Investing
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Smart ways to invest your money

You probably have heard before that you shouldn’t put all your eggs in one basket. This comes especially true for investing and portfolio management. Portfolio diversification is key for stable returns and profitable long-term investing. But how to invest money? What are smart ways to grow your income on the path to financial freedom? Is it possible to start investing small and grow a fortune long-term?

Here on TodayTrader, you can find educational financial content about all kinds of different asset classes and interesting investment opportunities. We cover traditional asset classes like stocks, real estate or precious metals. In addition, we also help you understand more recent ways of investing money like P2P Lending, Robo-Advisors or high-risk investments like cryptocurrencies.

Investing in Asset Classes

Investment opportunities

Asset classes and smart ways to invest money for portfolio diversification

 

Stock Market

Investing in the stock market has historically paid off with great returns. You can either invest in stocks through investment funds or ETFs for better diversification or do stock picking if you believe that particular companies will outperform the market in the long run.

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Mutual Funds

A mutual fund collects money from many investors to invest in stocks, bonds, forex, real estate or other investments based on the underlying investment strategy. The advantage of mutual funds is higher diversification in comparison to individual investments.

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ETF

ETFs (exchange-traded funds) are baskets of assets with advantages over mutual funds or individual investments. ETFs are traded as common stock on a stock exchange and you can participate from the performance of particular markets, indexes or else.

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Real Estate

Investing in real estate is one of the oldest forms of investing and it’s one of the basic asset classes that every investor should consider adding to his or her investment portfolio. You can invest in real estate directly or through investment funds, ETFs, REITs and more.

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Cryptocurrency

Cryptocurrency like Bitcoin, Ethereum or Litecoin are digital currencies based on decentralized P2P networks (Blockchain). Investing in cryptocurrencies involves significant financial risks, but also the chance that cryptocurrencies will become mainstream.

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P2P Lending

By investing in peer-to-peer lending platforms you are able to loan money to individuals in small increments as if you were the bank. The interest rates for these loans usually are way above common rates at banks so that you can achieve a good ROI with calculated risks.

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Precious Metals

Throughout history, civilizations have always believed in the value of precious metals. Gold, silver and other precious metals are great long-term investments and should be part of every larger investment portfolio. You can invest in precious metals directly or indirectly.

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Diamonds

Marilyn Monroe already knew that diamonds are a girl’s best friend. Diamonds are alternative investments which are especially interesting in times of a global economic crisis. Diamonds don’t take up much room and have a few advantages over other alternative investments.

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Fine Wine

Did you know that fine wine is one of the best performing asset classes? While that is true, investing in wine requires solid expertise as this investment also involves significant risks. However, it’s also probably the only investment you can still enjoy when you’ve lost money.

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Fine Art

Art can be a great long-term investment if it’s purchased in a smart way. You can invest in art directly, which requires solid expertise and experience in the international art market or you can invest in art indirectly through managed art funds or alternative investments.

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Timber / Wood

In the case of this asset class, money indeed grows on trees. Investing in wood/timber can be a great way to further diversify an investment portfolio. You can invest in wood by buying ownership of woodland/forest or invest indirectly through investment funds or REITs.

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Venture Capital

Venture capital is the lifeblood of new businesses and startups. Investing money in startups involves significant risks, but can also help you achieve an extreme ROI. For average investors, a way to invest venture capital in startups is through crowdfunding.

Coming soon

 

Robo Advisor

A popular choice for investors who seek low-cost, automated investment opportunities are Robo-Adivsors. Robo advisors use computer algorithms to set up a customized, diverse portfolio and wealth management strategy based on your personal financial situation.

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Start a Business

Starting your own business can be one of the best decisions in your life. If you have an interesting and solid business idea, investing in your own business idea can pay off way more than other investment opportunities. Your own business can be a way to financial freedom.

Coming soon

 

Pay off debt

Having debt usually is the opposite of financial freedom. If you want a guaranteed return on investment, paying off your debt usually is the best investment decision you can make. Once you’ve paid off your debt, you can start working on your investment portfolio.

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Top 15 Ways to Invest Online for Beginners

 

The investment world is full of opportunities for all type of investors, ranging from small retail players looking to generate income and to make their net worth grow,  to HedgeFunds aiming for more complex and sophisticated investments through all asset classes.

Ever until the first 3 quarters of the 20th century, investing in the financial markets was kept for the wealthy and rarely seen as a close possibility for any retail investor looking to allocate small amounts of capital. Things started to change on the last inning of the century as more and more brokers started to realize of all the market share they were leaving behind by not taking retail money (also because of their extremely high fees).

 

 

What you should know about investing:

There are many different vehicles that could be used for investing, ranging from very sophisticated and technical strategies to beginner-friendly investing mechanisms that could be put to action with a small capital and little to no experience at all.

 

Before choosing an investment vehicle or an asset class to start investing, it is important for investors to understand that even with a market full of opportunities to profit and capitalize from every day, investing is not a get-rich-quick scheme but a long term road for financial freedom and stability.  Just like money is there to be made every day, there is also risk inherited with investing and investments should be made around risk management and proper portfolio management rather than money making, with a solid plan and a good strategy, money will come but not otherwise.

 

Someone’s sitting in the shade today because someone planted a tree a long time ago Warren Buffett

 

It takes time and patience to enjoy the fruits of labor. When you plan for the future, good things can happen.

 

According to the Oracle of Omaha, Warren Buffett, one of his personals secrets and advice for anyone looking to start investing is to focus on sectors of the stock market or vehicles that they find interesting and that provide excitement since it will make it easier to enjoy the upsides and downsides and will help with the patience side of investing.

 

When it comes to investing and trading the right approach is to look for growth in the long run, this does not mean that you have to keep any investment for years but that the benefit from investing through the years is what will boost your net worth, this is a lifetime marathon and not a sprint.

 

For anyone with a valid license, it is possible that they remember how strange it felt the first time they step into the driver’s seat and drove a car, it was simply not natural at all. With Investing and Trading especially, it is exactly the same, its a new experience that time and practice will become natural and not forced at all. Continuing with the analogy of the driver, you most probably did not learn how to drive using a racecar and for the same reason you should not start your trading and investing career in derivatives or with complex options strategies, but eventually, you could.

 

These are the top 15 ways to invest online for beginners:

 

 

1. Stocks

 

The US Stock Market alone represents the largest equity market in the world with a value of over $30 trillion as of January 2019. The biggest advantage of stock investing is the diverse selection of possible stocks to pick, providing a unique opportunity to own a small/big position in all sectors of the US and even global markets and their economies.

 

Stock trading is a very wide term since it can refer to many different types of stocks that might follow or work under the same logic but with very specific characteristics, an example of this is the difference between Blue Chip Stocks and Penny Stock.

 

 

 

 

As more investors turn their look into the equity market, brokers have adapted their business models to allow them to also profit from the fees generated by retail investors. Eventually due to the saturation of brokers in the market and the offer of trading accounts, the fees related to this type of investments decreased considerably to the point where there are brokers that would let you trade for free or with fees as little as $1 per single trade.

 

Important Statistics of Investing in Stocks

 

Average Yearly Return: No year is the same and it is important for investors to understand that performance in the stock market should be analyzed with a telescope and not a microscope. Over the last 30 years, the average return of the S&P 500 was 6.73% but if we analyze the market since 2013 the average has been of 10%. Considering how inflation affects the buying power of a portfolio over time, it is sound to calculate an average inflation-adjusted return of 7% to 8% annually.

 

Initial Capital Needed: The minimum capital requirement to be considered as a Pattern Day Trader in the US (be able to trade freely) is $25,000, this would allow an investor to access margin benefits to expand their buying power, besides a Margin Account investors can look in to a cash account that would allow them to invest up to the value of their accounts, this provides smaller investors access to invest in the market, the minimum requirement for cash accounts will vary from broker to broker but the average is usually $2000 for a top broker and as low as $500 for a smaller one.

 

Risks:

  • ● Economic Growth
  • ● Recessions
  • ● Inflation
  • ● Interest Rates
  • ● Currency Fluctuations

 

Pros:

  • Highest Liquidity of any other financial asset besides cash
  • Diversification, a vast offer of stocks to invest
  • High Returns, the best way to build wealth over time if you choose stocks wisely
  • Income from Dividends

 

Cons:

  • The market is not stable as it constantly changes
  • The is no guaranteed return
  • Black Swan type of events can create spontaneous volatility of any stock and even the market
  • Political events may affect returns faster than expected as the news are priced in the market

 

 

2. Fixed Income (Bonds, Treasuries, Notes)

Fixed Income instruments represent loan(could be seen as an I.O.U.)s made by an investor to a borrower that is typically a corporate or a governmental player.

 

An investor can invest into bonds expecting to hold the asset until maturity, where the principal is paid in full and to cash from the interest (could be fixed or variable) paid during the duration of the Bond, another way is to buy and sell like any other asset class, trading and profiting from prices in the change of the asset generating capital gains and at the same time profit from the coupons paid while holding.

 

An influential factor for the price of Fixed Income assets are the interest rates, generally, hikes in interest rates tend to affect the prices of bonds in an inverse way. The most common types of Bonds are:

 

  • ● Treasury Bonds
  • ● Other US-Backed Securities
  • ● Foreign Bonds Backed by another economy
  • ● Investment Grade Corporate Bonds (High Quality)
  • ● High-Yield Bonds (Junk)
  • ● Mortgage-Backed Bonds

 

Not all investors have the capacity to hold bonds until maturity or simply to buy enough bonds to properly diversify the value of their portfolio, for this reason,n it is also possible to acquired bonds trough specialized ETF that invest in all the different types of Fixed Income securities. Some examples are:

 

  • ● iShares Barclays 20+ Year Treasury Bond Fund (TLT)
  • ● iShares Barclays 10-20 Year Treasury Bond Fund (TLH)
  • ● Shares Core Total USD Bond Market ETF (IUSB)
  • ● PIMCO Total Return ETF (BOND)
  • ● Vanguard Mortgage-Backed Securities ETF (VMBS)
  • ● iShares iBoxx $ High Yield Corporate Bond Fund (HYG)

 

Important Statistics of Investing in Bonds

 

Average Yearly Return – Yield: Using a sample with the comparative information between the Stock and Fixed Income Market since 1926, the stock market has delivered better returns over time with a yearly average of close to 10% while during the same period of time, Government Bonds yielded about 5.5%.

 

Initial Capital Needed: Increments in bonds may differ from issuer to issuer, wherein the small end of the US Treasury market bonds can be purchased at an increment of $100 and on the other side of the balance Ginnie Mae mortgage-backed bonds might require at least $2,5000. The minimum requirement to start investing in the fixed income marker will differ based on the type of bond you want to buy and also the tenure of the bond. In an also vast market it will surely be a type of bond that will match your investing requirements as a small/big investor.

 

Risks:

  • ● Inflation Risk
  • ● Credit Risk
  • ● Interest Rate Risk

Pros:

  • Stability, Bonds are more likely to hold their value better than stocks
  • Income generated by interests and coupons
  • Security, US Treasuries are the safest and more liquid asset next to cash
  • Tax Savings, certain types of bonds provide tax-free income (generally offer a lower yield)

 

Cons:

  • Investment returns are fixed, compared to the theoretically unlimited potential for upside in stocks
  • Bonds are usually traded on the OTC market, making access to them a little more difficult
  • For some investors, the low-risk and low reward scheme won’t make the cut of returns they aspire
  • The price for long term bonds may be dramatically affected by interest rates

 

 

3. Robo-Advisor

For many decades financial advisors have used mathematical and statistic algorithms to allocate, manage and optimize their client’s assets. What started as a very rudimentary tool to complemented decision making deviated to a model where these robot-like algorithms are offered to the public without little to no intervention, in some cases completely eliminating the figure of a human asset manager overseeing the portfolio.

 

It was not until after the dust of the financial crisis have settled in 2008-2009 that the figure of the Robo-advisor become more common in Wallstreet and the US. There are currently more than 100 companies worldwide offering their services, and as of January 2019 Robo-Advisors worldwide have more than $285 billion in assets under management.

 

Wealth management research firm MyPrivateBanking estimates that a hybrid of Robo-Advisors and human advisors could manage up to 10% of all investable wealth by 2025.

 

Important Statistics of Investing with Robo-Advisors

 

Average Yearly Return – Yield: The average portfolio return of Betterment (Biggest Robo-Advisor worldwide) is a cumulative 40% return over 4 years which translate to an average annualized of 8.77 net of fees.

 

Initial Capital Needed: The is not a minimum capital required in order to start using a Robo-Advisor and most of them will have low fees for any investor holding less than $2 million in their balance, and a higher fee for any amount higher than that.

 

Risks:

  • ● Inability to Measure Risk Tolerance Accurately, some Robo-Advisors tend the lean towards a more aggressive portfolio management that might not be suitable to all investor profiles.
  • ● Effectiveness is still not yet established.

Pros:

  • The most commonly cited reason for using Robo-Advisor are the low fees. These are common to nearly all companies in the industry. Not only are they low, but they’re also continuing to fall, making it more competitive all the time relative to traditional wealth management.
  • The growth of the industry has spawned a huge amount of choice. The automated investment industry increasingly caters for everybody. Regardless of how exotic your asset allocation choices, it’s likely that the Robo-Advisor industry has a ready-made solution.

 

Cons:

  • The Robo-Advisor industry is only 10 years old meaning that it lacks a long-enough timeline to provide us with really useful performance data. Even the Robo Report discussed above lacks returns past two years for many of the Robo-Advisor in its analysis.
  • Closely related to the previous point is that having missed the worst of the 2008 financial crisis, it’s still difficult to say how Robo-Advisor would perform during a large financial meltdown. The performance of Robo-Advisor until now largely been based on a growth-based environment.

 

 

4. P2P Lending

Peer-to-Peer lending allows individuals to solicit and obtain loans directly from another individual, eliminating the figure of the middleman or of any financial institution. P2P Lending websites offer a platform where investors and borrowers are connected and all the rates and terms of the transaction are set.

 

It is important to understand that this type of lending offers an opportunity for individuals that otherwise would have had trouble receiving a loan from a regular source of funding like a bank, for this reason, interest rates are based specifically on the creditworthiness of the applicant.

 

Just like P2P offers a great opportunity for borrowers with a very poor credit score, the platform awards individuals with great credit scores with interest rates that are lower than those offered by banks.

 

Important Statistics of Investing in P2P Lending

 

Average Yearly Return: Returns will vary from provider to provider as they change rates depending on the risk of the loans. On average investors can expect up to 10% of return annually, but in a more conservative aspect, a 7% return is more realistic at a lower beta of risk.

 

Initial Capital Needed: One of the greatest aspects of P2P Lending is the ability to choose the loans you want to participate and also the fact that you can allocate as much as you want at a single loan, meaning that you can allocate through different borrowers diversifying risk. The average requirement to invest is $1000 and the minimum allocatable per loan is $100.

 

Risks:

  • ● Borrowers Default
  • ● Operator becoming insolvent
  • ● Missing Opportunity on invested time until repayment is completed

 

Pros:

  • A lender can be an institution or an individual.
  • It is very simple to open an account on online lending platforms.
  • There is not as much paperwork as with bank loans.
  • You can decide who you want to lend money to and how much you want to invest.

 

Cons:

  • P2P lending is rather new and has not yet proven how it can overcome a financial crisis.
  • You need to diversify and spread your money to loans with different levels of risk.
  • Your money is not as safe as if you invested it in a bank. However, more and more platforms start to guarantee to buy loans back in case of default (though, it’s questionable if this is even possible in case of a financial crisis).

 

 

5. ETF – (Exchange-Traded Fund)

 

These are investment funds that are traded on stock exchanges just like a regular stock. They provide a more macro investment opportunity by allowing traders to invest in specialized ETFs that track specific sectors and even asset classes.

 

There are many different types of strategies for ETF trading, a perfect example is an investor looking to benefit from a strong equity market across sectors, he/she might take a shot investing in a total ETF that has investments in all major companies across sectors in the US equity market, this way they would able to profit from the overall movement of the market and not a single stock.

 

ETFs provide excellent benefits for investors that do not have the time capacity to do research between sectors, or that simply want to focus in a specific sector for growth. Please note that this type of asset is also commonly used for institutional as a hedging mechanism.

 

Since they are traded like stocks, a similar account size would be desired(most of the brokers offer the same treatment for ETF as if they were regular equities).

 

Important Statistics of Investing in ETFs

 

Average Yearly Return – Yield: Since ETFs cover a vast majority of global markets, with different types of investment approaches and strategies, it is difficult to calculate an average annual return. Even after a poor year for the equities, some ETFs presented double and even triple-digit returns in 2018. These were the best performers of last year:

 

  • ● Direxion Daily Natural Gas Related Bear 3x Shares (GASX) 127.80%
  • ● iPath Bloomberg Cocoa Subindex Total Return ETN (NIB) 23.05
  • ● AGFiQ U.S. Market Neutral Anti-Beta Fund (BTAL) 15.11%

 

Initial Capital Needed: Most of ETFs have relatively accessible prices which makes them attractive and accessible for most of the small/big portfolios. Since they trade just like stocks, the same capital needed to trade Stocks is the same for ETFs.

 

Pros:

  • Affordable and low fees – The major benefit of ETFs is affordability. Many mutual funds charge you front loads, exit loads, management fees and 12b-1 fees. ETFs, on the other hand, are traded directly on the exchange. ETFs only charge you an expense ratio, which is quite lower than mutual funds. Since most ETFs are passively managed they have very low expense ratios. Apart from the expense ratio, you will pay a brokerage fee on your purchase and sale, just like you would on the purchase and sale of a stock.
  • Liquid – Many passive and active ETFs are extremely liquid. You can get the same market exposure that mutual funds offer, but have the ability to quickly liquidate your position during market hours. Liquidity may differ from ETF to ETF based upon its composition and secondary market forces.
  • Diversification – Instead of buying multiple stocks individually and paying brokerage fee on every purchase, an ETF allows you to get exposure to a basket of securities by paying brokerage on only one purchase. This basket of securities helps you diversify efficiently and reduce your risk.

 

Cons:

  • Choice difficulty – With the growth of the ETF industry, too many ETF choices have popped up for investors. The IFLY ETF specifically tracks only companies that research and develop drones. The WOOD ETF only tracks companies that belong to forestry. These very specific niches leave the investor too spoiled for choices, which may leave him or her confused.
  • Volatile – In August 2015 when the Dow Jones Industrial Average index fell 1100 points, many ETFs that labeled themselves as low volatility ETFs, actually suffered losses anywhere from 30% to as high as 89%. When stocks don’t get priced correctly due to market glitches or trading pauses, market players find it confusing to value vehicles like ETFs that track these securities.
  • Complexity – Some of the very specific ETFs that use derivatives can be quite daunting to understand for a novice investor. A 3X inverse leveraged ETF that tracks a basket of securities or an ETF that tracks volatility are complex to understand and need to be well researched and understood before you plan to speculate using it.

 

 

6. REITs – (Real Estate Investment Trusts)

This type of fund allows small and big investors to own a stake of real estate that otherwise they might have not being able to invest in due to its size and price. Since they operate like in exchanges the same way ETFs and Stocks do, they are considered as very liquid assets.

 

There are 3 basic types of REITs:

 

    1. 1. Equity REITs – The fund buys properties and rent or leases them later, generating income
    2. 2. Mortgage REITs – The fund buys or gives mortgages and profit from the interest generated in the loans
    3. 3. Hybrid REITs- Profit from both owning and lending

 

In order to qualify under special IRS considerations, REITs must pay at least 90% of their profits in dividends which makes them an attractive investment to generate income in every portfolio.

 

Since they are traded like stocks, a similar account size would be desired(most of the brokers offer the same treatment for REITs as if they were regular equities).

 

Important Statistics of Investing in REITs

 

Average Yearly Return: The average return of the REITs industry in 2018 was of 9.27% after fees, over the past 25 years the annual average return has been 10.47%.

 

Initial Capital Needed: Most of the REITs do not have a minimum investment but may required investors to purchase even blocks of shares, with increments of 10 or 100 shares per block.

 

Risks:

  • ● During the financial crisis, the most important REITs ETFs provided losses for -20.35% in 2007 and an unbelievable -40.03% in 2008, just like RealState can hold its value over time and prove to be a solid investment, it can also implode due to market conditions and the overall US Economy.

 

Pros:

  • REITs must pay out at least 90 percent of their income as dividends
  • Large payouts result in higher-than-average yields
  • REITs help diversify an investment portfolio

 

Cons:

  • Falling occupancy rates and increasing vacancies hurt revenues
  • Share prices can fall with the broader stock market based on supply and demand of shares
  • High dividend payouts for REITs force management to take on debt to expand real estate holdings

 

 

7. Crowdfunding

 

Following a similar path to what P2P Lending does, Crowdfunding looks to connect possible investors to new business ventures, promoting entrepreneurship and also expanding the pool connections from whom an entrepreneur can raise money.

 

Just like with Hedge funds, equity crowdfunding used to be very strict since it would be required of an accredited investor with at least $1 million in net worth or an annual income of $200,000 to legally invest in new ventures. After an act that was initially introduced in 2012 by the Obama Administration, and later approved by the SEC, in it investors were removed of several restrictions on investments and regulations for crowdfunding were proposed after.

 

Now non-accredited investors can invest in equity crowdfunding up to a limit of 5% of their annual income.

 

Important Statistics of Investing in Crowdfunding

 

Average Yearly Return: Crowdfunding opens the door for investors to become part of new ventures at its early stages, this can translate in unlimited upside of return if the company results as successful (Imagine being able to invest in Google even before it went public) but at the same time it brings to the table a reality in which almost 40% of all new ventures in the US ended up failing.  This type of investment is specifically a High-Risk/High-Reward one.

 

Initial Capital Needed: Through companies like Kickstarter and Indiegogo, investors can aim for Equity investments from a starting point of $1000 and up to their limitation of 5% of their income for non accredited investors.

 

Risks:

 

  • ● High Risk of loss, it is important to have in mind that most of the businesses looking for funding through this type of programs are usually startups which elevate even more the risk of investing in a new company.
  • ● Liquidity, there is a big change that your investment will remain stuck for a good period of time, many investors dream with the opportunity to buy a share of a company that will eventually go public but this is not a reality for all ventures and it might never happen.

Pros:

  • Increased exposure 
  • Validation
  • Free PR

Cons:

  • Risk of failure
  • Fees
  • Does not work for non-consumer projects
  • Copycats

 

8. Investment Apps

 

A the world of Fintech grows, there have been several new companies offering their investment services to the general public, one of them in particular “Acorns” which offers the possibility to round payments done with a debit card in order to save the money from the rounding in a portfolio that could be tailormade to the risk profile and appetite from the investor.

 

This business model provides the integration of a savings account with the ability to automatically invest in a Robot-advisor model, all in the same App.

 

Important Statistics of Investing in Investment Apps

 

Average Yearly Return: Returns will vary based on the internals of the selected portfolio, ranging from a very conservative portfolio to a 100% stocks aggressive one.

 

Initial Capital Needed: The is no minimum requirement to invest in this type of apps which makes them very accessible to all types of investors. It is important to keep in mind that Acorns is not a free service and it has a monthly payment for their account types and it ranges from $1-$5 dollars a month.

 

Risks:

  • ● Both the Stock and FixedIncome market present an always existing risk that may cause investments to lose value in case of any black swan event or simply due to economic cycle and policy.

 

Pros:

  • Low Fees for smaller accounts
  • Simple to use and especially for beginner investors
  • A low minimum deposit ranging from $5

Cons:

  • Limited investment choices
  • Unknown performance of Portfolio Managers
  • Long term investors may find better returns with a Robot-Advisor at slightly higher cost

 

9. Commodities

 

Commodities are basic goods needed fas inputs for production of secondary goods and in some cases services, these assets are traded and are also interchangeable for other commodities. There are several different ways an investor can get into commodities for trading or long term holding:

 

    1. 1. Buying the raw and physical commodity, for example buying gold bullion or coins
    2. 2. Investing in futures that track the stock price of the asset, profiting from price changes of the asset
    3. 3. Buying Electronic Traded Products (ETPs) or ETFs that track the sector or the spot price

 

An important characteristic of this sector is that not all brokers offer access to them, or not to all of them since there are several types of commodities that are not followed in a big manner by speculative investors. There is a wide range of commodities that are available for trading, some of the different types are:

 

  • ● Metals (Gold, Copper)
  • ● Energy (Crude Oil, Nat Gas)

 

  • ● Livestock (Lean Hogs, Cattle)
  • ● Agricultural (Corn, Soybeans)

Important Statistics of Investing in Commodities

 

Average Yearly Return: With the only exception of the precious metals sector, most of the commodities tend to have volatile periods of time which makes it difficult to calculate an average return without having to use too much data to make the numbers smooth and less spiky over time.

 

Top Performers of 2018:

 

  • ● Palladium 18.59%
  • ● Wheat 17.86%
  • ● Corn 6.91%

 

Risks:

 

  • ● Highly Volatile Assets
  • ● Highly leveraged Products

 

Pros:

  • Diversification benefits
  • Protection against inflation
  • Exposure to different growth opportunities

Cons:

  • Highly volatile
  • No income generation

 

10. Options

 

Is with Options where the risk level truly increases, just like its name says you are buying the Option to buy or sell a specific security at an X price on a Y date, premium and prices on options will change and fluctuate based on the movements of the underlying security it covers. The risk in options because heavy movements in any asset can make the price of the option to go to zero faster than you can imagine, killing premium.

 

Options are used for hedging and also for heavy speculation in the market, in most of the cases it would be needed for any interested investor to understand deeply the underlying asset, its sector, and asset class before looking to add an extra layer of complications with options.

 

Since options have an expiration date, they have a time decay that takes down the premium of the option as it gets closed to its expiration date, this means that options are assets that add another graphic to them since investors need to calculate the remaining premium at any time and understand that during the last 5 days, unless the underlying asset is moving and the contract gets in the money, it will eventually be expired worthless with a zero price.

 

The options market is a offers a variety of assets like stocks, currency, commodity, bonds, and other more technical assets to buy options from, the strategies are limitless with options. A trader should eventually dig into the world of options once it has gain confidence in their trading and also experience with other assets.

 

The returns of this specific class could be in the hundreds% per position. Depending on the asset, option prices can be very low meaning that there are accessible for investors to look into as part of their strategy.

 

Important Statistics of Investing in Futures Contracts

 

Average Yearly Return: Options provide access to a very liquid market that offers returns relatively higher than the stock market it underlies, but just like with everything it offers higher returns at a higher beta of risk. If chosen correctly the price of an option contract can deliver 100%-300% return in hours, but just like that if you found yourself taking a spot on the wrong side of the balance, you can see your investment go to zero in the same amount of time.

 

Risks:

  • ● Total loss of the premium invested

 

Pros:

  • High Level of Returns
  • High liquidity in certain Options Contracts
  • Different strategies for Day Traders
  • Generate Income from already existing Stock Positions through cover call selling

 

Cons:

  • Requires a deep understanding of the underlying asset it covers
  • High tolerance to risk required
  • Higher technical requirements
  • Time Decay
  • Needs time to manage investments, constant overseeing is necessary for many portfolios

 

 

11. Futures Contracts

 

Futures work as contracts with an obligation for the buyer or seller to deliver an asset at a predetermined date in the future at the settled price, some specific contracts may require the physical delivery of raw assets in the case of commodities but its most common for futures to settled in cash.

 

Just like with options, investors can buy and sell their positions before expiration, allowing them to profit from swings in prices and to speculate from the markets.

 

The most traded and liquid Future Contracts are:

 

  • ● S&P 500 E-mini (ES)
  • ● 10 Year T-Notes (ZN)
  • ● Crude Oil (CL)
  • ● 5-Year T-notes (ZF)
  • ● Gold (GC)
  • ● EuroFx (6E)

 

Important Statistics of Investing in Futures Contracts

 

Average Yearly Return: Returns are based on the underlying asset the futures contract covers, a perfect example of this is the most traded contract in the World, the S&P 500 E-mini which tracks the movements of the Standard and Poor 500 index. When you buy a contract of the E-mini you are expecting the value of the overall index to rise before the contract expires, which would allow you to sell the contract at a profit.

 

Initial Capital Needed: Cash accounts for Futures deliver a high level of leverage which allows investors to expand their buying power based on their margin deposits. Capital requirements would be based on the specific asset the investor will be looking for.

 

Pros:

  • Futures are great for trading certain investments: Such as Market Indexes, Currencies, and Commodities
  • No time decay
  • Great for active investors

 

Cons:

  • Requires a higher level of attention
  • Does not produces income but capital Gains
  • Higher Risk associated with market environment events occurring without notice
  • News sensitive assets

 

12. A 401K or extra retirement plan

 

Investing can be an active or passive task depending on the person and its profile, some people just can’t take the required time to look for stocks and watch market news constantly, this is were a retirement plan or any other type of passive investment works great.

 

Many companies offer to match a portion of your contributions to your account, it’s free money! As of 2019 individuals are allowed by law to contribute up to $19.000 a year (25,00 if you are 50 and older).

 

401Ks have a cap but not a minimum, investors can allocate 1% of their paycheck every month and still be under the tax benefits of these saving and investing mechanism.

 

Typically 401K accounts are managed by funds or target dated mutual funds, which means that your money won’t go flat until you retire, interests are being made and your money is growing within time as if you were investing in a mutual fund but with a tax incentive and with extra money from your employer.

 

The Top Best 401Ks Providers for 2019 are:

 

 

Important Statistics of Investing in 401Ks

 

Average Yearly Return: Over the last 20 years retirement planners have used an average return annually between 5% and 7% after fees, the final number will depend on whom is managing the fund and the market environment.

 

Initial Capital Needed: The is no minimum contribution for your 401K but to fully take advantage of all the compounding returns through the years it is recommended to allocate up to 5% of your income, this will make your savings grow over time and especially if your employer provides matching funds.

 

Pros:

  • Federal Legal Protection (ERISA Security Act 1974)
  • Matching Funds
  • High Contribution Limit
  • Tax Deductible

 

Cons:

  • Limited Investment Options
  • Account Fees can be high
  • Early Withdrawal fees (Up to 10% Penalty)

 

13. Currency Investing (Foreign Exchange)

 

FX is one of the most popular investment vehicles for both institutional investors and retails for many reasons, some of them being high liquidity, diversity of pairs to look for and the ability to trade electronically from anywhere in the world in a fast and controlled environment.

 

One of the key elements that make currency investment so great for active investors is the ability to obtain high leverage, meaning that they could borrow X times their account value and with this expand their buying power beyond their account value, allowing them to trade bigger transactions at a lower margin.

 

Most Traded Currency pairs (by %):

  • ● EUR/USD (23.1%)
  • ● USD/JPY (17.8%)
  • ● GBP/USD (9.3%)

 

  • AUD/USD (5.2%)
  • USD/CAD (4.3%)

 

Important Statistics of Investing in 401Ks

 

Initial Capital Needed:  Another important factor of FX Trading is the low capital requirements needed to invest, with some brokers offering trading accounts from as low as $200, it is important to understand that such a small account offers little to none space for losses. A healthy account size for an active traded should be between $5,000 and $7,000.

 

Risks:

 

  • ● Interest Rate RisK
  • ● Settlement Risk
  • ● No Central Exchange

 

Pros:

  • Accessibility
  • Potential For Fast Returns
  • Easy Short Selling
  • Technical Strategy

 

Cons:

  • Small Traders May Face Some Disadvantages
  • Lighter Regulatory Protection
  • Fewer Residual Returns
  • Volatility

 

14. Cryptocurrency

 

Virtual currencies have been the worst nightmare for many wealth managers and financial advisors since the rally of 2017 and later its cliff jump. As mentioned before, cryptocurrency refers to a virtual currency that uses cryptographic coding as a security and safety measure, making it untraceable and extremely difficult to counterfeit. Another key point to understand is that many of these cryptos run as decentralized systems based on blockchain technology that is distributed through a network of computers.

 

Cryptocurrencies can be bought through exchanges just like many other securities, it is important for trader and investors to understand that this is a new technology that is far from being fully adapted and that has a very low commitment of traders due to all the uncertainty that surrounds it, making it an investment with high potential but also high risk. If you are planning on investing even after the disclaimer from above, please consider to sizer appropriately your position according to your risk profile and the diversification of the overall portfolio.

 

It is better to be late and size up a position later, than going all in and having to wait through heavy drawdowns that might never pullup again.

 

The most important Cryptocurrencies by market capitalization are:

 

  • ● Bitcoin (BTC) $71.6 Billion
  • ● Ethereum (ETH) $14.6 Billion
  • ● Ripple (XRP) $12.9 Billion
  • ● EOS $ 3.8 Billion
  • ● Litecoint (ETC) $8.85 Billion
  • ● Bitcoin Cash(BCH) $3 Billion

 

 

Important Statistics of Investing in 401Ks

 

Average Yearly Return: Cryptocurrencies have proven to be wild animals that can deliver unimaginable returns in a short period of time, as well as melting down faster and harder than any other type of asset as money outflows under panic selling. It is uncertain how returns will be in the near future since the market has been in a bearish territory since December of 2017.

 

Initial Capital Needed: There is not a minimum requirement to buy cryptocurrency from most of the exchanges opening the door for small investors interested in diversifying their portfolios in the long run.

 

Risks:

  • ● Market Volatility
  • ● Regulatory Issues, Governments are still trying to adapt and control the expansion of cryptocurrencies
  • ● Market Manipulation, although it never been proven, there is evidence of collusion and market manipulation across cryptocurrencies
  • ● Leaving the market might be tricky as spreads get higher and fewer buyers are interested in the asset

Pros:

  • Cryptocurrency is transparent due to its open ledger (Blockchain)
  • Portability in large amounts unlike physical money
  • Space for potential in the long run

 

Cons:

  • Cannot be recovered if lost
  • Not Adapted yet
  • It is subject to market fluctuations

 

15. Certificates of Deposit (CDs)

 

CDs are savings certificates with a fixed interest rate and also a fixed maturity date. During the period the deposit, there is restricted access to the funds until the maturity at which the investment principal is given back to the investor. Credit Deposits are usually issued by commercial banks and they are insured by the FDIC for up to $250.000 per individual.

 

CDs, provide an option of investment for people looking to profit from their cash positions without having to risk in any other asset asides allocating their money to a bank.

 

Important Statistics of Investing in CDs

 

Average Yearly Return: The average annual return under a 2 years CD is 2.75% and it can increase to up to 3.55% for a tenure higher than 5 years, making this the second safest investment that can be made, only behind investing in US Treasuries.

 

Initial Capital Needed: Many US Banks have a minimum requirement of $2000 to open a CD.

Pros

 

  • ● Safety
  • ● Wide selection of terms
  • ● Fixed, predictable returns

 

Cons:

  • Limited liquidity
  • Inflation risk
  • Low relative returns

 

Conclusion

 

As human beings we all have dreams and desires we want to accomplish, from owning our own house to maybe traveling or simply being financially free, Investing at a young age provide limitless possibilities in the future to come, making many of these dreams a possibility with time. As investment options become more and more obtainable and easy access to the common public, there is no reason for one to start investing at their own pace.

 

To the contrary of what many believe, it is possible to invest with basically any account size since there are hundreds if not thousands of investment vehicles to choose from, and with that prices for investing.

 

It relies on each of us to make the decision and start thinking about our future, nowadays is possible to start a portfolio and generate income passively from anywhere in the world.

 

If you have any question regarding this topic or other please leave in the comments below, I will be sure to respond you.

 

 

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