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The stock market doesn't always respond positively to rate cuts in the short term.

Falling interest rates can be a great sign for the stock market.

Why?

Because it increases corporations’ ability to borrow, which in turn can help fuel their growth. Also, the yield on risk-free assets like cash or treasury bonds falls with interest rates, which helps push more money to higher growth assets like stocks.

All of this sounds great for the stock market, however the chart below tells a different story.

We’ve compared the federal funds rate with the S&P 500 index dating back to the year 2000. It shows that falling rates often result in a temporary decline in the stock market.

Despite the drop in the market over the short term, the S&P 500 always trends up and to the right over the long term, so you shouldn’t be discouraged by the potential for a short-term dip.

During the early 2000s, the Fed slashed rates because the dot-com tech bubble burst, which plunged the economy into a recession. Then, in 2008, the Fed was cutting because of the global financial crisis. Finally, the cuts in 2020 were triggered by the pandemic.

Since there is no sign of a crisis right now, the Fed's most recent rate cut could be a tailwind for the S&P 500.

The index continues to set new record highs despite all of the noise in the background.

The worst financial mistakes you can make early on

There’s a lot to figure out early on in your life.

Among those things are your financial situation and money management skills.

Something people often forget until much later on in their lives, which can become a tragic problem if it gets too far out of hand.

On top of that, schools don’t assume the responsibility to teach kids good financial habits.

So it’s up to you to learn it for yourself.

Which is the reason for this newsletter.

4 financial mistakes you should avoid.

1) Signing up for too many credit cards

We all know how important your credit score is when it comes to borrowing money.

And having multiple credit cards can help you build up your score quickly. But the downside can be devastating.

Having too many credit cards can also lead to an everlasting cycle of compounding interest and debt.

And if you can’t afford to pay the balance at the end of the month, you’ll be buried in a snowball effect that just keeps getting larger with every day that passes.

2) Ignoring the stock market

Investing in the stock market can feel like an intimidating idea that is only reserved for the suits.

But that’s simply just not the case.

In fact, technology has made it so that the stock market is accessible to everyone, no matter what the colour of your skin is, what degree you have and your age.

The stock market is the greatest wealth-building tool known to man and starting early is the key to long term wealth.

Early on, it can be common to get stuck in the mindset of “I can worry about this later” but the truth is, you can’t afford to do that.

The opportunity cost of missing out on years of compounding returns is too high to ignore.

And the best part is, you don’t even have to invest a significant amount of money to see the impact long term.

Start out with as much as you feel comfortable with and work your way up over time.

But do not stay on the sidelines, you will regret it.

And now a word from our sponsor…

3) Brushing off a budget

Budgeting is by no means sexy. 

In fact, it’s very boring.

But it’s a necessity for your long-term financial goals.

There’s no other way around it.

If you’re just guessing with your money, you’ll be left wondering where it went at the end of the month.

Budgeting also lets you plan for what’s to come. 

For example, I used to pay other people first (my bills) and then whatever was left over was mine to spend or invest.

Now with a budget, I know exactly how much I need to pay for my bills so I can allocate funds to pay myself first before a single dollar is sent to someone else.

Also, budgeting helps you pinpoint where your biggest expenses are.

Most people don’t realize how much money they’re spending on certain categories like transportation, groceries or entertainment. 

When you start setting a spending goal for each category and track how much you went over/under, you start to see just how much money you’re throwing away every month for no reason.

4) Moving out of the house/renting

Your early adulthood can feel like a rush to independence. 

Wanting to secure your first home as soon as you can so you can show your parents you can stand on your own two feet.

But that isn’t always the best financial decision. 

And of course, some decisions can be chalked up as something that has no price tag, but a home is a large expense and shouldn’t be taken lightly.

As someone who is currently renting a condo with roommates, and also lived with their parents for a number of years post-college graduation, I can tell you that it’s one of the best ways to save and free up some money early on in your career. 

Before I left the house, I had almost $80k saved up. I chose to stay at home for as long as I could in order to put money aside for my eventual exit. This turned out to be a great decision.

Once I was ready, I moved out of the house and now I’m renting a condo and splitting the rent with other people, which cuts into my monthly living expenses.

If I hadn’t stayed at home for a few years after graduation, I would not be in the position I am now. 

Sometimes giving up a little bit of freedom for some monetary gain early on can propel you onto the right path, and do so quickly.

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Right now we have a 7 stock portfolio from various sectors of the market that continue to prove why they’re high-quality companies.

If you’re having trouble analyzing stocks or just simply need some more direction on what you should be looking at in this market, subscribe to premium for less than what you’ll spend on lunch today.

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The possibilities are endless.

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See you in the next one!

Alex (The Dividend Dominator)
Founder and CEO of Dividend Domination Inc.
Follow me on Twitter, Instagram and LinkedIn

How Warren Buffett Chooses Stocks (Save this image)