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🕳️ Out of stock

June 15, 2021 Sign up

Happy Tuesday. Let's get right to the personal finance topics today: 

  • Lots of things are out-of-stock. Why so many shortages?
  • Rebalancing your portfolio is a good habit
  • The new rules for tipping?


Out of stock—why so many shortages?

Even well over a year into the pandemic chaos, we’re still seeing ripples on the water that are all the result of the world coming to a halt in 2020. COVID forced nations and manufacturers alike to either work less, compromise their production capacity or shut down altogether.

Yes, productivity lapse is playing a huge role in many of the shortages of goods we're seeing today. But it doesn't tell the whole story.

The issue goes deeper

Just In Time manufacturing, otherwise known as JIT, was popularized by Toyota back in the 70s and since adopted by industries across the world. It has its roots in the automotive industry, but at this point extends branches to all ends of the consumer product market machinery, servicing everything from food and fashion to pharmaceuticals. 

It’s a noble system with the noblest of end goals—to keep the supply chains and stockpiles lean so that all participants in the channel can stay nimble, efficient, and avoid waste or excessive overhead costs. Businesses are about bottom lines, and becoming overstocked gluttons in case of a worldwide pandemic doesn’t exactly reinforce that mantra.

Every genius has a weakness or two

This method has left a lot of manufacturers, and subsequently retailers on the front lines, vulnerable and susceptible to becoming the victim of shortages. Of course, not many would have foreseen a disruption on the scale of last year’s events, but therein lies the issue—that efficiency does have its weakness. 

Automakers are making the biggest headlines with the notorious chip shortage, a crucial aspect of building and programming modern vehicles. This has had a rippling effect on the market for both new and used cars, with the price of used vehicles making one of the biggest inflationary jumps this year out of any industry measured within the CPI.

Impacts on us

Other industries are also being impacted by this one shortage alone, as cars aren’t the only products that require computer chips for operation anymore, and it’s a safe estimate to suggest that over 100 different industries are feeling the effects. We also see shortages in foods, rental cars, shipping containers, lumber, pet food, new cars, and of course, homes. 

All of this contributes to the levels of recovery inflation we’re already seeing as a result of stimulus and low rates. The demand didn’t go anywhere, but the supply is still low, and the effects of this are seen all too well in the housing market.

Our Take. With progressive easing of reopening measures, we should see both production facilities returning to full capacity and hiring picking up pace.


Rebalancing your portfolio is a good habit

Rebalancing your portfolio is like getting your tires balanced. Just as you'd want to wear your tires evenly at all times to get the most life out of your car, the same logic applies when it comes to rebalancing your portfolio. And if you own stocks, bonds, mutual funds, or ETFs in any combination within your retirement or taxable accounts, rebalancing applies to you.

The point of rebalancing is to basically keep your portfolio allocations and risk levels you initially set in check. For example, say you had a portfolio that was 50% stocks and 50% bonds. Let's say that over time and given the hot market, your portfolio shifted to being 75% stocks and 25% bonds, which is a lot riskier than how you started out.  What happened here is that stocks outperformed bonds and overtook a larger percentage of your portfolio. 

Your risk preference and ideals for where you want your money to sit are a personal choice based on your unique financial situation and goals. There’s no one right way to do it. That being said, here are a few things to know before digging in.

  • How often you rebalance is, unironically, a balancing act. Becoming obsessed with rebalancing your portfolio any time you see the numbers tick a bit further than you’re comfortable with is distracting and potentially costly. The opposite can be said about just letting it ride without action. Like Aristotle said, somewhere in the middle lies virtue. If you don't know where to start, pay attention when your allocations are off by at least five percentage points; and if your weights are off 10 points or more, it may be time to act.
  • It’s a good time to diversify. Gaining a lot in one area of your portfolio also means you’ve got a lot to lose in one area of your portfolio. Especially as you near retirement, it may be time to diversify and lock in some gains, reallocating them to more friendly, less volatile asset classes.
  • Clear out some of your losers. It may time to dump some of your losing investments in your taxable account to realize capital losses. You can then use those losses to offset gains elsewhere in your portfolio. If you have more losses than gains, you can deduct as much as $3,000 of loss towards your ordinary income. If you've got more than $3K of losses, bank them to use in future years.

📚 Refresh on what it means to rebalance your portfolio and why you should do it:


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The new rules for tipping

The minimum waiter wage in the US is just $2.13, while the same in Australia is around $15.  In developed countries like Belgium, Denmark, Finland, and France, a restaurant bill typically includes a service charge used to cover waiter wages.

In the US though, the restaurant industry has nearly perfected the business model that gets patrons to pay some of their employee’s earned wages through tips, with the standard being around 20% of your pre-tax bill. 

Data suggests that credit card tipping has increased over the last year, but tipping as a whole declined. And unfortunately, in some instances, an employee’s wage has been left up to a matter of the customer’s personal philosophies, which is an odd predicament no matter how bad the service.

In a post-pandemic world with the use of cold hard cash decreasing even more so than ever, what are the rules for tipping now? Here are a few suggestions:

  • Try to tip the moral minimum: Whether or not customers should be responsible for this is another economic debate, the fact is that for now, the onus falls on the consumer to a degree. Outside of some disastrous occasion that required a visit from the manager, as long as your server did their job as expected we should be tipping what’s expected. 
  • Establish your own tipping rules within your budget: If you’re financially wealthy and find joy in making your servers day, make that your tipping policy, that’s okay. If you’re still trying to make it and just getting by, try your best to pick situations where you can afford the minimum tip. 
  • Controlling your dining out goes a long way: If you can afford it, great, but even still, dining out can become an unhealthy habit for both you and your finances. The better you manage your budget and your self-control, the better you’ll be able to tip when you do find yourself needing to. 


Today's Movers & Shakers

  • The tussle between the EU and the US over subsidies to Airbus and Boeing seems to be ending at least for now. US Trade Representative, Ms. Tai announced the suspension of tariffs after the two sides agreed to not provide any subsidies to their respective manufacturers. $BA is up a shade.
  • Vroom (-6%), a used car dealer, is raising $600 million in converts—investors don't like it.
  • Ping Identity (-4%), an identity management solutions firm, is raising equity capital by selling 6M shares 
  • Sage Therapeutics (-17%) after its depression drug showed good results but took 6-weeks to be effective and treatment would require months 
  • Spirit Airlines (+3%) after the firm said the leisure demand continues to improve in its filings with SEC
  • Fastenal (-2.2%) after the industrial and construction supplies firm was downgraded by MS; Morgan sited the “lull in customer acquisition” 
  • Draftkings (-6%) after Hindenburg Research shorted the stock
  • Meme stocks. $AMC +3%, $GME -1%, Clover Health +1%

This commentary is as of 9:15 am EDT.


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