7 Great ETFs for Your Roth Retirement Account in 2022

Posted on May 31, 2021February 23, 2022 by Mike Martin

Last updated on February 23rd, 2022 , 09:21 am

After opening a Roth IRA account, many investors feel overwhelmed by the almost inexhaustible choices of investment options. This is in contrast to a standard company-sponsored 401k plan, where the options are often limited to one or two dozen funds.

The fewer choices you have, the less difficult your investing decisions become. The introduction of the “target-date” retirement fund in 401k plans made this process even easier, allowing investors access to complete diversification by only investing in a single fund managed for their selected year of retirement.

Though the lack of choices offered by 401k plans may be relieving at first, their limitations are surely felt over time. Company-sponsored plans are geared towards the masses, not the individual. Individual investors are like snowflakes in that everyone has different goals, ambitions, and motivations for their money. How can one align these individual preferences with so few choices?

If you’re a clean energy advocate, you have no option to invest in these companies; for an investor who believes tech is the future, there are seldom funds devoted solely to the technology industry; if you want to play it safe and invest solely in high dividend-paying ETFs, your company plan is likely to come up short.

Highlights

Roth IRA’s offer more flexibility than traditional IRAs and 401k plans.
Withdrawals from Roth IRAs are 100% tax free
Vanguard’s “VTI” ETF offers exposure to over 3,500 US companies.
Vanguard’s”VXUS” ETF offers exposure to over 7,000 international stocks.

Roth IRA

This is when the Roth IRA comes in handy. Roth IRA contributions are made with after-tax dollars but withdrawals are 100% tax-free. These retirement vehicles are perfect to supplement your 401k. With a Roth IRA, you have complete power over your money. You have choices. Many, many choices. There are over 6,000 publicly-traded companies on the New York Stock Exchange and the Nasdaq Stock Exchange alone. How do you decide what to invest in?

If you’re reading this article, you’re already ahead of the game by focusing on ETFs (exchange-traded funds). The vast majority of stockpickers underperform the market. Focusing on categories and sectors rather than individual companies has proven to be the best approach to long-term investing.

But limiting ourselves to ETFs doesn’t really solve our problem either. There are thousands of them as well!

The popularity of ETFs has been skyrocketing past mutual funds in recent years for good reason. Their fees are usually lower, they provide for better liquidity (you don’t have to wait until the market closes to buy/sell an ETF), and ETFs have no minimum investment requirements.

So let’s get right into it. Here are a few ETF reviews by projectfinance to get you started in your search.

Note! The “Expense Ratio”, represented on a percentile basis, is the total fee an investor must pay the issuer to hold an ETF. This fee is not withdrawn from an investor’s account but taken out of the ETFs net asset value (NAV).

1. Vanguard Total Stock Market ETF (VTI)

The correlation between market categories is no longer as strong as it once was. It isn’t uncommon in this new market for the Dow Jones Industrial Average to be up 3% while the Nasdaq is down 1%. In these times of diversion and volatility, the risk-on investor wants to have exposure to everything. Since it doesn’t seem volatility is going anywhere for a while, a total market ETF would work perfectly in your Roth IRA.

Vanguard’s Total Stock Market ETF (VTI) is one of the most popular ETFs out there. It has it all: a basket of 3,755 US growth and value stocks diversified across large-cap, mid-cap, and small-cap classes. For those new to investing, or those who just don’t want to spend the time deciding what to invest in, VTI is a practical and smart investment vehicle.

The best part about VTI is its fee. Its meager expense ratio of 0.03% puts traditional mutual funds to shame, who charge on average more than 1.40% in fees! Though 1.4% may not seem like much now, when your retirement savings start to get into the six and seven digits area, you will definitely feel it.

The VTI ETF, however, only has US stocks within its portfolio – what about international stocks? A well-diversified portfolio has exposure to both. Let’s take a look at VTI’s international cousin next.

Runner up for best broad market ETF: iShares Russell 3000 ETF - IWV

2. Vanguard Total International Stock ETF (VXUS)

Vanguard’s Total International Stock ETF (VXUS) is for global stocks what VTI is for US stocks. VXUS contains a basket of more than 7,000 stocks across the international spectrum, ranging from developed countries to emerging markets. Perhaps this wide diversification of companies helps to make up for VXUS’s slightly higher management fee of .08%.

This fee is still incredibly low, considering the average ETF management fee is just over 0.50%. Remembering the average mutual fund fee is 1.40%, 0.08% doesn’t sound so bad. Isn’t that easier and cheaper than purchasing the 7,000+ stocks on your own?

If you were only interested in investing in equities, you could buy VTI and VXUS and call it a day knowing you had exposure to almost every investment-worthy company in the entire world for minuscule fees.

But most investors want to diversify their asset classes to include bonds. Bonds have not been doing great recently. In light of today’s growing inflation and low-interest rates, let’s next take a look at an ETF that makes sense.

Runner up for broad market International ETF: ACWX

3. iShares TIPS Bond ETF (TIP)

Most professionals agree that all retirement accounts should have some exposure to bond funds. What percent of your retirement should be in bonds? Projectfinance dedicated an entire article to answer this question: What’s the Best Stock to Bond Ratio for Your Age?

iShares TIPS Bond ETF (TIP) is a dynamic ETF that provides an amazing hedge against inflation.

Over the past year, interest rates have been very low and bond ETFs have been losing money. The TIPS ETF, however, has been doing very well. This is because it is linked to the Consumer Price Index (CPI), thus hedging itself against these rising prices. When CPI increases, so do the coupon payments of the securities which compose TIP. This means the value of TIP and its dividends go up.

On the contrary, in times of lower prices, treasury inflation-protected securities like the TIP ETF will underperform. Therefore, this ETF must be watched closely and adjusted appropriately to changing economic conditions.

If you’re truly concerned about inflation, check out our article Inflation and the Stock Market: 5 Sectors to Consider for a few more investment ideas.

4. iShares Residential & Multisector RE ETF - REZ

The past year has been a wild ride for real estate. While commercial markets have been getting clobbered like never before, residential real estate has rarely been better. It is because of this REZ is next on our list of top seven ETF pics for your Roth IRA in 2021.

Now let’s take a look at that lofty fee of .48%. That expense ratio is 16x higher than that of VTI! So how did it make the list? Sometimes, it makes sense to pay a higher fee if the gains outweigh the expense.

The REZ ETF is appropriate for the more active investor as soaring residential real estate values may very well prove to be temporary. If you’re more “set it and forget it” minded, a more broad-based real estate ETF, such as The Real Estate Select Sector SPDR® Fund (XLRE) may be more appropriate. This ETF tracks the real estate sector of the S&P 500.

If you’d like to read up on how various real estate investment trusts (REITs) work, we have you covered there too.

5. Vanguard Small-Cap ETF - VB

Coming as a surprise for many, US small-cap (small-capitalization companies) stocks lead the post-pandemic equity recovery. This was primarily a result of extremely low Treasury yields. Generally speaking, smaller companies rely on debt more than larger companies. When debt is cheap (as it is now), the cost of their borrowing is reduced, thus their profits increase.

Assuming the Fed officials are correct in their presuming inflation will not pose a permanent threat on the markets, the future of small caps is promising.

The VB ETF offered by Vanguard is a great option for an investor looking for small-cap exposure. It is a “blend” ETF, meaning it is composed of both growth and value small-cap stocks.

VB stands out on the list of other small-cap ETFs because of its performance and a very low expense ratio of .05%.

When an investor thinks of a small-cap ETF, iShares Russell 2000 ETF IWM (IWM) often comes to mind. The expense ratio for IWM currently sits at 0.19%! That’s almost 4x higher than that of VB. Additionally, VB has historically outperformed IWM. It’s a no-brainer. VB wins here.

Runner up for small cap blended ETF: IJR

6. Vanguard Mid-Cap ETF - VO

Mid-cap (Middle Capitalization) ETFs are often a neglected component of the new DIY investor’s portfolio. Mid-cap companies are not up-and-coming, nor are they established. The market capitalization of mid-cap companies ranges between $2 and $10 billion, that sweet spot that divides them from their small and large siblings.

For an investor looking to diversify their Roth IRA, exposure to mid-caps make financial sense. In a normal performing market, the profit/loss profiles of mid-caps tend to fall right in the middle of small and large-cap companies.

Vanguard wins this category again with its Mid-Cap ETF VO because of its incredibly low expense ratio of 0.04%.

Runner up for mid-cap blended ETF: SPMD

7. ARK Genomic Revolution ETF - ARKG

Covid-19 has changed healthcare forever. Cathie Wood’s Genomic Revolution ETF Fund hopes to capitalize on these changes, as well as the future technology of medicine. To her credit, the Ark Innovation ETFs have performed superfluously well throughout the pandemic.

Lately, however, the ETFs of the Ark family have been struggling, and the Genomic Revolution ETF ARKG is no exception. It is too early to tell whether or not this is a great buying opportunity for ARKG. All we do know for certain is that change is coming in this space, and the keen eye of Cathie Wood will be there watching it all unravel very closely.

Let’s get this out of the way – the fee for ARKG is high, cash burningly high. Coming in at 0.75%, the management fees of ARKG is the highest on our list, and last for that reason. However, as with our REZ ETF pick, sometimes performance justifies the expense. There is no better case for this than ARKG. On the tail of Covid-19, ARKG has doubled the gains of its representative index.

For an investor with a long-term horizon and a strong stomach (ARKG is notoriously volatile), this ETF could potentially pay off big-time in your Roth IRA down the road.

Final Word

There are over 2 thousand ETFs in the US alone. Every single one of them is different. The only way to determine which ones are a good fit for your Roth IRA is to do the research. Find categories and sectors you believe in, then research, research, research.

There are some great free resources out there to help you, such as Morningstar. I never buy an ETF before first looking it up in Morningstar first to check its expense ratio and relative category performance.

Next Lessons

Additional Resources

Best Roth IRA Investments: You Have Options – Investopedia

Long Put Option Strategy for Beginners | projectfinance

Posted on May 26, 2021February 14, 2022 by Mike Martin

Last updated on February 14th, 2022 , 09:23 am

Long Put Option Strategy for Beginners

The above graph represents the profit/loss of a long put option at expiration, where X is the strike price.

Best For: Very Bullish Investors

What Is a Long Put?

In finance, a long put option is a derivative which gives the owner the right, but not the obligation, to sell a certain amount of a security (generally stock) at a specified price (strike price) by a specific date (expiration date). Let’s take a look at what this actually means.

If you understand what a long call is, the concept of a long put should be relatively simple to grasp, as everything is simply flipped on its head. A long call option gives the owner the right to purchase stock; a long put option gives the owner the right to sell stock. If a long call option benefits when a stock price increases in value, then a long put option benefits when a stock falls in value.

Therefore, the owner of a put option is bearish overall on the market. Some investors use long put options to hedge a portfolio of long stock, not unlike how an insurance policy on your car protects your vehicle in the event of a crash.

Tip! New options traders are often surprised to learn that a long put doesn’t always go up in value when the stock drops. This is due to time decay and implied volatility.

Unhedged Long Put

This example, however, is going to focus on unhedged long puts, as most investors trade puts as a method of bearish speculation.

To understand this better, just think of owning the car insurance on someone else’s car. If the car wrecks, you will make money. If the car doesnt wreck, you will lose the premium paid. That is essentially what a put option is, but instead of betting on the wreck of a car you don’t own, you are betting that a particular stock/index will fall in value.

Long Puts Explaines

A long put option is great for a very bearish investor because of the leverage it offers. The cost of a long put is often just a fraction of what it would cost in margin to sell short 100 equvalent shares of the underlying stock.

However, this leverage does come with a downside.

If you short a stock and the stock is unchanged in 3 months, you won’t lose a penny. If you buy an out-of-the-money put option that expires in 3 months and the stock hasn’t changed during this same time, you’re going to lose all of your premium. Long put holders need the market to go down hard and fast in order to realize a profit. This is because time decay slowly eats away at the premium.

With that being said, long puts do offer less risk than selling an equivalent amount of shares. Why? When you buy a put, your risk is limited to the premium paid. When you sell a stock, that stock could in theory go to infinity. Take a look at the below graphs to better understand this.

Short Stock vs Long Put

Before we look at a few examples, let’s examine the characteristics of the long put strategy.

Put Option Characteristics

Maximum Profit

Maximum Loss

Breakeven

Scenario 1

Let’s assume today is May 21st. In two weeks, on June 4th, the US Labor Department will release the May jobs report. You believe the market has been outperforming the actual economy, and you speculate that in the time leading up to and following the release of this report, the market will enter a correction.

You are therefore very bearish. Your trading account, however, only has $1,000 in buying power. You can short a few shares of stock, but this won’t give you as much downside exposure as you want.

Knowing the great leverage that options offer, you decide to purchase a put option. Since you think all stocks will go down, you choose to buy an out of the money put on a broad market ETF – SPY, which represents the S&P 500. Below are the details of your trade.

SPY Trade Details

Stock Price: $417

Put Purchase Price: 2.80

Put Strike Price: 410

Put Expiration: June 4th (13 days away)

Max Loss: $280

Max Gain: $40.720

Breakeven Price: $407.20

Let’s assume two weeks have passed and the jobs report was released. This is also the date our option expires. The jobs number was not good. From the date we bought the put to its expiration, the stock fell $6 in total to a value of $411 per share at expiration.

How did our put do?

Not well. Since the stock closed above our strike price of 410, the option will expire worthless and we will have lost the entire premium of 2.80, or $280.

Tip! Remember, one option contract represents 100 shares of stock, so whenever an option is quoted, move the decimal point two places to the right to get its true value.

Some wonder how this is possible: the stock went down from when we bought the put, from $417 to $411 per share – don’t put options make money when the stock drops?

They do, but you’re not betting on a binary outcome of the underlying as you would with short stock; you’re betting the stock is going to fall below a particular strike price by a particular date.

For every day the option doesn’t move in our direction, time decay and implied volatility eat away at the premium. The majority of out of the money options expire worthless for this reason.

Scenario 2

Let’s revisit our above trade with a different outcome. This time, the jobs report was a huge miss. As a result, the market tanked. Here is a reminder of our position:

Long 1 June 4th 410 strike price put @ 2.80

On the tail of this report, SPY plummeted in value to $401 per share. How did our put do this time?

The easiest way to determine the profit on a long put is first to determine where we break even. Our breakeven stock price was 407.20. Now, simply take the difference between the breakeven stock price and the current stock price. 407.20 – 401 = 6.2. That’s a profit of $620 on our option, not bad! What do we do now?

Let’s take a look now at the 3 different ways an investor can close a long put position:

Closing a Long Put

If the long put is out of the money at expiration, it will expire worthless and no action is required.
Sell the long put in the marketplace before expiration. However, never use market orders, and be careful with stop orders on options!
If you do not sell an in-the-money long put by expiration, your broker will likely auto-exercise your right to either a.) sell stock (for equity options) b.) cash settle (index options). The vast majority of option traders will exit in-the-money options before expiration to avoid having short shares in their account.

Tip! If an option is zero bid, it may be impossible to sell as no one will be willing to buy.

Next Lessons

Additional Resources

Long Put – The Options Industry Council

5 Great Ways to Start Investing in 2022

Posted on May 25, 2021March 1, 2022 by Mike Martin

Last updated on March 1st, 2022 , 07:10 pm

5 Easy Ways to Start Investing Today

It’s never too early or too late to begin investing. Here are some tips to get started.

So you’re interested in getting started with investing. Congratulations! Investing can be a daunting subject, so kudos for making the first step.

First things first: the most important part of investing isn’t investing at all, but budgeting. After all, how can you invest if you don’t have any money to invest with?

Budget

If you’re a young, recent college graduate, chances are your expenses are high and your salary is low – not the ideal situation. Student debt, rent, groceries, phone bills, etc, etc; all cripplingly add up.

At this stage in your life, it’s easy to put investing in the back of your mind. In fact, that’s exactly what the majority of Americans do! It is estimated that as many as 64% of Americans aren’t ready for retirement.

That is a staggering and scary number. The worst part about procrastination is it gets easier with every passing year. But there’s still hope, even for the procrastinators. But you have to start today. Right now. This moment.

Investing is nothing more than mindful budgeting, and budgeting is nothing more than habit.

Examine Your Expenses

Examine every expense in your life; your transportation methods, your clothing, even your morning coffee. I bet that if you look hard enough, you’ll find at least two ways to reduce spending without impacting the quality of your life. It has been estimated that a tall coffee at Starbucks every day adds up to $1,221 annually!

Let’s say 10 years ago you decided to forgo your expensive Starbucks coffee and invested that money in the S&P 500 instead. Today, that $1,221 would be worth over $3,740.

If you’re like me, there’s little chance you’re giving up your morning cold brew ritual, but the point is small purchases here and there can add up very quickly. Remember, it’s not so much what that dollar means today, but more about what it could mean down the road.

For example, the average Chicagoan spends over $118 on ride sharing every month; that number rises to $138 in NYC. That’s over $1,600 per year. Simply making your coffee at home and jumping on the bus can add up to TONS of savings over the years.

So the first step is to determine what you can live without. Tighten the belt so you can feel it, but not so much that it hurts. You may even come to discover that living on a budget actually increases your enjoyment of life. After all, when you have less of something, its value increases.

Before we begin, I want to leave you with my two pillars of investing. If you take nothing away from this article, please remember this:

1. Retirement Accounts

Retirement accounts are listed number one on this list for a reason. Before you even think about investing in anything else, make sure you have contributed as much as possible into your retirement accounts. Why? Retirement accounts offer amazing tax advantages.

401(k) Plan

If you’re fortunate enough to have a 401k plan through your employer, those contributions go into your account before you pay taxes on them. This saves you money instantly.

Let’s say you make 50k/year and you decide to put 10k into your 401k plan. For that year, you’re only paying the government taxes on 40k. As my accountant once asked me, “Would you rather pay taxes on 50k or 40k?”

So 401k contributions go into your account tax-free, but what about when it comes time to withdraw? Withdrawals in 401k’s are taxed as ordinary income.

Generally, in retirement, you’ll be making less money than in your working years, so hopefully, you will be in a lower tax bracket when it comes time to withdraw. This is how it works for most people, but not all. If you stumble upon a windfall or adhere strictly to the F.I.R.E.(Financial Independence, Retire Early) mentality, maybe you’re expecting to have more income in retirement than you did when you worked. Wouldn’t it be nice if some of your withdrawals could be completely tax-free?

ROTH IRA

This is when the Roth IRA comes in handy. Roth IRA withdrawals are 100% tax-free. The contributions to them, however, are made with after-tax dollars.

There is one more advantage to having a Roth IRA. We have no idea what the country’s tax rates will be next year, let alone thirty or forty years down the road. During WW2, some individual tax rates climbed to over 90%!

Wouldn’t it be nice to have a chunk of savings immune to whatever political future is in store? Roth IRAs provide this shelter.

Another nice advantage of Roth IRAs is the flexibility they offer. Company-sponsored 401K plans typically are limited to a handful of mutual funds. If you open a Roth IRA, you can invest those funds any way you like.

For most people, keeping the vast majority of their savings in a 401k makes sense. At the very least, you should contribute enough to match that which your employer contributes (this average match being 4.3%).

Below are the 2021 contribution limits for both plans.

NOTE: These limits are separate, meaning you could in theory contribute a total of $25,500 in 2021. This is assuming your income threshold allows you to contribute to a Roth IRA.

2. Brokerage Account

If you are satisfied with both your 401k and Roth IRA contributions for the year, another great and potentially lucrative way to invest in your future is through the stock market through a brokerage account. Again, this should be done only after you have contributed as much as possible to your 401k and ROTH IRA.

Remember, in retirement accounts, you have huge tax benefits that will weigh big time on your future returns, I’m talking potentially hundreds of thousands of dollars over the years. In a brokerage account, you deposit funds with after-tax money and then have to pay capital gains on any proceeds.

The first step is to open a brokerage account. We have decided to work with Tastyworks as they are the best in the business on most fronts. Not only do they actually answer the phone when you call, but you’ll speak with somebody who didn’t get their Series 7 last Monday.

Approaching the stock market for the first time can be a nerve-racking experience. This need not be the case. If you’ve been paying attention, you probably have picked up on my minor obsession with diversification. I stress this in the stock market more than anywhere.

ETFs (Exchange Traded Funds)

The best part about exchange-traded funds (ETFs) are they do the work of diversification for you. As a matter of fact, in order to have a fully diversified portfolio of US stocks, you only need to buy one ETF – VTI (Vanguard Total Stock Market Index Fund ETF Share).

Buying one share of this ETF will expose you to over 3,500 companies in the US. Today, VTI is trading around $219/share. Can you imagine how much it would cost you to buy each of these 3,500 stocks individually?

Within this impressive basket, you’ll have exposure to large-cap, mid-cap, and small-cap stocks as well as the numerous growth and value stocks within these categories.

Adding VXUS (Vanguard Total International

Stock Index Fund ETF) in addition to VTI will give you exposure to a well-diversified blend of over 7,500 international stocks as well.

Combined together, these two low-fee ETFs will give you exposure to over 11,000 stocks, and all you need to do is buy two!

I can tell you the power of these two stocks by comparing their YTD returns to one of my retirement accounts. I spent countless hours crafting this portfolio, making sure all the ETFs were at least 4 stars on Morningstar, with most outperforming the underlying index. There are dozens of ETFs within it.

ETFs vs Mutual Funds

I compared my results to that of VTI and VXUS last week. And you know what? VTI and VXUS beat my returns on the year. Not by much, but they still performed better. Going forward, I’m going to let the folks at Vanguard do the work for me.

Both VTI and VXUS are index funds, meaning their aim is to match the index representing them. This leaves little room for subjective minds. I like this because I know as many as 85% of fund managers (stock pickers) underperform the market.

In my experience in the retail trading world, the biggest mistake investors make is thinking they can do it all on their own. If Albert Einstein can’t beat the stock market, I don’t believe fund managers, or myself, stand a chance.

3. Real Estate

Homeownership

Perhaps the best (yet most difficult) way to invest in real estate is to buy the physical property yourself. With today’s mortgage rates lingering around 3%, mortgage loans are as attractive as ever. Compare today’s thirty-year mortgage rate of 3% to the 1980s, when it climbed as high as 18%!

One of the most attractive and overlooked components of homeownership is the tax benefits that come with selling. If you can sell your property for a profit, (assuming you have lived in the property for 2 years) the first $250,000 in gains is completely tax-free. This number goes up to $500,000 for a married couple.

Homeownership could potentially save you money too. Sum up the total of all of your rental expenses and compare this number to the complete costs of a mortgage (make sure to include taxes, insurance, and HOA dues). If the numbers are comparable, and the prices in your neighborhood aren’t too elevated, why not purchase a home/condo?

Mortgage Advantages

Having a mortgage reduces your taxable income, too. Part of every mortgage payment is interest, and you can write-off mortgage interest payments on your taxes. As an example, if you paid $10,000 in mortgage interest in a given year, you can deduct that $10,000 from your taxable income earned in that same year. If you’re paying rent and don’t own a home, you can’t enjoy that benefit.

Lastly, mortgage payments are mostly payments to yourself. When you are renting an apartment, 100% of that payment is an expense. Money burned. When you have a mortgage, your mortgage payments will consist of principal and interest.

Principal payments simply represent repayment of the loan (mortgage) given to you by the bank, while interest payments represent the fee or cost of borrowing that money. Principal payments can be thought of as payments to yourself, as you’re building equity (ownership) in your home by slowly paying off the loan issued to you by the bank. Since a mortgage is a loan to you from a bank to buy a home, the bank essentially owns that portion of the home. If you make a $100,000 down-payment to buy a $500,000 home, then your mortgage is $400,000. The bank effectively owns 80% of your home ($400,000 / $500,000). You own the other 20%, or $100,000, which is your equity.

As you make mortgage payments, your loan balance decreases and your home equity grows.

Mortgage Example

As an example, let’s say your monthly mortgage payment is $2,000, with $1,300 being principal and the remaining $700 being interest.

After one year, you’ll have paid $24,000 in mortgage payments, with $15,600 of that amount representing principal payments, and the remaining $8,400 representing interest payments.

The result? Your home equity grows to $115,600 after the first year, meaning you own more of the home and the bank owns less of the home. In essence, mortgage payments are basically investments into your home. So instead of paying rent and losing 100% of that money, having a mortgage results in payments to yourself, with only the interest portion of payments being lost. But as we mentioned earlier, you can deduct mortgage interest from your taxes.

In short, buying a home can be a win-win situation in terms of 1) paying yourself instead of a 100% rental expense, and 2) reducing taxable income by deducting mortgage interest payments.

If it makes sense but you’re still hesitant, just ask yourself one question: would you rather be adding to your own equity every month, or somebody else’s?

If and when you decide to move and don’t want to sell, you can always rent the property out. Rental properties provide for stable and mostly market immune income. Renting also comes with tax advantages as well.

If that all sounds like too much of a headache for you, there are many other ways to invest in real estate, many of which require just a few clicks of your mouse.

Real Estate ETFs

The simplest and most liquid of all ways to invest in real estate is to do so through an ETF (exchange-traded fund). ETFs trade just like stocks. One particularly attractive fund for today’s skyrocketing residential housing market is REZ, the Residential and Multisector Real Estate fund, brought to you by iShares.

Below are a few more popular real estate ETFs. Check them out on Morningstar for unbiased reviews as to their historic and latest performance.

Another passive real estate option would be investing directly in a real estate investment trust (REIT). To learn more about the different kinds of REITs, checkout out our article, Equity REITS vs. Mortgage REITs

Fundrise

Fundrise is a burgeoning real estate crowdfunding platform. It is a great way for those looking for a more hands-on approach to real estate investing. Unlike simply buying an ETF, investing through Fundrise allows you to see what you’re investing in and how each of your real estate investments is coming along.

Fundrise segments their investors by account level. $500 will get you set up with their lowest “Starter” account. These levels go all the way up to 100k+, which is called their “Premium” account level.

The downside of Fundrise is, compared to ETFs, the liquidity is not great. You’re only able to sell your shares four times a year (at the end of each quarter). If you have a long time horizon, that may suit your needs. For those of us that have lived through the housing bubble, this lack of liquidity brings cause for concern.

The fees at Fundrise could also eat into your profits over time. They charge an asset management fee of .85% in addition to an advisory fee of .15%, the total of which is more than double the fees of the very liquid REZ ETF.

With competition growing in the real estate crowdfunding space, these fees are almost certain to go down in the future. I’ll think more seriously about investing in them when this time comes.

4. Cryptocurrency

A friend of mine asked me 3 years ago what I thought of Bitcoin. I told him I thought it was too risky at 15k. I was invested in three different cryptocurrencies at the time, but I couldn’t believe their meteoric rise would continue much longer.

That very same friend asked me last week the very same question, but I had a different answer. I told him all investment portfolios should have some (very small) exposure to cryptos. I told him this because, in the past 3 years, I believe the crypto space has graduated from being a casino to becoming a widely accepted asset class.

A well-diversified portfolio has exposure to as many assets as possible, regardless of risk. I can’t think of any better hedge to the innumerable black swans that await this world than bitcoin.

Dangers of Investing in Crypto Stocks

Just like in real estate, you can invest in Cryptocurrency through stocks, but, at the moment, these stocks are a poor substitution for the real thing.

GBTC is just one example. It is a bitcoin trust (Grayscale Bitcoin Trust), designed to track the actual coin. The shares of a trust however, are very different from ETFs, as a trust can trade at a discount/premium to its actual holdings. Net Asset Value (NAV) represents the per-share equivalency of its holdings. Shares of an ETF will trade very closely to their NAV as Authorized Participants buy/sell shares of the ETF and its actual components to keep the ETFs shares close to NAV.

With a trust like GBTC, supply and demand dictate the price of the shares, whereas the price of ETFs is generally dictated by the underlying holdings.

Until cryptocurrency ETFs become approved in the United States, your best chance at crypto exposure is to buy it directly through an exchange platform like Coinbase. You will pay high fees, but at the moment, there is no better option for the amateur crypto investor.

Even better, you can take the Warren Buffett approach and set up a recurring purchase plan for bitcoin with a platform like Swan Bitcoin. Swan’s platform is the easiest way to start buying bitcoin as a beginner. Generally, you can get approved at Swan within a matter of minutes, and they are available globally. Compared to cryptocurrency exchanges like Coinbase or Gemini, you will save 23-80% in fees on recurring purchases by using Swan.

In 2021, a bitcoin futures-based ETF was launched. This product, however, has many risks. Be sure to check out our article, “ProShares BITO ETF Explained” to be more informed on these risks before investing.

5. Savings Account, Money Market, Treasury Securities

Next on our list, we have savings accounts, money market accounts, and Treasury securities (bonds). These traditional savings options are perhaps the least sexy right now on account of today’s historically low-interest-rate environment.

Interest rates are currently lower than inflation. This means that your money in the bank loses value every year. Why would anyone have their money in an investment that loses money?

Because it’s the only option we have to park cash (relatively) risk-free. Because a 0.07% interest rate is better than the 0.00% interest rate the money under your mattress accrues.

For the elderly and risk-averse, this is truly a financial nightmare. To make things worse, low rates appear to be the new normal. One famed economist has even made a convincing case that interest rates have been going down since the hyperinflation following the Black Death!

Considering the world is only just now recovering from yet another pandemic, the future of those seeking returns through more traditional savings accounts and government securities is bleaker than ever.

But that isn’t to say you shouldn’t have some money in the bank. It seems nothing is safe from the volatile swings occurring across today’s numerous asset classes. One rule of thumb is to keep three to six months of your salary tucked away in as risk-free of an environment as possible.

BlockFi's High Interest Rate

For those who are willing to take on more risk in a savings account, BlockFi is currently offering a remarkably high interest rate of over 7% on stablecoins. Stablecoins maintain a stable exchange rate with assets such as the US Dollar, and are far less volatile than regular cryptocurrencies, which is exactly why they are called stablecoins.

A cryptocurrency like bitcoin may be worth $30,000 today and $60,000 in a month, which means it has a variable or floating exchange rate. A USD-backed stablecoin such as USDC keeps a 1:1 exchange rate with the U.S. dollar. If you buy 1,000 units of USDC with $1,000, you can later convert your 1,000 units of USDC back into $1,000.

While the intention here isn’t to be a doomsayer, USD-backed stablecoins still represent the U.S. dollar, which means you do have currency-related risks. With the current rate of U.S. dollar money-printing right now, some fear that the U.S. dollar is in trouble. When the supply of something is rapidly increased, each unit loses value. So if you’re worried about the long-term value of the U.S. dollar, then buying a USD-backed stablecoin may not be the right choice for you.

The interest rate that can be earned on stablecoin deposits is subject to market conditions and may change over time, but for now, earning 7.5%+ interest on idle cash in a savings account may be well worth it for those willing to take some additional risk with that cash. I must mention that there is also a greater risk in BlockFi’s interest-bearing accounts as they are not FDIC insured.

To learn more about BlockFi, watch our YouTube video on the subject.

But remember, most of your rainy-day funds should be held in tried and tested banks.

Conclusion

There are innumerable ways to invest money. The key, from my experience, is to not get too creative. When I think of speculative investments, I always think of Mark Twain. America’s funniest man was also America’s worst investor. Everything he touched failed. His “Paige Typesetter” investment nearly destroyed both him and his family.

Perhaps the worst part of Twain’s story is what he wasn’t doing while he was worried about his investment in an over-complicated, 18,000 piece printing machine – and that is writing. I can’t help but wonder how many more works he would have produced had he simply invested his money in VTI and VXUS instead of impossibly complicated printing machines.

Do what you love, and let your money work for you. I promise you, if you invest with both diversification and intelligence, you won’t be disappointed in its work ethic.

After having put down one of my idols, I feel I must end this article with a quote by him.

“The lack of money is the root of all evil” – Mark Twain

Roth IRA

Final Word

Next Lessons

What Are Seasonal Stocks?

Stock to Bond Ratio by Age

ETF Basics for Beginners

Additional Resources

Long Put Option Strategy for Beginners

Best For: Very Bullish Investors

What Is a Long Put?

Unhedged Long Put

Long Puts Explaines

Short Stock vs Long Put

Put Option Characteristics

Maximum Profit

Maximum Loss

Breakeven

Scenario 1

SPY Trade Details

Scenario 2

Closing a Long Put

Next Lessons

Additional Resources

5 Easy Ways to Start Investing Today

Budget

Examine Your Expenses

1. Retirement Accounts

401(k) Plan

ROTH IRA

2. Brokerage Account

ETFs (Exchange Traded Funds)

ETFs vs Mutual Funds

3. Real Estate

Homeownership

Mortgage Advantages

Mortgage Example

Real Estate ETFs

Fundrise

4. Cryptocurrency

Dangers of Investing in Crypto Stocks

5. Savings Account, Money Market, Treasury Securities

BlockFi's High Interest Rate

Conclusion

Next Lessons