Credit Card vs. Cash

Whether it's getting your groceries, paying your utility bills, or eating out, you've got to be able to pay for your activities. How you pay is up to you-usually. Credit cards and cash both have their pros and cons, and whichever is best for you might be very different than what's best for your spouse or best friend.


Personal finance is a subject that’s rarely spoken publicly about due to personal differences and its uncomfortable nature. To me, personal finance and personal credit cards are synonymous. After all, throughout the globe, there are more purchasing transactions done via credit cards than any other form.  When delving into credit cards, there are obviously pros and cons to owning and constantly using them. Personally, I am a disbeliever in credit cards.


I try to always maintain a common notion; one should run his personal finances like he would run any major corporation. I don’t mean to walk around thinking that you’re some fancy CEO, but to think what would be done on a corporate scale.  See, credit cards have many advantages. They provide financial backup in the event of an emergency, help build your credit score, and keep a record of your expenses while helping you monitor your financial activities. Credit cards can boost your purchasing power because they can be used to buy goods over the phone, through the mail, and online. They as well allow you to purchase items and pay them off in monthly installments. This brings me directly to the disadvantages: some consumers feel compelled to spend more money than they have and therefore continuously roll over balance for several months.


Over the years, studies have shown that most Americans roll over balances and don’t pay their full balance at the end of each month; essentially living in debt! Studies have also indicated credit card debt is a significant factor in consumer bankruptcies. You have to ask yourself, would a large corporation approve of spending far beyond what they could possibly currently afford while thinking we’ll hopefully one day pay it off?


Credit cards give you the feeling of unlimited spending power. Spend, spend, spend and worry about it later. On the other hand, cash gives you a constant conscious of what your liquidity is and what you’re spending, keeping you safe from running into personal debt. You might think if I use cash, how will I have any credit? The answer lies within a middle ground of the two earlier options. A secured credit card!


Secured credit cards give you the ability to build credit, keep a record of your expenses, and monitor financial activities. You as well have the purchasing power for over the phone, through the mail, and online buying.  All while knowing exactly what your liquidity is and what you’re spending.

Taking a holistic look at what hedge funds return, we stumble over Bridgewater Associates.


Bridgewater Associates, a large hedge fund that was founded by Ray Dalio that specializes in credit and currency markets on a global scale and has reported numbers as high as $130 billion AUM.  They are building a new state of the art headquarters in Stamford Conneticut that will cost in the $700 million dollar range and accommodate more than 2,000 employees, nearly double the amount of current employees in the firm. Dalio, a tall, gaunt 64-year old man with a swoop of grey hair, has a foundation that gives money to a wide array of organizations including the Tisch School of the Arts at NYU, the Dalio Talent Identification Fund and Tech for America.

There have been years such as 2010 where Bridgewater returned as much as 40%. To place that in perspective, 2010 was a time when most funds were losing their shirts. That performance adds to an impressive winning streak and brings Bridgewater’s 10-year average annual return to about 18%.  I, Eric Rosenstock sit here marveled in wonder as to how it’s possible to have such high returns in such bad times!


Let’s delve into the investing world on a simplistic par, so we can answer my question properly.

When once speaking to Sam Levinson founder of Levinson Capital Management and Director at Canary Wharf Group, he asked me to define “hedge funds”. Before having a chance to articulate and voice a response he went on to answer “it’s just a fancy way of saying investment managers where they try to hedge their risks”. Hedge Funds can invest in basically anything, such as private equity, Biotechnology, Commodities, Real Estate, and the list goes on.  When I have some money that I would like to invest, I act as my own hedge fund per say. I obviously try to hedge my risks and could invest into any market type, just like a hedge fund.


Let’s say I have $5,000 dollars to invest, I have numerous options as to where I can invest those $5,000 dollars. After all there are a lot of companies that are looking for small capital crowd funding. That said we can understand why the terms in interest rates are fairly slim for my $5,000 dollars. The amount of companies that are looking for small $5,000 investments is large, and the amount of people that are looking to invest $5,000 dollars is also large. The company recognizes that they have a tremendous pool of investors that have $5,000 dollars to invest, and therefore don’t have to offer a high interest rate being that they have such a large pool of investors they can turn to to cut a deal.

Now let’s have a look at the people with great liquidity that want to invest, such as Bridgewater Associates. With the amount of capital that they have access to, puts them in a very small pool of investors that are in the same realm as them.  Therefore the company that’s looking for large investment, for example 10 billion dollars, has very few funds with that amount of capital that they can turn to.  The company realizes that they have to offer a much higher interest rate, because that pool of investors is small, and they can’t just turn to another investor. Therefore the investor knows that he isn’t just “another angel investor” rather he is “the” investor, and can demand a fairly high interest rate!


Once I’m on this subject, I would like to analyze this fundamental theory in investing a bit deeper.

Here is another reason as to why such high returns for companies like Bridgewater Associates make sense. The guy with the $5,000 dollar investment is able to invest in a large spectrum of markets, though his market cap is $5,000 dollars.  As to the companies with large sums of capital, they are also have a large spectrum of markets that they can invest in,  though that spectrum is much greater than the $5,000 dollar investor, being that his market cap is something like 10 billion, or 20 billion, whatever the number is. Hence, the fat cats have greater options in the market to play around with, and receive higher returns.

Such High Returns, "How?"

Thanks Brexit; Refuge for US Treasury

Tensions went flying on Wall Street when news hit that Britain was exiting the EU (European Union). Overall, panic was the feeling of the moment. The uncertainty of the Wall Street financiers of the future caused lots of volatility throughout the global markets. However, can it be that Brexit after all will be beneficial for us?


Post Brexit, a direct affect caused the British pound to fall to a 31-year low against the dollar. The U.K. investors remained weak and uncertain, and began pulling their money out of the U.K. and EU currency and placing it in dollars, driving up the value of the greenback.  Americans should note, right now is one of the best times to make travel plans to the U.K. due to the weak pound and the strong dollar, maximizing one’s money to spend.


However, if one doesn’t have travel plans and doesn’t participate in foreign currency investing, how can this be beneficial? Right after the Brexit news hit the airwaves, the S&P took a slight dive, but the economist were surprised by how little it truly affected our index trading numbers. Our trading continued in a close to normal manner, but the currency market wasn’t as stable. Holistically speaking, one can say, there are less pools of investing options, leading people to invest more in the US. Since Brexit, over 3 trillion dollars left the market…but it had to go somewhere.


The world is now almost three months post-Brexit, and we have seen unbelievably low yields on the US Treasury. Remember, simply stated, yield is the amount of return that an investor will realize on a bond. It's important to remember that a bond’s yield to maturity is inverse to its price. As a bond's price increases, its yield to maturity falls. For example, if you purchased a bond with a par (face) value of $100 and a 10 percent annual coupon rate, its yield would be the coupon rate divided by the par value (10/100 = 0.10), or 10 percent. If the bond price fell to $90, the yield would become (10/90 = 0.11) or 11 percent. The bondholder would still receive the same amount of interest, because the coupon rate is based on the bond’s par value. As you can see, the yield increased because the bond's price fell.


Yields on the benchmark 10-year Treasury note briefly fell to their lowest level ever at 1.385%. However, they have since begun to rebound back. Bond investors are betting the uncertainty sparked by Britain’s shock decision will keep markets on edge and put pressure on central banks to pump new stimulus into their economies.


In conclusion, this is very beneficial to the average American because the US Treasury yield rates runs on a similar road as the US interest rates, meaning how much it costs to borrow money. Yes, this does include the mortgage market.  If one is a homeowner, it’s a great time to refinance and save some money. Or, if one does not own a home, it’s a great time to buy one. The bad news is if one is retired and wants to hold short-term money and doesn’t trust the stock market, then he is looking at lower interest returns on CDs and savings accounts.


© Copyright 2013 | An Eric Rosenstock Property