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04.5.2024 by David M. Smith

The Impact of Immigration on the U.S. Economy

Let me state first and foremost, that this is not a political or border discussion, there are plenty of forums on the internet for that. This article is focused on the macroeconomic impact of immigration. In a recent blog, it was stated the Congressional Budget Office raised their prediction for long-term U.S. economic growth, mostly due to immigration. RSWA Blog  This led me to delve deeper into the topic. I was intrigued by the skill level of newly arriving U.S. immigrants – were they unskilled workers or did some of them have skills or college degrees? What I found, surprised me. Of new immigrants arriving in the U.S. between 2020 and 2022, 48% held a bachelor's degree or higher. Another 13% had some college or an associate degree and 19% had a high school diploma or GED. Only 19% had less than a full high school education. The research accounted for both legal and illegal immigrants, of which three-quarters of immigrants currently in the country are legal. Migration Policy Institute U.S. Census

U.S. Immigration, An Economic Edge? Some Asian countries, such as China, Japan, and Taiwan, have struggled with economic growth over the last couple of years. One reason cited is their restrictive immigration policy as the countries have declining birth rates and demographics. The International Monetary Fund (IMF) found that for advanced economies, a 1 percentage point rise in immigration tends to boost economic output by 1% almost five years later. The study also found an increase in productivity attributed to new workers bringing different skill sets to the labor force. WSJ IMF

Oopsies – A Small Correction: In last week’s article on the Federal Reserve our newsletter had this written: “This week Atlanta Fed president and Board of Governors member, Raphael Bostic, commented that he now believes that there will only be one rate hike in 2024.” We meant to say “one rate cut in 2024.” Oops. We’ve been talking about rate hikes for the last couple of years which must have been in our heads when we wrote this but we are now in a rate-cut environment. We do our best to proofread the newsletter but this one slipped by us. Thank you to our readers who emailed us to let us know – glad you are fact-checking us! 😊

Financial Planning/Investment Strategy Corner:              

Compounding, Oh How I Love Thee: The story of long-term investing is really the story of compounding interest. In its simplest definition, compound interest is when an investment’s earnings/interest is reinvested to generate additional earnings and growth over time. Many new investors underestimate the long-term effects of compounding “magic.” For example, an investor who is 25 years old and invests $2,000 every year for 15 years at 5% would end up with $43,157 at age 40. If they let that grow another 25 years and never add another dime, they will end up with $146,144 at age 65. Compare that to someone who starts at age 35 investing $2,000 every year for 30 years earning the same 5% will end up with $132,877. The second investor will end up with a smaller portfolio at age 65 compared to the first investor even though they contributed twice as much, $60,000 vs. $30,000. Compound Interest – The Visual Capitalist

Rule of 72: If you want a quick way to figure out how much you need to earn to double your assets, use the Rule of 72. Take 72 and divide it by the annual return and you will end up with the number of years it will take at that rate to double your money. For example, if you earn 5% annually, 72 divided by 5% equals 14.4 years to double. Of course, at 10% it will only take 7.2 years to double your money (72/10 = 7.2 years). Investopedia

Quick Hits:

  • How to watch Monday’s upcoming solar eclipse safely: CBS News
  • It’s spring, check out tips for decluttering your home:Real Simple
  • According to this study, New Hampshire’s the most intelligent state (no jokes allowed from my friends!): Boston 25 News  
  • Despite the April snowstorm, it’s time to get your garden ready for spring: The Spruce 
  • Tips for eating a healthy breakfast: NYT

Book Review: The Accidental Super Power-10 Years On: Peter Zeihan is a geopolitical expert and international strategist who has studied how geography, politics, and history have shaped the modern world. Ten years ago, he wrote a book detailing how he thought the next few decades would unfurl, and it wasn’t pretty. The book was titled The Accidental Super Power and it outlined how geography was the main reason the U.S. rose to global dominance and how geography relegated other countries to fighting wars to secure natural protective boundaries and over resources. In short, he saw global disorder as alliances such as NATO and the EU dissolved, the U.S. quit protecting global shipping lanes, and the demographic vacuum created by Baby Boomers leaving the workforce would dampen economic growth and drain resources (I told you it wasn’t pretty!). But he did see a bright future for the U.S. based on geography, resources, and immigration gains. He recently followed up the original book with a ten-year lookback on what he got right and wrong. There were some major calls he got wrong such as Canada breaking apart (Canadians said that would be rude!), but others he got right such as Russia invading Ukraine, and the weakening of international alliances (i.e. Brexit and the rise of nationalism globally). I certainly have my criticisms regarding his predictions but I enjoyed learning about how modern economies developed. Even if you like to walk on the sunny side of the street, it is still worth a read to gain more insights into the post-World War economic structure and current strains on the modern global economy and alliances. Amazon - The Accidental SuperPower 10 Years On

Quote: “Compound interest” Albert Einstein, when asked what was man’s greatest invention (it is disputed if Einstein ever actually said this, but I’m including it anyway because it’s great and fits today’s investment theme! 😊)

Thank you for reading RSWA Financial Advisor Insights! We welcome feedback, and please forward this to a friend! Be well, take care, and stay safe!


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