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WTF is an NFT?!

Over $69 million! That’s the astronomical price that the highest-grossing NFT by artist Beeple sold for on March 11, 2021. And Beeple isn’t the only one making the big bucks. Cryptopunks, the creators of the first NFTs, made millions selling out all 10,000 of their pixelated character portraits. The top-selling of which grossed over $7.5 million!

In total, over $100 million in NFTs has been sold in the last 30 days. For reference on just how much that is, NFT sales for all of 2020 were just over $250 million. That’s a 500% increase in sales, so it’s safe to say the NFT market is booming.

All of the money pouring into NFTs has generated a lot of hype, but WTF even is an NFT? If you’ve been asking that question and are getting some serious FOMO, I’m here to help you out. In this post, I’m going to break down what an NFT is, tell you how they use blockchain technology and what that even is, fill you in on why they’ve become so popular, and give you my opinion on whether their popularity is here to stay.

What is an NFT?

NFT stands for non-fungible token, and since that probably didn’t help your understanding at all, here’s what that means. Non-fungible means that the item is one of a kind and can’t be exchanged for another one of the same item. For example, an original piece of art by Ashley Longshore (If you don’t know who that is, look her up. She’s incredible.) is non-fungible because only one exists. If you make 100 prints of her original piece, those are fungible because you can exchange one print for another copy of the same print.

It’s pretty simple to understand this in terms of physical art, but how does this translate into the digital art being sold as NFTs? Well, just like you need proof of authenticity for a piece of tangible art, buying an NFT gives you proof of authenticity for a piece of digital art. Sure, other people can make prints of the art, but they won’t have the real thing like you do. And you might be thinking, but isn’t it super easy to just fake this “certificate of authenticity” on the internet? Not with blockchain.

What is Blockchain

Blockchain is a type of database structure that stores information in a block, and once the block is filled, it chains it to the previous block. It then starts entering new information into a fresh block, and once that block is full, it gets chained to the previous block, and the cycle continues. This system stores data chronologically instead of the way a typical database does where the information is stored in a table format similar to what you see in an Excel spreadsheet, but on a much larger scale.

Another key feature of blockchain databases is that their information is typically stored on a decentralized network of computers. This setup is what makes it super hard to tamper with stored information or create fake certificates of authenticity.

A typical database’s information is stored on many computers that a company owns and houses in a single location. If the company wants to tamper with their stored data, they can easily do it because they have access to all of the components of their database.

With a decentralized database, like Bitcoin’s, the thousands of computers that store their information are owned and housed by thousands of different individuals. If one of these computers alters the information stored on it, all of the other computers, or nodes in the network, will recognize the altered information as incorrect and restore it to its original content.

This means that to fudge a certificate of authenticity, you would first have to get more than half of the individuals in the network to agree to modify their data in order to get the rest of the computers to accept the change. If politics is any indication of how hard it is to get the majority of people to agree, it’s safe to say that this task would be incredibly difficult. Unless you can climb that insurmountable hill and get over 50% of the nodes to agree to falsify their information, the rest of the nodes will never recognize your fake certificate as legit and will remove it from the database.

This almost tamper-proof technology is obviously great for traceability and security, but how is it making NFTs so popular?

Why NFTs are so Popular

The first reason is their ability to increase the value of a digital artist’s work. Before NFTs, digital art could be copied countless times, and the artist would never be compensated. This issue is demonstrated well by popular memes.

When a meme goes viral, everyone wants to use it so its demand increases. In theory, this increase in demand should push the meme’s price up, and generate more money for its creator, but since the supply of a viral meme can be increased by making a copy for free, the creator can’t take advantage of the popularity of their work and charge more for it. NFTs changed that.

Think of it like Van Gogh’s Starry Night. You’ve seen it everywhere. On wall prints for your house, postcards, mugs, you name it. And all of those knock-offs don’t decrease the value of his original oil on canvas, but rather, they increase it. The more people that recognize it, the more priceless it becomes.

NFTs could make the same possible for meme creators and other digital artists. When a meme goes viral now, the creator can sell the original copy as an NFT at a high price tag. If free copies of that meme keep circulating on the internet and generating more popularity, the original work will continue to increase in value, and the artist can capitalize on that.

On top of being able to sell their original work for top dollar, digital artists selling NFTs can also receive a royalty on all future sales because they maintain the copyright to their work. This is similar to how musicians receive royalties on their songs and albums well after their original release. NFTs make it possible for visual artists, writers, and others to continue earning money on one piece of art for years or decades after its first sale. 

In addition to the perks for digital artists, NFTs have also created a new market for art investors. Since the value of digital art can now appreciate, NFTs can be used as investments. This is what’s driving the price of the pieces selling for millions. It’s the same concept as a rich person buying a million-dollar work of art to hang on their wall in the hopes that years later, they can sell it for double the price. While the prices being paid for NFTs seem wild right now, investors expect these works to continue increasing in value, which means they can sell them at a profit in the future. But like with all speculative investments, the future value of NFTs is unknown. 

Will it Last?

Here are my predictions

  • Rich people gonna rich! Rich people will continue creating million-dollar valuations for digital art so they can invest in it and trade it amongst themselves, just like famous paintings and sculptures. For retail inventors like you and me though, I don’t see a great investment opportunity. When they start selling fractional shares of NFTs and create mutual funds for them, then we can get in on the action. Until then, us normal folks will be priced out of using NFTs as investments and will just keep stealing free digital art “prints” and won’t care at all about having the certificate of authenticity. 
  • If musicians start selling exclusive tracks as NFTs, it’s only a matter of time before we start using a platform like LimeWire to illegally download them for free. We’ve become accustomed to free music and I don’t see that changing, whether it’s fair to the artist or not. 

There have been several artists that have complained about the tiny cut musicians receive from streaming platforms like Spotify, but I just don’t think most people care that artists like Taylor Swift want several million more dollars. I do think original copies of heavily downloaded songs could sell at high valuations just like visual art NFTs currently are but I’m less certain about how this will affect the music industry.

  • The most beneficial thing for smaller artists will be the transparency behind the compensation other artists receive for creating content for big brands. NFT transactions hide nothing, so more artists will be able to see the rates other artists charge brands to use their content, which could increase the earnings for smaller creators. 

This transparency may also make it harder for brands to steal marketing content. Nowadays, if an artist claims that a brand stole his/her content, it’s pretty much a he said she said battle. Since small artists often can’t afford top-notch attorneys to compete with a brand’s legal team, it’s hard for them to prove a brand stole their content and seek compensation. This isn’t the case when it comes to NFTs, though. NFTs have a highly transparent ledger of ownership, so if a brand uses a creator’s content without authorization, the public could quickly look in the NFT ledger and see that the brand stole the artist’s work, which would be a PR nightmare.

  • These transparent and secure NFT transactions could also be used to streamline the buying and selling process of everyday one-of-a-kind items, like houses and cars. Using NFTs for these transactions would allow ownership to easily be established and transferred during purchases.

So I think it will be a while before NFTs become good investment opportunities for regular Joes and Joanns, but I also think their use of blockchain technology could start benefiting us immediately in other ways. They could provide a means for more digital artists to earn income, their traceability and transparency could help prevent billion-dollar brands from stealing small artist’s work, and they could streamline the buying process for other asset classes. Overall, I think NFTs are here to stay, but as for whether Beeple’s NFT will sell for more than $69 million in the future, I have no idea.

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Stock Market Investing Is As Easy As Grocery Shopping

It’s intimidating to start investing in the stock market. There’s tons of financial jargon casually being thrown around, lots of different acronyms, and sudden market swings that create chaos. All of this can make it seem like you’ll never be able to understand investing or make money doing it.

The good news is that the basics of investing are actually quite simple and if you master the basics, you can become a successful investor. To build your investing confidence, I’m going to tell you why stock market investing is just like a simple task that you do all the time, grocery shop.

Your Investment Account Is Your Grocery Bag

When it comes to stock market investing, the first thing you need to consider is the type of account you’re going to invest in. Each account has different advantages and disadvantages, but all of them do the same thing, hold your stocks.

Think of it like choosing between plastic, paper, or reusable grocery bags. All of these bags will hold your groceries, but each one has some pros and cons. Plastic bags are the most convenient and can easily be stuck under the sink to use as a dog poop bag later, but overall, they’re not very environmentally friendly. Paper bags are better for the environment, but they aren’t always available, and reusable bags are great for the environment, but you have to remember to bring them with you every time.

Some people prefer the convenience of single-use bags, while others bring their own bags to try and cut down on the waste they generate. The grocery bags you use reflect your individual goals and priorities, and so should your investment accounts. Regardless of which bag or account you choose though, all of them are designed to do the same thing, hold your groceries or investments.

To help you choose the account that’s right for you, here is a breakdown of the pros and cons of the most popular investment accounts.

Retirement Accounts

Retirement accounts are by far the most popular type of investment account. These are your 401ks, 403bs, and IRAs. All of them provide some sort of tax benefit, but they also have restrictions on how much you can contribute and when you can withdraw your money. Let’s get into the specifics of the main three.

401k/403b

401ks and 403bs are employer-sponsored accounts, which means you sign up for them through your job. Their main advantage is that their contributions are tax-deferred, which means that you don’t pay income taxes on any money you contribute to them until you withdraw the money later in retirement. This lowers your taxable income now, which means you pay less in taxes today.

Because of this benefit, there is a limit to the amount you can contribute to your 401k/403b each year. The limit for 2021 is $19,500. In addition to your contribution limit, you also can’t withdraw your money without paying a 10% penalty until you’re 59 ½. 

Traditional IRAs

Traditional IRAs are very similar to 401ks, but they aren’t employer-sponsored. Like 401ks, they take tax-deferred contributions, and you aren’t able to withdraw your money until age 59 ½ without paying a penalty. However, IRAs have a much lower contribution limit at $6,000.

Roth IRAs

Unlike 401ks and traditional IRAs, Roth IRAs take after-tax contributions, which means that you’ve already paid income taxes on the money you put in them. Later, when you withdraw your money after age 59 ½, you pay no additional taxes. The contribution limit for Roth IRAs is the same as traditional IRAs at $6,000.

The main difference to consider between the two IRA accounts is how you pay taxes. Because your contributions are tax-deferred in a traditional IRA, you end up paying income taxes on your earnings and contributions when you withdraw your money in retirement. Since your Roth IRA contributions are after-tax, you only pay taxes on your contributions and pay no taxes on your earnings.

Taxable Brokerage

Taxable brokerage accounts offer none of the tax benefits that retirement accounts do, but that means they also have far fewer restrictions. There is no contribution limit or minimum withdrawal age, which means you can put as much money in them as you want and take it out whenever you want. 

Your contributions to a taxable brokerage account are after-tax, just like in your Roth IRA, but your earnings are taxed at the capital gains tax rate, unlike in your Roth IRA.

Your Stocks Are Your Food

Once you’ve chosen your desired grocery bag, aka investment account, then you have to fill it up. Just like the food you buy at the grocery, some stocks are “healthier” for your portfolio than others, and those stocks should make up the bulk of your “diet”.

Index Funds/ETFs

Index funds and ETFs are the health food of your investment portfolio. Many people avoid them because they don’t have a lot of brand recognition or get a lot of flashy advertising but they should make up the bulk of your shopping list.

These funds are so good for your portfolio because they’re cheap and well-diversified. Their low price tag is due to the fact that they’re set up to track an underlying set of investments, which means they require minimal upkeep and research. 

One of the most popular indexes they track is the S&P 500, which is made up of 500 US companies. When you buy an index fund or ETF that tracks the S&P 500, you buy a partial share of all 500 companies in the index. It’s like buying a variety pack at the grocery so you can get a sampling of everything. 

Owning 500 companies instead of 1 gives your portfolio diversification, which reduces your risk. If you only own one company and that company does poorly you risk losing all of your money, but if you own 500 companies and one does poorly, you have 499 that can still make you money. 

With so many companies working for you, it’s nearly impossible to lose money if you invest in a market tracking index fund like the S&P 500 for several decades. That’s why these are the healthiest stocks for your portfolio. Over the long term, they’ll keep your earnings up at an extremely low price.

Actively Managed Mutual Funds

Actively managed mutual funds are the name brands that charge you more for their products because of their name recognition. Unlike index funds and ETFs that track the market, actively managed funds try to beat the market. They do this by hand-selecting a group of stocks they think will perform better than all the rest. 

To find these superior stocks, fund managers need to do a lot of time-consuming research, which is expensive. They then pass this expense on to you by charging you a high administrative fee called an expense ratio. 

The problem is that most of the time, these funds underperform the market. That means you end up paying more to invest in them but earn less. Just like the brand names at the grocery store that charge a higher price even though they’re not any better than the generic.

Individual Stocks

Just like all food is fine in moderation, the same is true for buying individual stocks. As long as you maintain a healthy long-term investment strategy for the bulk of your money, it’s ok to treat yourself every now and then. 

With food, you might splurge on your favorite ice cream or some cake and cookies. With money, you might buy the latest stock market gem. I’m looking at you, Tesla and GameStop. I’d recommend keeping your individual stock picks to less than 10% of your overall portfolio but it can be beneficial to indulge in individual stock picking from time to time to avoid FOMO.

Just like it’s tough to stick to a strict diet and eat only healthy foods for a long time, the same goes for investing. The constant chatter about people getting rich on the latest hot stocks can make it seem like your long-term investing strategy isn’t working. Allowing yourself to get in on a small piece of the hype can help you avoid feeling like you need to dump all of your money into GameStop or Tesla to try and get rich quick.

So while investing may seem intimidating on the surface, it’s actually as simple as a trip to the grocery. You should choose a shopping bag that fits your investment goals, fill it with mostly healthy food, save money by buying generic brands, and splurge on some of your favorite treats every now and then. 

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Investing Strategies Explained in Terms of Owning Pets

Investing can be hard to understand, but pretty much everyone knows what it’s like to own a pet. Maybe you’re a dog lover, a cat lady, or the oddball that’s really into snakes. No matter what furry or scaly friends you’re into, you know that different pets have different needs. Some take up a lot of your time and need daily attention, while others can be left alone with enough food and water for weeks at a time. Investing strategies are the same way.

The investing strategy you choose determines how much time and effort you need to put in if you want to be successful. To help you understand the different investment strategies out there and find the one that fits your lifestyle best, I’m going to break down each strategy in terms of which pet it’s similar to owning.

Passive Investing

Passive investing is a set it and forget it strategy that requires a moderate amount of effort to initially set up and needs very little ongoing maintenance. It’s similar to owning a goldfish, where most of the effort is in configuring the fishbowl and after that, you just need to feed your fish regularly. 

This strategy is so effortless is because passive investors buy index funds and ETFs that track the market and hold them for decades. This works because historically, the stock market has always gone up over the long term, and it’s nearly impossible to lose money after you’ve been invested for over 20 years. 

To become a passive investor, you need to open an account and build a well-diversified portfolio. There are several ways you can build your portfolio, and the way you choose will determine the amount of effort it’ll take to maintain it. 

Hand selecting all of your own investments requires the most effort. When you build your own portfolio, you allocate your money at a certain percentage to each asset based on how risky you want your portfolio to be. Over the year, some of your investments will perform better than others, and this will throw your asset allocation out of whack. To maintain your desired asset allocation, you should rebalance your portfolio about once a year. This method is similar to buying a regular ol’ fishbowl that needs frequent manual cleanings to prevent algae from growing. 

If you want to avoid this extra manual clean-up, you can use a robo-advisor or a target-date fund instead. Both of these manage your investment portfolio for you so you can be 100% hands-off. This is similar to buying a fish tank with a filter. You should check up on everything once in a while, but it’s much less work than a regular fishbowl. 

Value Investing

Value investing was made popular by the OG investor, Warren Buffett, and is when you find a company whose stock price is lower than what the company is actually worth and buy their stock “on-sale”. To find these companies, value investors pour over financial statements, calculate many ratios, compare the company to others in their industry, and project the company’s future growth. To be an incredible value investor like Warren Buffett, you have to use this information to make correct calculations and assumptions, and that’s not easy. If it were, there would be a lot more Warren Buffetts.

Because of the extreme amount of work value investors undertake to accurately price a stock, value investing is like owning a dog. As a puppy, they’re A LOT of work. You have to housebreak them, spend hours training them to sit, take them on a gazillion walks to wear them out, and replace several pairs of shoes they will inevitably decide to destroy. But if you put in all of that hard work, you’ll end up with a well-trained, amazing dog to call your own. Even better is that as your dog gets older, they get easier and easier. The same is true of value investing.

While a value investor could sell their stock immediately after the price corrects, they usually don’t. Value investors are in it for the long haul, and by long haul, I mean sometimes for decades. 

Value investors pick companies they think are on sale, but they also pick companies they think have great long-term growth potential. This way they can cash in on the short-term price correction, and with no extra effort, also cash in on the company’s growth in the long run. Just like with Fido.

Trading

Trading is what comes to mind when most people think about investing. GameStop is a great recent example of trading, which is when you try to buy a stock at a low price and sell it at a higher price. You might be thinking that this sounds exactly like value investing, but there’s a huge difference. The length of time the investment is held.

Traders look for short-term price fluctuations and sometimes only hold a stock for mere minutes before selling. This means they are constantly analyzing stocks to find the next deal. If you’re a trader, you can’t just skip a day and leave your portfolio to fend for itself. You constantly have to tend to its needs, be at its beck and call, and continually feed it more money. For those reasons, trading is most like…. having a newborn baby.

If you’re feeling tricked and thinking WTF humans aren’t pets, hear me out. While trading gets lumped in as an investing strategy, it isn’t actually investing. Investing refers to long-term buy and hold strategies, which trading is not. It’s a short-term strategy. So it requires the most effort and time and isn’t even an investing strategy, just like a kid requires constant attention and isn’t a pet.

Even worse is that unlike children, trading often doesn’t even reward you for all of your efforts. In fact, well over half of traders lose money. That’s because it is really hard to predict short-term market fluctuations without insider knowledge. Think back to GameStop. If all traders knew the price was going to rise, they all would have bought the stock, and then sold it before it dropped again. But not all of them did. Once the price fell, traders lost a whopping $27 billion altogether. Just like it’s hard to predict a newborn’s behavior, it’s also hard to predict a stock price’s behavior in the short term. 

Overall, the amount of time and effort required to be a successful trader is extraordinarily high compared to what it takes to be a profitable investor. Because of this, trading can’t even be compared to owning a pet, but rather it’s more like having a child. 

Which Strategy Should You Adopt?

Unless you want to take on the stress and risk associated with trading, I’d cancel that strategy out because you’ll probably end up losing money.

So now you’re left with value investing or passive investing and while you may be a dog person, I’d still recommend avoiding value investing. If you can find a company that is undervalued, you can make a great return, but these hidden gems are difficult and time-consuming to find. Again, if it were easy, we would all be billionaires like Warren Buffett.

Passive investing is the strategy I use and what I would recommend for most people. It’s extremely low maintenance and provides great returns. If you still want to have a little fun with your money, you can use a passive investing strategy for most of your money and then set up a separate “fun money” account. 

To do this, calculate your retirement savings goal, and set up automatic contributions to your retirement accounts to make sure you’ll reach your goal. After that, you can splurge on trendy stocks in a separate fun money account. That way, you aren’t compromising your long-term plan, and you can avoid getting FOMO whenever you hear about the latest hot stock.

Because at the end of the day, your money should be working for you, not making you work for it. Save the hard work for raising your kids and training your pets.

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How to Pick Impressive 401k Investments

woman holding money in an office

About half of Americans are invested in the stock market, and almost all of them are investing through a retirement account like a 401k. While individual stocks like GameStop and Tesla get most of the news coverage, these aren’t the stocks making most people wealthy. Much more wealth is being built through mutual funds, index funds, and ETFs in retirement accounts. 

Unfortunately, many of the people investing in these funds don’t know what they’re doing. When I first started contributing to a 401k, I had no clue what investments to pick or how to understand the information they presented to me. And I had a finance degree! To help you navigate your 401k and make as much money as possible, here’s everything you need to know about how to pick good 401k investments.

You’re Investing for the Long Term

401ks are retirement accounts and are therefore designed for long-term investing. They’re so serious about this that they charge a 10% penalty if you withdraw your money before the age of 59 ½. Yikes!

The good news is that it’s a piece of cake to make money in the stock market if you remain invested for a long time. Historically, the stock market has always gone up over the long term, so if you invest for several decades, it’s almost guaranteed that you’ll make money.

The keys to making the big bucks are to reduce your risk exposure by investing in a diversified set of assets and to invest in funds that ensure your return will exceed your expenses. Here’s how to do both.

Understanding Your Investments

Expense Ratio

High expense ratios are your ENEMY! A fund’s expense ratio tells you how much they charge you to cover their administrative expenses. The higher the expense ratio, the more of your money will go to paying fees. 

When going through your 401k offerings, select funds with an expense ratio of .5% or lower. Many funds offer expense ratios around .1% or lower, which is ideal. The high fee funds are going to try to tempt you to choose them, though.

Usually, funds with high expense ratios are actively managed. That means that a fund manager handpicks companies they think will provide their investors with higher returns than the market. Remember, the market goes up over time and usually provides investors with a positive return. Actively managed funds promise to provide returns that are ever higher than the overall market return, which is what tempts investors into paying higher fees.

Unfortunately, most of these funds fail. In fact, 68% of actively managed funds provide lower returns than the overall market. That means you’re paying more money in fees and receiving lower returns. That’s a terrible spot to be in.

Luckily, passive funds have much lower expense ratios because they track an underlying set of investments and seek the same return as the market. Since the fund manager doesn’t have to do extensive analysis to try to beat the market, the administrative expenses are much lower. Therefore, by investing in passive funds, you can expect to receive a higher return and pay less in fees. Now that’s a good deal! 

Market Capitalization

A company’s market capitalization (market cap) is the total value of a company’s outstanding shares of stock. Large-cap stocks are typically worth $10 billion or more, mid-cap are worth $2-10 billion, and small-cap are worth under $2 billion. 

It’s important to consider a company or fund’s market cap when choosing your investments because as a company’s market cap increases, its risk decreases, and vice versa. Large-cap companies are lower risk because they tend to be leaders in their market sector, are well established, and have been around for a long time. Mid-cap companies are typically in a growth phase and have the potential to provide higher returns than large-cap stocks, but their future is less certain, which makes them riskier. Small-cap companies are the riskiest because they tend to be in their infancy and are in emerging or niche markets.

If you’re more of a risk-taker, you can add funds that contain more small and mid-cap stocks into your portfolio, and if you’re more risk-averse, you can invest in funds that contain only large-cap stocks.

Market Sector

Simply put, a market sector is a part of the economy. Some funds are composed of stocks spanning many different market sectors, and some are only composed of companies in one sector, like technology or retail. Some funds also include international companies, while others only contain domestic ones.

It’s important to consider the diversity of market sectors in your funds when choosing your investments, again because of risk. The more market sectors you invest in, the less risk you have in your portfolio, and the fewer you invest in, the more risk you’re exposed to in your portfolio. When you’re invested in a broad range of market sectors, if one sector is doing poorly, the other sectors can minimize the effect the struggling one is having on your portfolio. Limiting your investments to only one sector or a couple of sectors exposes you to much more risk and potential losses.

Choosing Your Investments

Asset Allocation

Asset allocation is an investment strategy that seeks to balance a portfolio’s assets to match the investor’s risk tolerance. To do that, each asset makes up a certain percentage of the overall portfolio. This allows an investor to increase their percentage of risky investments if they’re seeking a higher return or to decrease their percentage of risky assets if they’re more risk-averse.

In general, it’s recommended that you reduce the risk of your portfolio as you age, but everyone’s risk tolerance is different. Overall, stocks are considered riskier than bonds, and international investments are riskier than investing in domestic assets. If you’re young and a risk-taker, you can invest more heavily in stocks and international investments and less in domestic bonds. If you’re older and more risk-averse, you can invest more heavily in bonds.

3 Fund Portfolio

A 3 fund portfolio is a very popular portfolio strategy that allows you to quickly put together a well-diversified set of investments at a risk level you’re comfortable with. To build this type of portfolio, you select 3 index funds, a US stock fund, an international stock fund, and a US bond fund. 

Once you’ve chosen your 3 funds, then you need to determine your asset allocation. If you want a riskier portfolio, you can invest 80-90% of your money in stocks and 10-20% in bonds. If you’re more risk-averse, you can hold a higher percentage in bonds. The beauty of this type of portfolio is that it’s simple and can easily be tailored to meet most investors’ needs.

Target-Date Funds

If the thought of having to build your own portfolio terrifies you, no worries. Target-date funds are for you. These funds determine your asset allocation for you based on your retirement date, and automatically invest in each fund at the percentage they recommend. This means you can invest all of your money into one target-date fund and get exposure to international and domestic investments, and to bonds. Target-date funds will also automatically reduce your risk exposure as you near retirement to minimize any losses you could experience right before retiring. 

Managing Your Portfolio

Once you’ve built your portfolio, you’ve done most of the heavy lifting, but it is important to review your investments at least annually. Depending on how each of your investments performs, your asset allocation could get out of whack over the year. 

If you began the year 90% invested in stocks and 10% in bonds, but stocks performed exceptionally well last year, you could have over 90% of your portfolio invested in stocks now. To return to the 90/10% asset allocation you desire, you would need to sell some of your stock holdings and buy more bonds.

Again, if this sounds like a lot of work, you can use a target-date fund. On top of them determining your asset allocation when you start investing, they will also maintain it for you over time. 

It’s easy to get overwhelmed when trying to determine what 401k investments to pick. Luckily, there are only a few key things you need to consider to pick good 401k investments. You should keep your expense ratios low, manage your portfolio’s risk by diversifying your investments, and build a portfolio that will provide you with maximum returns at a risk level you’re comfortable with. And if all of that is still too complicated, target-date funds are there to save the day.

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Formula for Net Worth: How to Calculate and Grow Your Net Worth with Tips from Jay Z and Beyonce

beyonce and jay z with pink money

Remember in the Wizard of Oz when Dorothy finds out that the Great and Powerful Oz is just a regular guy hiding behind an elaborate display? That’s what it’s like to peer behind the curtain of many “rich” people’s extravagant lives. One peek at their net worth would reveal that a fair number of them are frauds.

Someone’s net worth is a great indicator of whether they’re actually rich or just fake rich. In today’s world, where so much of our lives are broadcast on social media, we’ve been plagued with an epidemic of people who are fake rich. They look like they have it all, but in actuality, their net worth is negative and they buy everything on credit.

Celebrities aren’t immune to the fake rich phenomenon either. While on her Monster tour, Lady Gaga found out that she was $3 million in debt, Michael Jackson reportedly died $400 million in debt, and Donald Trump has declared bankruptcy a whopping 6 times. 

Two celebs are keeping it 100 with their money and are definitely real rich, though. Beyonce and Jay Z. Their estimated combined net worth is $1.4 BILLION! To help you get real rich like the Carters, I’m breaking down how to calculate your net worth and how to grow it using lessons from Jay Z and Beyonce.

How to Calculate Your Net Worth

Your net worth is the total value of everything you own after paying off all of your debts. More formally, it’s the value of all of your assets minus all of your outstanding liabilities. 

If your assets exceed your liabilities, your net worth is positive. If your liabilities exceed your assets, your net worth is negative. A negative net worth means that even if you sold all of your assets, you still couldn’t pay off all of your debt. That’s a problem.

The fake rich have negative net worths and use mounting debt to buy flashy assets like cool cars and trendy clothes. The problem is that the more debt you pile up, the less financially secure you are. If your whole life is financed using debt, it doesn’t matter how rich you look, you’re one of the fake rich.

To make sure you’re getting real rich, not just fake rich, you should calculate your net worth regularly. If your net worth is increasing, you’re building wealth and on the right track.

Below is the formula to calculate your net worth. 

Net Worth = Assets – Liabilities

What are assets?

Assets are property that you own that has value. Basically, if you can list it for sale and someone will buy it, it’s an asset. Simple as that. 

Some examples of assets

  • Businesses
  • Homes/Real Estate/Land
  • Cars
  • Investment accounts
  • Cash/Savings

To calculate your assets, list out all of the big stuff you own along with its current value. Smaller items like clothing and furniture are also assets, but these aren’t usually worth very much for most people. If you have designer clothes, antiques, or collectibles that are worth a lot of money, list those out too. Try to be as accurate as possible with the fair market value of your items.

Once you have all of your assets listed out, add up all of their market values to get the total value of your assets.

What are liabilities?

Liabilities are things that you owe. Your debts. They’re financial obligations that you have to pay to another person or entity.

These include

  • Mortgages
  • Car loans
  • Student loans
  • Credit card debt
  • Personal loans
  • Accounts payable balances

To calculate your liabilities, list out all of your outstanding loans and their current balances. Then, add all of them up to get the total value of your liabilities.

Formula for Net Worth

Once you’ve calculated your total assets and total liabilities, plug those numbers into the formula below to find out your net worth.

Net Worth = Assets – Liabilities

How to Grow Your Net Worth

Now that you know your current net worth, here are some tips on how to increase it. 

Buy Appreciating Assets

Buy assets that make you money, not assets that make you look like you have money.

To get rich you need to use the money you have to make more money. This goes for cash purchases and purchases financed with debt. Contrary to popular belief, not all debt is bad, and it can be a great wealth-building tool. Regardless of whether you’re using debt or cash to finance your purchases, you need to buy appreciating assets if you want to build wealth.

beyonce with Apeshit lyrics "pay me in equity / watch me reverse out of debt" against a blue green background
Image Source CapWay on Twitter

Appreciating assets are assets that make money. They do this because their value increases over time. Two of the most popular appreciating assets are real estate and stocks. Historically, the returns on both of these have been excellent over the long term. For beginner investors, these are great assets to use to start your wealth-building journey.

One of Beyonce’s most profitable money moves was when she asked Uber to pay her $6 mill in stock for her performance at an Uber event instead of accepting payment in cash. Four years later, her $6 mill was worth $300 mill! Investing your money into wealth building assets like stocks and real estate may mean that you forego having extra cash on hand now, but it also means that you’ll have a lot more wealth later.

Other appreciating assets include businesses, art, commodities, and collectibles. Jay Z talks about building wealth by investing in art in his song The Story of OJ. He says, “I bought some artwork for 1 million / 2 years later, that shit worth 2 million / few years later, that shit worth 8 million.” 

Jay’s lyrics clearly display the ability to compound your wealth by buying appreciating assets. In his example, he grew his net worth by $7 mill just by buying that one piece of art alone. And that’s just a tiny portion of what he invests his money in. By investing in multiple appreciating assets, he can speed up his wealth-building dramatically. The same goes for you.

Capitalize on Your Talents

Jay Z started Rocawear to make money for himself instead of for other brands. He noticed that every time he wore a brand or rapped about one in a song, that brand’s sales skyrocketed. He realized that if he created his own clothing brand, wore it, and rapped about it, he could have all of that money flow to him instead of another brand. So, Rocawear was born.

While you may not have Jay Z level influence, that doesn’t mean you can’t monetize your talents. The first step in doing that is obviously finding your talent. A great way to do this is to think about what advice friends, family, and coworkers come to you for. Is it outfit advice, health and fitness, recipes, or money? Whatever it is, if other people ask you for advice on it, they want to be influenced by you. Chances are others will too.

Once you know your point of influence, then you can monetize it. There are a lot of different ways you can do this. You can start a blog or YouTube channel, create an online course, build a following on social media, start an Etsy shop, open a store or restaurant, the list is endless. 

This method will not work if you don’t want to dedicate substantial time, effort, and possibly money to your new hustle, though. Creating businesses and building up a following can take years. If you aren’t willing to put a lot of blood, sweat, and tears into a new endeavor, don’t do it. You’ll end up wasting money. Instead, invest in low maintenance appreciating assets, as we discussed earlier.

The formula for increasing your net worth is simple. Buy more appreciating assets, and use less bad debt. The hard part is avoiding the temptation to become fake rich. Being fake rich is fun while it lasts, but it comes at the cost of constantly being on the verge of financial ruin. One day, the facade will crack, and the truth will be exposed. To avoid going from being fake rich to being real poor, you should invest in appreciating assets and capitalize on your talents. Doing that will grow your wealth and make you real rich like Jay and Bey.

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When to Start Investing: 3 Tips for a Beginner Investing in Stocks

The craziness surrounding the stock market is usually what turns beginners away from investing but last week, Reddit investors changed that. They caused chaos and proved that amateur investors can band together and take down richer, older investors. This show of force empowered young people to start investing in huge numbers. 

While I love how invigorated the GameStop battle has gotten people about investing, I’m also worried that newbie investors will fall victim to predatory financial tactics. There is so much misinformation promoting get-rich-quick schemes and risk-free ways to make 1000% returns on platforms like TikTok.

If it were as easy to get rich as they make it seem, we would all be doing it.

If you’re new to investing, I’m going to tell you how to cut through the BS and invest the smart way. Your success with this method won’t happen overnight, but it will happen. If you’re ready to stop reading because I’m not telling you how to get rich fast, let me ask you this. Would you rather take a gamble on getting rich quick or get rich for sure? If you picked the second option, these are my tips for what to do as a beginner investing in stocks and when you should start investing.

When to Start Investing 

A popular phrase in personal finance is ‘time in the market beats timing the market’. Time in the market means that the longer you leave your money invested in the stock market, the more money you’ll make. This is due to compound interest, what Warren Buffett calls the eighth wonder of the world.

He’s probably so fond of it because over 99% of his wealth was made after he turned 54. You read that right. If Warren Buffett had cashed out his investment portfolio to retire at 60, he never would have gotten super-rich and you probably wouldn’t know his name. He’s amassed so much wealth by lengthening the time he was invested in the market and letting compound interest work its magic.

Compound interest is so great because you earn interest on the interest you’ve already earned. This creates exponential growth in your investment portfolio, but it takes a while to see huge gains. That’s where the time in the market comes into play. The longer you leave your money invested, the more money you’ll make from compounding.

You can see the slow growth at the beginning of Warren Buffett’s tenure, and now much faster the growth is now. That’s due to compound interest. Graph from MarketWatch.

Timing the market, on the other hand, is fast-paced and means that you try to buy a stock when the price is at its lowest and sell it when it’s at its highest. This sounds simple, but if it were, the hedge funds would have seen their billion-dollar GameStop losses coming and been able to avoid them. 

The problem with timing the market is that it is a short-term investing approach and it’s nearly impossible to predict what will happen with the stock market in the short-term. If everyone had predicted the 2008 stock market and housing crash, it could have been avoided, and no one would have lost money. The same is true of the huge stock market drop in March 2020 when the novel coronavirus got to the US. And the same is also true of GameStop’s stock price surge. If it were easy to predict these swings, we would all be making lots of money doing it. But it isn’t easy. It’s almost impossible. That’s why time in the market usually beats timing the market.

To get as much time in the market as you can, you need to start investing as early as possible. Before you start, though, you should have an emergency fund saved. Investing is risky, and all of the money you invest can be lost in the blink of an eye. If you lose your job and your investments tank, you’ll still need money to live off of. That’s where your emergency fund comes in handy. So save for an emergency fund first, then invest.

Choose an Investing Approach

Once you have your emergency fund saved and are ready to start investing, there are three investing strategies you can choose from. Trading, value investing, and long term passive investing. Each method has a different level of risk and requires a different level of effort to succeed. To choose the strategy that’s best for you, you’ll need to assess your risk tolerance and the amount of effort you’re willing to put into managing your portfolio.

To assess your risk tolerance, take this quiz.

To determine the amount of effort you’re willing to put into your investments, read more about the 3 investing strategies below and select the one that is best for you.

Trading

Trading is a type of active investing that is all about timing the market. The goal with trading is to buy a stock at its lowest price, hold it until the price increases to a certain amount, and then sell it at a profit. Some traders only hold a stock for minutes or hours before selling. It’s fast-paced and requires a ton of research. 

Like I mentioned before, it is extremely difficult to predict how a stock’s price will move over the short term. That means there is a high potential to lose money with this strategy, so if you want to succeed at it, you’ll need to spend a lot of time researching stocks, market sectors, consumer habits, and more. Unless you thrive under high stress and want to dedicate most of your time to your investment portfolio, I wouldn’t advise trading.

Risk level: Very high

Time commitment: Very high

Value Investing

The second stock market investing approach you can take is value investing. This is the approach Warren Buffett uses. 

Value investing is an investment strategy where you buy stock in a company that you think is undervalued and has unforeseen growth potential. A stock is undervalued when the price it is trading for on the stock market is less than the actual value of the company. Basically, the stock is trading at a discount. It’s just like when you buy something on sale at a store. You feel good about your purchase because you know you paid less for the item than it’s actually worth.

You can make money using this investing approach because at some point, the stock price should adjust to match the company’s true value. When the price rises to the correct level, you make money. It sounds simple enough, but there are a lot of unknown variables involved in valuing a stock.

To determine if a company is undervalued, you first need to do a deep dive into that company’s financial statements. I don’t just mean glance over them. I mean, you need to use them to calculate their price to earnings/book/sales ratios, EBITDA, several other metrics, and to estimate their growth. Then you need to use all of these metrics to determine if the company is undervalued and has good long-term growth potential. If it does, it could be a good investment, but much of your assessment is based on assumptions. Those assumptions may be correct, or they may not.

To get great at value investing like Warren Buffett has, you have to make correct assumptions. Again, if becoming a billionaire were as easy as calculating a few ratios, we would all be doing it. Finding ways to predict the unknown variables correctly is what Warren is fantastic at and why he’s been able to make so much money. Unfortunately, his methods and earnings are hard for most people to replicate.

Risk level: Moderately high

Time commitment: High

Passive Investing

Passive investing is a long-term investing approach where investors try to receive the same return as the market instead of trying to beat it. Passive investors buy index funds and ETFs that track an underlying set of investments and hold them for decades. When a fund tracks an underlying basket of investments, it provides the same return as those underlying investments. For example, if you buy an index fund that tracks the S&P 500, your fund will perform the same way the S&P 500 is performing. No better and no worse. 

The reason passive investors are content receiving the same return as the market is because historically, the stock market has always gone up over the long term. Therefore, if you buy a well-diversified fund that tracks the stock market and hold it for decades, you can expect to make money even if the market drops in the short term.

Because passive investing doesn’t require you to predict market swings, this investing style requires minimal effort. The only time you need to exert any effort is when you select your initial investment and when balancing your portfolio. While there’s never 100% certainty when it comes to investing in stocks, since historically the market has gone up over the long-term, the probability of making money with this strategy is much more certain than with the other two investing strategies we’ve discussed. 

Risk level: Moderate

Time commitment: Low

Don’t Lose Easy Money 

Taxes and fees will eat into your earnings substantially and quickly. Here’s how you can minimize your losses to them.

Avoid Short Term Capital Gains Tax

When you sell a stock, you have to report your earnings as income and pay taxes on those earnings. If you hold your investments for less than a year, your earnings will be taxed at the short-term capital gains tax rate. For most people, this rate is the same as their income tax rate and is around 20-30%. All of the Reddit investors might not know this yet, but they’re going to lose close to a third of their earnings to taxes.

Instead, if you hold your investments for over a year, your earnings will be taxed at the long-term capital gains tax rate, which is around 15%. That’s 5-15% more money in your pocket for holding your investment for a longer period. This is another reason many investors take a long term investing approach over a short-term one.

Invest in Funds with Low Expense Ratios

Fees are another thing that will eat heavily into your earnings. If you’re going to take a short term investing approach, you’ll need to avoid trading fees. Fortunately, many platforms offer low or no trading fees, so these should be easy to avoid.

Long-term investors, on the other hand, need to watch out for high expense ratios. The reason so many people are tricked into investing in funds with high expense ratios is because, by normal standards, high expense ratios don’t seem high. What I mean by this is that a 2% expense ratio seems low to a newbie investor, but it’s actually super high. When deciding what fund to invest in, go for ones with expense ratios less than .5%. This may seem trivial, but high expense ratios can end up costing you hundreds of thousands of dollars.

If a person invests $1,000/month for 30 years into a fund with a .25% expense ratio, they’ll pay a total of about $55,000 in fees and end up with around $1.15 million assuming they receive a 7% annual return. $55k in fees may already seem like a lot, but just wait until you see the dollar amount for investing in a 2% fund. 

Instead, if they had invested their money in a fund with an expense ratio of 2% and received the same return, they would end up paying almost $376,000 in fees! That’s a loss of more than 6 times what the low expense ratio investor paid. Because of that, the high expense ratio investor winds up with less than $1 mill in their pocket. 

When it comes to newbie investors, there’s no shortage of misguided information on the internet. Social media platforms have made spreading misinformation even easier for the financial predators looking to get-rich-quick themselves. The truth is that smart investing isn’t glamorous or quick. It’s about making sure you’re financially secure enough to start, staying invested long enough to let compound interest make you millions, and minimizing the money you lose to taxes and fees. While there’s no guarantee that you’ll make money investing in the stock market, if you do those things, I can [almost] guarantee you will. 

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How Reddit Trolls Got Rich on GameStop and Made Wall Street Tycoons Lose Billions

wallstreetbets and hedge funds gamestop meme

Unless you’ve been living under a rock, you’ve probably heard talk about how Reddit trolls are getting rich investing in GameStop and causing Wall Street fat cats to lose billions. While all of the GameStop drama is riveting, it can also be quite confusing for anyone who isn’t a finance nerd. To help you figure out what’s going on with GameStop so you can enjoy the drama as much as the rest of us, I’m going to simplify the financial concepts that caused Wall Street investors to lose billions, tell you why this battle is such a big deal, and answer the biggest question of all. Should you invest in GameStop?

The GameStop War

If you’re unfamiliar with GameStop, they’re a brick and mortar video game retailer that can be found in shopping centers and malls around the world. But they’ve been on the struggle bus. The pivot toward online shopping, the rise of streaming, and the ease of downloading a video game directly to your console has made GameStop’s future as a brick and mortar retailer look pretty grim. The pandemic didn’t help them out either.

While most investors would avoid buying stock in a failing company like GameStop, these companies can be a gold mine for hedge fund investors. 

What is a Hedge Fund?

A hedge fund is an actively managed fund that uses pooled funds, typically from accredited investors, to try and take advantage of certain identifiable market opportunities. In simpler terms, they take money from rich people and try to find opportunities in the stock market that others don’t see and capitalize on them. One way that they do this is by short selling.

What is Short Selling?

Typically when people invest in a company, they think the stock price will go up and take what’s called a long position. They buy the stock at its current price and expect that they will be able to sell it at a higher price in the future. The difference between the low price they bought the stock for and the high price they sell it for is the investor’s profit. 

Short selling does the opposite of this and bets that a stock’s price will go down. It’s slightly more complicated than a long buy and works like this.

Ruth thinks a stock’s price will go down, so she borrows that stock from Janet and immediately sells it to Donald at its current price of $100. Then Ruth waits for the stock price to drop to $50, buys the stock back from Donald at the new low price, and then gives the borrowed shares back to Janet. Since Ruth sold the shares to Donald for $100 and then bought them back for $50, she makes a $50 profit.

While short selling is only slightly more complicated than the long buy strategy investors typically use, it is much riskier. Unlike regular investing, where you can only lose the amount of money you initially invested, there is no limit to the amount of money you can lose from short selling. 

A short seller loses money when the price of the stock they invested in goes up. Since there is no limit to the height that a stock’s price can rise, there’s also no limit to the amount of money a short seller can lose. This extreme downside risk is what allowed Reddit investors to buy GameStop stock and create billion-dollar losses for hedge funds.

What Went Down: The GameStop Short and WallStreetBets Rise

In 2020, hedge fund managers took notice of GameStop’s grim future and aggressively shorted the stock. If GameStop failed, the hedge funds stood to make a killing.

This aggressive short position didn’t go unnoticed by individual investors on Reddit in a group called WallStreetBets, though. They realized that if they bought up as many shares of GameStop stock as possible, they could drive the stock price up. Hedge fund managers would then be forced to buy back their shares at a higher price to close out their short positions and avoid bigger losses if the stock price continued to rise.

To make problems worse for the hedge funds, the act of them buying back shares to close out their short positions actually pushes the stock price up further. This negative feedback loop is called a short squeeze. As the stock price went up, WallStreetBets investors made a killing, and hedge fund investors closed out their short positions at multi-billion-dollar losses.

Shifting Power from Wall Street to Main Street

As you can imagine, the hedge funds are not taking their billion-dollar losses lying down. They’re now calling for regulators to make it illegal for people to band together to create changes in the stock market like WallStreetBets investors did. But manipulating the market this way is exactly what hedge funds do when they short sell a stock.

When hedge funds take out large short positions on a company’s stock, this usually drives the stock price down further and more quickly. So hedge funds are in the business of exacerbating problems at already struggling companies and causing them to fail more rapidly. The faster they go down, the faster the hedge fund makes money.

So are hedge fund managers just mad that everyday investors found a way to beat them at their own game? Probably. 

That’s because hedge funds are typically only accessible to accredited investors. To become an accredited investor, you must meet certain income and net worth requirements. This prices out most regular investors like the ones on WallStreetBets. 

The benefit of becoming an accredited investor is that you can invest in a wider range of investments. Because of your wealth, the SEC assumes that you’re able to take on the risks associated with investment categories that are less heavily regulated by them. Being accredited also allows investors to take riskier positions like selling a stock short. 

Regular investors, on the other hand, are limited to investing in mutual funds. These funds are more tightly regulated by the SEC, usually only contain stocks and bonds, and investors are only able to take long positions in them. 

So hedge funds are asking the SEC to increase regulations on everyday investors that are already limited to more heavily regulated investments, while the hedge funds benefit from the limited SEC regulation they face by only servicing accredited investors. 

That’s why the GameStop short is getting so much attention. Because the power shifted from the mega-rich Wall Street investor to the everyday investor. 

Should You Invest in GameStop?

I wouldn’t recommend it.

Investing in any singular stock is risky, and while all of the GameStop drama is super exciting, I’m much happier watching from the sidelines rather than being a player in the game. 

There are always new shiny objects that pop up for investors. Right now it’s GameStop, last week it was Tesla, and we can’t forget about the rollercoaster ride Bitcoin has taken us on. But getting shiny object syndrome and investing in the latest hot stock is a great way to lose money in the long run. Not to mention, it’ll elevate your stress to the max.

The easiest and most hassle-free way to invest in the stock market is to invest in passive funds. These include index funds and ETFs that track an underlying set of investments. Their goal is to receive the same return as the market, and since the market has historically gone up over the long term, it’s safe to assume that you’ll make money investing in them.

Passive funds also usually have lower fees than actively managed funds like hedge funds or other mutual funds. That’s because active funds try to find hidden gems like GameStop so you can make sky-high returns. Finding hidden gems takes a lot of work, though, and you pay more for all of that extra work.

Paying more in fees may not seem like a problem since your fund manager says they’ll make you more money, but active funds often don’t actually provide higher returns to their investors. I mean, think about how much money those hedge fund investors just lost. Now they’re stuck with huge losses and high fees. Not a spot I want to be in.

If you’re looking to skip the drama and invest in passive funds, a great way to get started is to invest in one that tracks the S&P 500. The S&P 500 is widely regarded as the best measure of the overall stock market’s performance and tracks the 500 largest US companies. Funds that track the S&P are super common, well-diversified, and have low fees, which make them perfect picks for almost any investor.

Who the victor will be in the battle between the hedge funds and the WallStreetBets investors is still unknown. Will the rich, Wall Street tycoons take back their power and crush the everyday investors? Or will David prevail against Goliath and leave the WallStreetBets investors on top? Who knows. One thing is certain, though, watching the drama continue to unfold will be one hell of a ride. 

Want more investing advice? Get my free finance guide, set up a consulting call with me, or sign up for my Make Yourself a Millionaire program.

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Best Stocks to Buy Now That Joe Biden Is President

joe biden smoking marijuana

Have you ever wondered what weed, Tesla, and TLC have in common with Joe Biden? Probably not, but you’re about to find out.

If you were hoping this article would provide you with some secret stock tips to help you get rich over the next four years, I’m going to disappoint you. And frankly, that’s because anybody who tells you they know which stocks will go up while Joe Biden is president is full of shit.

Nobody has any idea what the stock market is going to do in the short term. I mean, think about all of the people who invested in construction companies when Trump became president thinking they were going to ‘build that wall’. None of those investors got rich because ‘that wall’ didn’t happen.

Instead of giving you garbage stock picks, I’m going to tell you why TLCs song Waterfalls gives great investing advice, how to invest in Tesla the smart way and why it’s a good idea, and why the weed industry could be a moneymaker during Joe Biden’s presidency.

Stick with Your Long Term Investing Strategy

Don’t go chasing short term gains. Please stick to the ETFs and index funds that you’re used to. Those are the lyrics to TLC’s song Waterfalls, right?

If you feel stressed and like you need to switch up your investment strategy because of all the stock market hype that coincides with a new president taking office, I have great news for you. You don’t have to switch up your strategy, and here’s why.

The Federal Reserve (Fed) has indicated that they will be keeping interest rates near zero for the foreseeable future. This is great news for stocks because low interest rates make competing investment options less attractive. Take bonds, for example. Bonds are attractive investments because they are safer than stocks, but when interest rates drop, so do the earnings bonds provide.

Since an investor’s goal is to make money, when bond rates are low, investors seek out other investment options that will provide a higher return. One great alternative for them is investing in the stock market. 

For evidence of this theory, just look back at the stock market’s performance over the last decade. To stimulate the economy in 2008 during the Great Recession, the Fed dropped interest rates to near zero. Since then, rates have remained near zero, and the stock market has boomed. 

So it’s safe to assume that over Biden’s first term, interest rates will remain low, and the stock market will rise. Because of this, investing in an index fund and/or ETF that tracks the S&P 500 is a relatively low-risk investment option that should provide good returns. Since many investors already have these holdings in their portfolios, there’s no need to change their investing strategy now that Joe Biden is president. They can just stick to the index funds and ETFs that they’re used to.

Buy Tesla Stock

Tesla is Added to the S&P 500

If you have serious FOMO because you haven’t started investing in Tesla yet, you’re not alone. I’m not going to tell you to go buy up a bunch of Tesla stock, though. Doing that will make your portfolio very risky. How? Because if much of your portfolio is invested in Tesla and the stock price plummets, you’re going to lose a lot of money.

I have great news, though. There’s a much lower risk way you can invest in Tesla stock. Buy an index fund or ETF that tracks the S&P 500!

Tesla was added to the S&P on December 21, 2020, which means you can now participate in the Tesla hype without going crazy, crazy like KC and JoJo with it. By investing in an index fund or ETF that tracks the S&P 500, you will own a fraction of a share of all 500 companies that make up the S&P 500 index. Since Tesla is now one of those companies, buying the S&P 500 makes you a Tesla investor, but in a much safer way.

The 500 companies that make up the S&P 500 provide diversification to investors. By investing in Tesla via the S&P 500, when (I mean if) Tesla’s stock price falls, you will have 499 other companies’ earnings to help offset your Tesla losses. Investing in Tesla this way allows you to participate in the Elon hype and avoid the potential devastation that a drop in Tesla’s stock price could cause. 

Clean Energy Stocks

Another reason you should buy Tesla stock is because Tesla is a clean energy company. 

On his first day in office, Biden already rejoined the Paris Climate Agreement and issued other environmental policy orders. He’s also proposed making radical changes to emissions standards to become a 100% clean energy economy by 2050. If this is any indication of how his presidency will go, I’d expect a huge push toward clean energy initiatives. With Democrats controlling the House, Senate, and presidency, these initiatives are much more likely to pass. 

Reducing the effects of global warming may not be Biden’s only incentive for adopting clean climate legislation, though. With the impending recession the coronavirus has caused and coal miners still struggling to find work, these initiatives could also be a good opportunity for job growth. Since Tesla is a clean energy company and is already growing and innovating at warp speed, they should be well-positioned to benefit from these changes during the Biden years.

Buy Marijuana Stocks

“Smoke weed every day” isn’t just the lyrics to a Snoop Dogg song, but has also become a motto for many. Over the last decade or so, the number of people reporting that they’ve used marijuana in the last 30 days has increased, as well as the number of people reporting that they use marijuana 20+ days per month. That means there are more people smoking pot, and they’re smoking more of it.

The exact reasons for this are unknown, but the push toward legalization probably has a lot to do with it. Only 6 states remain where Mary Jane hasn’t been decriminalized or legalized medically or recreationally.

On top of states adopting legalization in large numbers, the MORE Act, a federal bill to decriminalize weed, passed in the House on December 4, 2020. The bill has since stalled in the Senate and was expected to fail, but that was before Senate control flipped to the Democrats after they picked up two seats in Georgia during the runoff elections. Getting the bill passed still won’t be a cakewalk, though. Democrats only have a slim majority and may still have a hard time passing the bill.

The MORE Act to federally decriminalize marijuana isn’t the only weed bill currently up for a Senate vote. Another bill called the SAFE Banking Act has also passed in the House and is awaiting a vote in the Senate. Unlike the MORE Act, the Safe Banking Act has bipartisan support and is much more likely to pass. 

The great thing for your portfolio about the SAFE Banking Act passing is that it is intended to make it easier for marijuana businesses to access bank funding. That means cannabis companies will have access to more money to grow their businesses. If their growth efforts are successful, that means high returns for their investors.

With rising marijuana usage and consumption, and broadening legalization efforts, the potential for growth in the weed industry is high. (No pun intended.) Democrats also now control the House, Senate, and presidency, which may make this the perfect time to get a lot of legalization legislation passed.

Investing in marijuana stocks is still a risky bet, though. If you’re up for the risk, investing in a marijuana stock index fund or ETF will provide broader exposure to companies in the industry than investing in a single company stock will. Just like buying the S&P 500 to invest in Tesla provides diversification and reduces your risk, the same is true of buying a marijuana stock index fund or ETF. 

The difference is that companies in the S&P 500 span many industries and are usually much better established. These factors lessen the likelihood of large losses for an investor. Companies in the marijuana industry are relatively new and unpredictable. So if you’re going to invest in the weed industry, I’d recommend doing so in a separate account using your “fun money”.

“Fun money” is money you put toward your stock market gambles and are content with losing. Once you know how much money you need to invest to live your retirement dream and you’re on track to get there before retirement age, you can start a “fun money” investment account. 

In this account, you can take huge gambles with your money. You can invest in marijuana stocks, bitcoin, Tesla company stock, smaller tech companies, whatever you think could be a big winner. Making incredible amounts of money on any of these investments is a definite possibility, but so is losing it all. That’s why I recommend these investments make up no more than 10% of your entire portfolio and that you only use your “fun money” to make them.

So what do weed, Tesla, and TLC have in common with Joe Biden? They’re all investments that should do well during the Biden presidency. Low interest rates should make taking the TLC approach and sticking to your long term investing plan a win, Tesla getting added to the S&P 500 gives you a less risky way to jump on the Tesla bandwagon and take advantage of their position in the clean energy sector, and if you’re looking to have a little more fun with your money over the next 4 years, the Senate makeup and bills currently awaiting votes should position the marijuana industry to grow during the Biden years. 

So don’t stress about changing up your investing strategy now that we have a new president. The best stocks to buy now what Joe Biden is president are the same ones you’ve been buying. You should still invest for the long term, find smart ways to invest in market-leading companies, and make sure to have a little fun money.

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2 Investment Accounts You Need to Retire Early

two women discussing which investment accounts you need to retire early

Oh, early retirement. How fabulous it would be to break away from that 9-5 and live the luxurious life you’ve always dreamed of. To finally have free time, the ability to sleep in as late as you want, and go on vacation for months at a time, all before the ripe old age of 60.

The dream of retiring early is a popular one. I don’t know a single person who doesn’t at least want the ability to retire as early as possible, even if they never plan on actually doing it. Maybe you love your job, or working in general, and can’t imagine ever actually retiring, but you probably still want the freedom of financial independence and the flexibility to say sayonara to your job if you ever change your mind.

Most people are trying to retire one day by investing in retirement accounts like 401Ks or IRAs. Those investment accounts are great to use if you don’t plan to retire early, but not so great if you do. The problem with these accounts is that they penalize you for withdrawing your money before your late 50s, which is exactly what you’ll need to do if you want to retire early.

To avoid losing money to these steep early withdrawal penalties, you’re going to need an investment account that allows you to withdraw your money before you near 60. The two investment accounts you need so you can retire early, penalty-free are a Roth IRA and a taxable brokerage account.

Roth IRA

A Roth IRA is the first type of investment account you should contribute to if dream of an early retirement. The contributions you make to your Roth IRA are after-tax, meaning you already paid income taxes on the money. A huge benefit of Roth IRAs is that any money you earn on your contributions is completely tax-free. Unlike with 401Ks and traditional IRAs whose earnings are taxed upon withdrawal, Roth IRAs allow you to withdraw your earnings in the future and pay absolutely zero taxes. This is a huge benefit whether you retire early or not, which is why it’s the first account I’m recommending.

The reason this one of the best types of investment accounts to use to retire early, in particular, is because you can withdraw your contributions at any time, penalty-free. The issue is that you still have to be 59 ½ before you can withdraw your earnings. With a contribution limit of $6,000 a year, even the most frugal people will have a hard time retiring off of their Roth IRA contributions alone. On top of that, you can’t contribute at all if you make more than $139k a year, so as your income increases and you progress in your career, you may exceed the limit. And that leads us to number two on the list of investment accounts you need if you want to retire early.

Taxable Brokerage Account

The biggest difference between brokerage accounts and all of the other investment accounts we’ve mentioned so far is that brokerage accounts offer no tax benefits. Retirement accounts like 401Ks and traditional IRAs offer tax-deferred contributions, and as we discussed all of your earnings grow tax-free through a Roth IRA. But you won’t find either of these perks when investing through a brokerage account. Any earnings you make on the investments in your brokerage account are taxed at the capital gains tax rate.

While these accounts won’t help you out with your taxes, by not offering any tax benefits, they do allow for much more flexibility with deposits and withdrawals. Unlike retirement accounts, which have contribution limits and restrictive withdrawal policies, taxable brokerage accounts have no limits on how much you can invest or when you can withdraw your money.

Both of these advantages are critical for people looking to become early retirees. Having no contribution limits means that you can invest as much money as you want, no matter what your current salary, and let compound interest start to work its magic. Then once you reach FI, you can take advantage of the second benefit these accounts offer and begin withdrawing your money penalty-free.

Before opening your brokerage account, there are a couple of different account types you should consider. How involved you want to be with managing your investments will determine which type of account is best for you.

Online Brokerage Account

Online brokerage accounts are great if you want to manage your own investments. You can buy and sell stocks, bonds, mutual funds, and many other investment types within these accounts. Remember that as a long-term investor, your goal is to build a well-diversified portfolio that you let grow for several decades, not to buy and sell stocks frequently. The temptation with these accounts will be to start trading “hot” stocks. Don’t fall into this trap! As many studies have shown, traders rarely beat the market, no matter how many of them post on Instagram that they’re up 1000% this year.

An easy way to build a well-diversified portfolio in your online brokerage account is to mimic a target-date fund. To do that, find the target date fund that is appropriate for your age group, and look at what funds make up that target-date fund. Then find similar funds through your brokerage account and invest in each at the same percentage that your target-date fund does. For example, if your target date fund is composed of 90% stocks and 10% bonds, you should find index funds and/or ETFs that mirror those holdings and invest 90% of the money in your brokerage account in the stock fund, and 10% in the bond fund.  

The main thing to consider before opening this type of brokerage account is that your portfolio won’t be managed for you. To maintain your portfolio structure and reduce your risk over time, you will need to manually readjust your own investments.

Managed Brokerage Account

As the name suggests, this type of brokerage account will manage your investments for you. One increasingly popular category within this group is Robo-advising. These “advisors” manage your investments using complex algorithms. They’re a great alternative to a human advisor because they provide portfolio management services for investors who want to be hands-off but at a cheaper rate.

Another option to consider is a managed brokerage account with a human advisor. This is a more expensive option, but a good one for people who aren’t comfortable relying on computer code to manage their money. Before hiring a human advisor, it is important to make sure you understand their fee structure and verify that they are a fiduciary. Fiduciary financial advisors are legally required to make decisions that will be in their client’s best financial interest.

If you aren’t sure which type of account will be best for you, consider how you’re currently managing your retirement accounts. Do you enjoy using target-date funds because you can be hands-off with your investments? Then a managed brokerage account is a great option to consider using to invest for early retirement. On the other hand, maybe you like to regularly update your holdings in your retirement accounts. In that case, an online brokerage account would work wonderfully for you and you’ll save some money by not having to pay an advising fee.

Many people work hard to max out their 401Ks and IRAs so they can reach financial independence and retire. The problem with investing only in retirement accounts is that they have withdrawal restrictions that won’t allow you to access the passive income your investments generate if you want to retire early. To avoid having enough money invested to retire before 60, but not actually being able to do it, make sure to add a brokerage account into your investment portfolio. Investing in a Roth IRA and taxable brokerage account puts you on the fast track to becoming a rich bitch before 60, so you can live out your early retirement dream.

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Why Paying Off Your Loans Early is Dumb

paying off debt vs investing

A whopping 80% of Americans are in debt, and many are working as hard as they can to pay off their loans as quickly as possible. While trying to become debt-free is a popular sentiment in the personal finance community, it’s an incredibly dumb piece of financial advice. To help you understand why paying off your loans early is dumb, I’m going to tell you how debt works, why paying off your loans early isn’t as helpful as you think, and how investing can make you a lot richer.

How Debt Works

Debt is a financial tool that you can use to buy something that you can’t currently afford. You read that right. You can’t actually afford the things you’re buying with debt even though you can afford the payments.

Whether it’s a house, university tuition, or a car, you’re taking out a loan because you don’t have enough cash on hand to make the purchase. To make up the difference between what you have in cash and the price of whatever you’re buying, you take out a loan. To do that, you ask someone, usually a bank, who has enough cash on hand if it will lend it to you.

The bank isn’t going to just give you their money for free though. They also want something out of the deal, so they charge you interest on your loan. Your interest charge is a percentage of the principal or the amount you borrowed and is charged at regular intervals, usually monthly. The longer it takes you to pay back your loan, the more you’ll end up paying in interest. Since you can save some money on interest by paying off your loan faster, people tend to prioritize paying off their loans quickly to maximize their interest savings. But there’s one GIANT problem with this.

Why Paying Off Your Loans Early is Dumb

The problem is the opportunity cost of paying off your debt fast. By putting extra money toward your loans to pay them off early, you forego the opportunity to invest your extra money instead. When you’re evaluating two opportunities, like whether to pay off debt or invest, you want to end up picking the one that will make you the most money. The winner between these two is usually investing.

Before breaking down how much money you’re losing by paying off your loans instead of investing, I have to point out that there is one exception to this rule. Credit card debt. The interest you’re charged on your credit card debt is typically at least several percentage points higher than the return you could expect to receive from investing. Some credit cards actually charge you more in interest than Warren Buffett makes in the stock market, and he’s one of the top-earning investors! So if you have credit card debt, put as much money as you can toward paying that off first, then take the advice in the rest of this post.

Ok, back to why investing is usually a much better opportunity. Let’s say you took out a loan on a $250,000 house at a 3.5% interest rate for 30 years. If you pay an additional $100/month on your loan, you’ll only save about $24,000 in interest and cut down your loan by just 4 years. While $24,000 may seem like a large savings, remember that this savings took 26 years to accumulate. That’s means you saved less than $1,000 each year.

So what would investing that extra $100/month have gotten you? If you’d invested it into the S&P 500 and received a 10% annual return, you would have over $131,000 after 26 years! That’s $111,000 more than you would have saved by making extra loan payments! Even better is that since you won’t be putting that $100 toward your loan, it’ll take you the full 30 years to pay it off, but investing that $100 for that long will give you even higher earnings of $197,000!

You might be thinking, ok but what if I paid an extra $1,000? That would cut my interest down way more, right? It sure would! You would end up saving almost $100,000 in interest and shorten your loan by 17 years! That’s an incredible savings but still pales in comparison to what you could earn by investing instead. The total you would earn from investing $1,000/month for 13 years, assuming a 10% return, is almost $300,000! After 30, over $1.9 MILLION!

So which would you rather have? $197,000 after 30 years or $24,000? $1,900,000 or $100,000? And this, my friends, is the reason why using your extra money to pay off your loans early is dumb.

What to Do with Your Money Instead

While you shouldn’t pay off your debt early, it is incredibly important to make your minimum monthly payments in full on all of your debt. Once you’re making all of your minimum payments, as our examples show, you need to use your extra money to invest and start building your wealth.

An important note is that if you lower your payments to the minimum and don’t invest the difference, you will just be losing more money to interest. For investing vs paying off debt to work, you have to actually invest your extra cash, not spend it.

So how do you do this? My favorite way is to invest in the stock market because historically, it has always gone up and provided positive returns on well-diversified portfolios. Another plus is that it is super simple to do it. Contrary to popular belief, successful stock market investing can be done with little time and effort. If you’re interested in how you can become a lazy investor and eventual rich bitch, check out this post on how to start investing.

It’s time to stop falling for all of the debt-free advice that’s out there. It’s dumb and isn’t increasing your wealth. To truly build your wealth to the tune of hundreds of thousands or millions of dollars, so you can become a rich bitch or simply retire one day, you’re going to need to invest. The earlier you start investing, the more money you’ll make. So go lower your debt payments to their minimums, and start automatically depositing the difference into an investment account, so you can get rich!