic Product (GDP). If GDP goes up 3%, then the economy grew 3%. When GDP is adjusted for the effects of inflation it is called Real GDP. So, Real GDP is the better measure of whether or not a country's economy is growing.
It wasn’t going well in Europe for a while
In Europe, there was little to no quality of life improvements economically for the general population for hundreds of years between the collapse of the Roman Empire and the formation of capitalist nations in the 1800s.
Since capitalism and the Industrial Revolution, a 1-2% Real GDP growth rate has occurred in most countries. But, before the formation of capitalist nations institutions of many types were formed, which were essential in developing and sustaining market economies. For instance, printing and the press became an institution after Gutenberg's press was invented; this allowed the promotion of ideas further and more consistently than by voice alone.
The spreading of good ideas and best practices was critical to the world economy.
Real GDP growth enables increased standards of living for masses of people
Note: This has historically been true for those individuals and states (countries) that have been able to fully participate.
To determine a country’s standard of living, Real GDP is divided by the number of people in a country to get Real GDP/person. There is an index of goods and services used to calculate Real GDP, and the population of a nation is determined during the census by counting everyone.
There are other economic ways to measure standard of living too, but they correlate highly (match closely) with Real GDP/person, so economists continue to use Real GDP and make decisions with it.
Since Real GDP/person is good and useful, but not perfect, it is important to add in additional measurements to determine the healthiness and desirability of an economy. The number of measurements is really endless. Perhaps we will write more about them in the future.
There are economic trade-offs
In economics, there are trade-offs like there are in health care. For instance, there are “side effects” that are observed in economics.
Healthy economies are not simple. But remember, it is within the complexities and inconsistencies that opportunities live — so if you want investment opportunities you need an environment you can trust (the market goes up over time), but is also dynamic (but it is an up-and-down climb along the way).
What is Nominal GDP?
Aside from Real GDP economists also use Nominal GDP, which is a measure of the dollar value of goods (such as iPhones) and services (such as Apple Music) sold.
Nominal GDP does not consider inflation. If you want inflation considered you use Real GDP.
Note: When you see or hear “Real” used in economic terms it means that inflation has been considered in that number or statistic.
So how do economists do their work?
One way they do their work is by measuring GDP in two consecutive years. The first year they consider “a basket of items” or “a basket of goods” (maybe it’s milk, eggs, coffee, rent, sweaters, etc.) and add them up. This basket helps economists calculate the CPI (Consumer Price Index). This is then called the base year.
The next year they evaluate a basket of goods and see if it costs more or less. If it costs more then there is inflation. (If it costs less then there is deflation.) If it costs 2% more then there is 2% inflation. So when economists measure current prices it is called Nominal GDP, and when they measure versus base year prices it is called Real GDP since it considers inflation. This process can get complicated, but those are the basics.
Economists don’t stop there
They don’t just want to know if we had a good year of growth, and an increase in standard of living. They want to compare it against many countries and across time. After all, if you had 2% growth and Mantanistan (a made up country) had 5% growth, you should evaluate why. You may have felt good about your 2% until you realized you missed a lot of growth that others were experiencing. This is a major concept to understand as an investor:
Putting it into perspective
It is not simply about if you are up or down, but moreso it’s about whether or not you maximize your gains without exceeding your comfort level.
Similarly, economists look around to see if the economy maximized its performance relative. In the US, it is also important to do so because the US economy is so dynamic, global, and intertwined that looking around helps you see opportunity or avoid economic problems.
Measuring GDP across countries
Measuring GDP across time is done by using Real GDP, as mentioned. Measuring GDP across countries is done by comparing Real GDPs with each other. To do so you would need to determine if that other country is presenting an accurate Real GDP. Remember, there is a basket of items to be measured.
When looking at data from another country are there items that were not counted in the base year, but then counted in the next year? That could present the world with a Real GDP that is higher than it really is. For this reason and others, investors get shy about investing around the world, and if they do they set limits on how much of their money they will invest abroad. That’s wise.
Investors (and economists) need accurate data
If they feel like the data is questionable, they invest less in those countries – or they’d be wise to use much more caution. Heck, there are investors that only invest in one industry! Maybe they are experts in that industry and only feel comfortable investing there.
With standard of living the increases compound
Even small differences in Real GDP make a big difference in standards of living because the increased standards of living compound. So it turns into gains on top of gains on top of gains. Countries that have even 5% Real GDP growth will double the size of their economy in 14 years. Wow. Now investors start looking abroad again. Ensure the associated risk (Is their data accurate?) versus reward (Their economy will be 2x’d in just 14 years!) is suitable for your financial situation though.
The Penn World Tables
economically.
Historically, there have been shifts in which countries and regions have had the biggest and most powerful economies. After the fall of the Roman Empire, China became the economic leader; during the 1600s Europe transitioned to becoming the economic leader; during the 1800s the UK became the economic leader; and during the 1900s the US became the economic leader. Nowadays, the US, China, and the EU are the 3 biggest economies, but India is set to pass the EU by 2030.
If you go abroad as an investor, do so in a suitable way for your financial situation – and perhaps keep India in view as you look.
Built for The One in the Arena
Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.
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Understanding Equity Rate
Understanding how to build and balance your investment portfolio is key to long-term financial success. The "Equity Rate" is a crucial metric in this equation, especially for anyone looking to optimize their investment strategy. Defined as the ratio of your equity investments to your total personal cash and investments, the Equity Rate helps gauge the weight of equities within your broader financial portfolio. Arena Investor Advisors, simplify the concept of Equity Rate, explaining its significance and how it can be managed effectively.
What is Equity Rate?
Equity Rate measures the proportion of your investment portfolio that is invested in equities (stocks and ETFs) relative to your total financial assets, including cash and other investments. This ratio provides a snapshot of how exposed you are to the stock market's potential risks and rewards compared to more conservative investments like cash or bonds.
Importance of Understanding Your Equity Rate
1. Risk Management: Your Equity Rate is a direct indicator of your exposure to the volatility of the stock market. A higher Equity Rate generally means higher potential returns, but also higher risk, especially in short-term market fluctuations.
2. Investment Diversification: Understanding this rate helps in assessing whether you are overly concentrated in equities or if you need to increase your equity holdings to achieve potentially higher growth.
3. Financial Planning Alignment: Your Equity Rate should align with your financial goals, risk tolerance, and investment time horizon. It guides strategic adjustments to ensure your portfolio supports your overall financial objectives, such as buying a home, funding education, retirement, and so on.
How to Calculate Your Equity Rate
Calculate your Equity Rate by dividing the total value of your equity investments by the sum of all your personal cash and investments. For example, if you have $50,000 in equity investments and a total of $100,000 in personal cash and investments, your Equity Rate is 50%. This tells you that half of your total financial assets are invested in equities.
How an Arena Investor Advisor Can Help
1. Personalized Financial Assessment: An Arena Investor Advisor will start with a thorough review of your financial situation, including calculating your Equity Rate to understand your current investment exposure.
2. Customized Investment Strategies: Based on your Equity Rate and personal financial goals, your Arena Investor Advisor can develop strategies to optimize your investment portfolio. This might involve adjusting your equity investments to either increase your potential for growth or decrease your risk exposure.
3. Ongoing Portfolio Management: Investment needs change over time with shifts in market conditions, financial goals, and personal circumstances. Regularly reviewing and adjusting your Equity Rate with your Arena Investor Advisor ensures your investment strategy remains appropriate.
4. Risk Tolerance Alignment: Your advisor will help you understand your risk tolerance and how it relates to your Equity Rate. They can guide you in making informed decisions that balance potential returns with acceptable levels of risk.
5. Educational Support: Arena Investor provides continuous education on investment principles, helping you understand complex concepts like Equity Rate and their impact on your financial well-being. This education empowers you to make more informed financial decisions.
All In All
Your Equity Rate is more than just a number—it’s a reflection of your investment philosophy, risk tolerance, and financial health. Understanding and managing this rate is crucial for maintaining a balanced and effective investment portfolio. Ensure that your Equity Rate aligns with your financial goals, providing peace of mind and a solid foundation for achieving your long-term objectives. This strategic approach to personal finance not only secures your current financial needs but also paves the way for future prosperity.
Built for The One in the Arena
Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.
You’re the Hero.
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Announcement: Arena Investor Partners with Altruist
We are thrilled to announce that Arena Investor has partnered with Altruist.com, an industry-leading custodian designed for the modern era, to elevate the investment management services we offer to our clients. Altruist is recognized for its advanced technology, intuitive design, and innovative custodial solutions, and trustworthy safe-keeping of people’s assets, making it the perfect partner for delivering a seamless and efficient investment experience for Arena Investor Investment Management clients.
Why Altruist.com?
Altruist has set a new standard in the custodial space with its user-friendly platform that is specifically tailored for the needs of today’s investors. Its modern, streamlined interface simplifies the process of reviewing your investments, providing you with clear, real-time insights into your portfolio, and beautiful performance reports. By integrating Altruist into our investment management services, Arena Investor is enhancing your ability to monitor your investments with greater transparency and ease.
Enhanced Investment Management Experience
The integration of Altruist brings a superior level of convenience to your investment management experience. The platform’s sleek design allows you to effortlessly navigate through your investment data, track performance, and stay informed about your portfolios. With Altruist, Arena Investor can offer a more engaging and informative investment management service, ensuring that you have all the tools you need to make informed decisions and stay on track with your financial goals.
Value for Investment Management Clients
As an investment management client, you will benefit from Altruist’s comprehensive and real-time data, which provides a clearer picture of how your investments are performing. The platform’s robust and ever-growing tools and insights enable us to offer precise and personalized investment strategies, suitable to your unique financial objectives. Whether you’re focused on building wealth, saving for retirement, or achieving long-term growth, Altruist’s technology enhances our ability to manage your assets effectively and align them with your broader financial goals.
Features such as tax-loss harvesting and rebalancing are key factors in our decision to integrate with Betterment.
The like-minded culture of providing ever-improving and ever-increasing value to customers and clients that Altruist uses is a beautiful match for Arena Investor’s same approach.
Looking Ahead
At Arena Investor, we are always striving to improve the services we provide and the value we deliver to our clients. Our partnership with Altruist is a significant step forward in this mission, allowing us to offer a more modern, efficient, and client-centric investment management experience. We believe that this collaboration will greatly enhance your ability to manage and grow your investments, providing you with the support and resources you need to achieve your financial aspirations.
We are excited about the benefits this partnership will bring and look forward to helping you navigate your investment journey with greater confidence and clarity. If you have any questions about how Altruist will enhance your experience with Arena Investor, please feel free to reach out to us.
Truly,
The Arena Investor Team
Built for The One in the Arena
Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.
You’re the Hero.
We’re the Guide.
Understanding Real Estate Rate
Understanding how real estate investments interact with your overall financial health is crucial. One useful concept to grasp is "Real Estate Term," which in personal finance terms can be defined as the ratio of your total real estate equity to your estimated annual spending. Arena Investor will explore what Real Estate Term means, its significance, and how it can be strategically managed.
What is Real Estate Term?
Real Estate Term is a financial metric that compares your total real estate equity—essentially the value of your real estate after subtracting any debts owed on it—to your estimated annual spending. This ratio provides a clear picture of how long your real estate equity could sustain your current lifestyle without additional income, offering a unique perspective on the impact of real estate in your financial planning.
Importance of Understanding Your Real Estate Term
1. Financial Security Assessment: Knowing your Real Estate Term helps determine how much of your annual expenses could be covered by liquidating your real estate assets. It's a vital measure of financial security, especially in planning for retirement or other long-term financial goals.
2. Investment Leverage: Understanding this term aids in making informed decisions about leveraging additional real estate investments or adjusting current holdings to better align with your financial needs and goals.
3. Risk Management: It provides insights into the level of risk associated with your real estate holdings relative to your personal expenses, guiding more balanced financial decisions. Your Arena Investor Advisor can help assess your level of overall risk, including real estate. If properties are financed and highly leveraged, then this increases risk. But if properties are owned-outright, then this decreases risk. Based on that, the rest of your investment holdings (stocks, crypto, ETFs, mutual funds, bonds, high interest cash accounts, etc.) ought to properly balance your overall risk levels.
How to Calculate Your Real Estate Term
To calculate your Real Estate Term, divide the total equity you have in your real estate by your estimated annual spending. For example, if your real estate equity totals $300,000 and your annual spending is $60,000, your Real Estate Term is 5. This indicates that, theoretically, you could cover five years of expenses by liquidating your real estate assets.
How an Arena Investor Advisor Can Help
1. Comprehensive Financial Review: An Arena Investor Advisor will start by assessing all aspects of your finances, including real estate equity and annual expenditures, to accurately calculate your Real Estate Term.
2. Strategic Real Estate Planning: Depending on your Real Estate Term, your advisor might suggest strategies to increase this ratio, such as reducing unnecessary spending, increasing rental income, or restructuring real estate debt to maximize equity.
3. Integration with Overall Financial Goals: Real estate should not be managed in isolation. An Arena Investor Advisor ensures that your real estate investments are fully integrated with your broader financial goals, enhancing your overall financial health.
4. Regular Monitoring and Adjustments: The real estate market and personal financial situations are dynamic. Regular updates and adjustments to your real estate holdings ensure that your Real Estate Term remains optimal.
5. Educational Support: The financial realm, especially aspects like real estate and personal equity, can be complex. Your advisor will help you understand these concepts in simple terms, empowering you with the knowledge to make sound financial decisions.
All In All
Real Estate Term is a crucial metric for anyone involved in real estate investment, particularly for personal financial planning. It offers a quantifiable measure of how your real estate assets stack up against your annual expenses, providing a concrete foundation for assessing financial health and making informed decisions. With the expertise of an Arena Investor Advisor, you can navigate the complexities of real estate investments with confidence, ensuring they contribute positively to your financial stability and long-term goals. This approach not only secures your financial present but also strategically prepares you for a prosperous future.
Built for The One in the Arena
Arena Investor is on a mission not only to help with financial planning, and investment management, but also with education. Keep reading, watching, following, and sharing great Arena Investor content. And as always if you want professional advice, we are glad to be your teammate – along a financial journey you can actually enjoy.
You’re the Hero.
We’re the Guide.
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