🍾 Recession odds at 15%?
and Roth vs. Traditional 401(k)
Personal finance + economics + markets
Good morning investors! Yesterday, some stocks closed green and some industries suffered, including crypto that hit some lows. But first…
🐐 Fun fact: Google's headquarters is home to a herd of 200 goats. The goats are used to naturally mow and fertilize the campus lawns. This is a more environmentally friendly and sustainable way to maintain the lawns than using traditional mechanical mowers.
Today we cover:
There’s a 15% chance of a recession. 🆙
Disney is about to suffer. 🤕
Roth vs. Traditional 401(k). 💵
📊 Economy and News
Will there be a recession or not?
Goldman Sachs Group Inc. predicts there is only a 15% chance of the US sliding into recession. This is lower than the 20% chance it had previously reported.
Goldman: “First, real disposable income looks set to reaccelerate in 2024 on the back of continued solid job growth and rising real wages,” Jan Hatzius, chief economist at Goldman, said in a research note.
“Second, we still strongly disagree with the notion that a growing drag from the ‘long and variable lags’ of monetary policy will push the economy toward recession.”
However, not everyone is this optimistic. Bloomberg believes there’s a 60% chance of a recession. For now, it’s best to prepare for the worst.
S&P 500 4,496.83 (-0.42%)
NASDAQ 15,508.24 (0.11%)
VIX 13.97 (1.01%)
* Prices as of Sep 6th, 12:20 AM UTC
Disney to suffer due to strikes
Warner Bros Discovery expects earnings hit of up to $500 million partly due to the ongoing writer’s strike. The company is preparing investors, especially if the situation doesn't improve in the next few months.
“While [Warner Bros. Discovery] is hopeful these strikes will be resolved soon, it cannot predict when the strikes will ultimately end,” said the company.
📉 The stock closed at $81.19 on Tuesday (-0.55%)
Major releases, including Disney’s Warner Bros. Discovery’s “Dune: Part Two” have had to suffer due to the strike and some more movies are being delayed.
This will not only have a direct impact on Disney and other such stocks but also on some small firms in the industry.
In fact, the US Bureau of Labor Statistics data showed a monthly fall of 17,000 jobs in the entertainment industry, attributed to recent strikes.
🌎 Around the World
You wanted an international section, you’re getting an international section.
Let’s see what’s happening around us:
Canada 🇨🇦: Experts believe Canadian homes will continue to be unaffordable even in a recession. This comes amidst rumors of softness in the market despite strategists calling the current housing market a bubble.
Asia 🇨🇳: Russia expects 2023 growth to be closer to expectations while India hits a new export high. Similarly, China continues to show signs of a slowing economy, including a fall in exports and a lower than expected employment rate. The country, however, is taking an interest in investing in European countries, including Montenegro while continuing to focus on AI. The country’s investment in this area is set to exceed $27 billion by 2027.
Europe 🇫🇷: European stock markets closed lower on Tuesday due to fear of rising oil prices (thanks OPEC). On the other hand, the UK is set to lose more jobs while the French unemployment rate continues to remain low at 7.2%.
Bitcoin $25,680.30 (-0.53%)
Ethereum $1,627.66 (-0.13%)
Total market cap $1.04 (-0.46%)
* Prices as of Sep 6th, 12:20 AM UTC
Not much is happening these days as Bitcoin continues to trade below $27K.
💵 Personal Finance
Roth IRA vs. Traditional 401(k): what to choose?
If you want a one sentence answer, here it is: max out both.
However, we know that may not always be possible. So, which options should you choose if you can only go for one? Let’s dig.
Introduction to the Roth IRA and Traditional 401(k)
A traditional 401(k) is an “employer-sponsored plan that gives employees a choice of investment options.” Employee contributions and earnings are tax-deferred.
Similarly, the Roth 401(k) is a retirement savings plan that employers offer to their employees. However, unlike the traditional option, contributions made to a Roth 401(k) are made after taxes have been taken out of your paycheck. As a result, your money grows tax-free, and you get to enjoy tax-free withdrawals after you retire.
The table below highlights some of the main differences between the two accounts:
Understanding the differences
Single investors can make a full contribution if they make less than $138,000. Contributions are reduced if you make more than $138,000 but less than $153,000. Those who make $153,000 or more do not get to contribute to a Roth IRA.
For married couples, the phase-out range is $218,000 up to $228,000. They can make full contributions if they make less than $218,000 together. On the other hand, there are no income limits when it comes to the traditional 401(k).
For Roth, the contributions limit stands at $6,500 for 2023, with an additional $1,000 if you’re 50 or over. For traditional accounts, it stands at $22,500 or $30,000 if you're 50 or older. Furthermore, the traditional option has an employer match feature, whereas the Roth IRA doesn't.
A ROTH IRA is self maintained, whereas a traditional IRA is employer maintained with fewer investment options than the Roth IRA.
So, which is the better option?
Now, back to the main question. There are a few things you need to look at to find the more suitable option. Most importantly, look at your income situation and how you intend to contribute and withdraw.
Firstly, we’d say that you choose a traditional IRA if your employer offers a retirement plan with matching contributions. Next, you can move to a Roth IRA based on your income.
Also, consider how you want to pay taxes: For example, $500,000 in a Roth 401(k) is $500,000 after retirement, while $500,000 in a traditional 401(k) is $500,000 minus taxes. So, think if you need more money today or tomorrow.
Roth 401(k) contributions impact the paycheck more than traditional 401(k) contributions do.
Some things to remember
Here are a few things to remember:
You can contribute to both a Roth 401(k) and a traditional 401(k).
It is possible to convert a 401(k) to a Roth 401(k).
You might not be eligible for both.
Both options come with tax advantages.
Some experts believe that a Roth IRA is a better option for people looking to retire in peace. But, we think it depends on you. Check this video for some more insights:
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Nothing in this newsletter is financial advice. Always do your own research and think for yourself.