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Crypto, Reddit, Stock Market Thoughts

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The last couple of weeks have been crazy in the stock market. With Reddit putting a short squeeze on Wall Street, crypto assets going gangbusters, and speculation about what inflation will do in the near future, there’s a lot to talk about.

Reddit vs Wall Street

Gamestop and AMC Entertainment are the two biggest names when we talk about Reddit investors.

A large number of shorts were put in by hedge funds and other big players on Wall Street. A specific Reddit account “recruited” its following to pile into the two companies named above. This group of “retail” investors drove the stock price up (as well as other investors that caught wind of their efforts).

Those hedge funds were forced to cover their shorts so they didn’t lose more money. The stock price for those two companies plummeted in the following days, but that doesn’t negate what Reddit did – they beat the big guys.

What’s a short?

A short is a type of trade. What you do is you borrow shares of a stock at a specific price in hopes that the stock price will drop. If it does, you buy back those shares at a lower price and collect the difference.

For example, if you bought shares of XYZ company at $20 and the share price of XYZ drops to $10, you would cover your short and earn $10 per share as a return.

It’s not for the faint of heart because stock prices effectively have no ceiling, so you could lose A LOT of money.

Crypto

Cryptocurrencies gained traction over the last few years as investors saw potential. After Bitcoin rose to $20,000 per BTC and crashed, it lost its allure.

Social media brought it back, thanks to Elon Musk. Slight changes in his Twitter bio moved the needle very effectively. Bitcoin is now hovering at $50,000 per BTC. Tesla invested a healthy sum in Bitcoin and will now accept payments in Bitcoin.

I believe other companies will adopt this policy and we will see Bitcoin used for purchases more regularly. There is a place for cryptocurrencies in this world, but it’s uncertain what kind of role it will play.

Short-term Thoughts

I go through quite a bit of research each week to get an idea of what the market environment looks like, what the economy is doing, and where there are risks and opportunities in the market.

With that said, the amount of times I’ve read the word “bubble” is alarming. The comparisons to the Dot Com Bubble and the Great Financial Crisis (GFC) are also a cause for concern.

Pundits are using the word “euphoria” more often.

There are a few things to pay attention to:

  1. The divergence between the stock market and the economy. Typically, near the end of the business cycle, a difference between how the market is doing and how the economy is doing grows. Eventually, things will revert to the mean. That’s to say, the difference between the two will shrink.
  2. Inflation. The Biden Administration is taking a different stance from past presidents. Inflation and overstimulation of the economy were areas of concern. President Biden is taking the other side of this argument, saying that he’d rather do too much, than not enough. Look for increased stimulus and less regard for inflation. If inflation starts to run hot, expect the FED to cool it down somehow.

Conclusion

Short-term policy changes and speculative movements in the stock market have little to no impact on the long-term performance of your portfolio. The one thing that really moves the needle is your behavior and how you respond to the news.

If you keep your long-term perspective in mind and keep your emotions in check, you should fare better than those that don’t.

Related reading:

Why Financial Literacy is Important

What You Can Learn from Different Market Environments

Some of the Practical Methods to Make Money Through BTC in 2021

 

*Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Top 5 Wealth Management Platforms

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Wealth management firms rely on platforms to provide accurate, quick, and efficient advisory and wealth management services to their clients. The market is flooded with many wealth management platforms, each claiming to be the best platform offering advanced and unique features. It is impractical and time-consuming for wealth management firms to test each wealth management platform available in the market to determine the best and most capable platform. We have tested many wealth management platforms and solicited reviews from various wealth advisory firms using different platforms to determine the top 5 wealth management platforms. In this article, we will discuss the pros and cons of each platform. Let’s check out and review our list of the top 5 wealth management platforms.

1- AdvisorEngine:                                                                       

Pros:

  • Digital Onboarding
  • Client Portal
  • Personalized wealth planning
  • Compliance + Investment and Risk management framework
  • Trading & Rebalancing Portfolios with tax optimization
  • Reporting

Cons:

  • Only supports TD Ameritrade, Pershing, Fidelity, Charles Schwab Custodians

AdvisorEngine ranks first in our list of the top 5 wealth management platforms due to its all-in-one nature and cutting-edge features, empowering not only the wealth advisors but facilitating the clients as well. The customer support reviews show it to have a high-level of customer satisfaction, especially with their CRM Junxure.

Wealth advisors can start their client onboarding journey digitally, allowing for paperless and quick account-opening experience to clients. We were especially impressed with the client portal which provides a very modern look and allows clients an easy and quick real-time overview of their accounts so they can stay informed about the latest positions of their accounts.

One of the hallmarks of AdvisorEngine is that it lets wealth advisors configure the investment framework according to the clients’ needs. Wealth managers and advisors can implement their own strategies or choose time-tested strategies.

With the information gathered by AdvisorEngine’s customizable questionnaires, wealth advisors can automate the profiling of clients and simplify the process for prospective clients. AdvisorEngine, then, recommends portfolio construction based on the responses of the clients. They are one of the few options we saw that had a complete end to end platform and robo advisor technology.

With AdvisorEngine, wealth managers can ensure that the portfolio management of individual clients complies with the established risk framework. Compliance reporting is significantly simplified.

The portfolio rebalancing feature of AdvisorEngine is fairly robust. AdvisorEngine’s automated portfolio rebalancing tools make it easier for wealth advisors to rebalance the portfolios with just a few clicks without making a significant change in the market value of the assets that can result from rebalancing large portfolios.

Wealth managers can create tax-optimized portfolios for their clients irrespective of the size of the portfolio or the type of client, resulting in higher net returns on investment. With the detailed analytics and reports, wealth managers can analyze the returns, rebalancing requirements, and tax optimization of portfolios, helping them to make the necessary adjustments in asset allocation.

The reporting features of AdvisorEngine offer dynamic and interactive dashboards and present data in a clear and easily understandable way. Clients can access their portfolio data including transactions, holdings, risk-return metrics, forecasting, and performance data. The reporting feature also allows wealth managers to set up firm level reporting, which includes client performance, billing, digital onboarding, portfolio details, revenue attribution, etc.

One of the strongest pieces is that it’s an open technology platform, with robust integrations and the ability to plug into any other tools. The custodian list was fairly strong, covering Fidelity, Pershing, TD Ameritrade and Charles Schwab. The only downside of the platform is if you happened to not have a supported custodian.

2- Oranj:                                                                                     

Pros:

  • Advisor Dashboard
  • Client Portal
  • Portfolio Management
  • Rebalancing & Trading
  • Tax optimization

Cons:

  • Limited compliance functionality

Oranj ranks at number two on our list of top 5 wealth management platforms. The platform provides advanced features that make it a very capable wealth management system. With Oranj’s wealth advisor dashboard, wealth advisors can perform client management functions like connecting with clients, browse the contacts and see their financial goals and net worth, manage accounts, and monitor investments. The client portal provides clients real-time access to their accounts where they can view detailed reports about the performance of various assets. The portfolio management function of Oranj provides insights and analytics to help track, monitor, and optimize the portfolios. The platform also provides notifications in case the portfolio drifts from the target. The platform’s risk management functionality guides wealth advisors on risk associated with the portfolio, allowing managers to take corrective actions.

The rebalancing and trading feature of the platform empowers wealth managers to bring back the portfolio to balance with a few clicks, thanks to the automated and easy-to-use account rebalancing functionality of the platform. Account aggregation and tagging features help wealth advisors to select the common accounts and perform rebalancing operations easily. The rebalancing can be done on all sorts of accounts and portfolios irrespective of size and type.

Though Oranj is a capable wealth management platform, it lacks in the compliance department. It is critical for wealth managers to comply with the organization’s thresholds and regulatory requirements, which ensures the protection of client’s interests and saves the portfolio from disastrous losses.

3- RIA in a Box:                                                                       

Pros:

  • Compliance
  • Risk assessment tools
  • Annual review tool

Cons:

  • RIA in a Box is centered on risk assessment and compliance:
  • No portfolio management functionality

RIA in a Box is a platform for wealth managers that is focused on compliance and risk assessment. The company provides compliance packages to private fund advisers with an option for registration with state or SEC. Other than that, the company’s private fund platform features include monitoring fund inventory, access to tailored risk assessment tools, compliance updates on mandatory documentation like Form ADV, Form PF, Form D, Blue Sky Filings, etc.

The company does not offer any of the robust wealth management tools such as portfolio management, client portal, trading and rebalancing of portfolios, tax optimization, customer relationship management, etc, which are of utmost importance in a capable and efficient wealth management platform. However, if you are a (RIA) private registered investment advisor looking for registration with the state or SEC, you might find the services of the company useful in complying with the documentation needed for successfully completing your registration.

4- Dorsum:                                                                               

Pros:

  • Portfolio management tool:
  • Client Reporting
  • Investment Profile
  • Risk management and Compliance

Cons:

  • Difficult to do Portfolio rebalancing

Dorsum ranks fourth on our list of the top 5 wealth management platforms. Due to the platform’s easy integration, it’s built for wealth management companies, private banking departments, and portfolio & wealth managers. The platform offers many advantages that portfolio managers want in a wealth management platform.

Wealth managers can manage multiple portfolios of different clients due to the smart portfolio management tools offered by Dorsum. Using different models, wealth managers can automate the process of portfolio management, which helps wealth managers to focus on advisory functions instead of managing the portfolios.

The interactive client reporting portal equips clients with a powerful analysis tool where they can monitor their accounts and download various reports with just a few clicks from their smartphones or laptops. The clients are grouped into various categories based on their investment profiles. Investment profile of a client is made after getting the client’s responses to a risk questionnaire and the client’s financial objectives.

Risk management is done automatically using the Dorsum wealth management platform, which prompts the wealth advisor about any breach of the risk management limits. The platform also facilitates wealth advisors in meeting the statutory regulatory limits imposed by the regulatory authorities.

One drawback with Dorsum wealth management platform, however, is that it doesn’t offer automatic portfolio rebalancing, which is often time consuming and inefficient when done manually. Dorsum is an EU company based in Hungary so there might be some delay in getting support.

5- Temenos Infinity Wealth:                                            

Pros:

  • AI and Analytics
  • Market data management
  • Portfolio management
  • Customer relationship management

Cons:

  • Client reporting
  • Portfolio tax optimization

Temenos Infinity Wealth ranks fifth on our list of top 5 wealth management platforms. The artificial intelligence and analytics embedded in the platform allows wealth managers to accurately craft portfolios based on the clients needs, backed by the data, with minimum human intervention. The analytics feature shows detailed analysis, helping wealth managers to evaluate the performance of the portfolio and identify areas of improvement.

With the help of a market data management module, wealth advisors can obtain precious data about the stock, bond, or other markets, enabling wealth advisors to make informed decisions keeping in view the latest and expected investment environment of the markets.

Like all other wealth management platforms we discussed, Temenos Infinity also provides automated portfolio management features to the wealth advisors. Wealth managers can focus on new customer acquisition and advisory roles due to the automated portfolio management function of Temenos Infinity’s wealth management platform.

The platform has an added customer relationship management module that offers wealth managers additional features of client management. Using the customer relationship management function, wealth managers can have a bird-eye view of the customers, sort the customers based on the common attributes, communicate with clients seamlessly without having to manually input the customer contact details.

Although the wealth management platform by Temenos Infinity is well built, It lacks efficient client reporting and portfolio tax optimization features. Client reporting feature allows customers to view and download different reports related to their accounts, which increases customer satisfaction and is considered an essential feature in wealth management platforms.

Also, the lack of a tax optimization feature which helps wealth managers generate extra returns by optimizing portfolios for tax. The extra return so generated can make a big difference in the long run for clients, improving the performance of the portfolio returns.

Why There is a Need for Investing in Renewable Energy Projects

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Renewable energies are sources of clean, inexhaustible, and increasingly competitive energy. They differ from fossil fuels principally in their diversity, abundance, and potential for use anywhere on the planet, but above all in that they produce neither greenhouse gases – which cause climate change – nor polluting emissions. Their costs are also falling and at a sustainable rate, whereas the general cost trend for fossil fuels is in the opposite direction despite their present volatility.

Clean Energy Is Increasing Popular

Growth in clean energies is unstoppable, as reflected in statistics produced in 2015 by the International Energy Agency (IEA): they represented nearly half of all new electricity generation capacity installed in 2014, when they constituted the second biggest source of electricity worldwide, behind coal.

Clean energy development is vital for combating climate change and limiting its most devastating effects. 2014 was the warmest year on record. The Earth’s temperature has risen by an average 0.85 °C since the end of the 19th Century, states National Geographic in its special November 2015 issue on climate change. Meanwhile, some 1.1 billion inhabitants (17% of the world population) do not have access to electricity. As such, one of the objectives established by the United Nations is to achieve to access to electricity for everyone by 2030, an ambitious target considering that, by then, according to the IEA’s estimates, 800 million people will have no access to an electricity supply if current trends continue.

The transition to an energy system based on renewable technologies will have very positive economic consequences. According to the International Renewable Energy Agency (IRENA), doubling the renewable energy share in the world energy mix, to 36% by 2030, will result in additional global growth of 1.1% by that year (equivalent to 1.3 trillion dollars), an increase in well being of 3.7% and in employment in the sector of up to more than 24 million people, compared to 9.2 million today. It will also significantly reduce air pollution.

Considering the importance of energy sustainability, the gravity of climate change and its impact on our planet, and the prospects for economic growth an increase in renewable energy can have, a transition to a system majorly operating on renewable energy is not only desirable but absolutely required.

RE Royalties and the Green Investing Revolution

That’s why Bernard Tan started RE Royalties. His goal was to help build renewable energy projects faster through innovative royalty financing, while leading the way for socially conscious investors. Many of RE Royalties’ clients have great project opportunities, but are too small to secure traditional financing to fund their growth plans. Typically, these projects need $1M – $20M in financing and want to maintain ownership of their assets.

While the royalty business model is well-proven and the renewable industry is not new, the combination of the two is very innovative. RE Royalties is the first royalty company to focus solely on the renewable energy sector. They provide capital in the form of a cash payment or loan, in exchange for a percentage of future revenues from operating projects. RE Royalties’ clients retain 100% control of their assets and businesses, and there are no restrictions on how the funds are used.

“The capital we provide can be considered an “advance” to our client, and the periodic percentage payments can be considered “royalties” to our investors, explains Bernard. We call it Renewable Energy Royalties.”

The idea for the business came when Bernard was working with a local clean technology company to help with their financing. The company had a promising technology that looked to harness the kinetic energy from tides and canals to generate clean electricity.

Not only did they have the technology to generate clean renewable electricity from an unlimited resource, but they also had an established development partner, the government was waiting to provide them with permits to install at various sites, and a long-term revenue contract to buy the electricity at a very high price. The only stumbling block was raising capital.

RE Royalties was started to create an alternative and an opportunity to make a difference for future generations. Bernard then contacted Peter Leighton, who was experienced in the renewable energy sector and joined the company as co-founder.

RE Royalties officially launched in January 2016. In March 2016, the company closed it’s first deal and acquired it’s first royalty in British Columbia, Canada.

Since then RE Royalties has built a portfolio of royalties in Canada, the United States and Europe. These long-term royalties are on over 400MW+ of solar, wind and hydro projects that are currently in operations or will be in the near-term. These projects play a significant role in combating climate change, as they will displace over 300,000+ tonnes of carbon per year from entering the atmosphere.

The company also announced a Green Bond offering, which allow participants to align their investments with their values while earning a fixed 6% return. Green Bonds are an exciting opportunity for socially and environmentally conscious investors who want to ensure their investments are helping fight climate change.

In contrast to buying shares and owning a piece of the company, RE Royalties Green Bonds are a loan from the investor to the company to be used exclusively for investing in renewable and sustainable energy projects.

Learn more about RE Royalties Green Bond offering here: https://www.reroyalties.com/green-bonds

Image source: Cafe Credit.

The FED, The Dollar, and Opportunities

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My post for today was supposed to be a personal reflection, but in lieu of that, I’m going to lay out my thoughts on the market and the economy. Which includes the FED, the dollar, and inflation. In addition to that, I want to explain where I see risks and opportunities right now.

The dollar

We can expect the Federal Reserve to continue an accommodative monetary policy. They will invest in the fixed income market and they’ll resume the low-interest-rate stance.

If they continue this response to the Covid crisis, the dollar should go down in value. There are some risks and opportunities that arise if that happens.

Gold and cryptocurrencies should increase in value. A devaluing in the dollar is, normally, the right landscape for “alternative currencies” to do well.

International securities, especially emerging markets, do well when the value is priced lower. A large majority of international transactions take place using the USD. The value of their home currency goes up in relation to the USD.

The technology sector also has a negative correlation to a falling dollar. When the dollar goes down, that sector tends to outperform.

If the dollar, indeed, goes down look at these areas for possible investment opportunities.

The FED

As I mentioned earlier, the FED will continue to create an accommodative environment for the economy…until they don’t.

At some point, the recovery will gain momentum. GDP will go up and the population will gain confidence in that recovery. At this juncture, inflation will pop onto people’s radars.

If inflation runs too hot, the FED could possibly stop, or reduce, QE. They could halt the bond-buying program and they could raise rates. If that happens, keep your eyes out for a pullback.

We saw this happen at the end of 2018. The FED started raising rates until they went too far, and we had a 20%-25% decline in Q4. Then they reversed course and began easing again. We had a run-up in the market until March of 2020 when Covid hit.

Long term

I believe tech and healthcare will be the two sectors to watch over the next decade or more. With technology getting more advanced every day, investment opportunities will present themselves in these two areas.

Green energy, especially with the incoming administration, is also an industry with big potential. Technology will play a large role in the advancement of renewable energy.

My biggest concern

And I’ll preface this by saying I’m concerned because I truly don’t know the implications of it. MMT looks as likely as ever at this point.

The favorable stance by the FED plus the democratic party holding the House, the Senate, and the Presidency leads me to believe printing money is going to pop off.

An aggressive agenda to provide relief for Americans struggling because of Covid, a push for expanded Medicare/Medicaid benefits, possible student debt relief, as well as other initiatives.

It appears that reducing the national debt is not a concern. To be fair, it wasn’t a concern for the Trump administration either.

The bill comes due for everyone, and if other countries (namely China) are no longer buying US Treasuries like they were, I do not know how we can fund policies, branches, or even service the existing debt. Only time will tell.

Conclusion

I will close by saying that these are my opinions. Granted, I do a lot of research to come to these conclusions, but what I said above are still my thoughts and not foregone conclusions. Do your own research.

Related reading:

How to Beat Inflation with Investment

What Makes Gold so Valuable

 

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Should You Care About Warren Buffet’s Stock Trades

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warren buffett's stock trades

Warren Buffett is a bastion in the world of investment. The billionaire has a reputation for making smart choices. As a result, many investors wonder if they should mimic his moves or if keeping an eye on his trades would help them achieve better results. If you are trying to figure out if you should care about Warren Buffett’s stock trades, here’s what you need to know.

Why Investors Follow Warren Buffett’s Stock Trades

Generally speaking, when an investor spends time tracking Warren Buffett’s stock trades, their main goal is usually to snag similar results. Following the investment moves of a legend usually seems like a great idea. Many think that, by using an approach that mimics the Oracle of Omaha’s strategy, they can reach the same level of success.

However, some many also watch Warren Buffett’s stock trades for other reasons. For example, instead of attempting to follow his moves directly, they may use his trades to identify sectors that could be poised for gains or losses. At times, investors simply enjoy seeing how their strategy aligns with or differs from what others are doing, including individuals with some fame.

Changing Your Investment Approach to Match Warren Buffett

As mentioned above, some people watch Warren Buffett stock trades in hopes of following his strategy to increase their gains. In reality, that isn’t always a great idea.

One of the biggest reasons why you may not want to follow in Warren Buffett’s footsteps is that his investment goals may differ from your own. For example, he isn’t stashing cash for retirement, while that may be your main objective. As a result, his choices may not align with your preferred risk level.

Additionally, there are certain moves that he can make that are out of the reach of the vast majority of investors. For instance, he can establish massive stakes in companies that are household names, something that most investors can’t pull off.

Finally, Warren Buffett can make deals that an individual investor just can’t. For example, his $5 billion investment in Goldman Sachs in 2008 – which many considered to be a bailout – resulted in a $3+ billion gain when he unloaded it. But he didn’t purchase Goldman Sachs’s stock the way a normal investor would when that happened, putting him in a different position.

Generally, Warren Buffett’s unique position means that he can make moves that nearly everyone else can’t. Mimicking his approach is, therefore, practically impossible.

Overall, all of the points above suggest that changing your investment approach to match Warren Buffett isn’t a great idea. His strategy doesn’t rely on traditional kinds of investing, so it may not be compatible with you.

Warren Buffett’s Stock Trades: Should You Care?

Even if you shouldn’t copy Warren Buffett stock trades directly, that doesn’t mean keeping an eye on what he does is a bad idea. You may be able to use his choices to figure out options that you were previously overlooking, like an emerging sector.

The trick is to make sure that, even if you want Warren Buffett’s trade activity, you only make moves that align with your strategy, goals, and risk tolerance. That way, you’re doing what’s right for you and not just copying a billionaire whose unique position gives them different kinds of options.

Do you think investors should care about Warren Buffett’s stock trades? Why or why not? Share your thoughts in the comments below.

Read More:

The Best, Low Maintenance Way to Invest 30K

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If you’ve been building your savings to start investing and you’ve managed to put aside $30K, you may be wondering what your next step should be. How do I invest 30k? What is the best, low maintenance approach?

Here are some great ways to apply that 30K towards growing your wealth.

Pay Off Debt

First and foremost, use some of the money to pay off any debt you may have. It will save you money in the long-run. If you’re carrying a $10K credit card balance with a 15% interest fee, you’ll be paying an extra $1500/year in interest. That’s money that can be better spent on investments down the road. If you want to invest 30k, first start by getting rid of debt.

Emergency Fund

If you don’t already have one, put some of your money aside in an emergency fund so you know you’ll be able to manage if something unexpected happens. You should have 3-6 months’ worth of expenses put aside in an easily accessible account like a savings account. Just make sure it’s not linked to your debit card so you can’t spend it. The period of time you need to cover varies based on how long you think it would take you to find another job should something happen to your current job.

Earning return

What’s next has all to do with three things: risk tolerance, time horizon, and investment objectives. As a matter of fact, that’s how all of your investment decisions are made.

There are several different vehicles you can utilize, so what I’m going to do is give each vehicle its own section, explain what it is, and then give a little more detail as to when it could be used.

Certificate of Deposit (CD)

A bank product with a specified interest rate and a specified maturity. CDs are used to hold money for a specified period of time in a virtually risk-free fashion. More about CDs.

You’ll choose a CD for two reasons. The first is if you want a safe, federally insured vehicle to stash away some cash. The other reason is if you do not want to touch that money for a specified period. For example, you’re going to buy a house in three years and you don’t want to jeopardize that down payment. You buy/invest in a 3 year CD. At the end of year three, you’ll get back your principal (what you put in) and some accrued interest. Early withdrawal penalties apply.

Savings/Money Market Accounts

Typically used for your emergency fund. Easily accessible, and able to earn a little interest.

That’s pretty much it when it comes to these accounts. The interest they offer will be (not always) pretty low, but, like the CD, it offers a very safe place to store your cash until you need it. Unlike the CD, however, there are no early withdrawal penalties.

Qualified accounts

Basically any retirement account. Traditional IRA, Roth IRA, and employer-sponsored plans (401k, Simple IRA, etc.). There are contribution limits associated with these accounts.

With these accounts, as I said, contribution limits are something to pay attention to. With your Traditional and Roth IRA, there’s a $6,000 contribution limit ($7,000 if you’re 50 and older). 401ks have a limit of $19,500 (25,500 for 50 and older). Simple IRA limit is $13,500 ($16,500 for 50 and older).

This is a long term investment solution, as early withdrawal penalties apply. There are several ways to “exempt” yourself from that penalty, however, such as a first home purchase. For an extensive list of these exemptions, click here.

These accounts are also called “tax-advantaged” accounts because, as the name suggests, there are tax advantages. You either lower your taxable income with your contributions or have the ability to withdraw the funds “tax-free” (barring an early withdrawal penalty, of course).

Non-Qualified Accounts

Brokerage accounts or any investment vehicle that doesn’t have any tax benefits. Meaning, you pay taxes on any capital gains and dividends you receive. No contribution limits.

Honestly, the only advantage to these accounts is there is no contribution limit. For example, if you’ve maxed your contribution for your employer-sponsored plan and your IRA, then you can dump the rest of your money here.

Health Savings Account (HSA)

Accounts specifically designed to help you with your medical expenses. Money that you contribute to this account is “tax-free” or “tax-deductible”, which means it lowers your taxable income. Also, the funds, if used for qualified medical expenses, are tax-free.

With some, not all HSAs, you can invest what you’ve contributed. So if you have 30k to invest, I’ll point you to the below section to help with that. There are contribution limits with the HSA, however, so keep that in mind.

Asset allocation

After you’ve selected an investment vehicle (this section does not apply to CDs, savings accounts, or money market accounts), it’s time to invest your capital.

Asset allocation is my preferred method to invest, and I’ve written extensively on it here. So if you want to invest 30k, here’s what you need to ask yourself. How long until I need these funds? What is my ultimate goal for these funds? What am I willing to lose?

If your time period is less than 5 years, ignore this section and stick your money in a savings account or a CD. The risk/reward is unfavorable in this scenario.

If you have, ideally, 10+ years, then you have some options. The next question is about risk tolerance. What kind of portfolio are you comfortable with? Using the stocks/bonds/cash breakdown, are you a 60/40/0 type of person? Maybe you’re quite tolerant and prefer an 80/20/0 approach.

For those of you that are not tolerant of risk and/or you have a shorter number of years until you need to access these funds. Your portfolio should start at 50/50/0, and then adjust as you see fit. The cash portion in this breakdown should be used as investable cash for when you see a buying opportunity and/or funds you’ll need access to in the near future (unriskable capital).

Risk Tolerance

If you really want to know what your unique risk tolerance is, take our quiz!

I know I didn’t really give a concrete answer to what’s posed in the headline, but that’s the thing about investing – it’s incredibly personal. You need to do what’s best for you.

If time is on your side, max your retirement contribution, then put the rest in a savings account until next year. At that time, max it again.

If time isn’t your friend, a CD isn’t a bad idea. As I said earlier, paying down/off debt is incredibly worth it. That’s an automatic 15% return on your money if you pay off your credit card. Money that can be used more effectively going forward.

Read our articles, ask for advice, and do what’s best for you. That’ll help you answer the question: how do you invest 30k?

 

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see website for full disclosures: www.crgfinancialservices.com

The Pros and Cons of Index Investing

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What Are Index Funds?

If you are tired of trying to beat the stock market, index investing may be the best solution for you. Index funds work by investing your money into an index of stocks. (You may have heard of S&P 500 or the Dow.) When you put money into an index fund, you are investing in all of the companies that make up that particular index’s portfolio.

This is an alternative to choosing and investing in particular stocks. The same risks exist for you as those who buy stocks individually. However, investing in an index can provide broad diversification for your equity investments. Instead of putting your eggs in a few baskets, you’re putting one egg in 500 baskets (using the S&P 500 as an example).

Pros:  

They are inexpensive

There are usually no hidden fees or sales commissions with index funds. They have low annual fees- much more insignificant than the large fees that hedge funds and other alternatives charge. You can also increase your investments regularly without facing additional charges. Avoid indexes that do charge investors extra.

They Allow You to Invest in A Diverse Selection of Stocks

A well-balanced portfolio is key, and index funds aim to achieve this. As an individual, our investment opportunities are far more limited. By teaming up in an index fund we are able to share in the investments of many different stock companies. This is a much more attainable goal when we are part of an index fund.

They’re Efficient

Index funds financially outperform the majority of mutual funds. Although solo investors enjoy trying to “beat” the stock market and outsmart the institution, research has shown time after time that index fund earnings are much more consistent.

On top of bringing in more earnings, they are also user-friendly and easy. You can link your bank account to the index fund and it will automatically withdraw on a regular basis for you. No work on your part at all! Not only do you avoid having to study the stock market, but you also do not have to move the money over regularly.

It’s A No-Brainer

For anyone who is a newbie when it comes to investing, index funds are a life-saver. You don’t have to pick individual stocks or worry about the market rising and falling. All you have to do is provide the money, and the market should grow over time.

Cons of index investing: 

They Can be Vague

The assets making up a fund’s portfolio are constantly changing. It can be difficult to see exactly what you own and exactly how much you have made by investing. This is due to the fluctuating values in the underlying stocks and the index itself.

Limited Upside

Although investing in individual stocks can be messy and dangerous, some investors have a special eye for it. The professionals can often beat the market and get ahead of the game. In an index fund, you will never beat the market, because you will only grow consistently alongside it.

You’re Not in Charge

If you like to be in control, it could be difficult to learn to trust your money with strangers. Your index fund managers will be the ones in charge of what the fund gains in assets. You will likely never be personally able to call the shots in an index fund, and that is something you will have to come to terms with.

Not Suitable For All Investors

One of the most obvious cons of index investing is the “blanket” suitability for all investors. That’s, simply, not the case. The risk/return relationship suggests that higher return investments usually involve higher risk. Index funds are typically designed to capture the median performance of markets such as the S&P 500 or the Russell 2000.

As a result, they usually return market performance – no more and no less. If you want a very risky investment strategy, say, for example, investing in reverse convertible bonds, you likely won’t find index funds a suitable investment vehicle.

There Can be Fees

Some index funds do charge high fees and commissions. Be sure to stay clear of these.

My Concern

Generally speaking, index funds are great. They offer broad exposure to the market and do an incredible job at limiting fees.

But, in my mind, there are two more cons of index investing:

  1. Accidental concentration – As the market ebbs and flows, some sectors and industries will do better than others. For example, over the last 10+ years, the technology sector has outperformed the broader market by a large margin. As a result, tech makes up a greater portion of the index. If that sector experiences a pullback, the index as a whole will fall.
  2. Liquidity concerns – This mainly applies to index ETFs, but if the market, as a whole, drops, inexperienced investors will sell out of their positions to limit their losses. When there is a rush for liquidity, these ETFs need to sell underlying positions to provide investors with that liquidity. This can lead to an acceleration of losses. Investors sell, portfolio managers sell to give individuals their money, so underlying assets drop. This can cause more investors to sell, and again, portfolio managers to sell more. It’s a domino effect

Related reading:

Can you afford not to use index funds?

Robo-advisers: What I like and what I don’t like

Is It Too Late to Invest In FAANG Stocks?

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is it too late to invest in FAANG stocks

If you explore any information about the stock market, you’ll be hard-pressed not to trip across an article talking about a FAANG stock or two. These tech behemoths are always movers and shakers, at times for better, at times for worse. But when you see the price tags associated with these investment options, you may be wondering, “Is it too late to invest in FAANG stocks?” If you fall into that category, here’s what you need to know.

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Appreciating vs. Depreciating Assets

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appreciating and depreciating assets

I think it’s widely known that there are two types of assets: appreciating and depreciating. I think it’s less known what’s classified as appreciating and depreciating.

In this article, we will look at what each term means, examples of each, and how to use them effectively.

What’s appreciation?

Appreciation is the increase in value. The majority of assets used to accumulate and grow wealth, appreciate. An asset can appreciate because of supply, demand, or a change in interest rates.


 

What’s depreciation?

Depreciation is the exact opposite. It’s the loss of value. The most common example is a car, but more on that later.

Appreciating assets

  • *Stocks – It’s commonly known that investing in stocks is the best way to not only keep pace with inflation but to grow your wealth. A stock is partial ownership in a public company. Popular examples include Apple, Amazon, Facebook, etc. (Click here to learn more about stocks)
  • Real estate – Single-family homes, duplexes, apartment complexes, etc. Though the pace at which real estate appreciates dwarfs compared to stocks, it does so slightly over time. (Source)
  • Private equity – This can be starting a company of your own or you can invest in a startup. There are also private equity funds that exist, as well. Basically, it’s a company or venture that is not open to the public (i.e. stocks on the exchange, etc.).
  • Alternative – Less common assets that could appreciate (cryptocurrencies, precious metals, art, and other collectibles).
  • Bank accounts – Savings accounts, certificates of deposit, etc. These don’t appreciate much, especially in the current “low-interest-rate”. Some may argue that you shouldn’t classify these as appreciating assets because inflation erodes away the purchasing power over time.

Depreciating assets

  • Cars
  • Boats
  • Furniture
  • Equipment
  • Patents/Copyrights – Patents, other than section 197 intangibles, have a useful life of 10 years and can be amortized over that 10 year period. (Source)

What’s the point?

  • Appreciating assets – Owning and investing money in an appreciating asset is the key driver in growing your wealth. Those who’ve accumulated significant amounts of wealth have done so by earning a living, saving, and investing diligently over decades.
  • Depreciating assets – There are a few reasons to own a depreciating asset.
    • Fun and convenience – We own and drive cars because we need them to go places. We buy boats because they are fun. In either case, you could also own a car or boat for your business, in which case it would serve a different purpose.
    • Business – Owning and operating machinery and equipment is how many of us make a living or run a business.
    • **Tax write off – If you use equipment, machinery, cars, etc. for business, oftentimes you can use the depreciation of that equipment as a tax write off.  Financial advisors use a set of fancy calculations to come up with the tax benefits of depreciation, we won’t go into that here.

Conclusion

Appreciating and depreciating assets both serve a purpose. It’s important to know the difference between the two and how to use each one as effectively as possible.

*Stocks can sometimes experience periods of volatility and negative performance. During such periods, the value of such stocks may decline.

**Be advised: talk to your accountant about specifics.