💳 The Awkward World of Debt

Yes. This is the City Chad, your lifestyle alchemist, turning ordinary moments into golden memories. Let’s craft some magic!

In this week’s edition:

• Markets: 🐢 Slow Recovery

• Article: 💳 The Awkward world of Debt

• News: 🖥️ Microsoft Topples Apple

• Chad Of The Week: 🇸🇻 Nayib Bukele

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MARKETS: 🐢 SLOW RECOVERY

Most asset classes have had a pretty muted start to the year.

The SEC stated that the Central Bank may take longer to drop their rates than predicted. They will likely take their time.

This is putting a dampener on investor’s spirits that were running high at the end of last year.

Bitcoin was the biggest loser this week. This exactly the opposite of what most people were expecting after the approval of the Bitcoin ETF.

I wish I had a Bitcoin every time someone painted this as the event that was gonna make every crypto degen a billionaire. Alas, it was not to be.

Most investors were eager to take their profits. The price was really close to $49,000, before dropping down to around $42.000.

It was the typical case of “buy the rumors, sell the news”.

However, Ethereum posted a formidable gain last week. The SEC has flirted with the idea of approving ETH-Based ETFs as well.

Maybe the sell the news time is coming for ETH too?

ARTICLE: 💳 THE AWKWARD WORLD OF DEBT

TLDR: Debt isn't always the villain in your personal finance saga. Used wisely, it's like a power-up in a video game. Especially for big moves like snagging a property (hello, mortgage!). But getting into debt just to live large without any game plan for returns is a major no-go. Smart debt can be your ally, catapulting you towards those big life wins. Thoughtless debt, on the other hand, is like quicksand for your wallet. Know the difference, play it smart, and understand that getting into debt is a critical choice that requires careful analysis.

• 🧠​ What the Experts Say

• 👍 What is “Good” Debt?

• 🏦 Consolidating Debts

• 😎 The Chad Takeaway

🧠​ WHAT THE EXPERTS SAY

Mark Cuban and Warren Buffett had the same advice when consulted on what people could do to protect their personal finances from an economic recession.

Avoid debt.

Cuban even went as far as considering paying off debt a better investment than stocks, bonds, or other financial securities.

The math is simple: The average APR (that’s the annual percentage rate) that people pay on credit card debt is around 28%.

An S&P 500 index fund has a (roughly) 10% average annual return. So it means that avoiding paying that 28% APR is better than getting 10%.

But getting into the situation of having to pay that 28% in the first place is what you should avoid first.

Buffett gave this pretty obvious advice to young children: you should never spend more than you earn.

The key word here is “spend”. We’ll get back to that later.

It looks tempting, right? You have good credit, after all. Give your house that new paintjob. Get yourself a new TV. Mastercard and Visa approve of that.

However, living out of your own means will send you into a downward spiral which will always be more and more difficult to come back from.

Cuban himself learned the hard way the woes of being a chronic addict to credit card debt. Once creditors start to pile up, every paycheck just vanishes in thin air.

This does not mean that credit cards are satanic devices created by the devil himself.

You should make the most of their cashback rewards or frequent flyer miles. Just remember to always pay off the whole of your bill at the end of the month.

👍 WHAT IS “GOOD” DEBT?

Unless you are the son of a billionaire you probably will need to borrow money to kick off one or another chapter in your life.

“Good” debt is the one where you expect to use that money to get a an improvement in your net worth or a significant enhancement of your life.

“Good” debt is used to invest prudently. Contrast with the previous key word when we talked about credit cards earlier: “spend”

We are not talking about a luxury vacation or getting yourself a Lambo. We are talking about something that will help you get more greens in your bag in the future. Or at least a more solid situation.

So what are some examples of potentially good debt?

• Mortgages: This is the classic example. Buying property can be a smart play. Real estate often appreciates in value, and owning a home can be more cost-effective than renting in the long run. Plus, it's an asset that can provide stability and potential rental income.

• Education Loans: Investing in your brain is always a good move. Degrees or specialized training can boost your earning potential significantly. Just make sure you're choosing fields with solid career prospects!

• Business Loans: Got a killer business idea? A loan can give you the launchpad you need. If your business plan is solid, this debt could be the stepping stone to financial independence. Be careful on how much you borrow and what guarantees you give. Business is never a certainty and make sure that whatever happens you can live to fight another day.

• Low-Interest Loans for High-Return Investments: This is advanced level, but borrowing money at a low interest to invest in high-return opportunities can be smart. Think stocks, bonds, or other investments, but only if you know the game. The use of leverage is generally left to the experts and requires collateral. And of course it is far riskier than an investment without debt!

The key with good debt is that it should help you grow your net worth or generate income over time. Plant a seed and nurture it into a money tree. Just be sure you've done your homework and understand the risks involved.

🏦 CONSOLIDATING DEBTS

Now, what if you have read this article too late, and you already sunk yourself into bad debt?

Well, one option that a lot of people consider is to consolidate your debts.

This means just as simply to put all your debts into a (hopefully) low-interest loan. This will allow you to have a better record on how much you owe, while also owing money to just one entity rather than many.

Pay off everything as quickly as you can. The more time it takes you, the more interest it'll accrue and the more it will cost you.

😎 THE CHAD TAKEAWAY

Managing debt intelligently is a Chad skill you cannot forgo. Especially if you are lucky enough to have access to credit on good terms.

However, how you use that money and under what terms you borrow it will make all the difference between success and failure.

Even if you can't (yet) afford all the luxuries you desire, nothing will beat the feeling of laying your head to rest without the stress of debts and loans breathing down your neck.

Don’t use debt to flash cash that is not actually yours but the banks’.

They will always want it back and more.

NEWS: 🖥️ MICROSOFT TOPPLES APPLE

Ladies and Gents, it looks like there is new Sheriff in town as Microsoft briefly surpassed Apple as the most valuable company in the World.

Apple kicked off 2024 with bad news: Barclays downgraded the company, dubbing iPhone 15 sales as "lackluster". And they expect the upcoming iPhone 16 will carry on the same way.

On the other front: Microsoft. The company is closely associated with OpenAI and it is positioning itself as a leader in the ever-expanding artificial intelligence industry.

Both are great companies. But it is hard to see how Apple will continue to participate as a major player in a world obsessed with AI. Their hardware is popular awesome. But is it enough to keep it as the most valuable company on Earth?

It seems that companies like Microsoft and NVidia are benefitting a lot more from the AI boom than the last few years’ tech winners like Apple and Google.

CHAD OF THE WEEK: 🇸🇻 NAYIB BUKELE

Sometimes you have to take the bull by the horns.

Nayib Bukele rose to power vouching to: side his country to western values, end decades of malnutrition, and, most importantly, take a stand against the violent crime gangs that ran El Salvador.

An boy did he succeed.

Bukele’s policies dropped the murder rate of his country by about 80%. Taking the nation from one of the most dangerous to one of the safest.

When have you ever in your life seen results like that? I’m sure not from your own country’s politicians.

Now, his methods have upset many NGOs and similar groups.

Those groups that are great at defending human rights when it does not involve the violent death of their own families at the hands of criminals.

How did Bukele do it? He issued a state of exception in March 2022, meaning constitutional rights were no longer guaranteed.

In short, he said that gloves were off. If gangs weren’t going to abide to any rule, then neither would he.

To date, Bukele's government has imprisoned over 74.000 people suspected to be gang members.

Instead of having a costly trial, risk of them resorting to legal loopholes or just go on the lam, gang members were thrown straight into jail cells.

What do Salvadorans think? Well, honest Salvadorans rejoiced with now safer places and newfound sense of security.

Bukele is the living example on how you have to be ready to meet your enemies in a playing field where you can actually win.

While not everyone approves of his methods, few can argue with the results.

Are you playing a game you can actually win in? Or are you just there to pass the time and be forgotten?

Well done, Nayib!

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