Frugal Is Rich

Exploring International Markets

noreply@blogger.com (Unknown) — Sat, 19 Mar 2022 01:44:00 +0000

Humans are naturally hardwired to resist change and the usual stance is to keep the risk as low as possible. Change may induce fear or uncertainty and the body tries to protect itself in such scenarios. This is a number of times also reflected in people's investment strategy. If people are trying to keep their risk absolutely low, they save and invest in cash or government backed securities and if they are willing to take on more risk they may be heavily invested in the equities market. My recommendation to everyone is to only take risk until it does not interfere with your sleep or day to day activities. There is no point in taking high risk if that makes you feel panicky or makes you constantly question yourself. Although, I must say its definitely worth testing the waters by taking small risks and understanding your thresholds.

One of the best strategies to reduce the risk is to diversify your portfolio as much as possible and ensure you have a big enough emergency fund. I talk about various diversification strategies to beat inflation in my article here, if you have not read it then I highly recommend reading it. One of those diversification areas is international markets. Based on research done by sifma.org, US equity markets represent 42% of the $125 trillion global equity market cap, that still leaves other international markets with roughly around $73 trillion market cap.

International markets are divided mainly into 2 categories - Developed markets like UK, France, Japan and Emerging Markets like Brazil, Russia India, China. Another way how large funds could treat various international markets could be based on their location on the globe - Asia-Pacific (Australia, Japan, Hong Kong, Singapore), Europe (United Kingdom, France, Spain, Germany), Latin America (Brazil, Mexico, Argentina, Peru).

If you are a long term investor and have at least a 5Y to 10Y outlook, the numbers look very promising and show opportunities in the global economy. Below are the top 5Y and 10Y trends in descending order for country stock indexes.

Highest 5Y Country Stock Index Outlook (Source: lazyportfolioetf.com)

Highest 10Y Country Stock Index Outlook (Source: lazyportfolioetf.com)

US investors can leverage various investment vehicles to invest in international markets using Mutual Funds, Exchange Traded Funds (ETFs) or American Depository Receipts (ADR). Most large brokers will have these investment vehicles available for their customers.

Investing in international markets comes with its own risks which could be higher costs, political uncertainty, fluctuations in market value, changes in currency exchange rates etc. Depending on how much investors know about the economics of a certain country, they may elect to invest in specific country indexes, specific stocks or broader global indexes. Maintaining some exposure can definitely bring diversification to your portfolio and hence its highly recommended.

Given the current geo-political situation and uptick around oil prices and other commodities, it is interesting to see how some country stock indexes so far have spiked as compared to the US which is good for people who have exposure to these regions.

Year To Date Country Stock Index in Descending Order (Source: countryeconomy.com)

The moral of the story is to not keep all your eggs in one basket and remember that a healthy diversified portfolio could be really beneficial for you in the longer run.

(Disclosure: Please review the Disclaimer section prior to any investments.)

Investing in Russian Markets

noreply@blogger.com (Unknown) — Mon, 07 Mar 2022 23:54:00 +0000

Russia is the largest country in the world by area and eleventh-largest by nominal Gross Domestic Product (GDP). It is the world's third largest producer of oil and natural gas after the US and Saudi Arabia. Europe is significantly dependent on Russia's oil and natural gas reserves. In simple words, it is no small power and its vast control on key natural resources makes it an extremely dominant nation.

Historically, how American citizens have invested in Russia has been largely through Exchange Traded Funds (ETF), Mutual funds and American Depositary Receipts (ADR). Recently, the New York Stock Exchange (NYSE) put a trading halt in some of the key Russian ETFs and ADRs. Example ETFs that were halted were the iShares MSCI Russia ETF (ERUS), Franklin FTSE Russia ETF (FLRU) and Direxion Daily Russia Bull 2X Shares (RUSL). These major ETF companies have suspended creation of new shares until further notice but buying and selling of shares remains available on secondary market.

To get an idea on how these Russian ETFs have done in the recent weeks, here is a snapshot -

ERUS moved from trading at $43 at the start of the year to now roughly $8.


Source: Google Finance

Similarly, FLRU moved from $30 at the start of the year to now roughly $9.

Source: Google Finance

Investors should remember when they are buying a Russian ETF, they are essentially buying a basket of stocks, for example the number of holdings in ERUS currently are 26 (number does keep changing depending on the fund strategy). This is obviously a safer mechanism as you are diversified way more rather than holding individual stocks. Even then given the current geopolitical tensions, I don't expect a quick turnaround for the Russian stocks, hence the Russian ETF strategy which is diversified might still be risky.

The largest ETFs based on weight in Russian stocks are FLRU, ERUS, RSX and RSXJ but there are other ETFs with quite a significant exposure as well that are available to the US investors. Another large source of direct investment in to the Russian markets is through ADRs. ADR allows US investors to hold non-US stocks with the help of American banks or brokers. American banks or brokers issue these so called receipts that represent a company stock held by the bank in the home stock market of the foreign company. Some example ADRs being - CIAN, YNDX and MTL.

The Russian Sovereign bonds have similarly suffered as well with the S&P Global, Moody's and Fitch now moving these bonds into junk territory. Given the cut-off of Russia from the SWIFT market, distribution payments to bond holders in the US could be a potential challenge.

Personally, I have not directly invested in the Russian markets (stocks, heavy weighted ETFs) as I am not a big fan of investments in petroleum and fossil fuel products. I believe in the long run, most nations would strive towards sustainable green energy and hence these investments would not be great bets for my portfolio.

That being said, when it comes to international investments I do have some indirect exposure to Russia as majority of my investments are in diversified global international mutual funds and ETFs which are mix of emerging and other developed nations and Russia being one of those in the list. One of my other larger exposures in international markets is in the China region because of its substantial growth in technological and other economic sectors.

I urge investors to stay extra cautious with the Russian markets for the time being. Higher risk takers might see this as a potential risk taking opportunity but not sure I would personally have an appetite for it. A majority of large US companies doing business in Russia have either halted their businesses completely or on the verge of cutting ties with their stakes in Russian companies. Russia has taken similar drastic measures by blocking overseas institutions from selling out local securities on the Moscow Exchange.

If you are interested in diversifying your stock portfolio and having more international exposure, my recommendation would be investing in global international mutual funds and ETFs. They would give you a good balance of diversification and risk when it comes to investing your money.

(Disclosure: I have not invested or hold any positions in FLRU, ERUS, RSX, RSXJ, CIAN, YNDX and MTL - ETFs/stocks that are referenced in the article above. Please review the Disclaimer section prior to any investments. I am not receiving any compensation from any of the companies mentioned above in the article.)

Crucial Times In the Equity Markets

noreply@blogger.com (Unknown) — Thu, 03 Mar 2022 01:28:00 +0000

The year 2022 has not had a great start so far from a socioeconomic standpoint. The pain and suffering of the people in Ukraine is starting to reach another extreme and things do not look to calm down any sooner. The MOEX Russian Index took a nose dive because of the war situation, the ongoing sanctions and the geopolitical unease that has been caused between the global nations.


Source: Google Finance

Russia is the world's third largest producer of oil and overall supplies about one-third of European natural gas consumption as per the Council on Foreign Relations. For the EU to completely move away from Russian dependence is not easy and achievable in the short term without having a very large economic impact.

Crude oil prices have shot up over the $100 price limit as we speak further making it challenging with the rising inflation for the common people. This is expected behavior and if there is any disruptions in oil exports from Russia, then this could even drive the prices much higher in the $120 range per barrel. See the correlation below between how gas and crude oil prices have moved for the prior several years.


Source: Bloomberg.com/energy

Source: Federal Bank of St. Louis (Crude Oil vs Gas Prices)

The moral of the story is that the markets will be bumpy for quite some time but investors should not be afraid of the turmoil. Long and hold is the strategy I believe in and recommend to my readers as well. To stress on this point, there have been numerous volatile moments if you look back in history, examples - the 2000 dot com bubble, 2001 World Trade Center attack, 2007-2008 mortgage crisis, 2020 coronavirus crisis. The S&P 500 in midst of the year 2000 was around the 1400 levels and fast forward 20+ years we are at roughly 4300 with the index. So the long and hold strategy definitely works and the index has proved that point too many times with all those events.

Source: Google Finance

Gold prices have certainly picked up as its fairly common during any volatility event. This could be a good time for investors to shift some gains in Gold into equities to re-balance the portfolio. I am not a big commodities person, but I still believe it helps to diversify your portfolio. Personally, I am continuing to buy into equity indexes and loosening a bit on the cryptocurrency side of things as I see the major cryptocurrencies climbing back again.

If you are strapped on cash, I would recommend adjusting your paychecks to put a little more on your 401K and Health Savings (HSA) accounts as I believe you would be on the brighter side in the long run. Less cash always equals less spending.

Another good incentive to think about is tax returns, if you are getting money back. Hold on to the thought of getting a new car for a few months and may be put that extra cash to work. Remember you don't need to put in $1000 to buy into your favorite stock, you always have an option to buy fractional shares, think of it like buying $5 worth of a $3000 stock. A lot of major brokerage companies allow you to invest based on a dollar value.

Remember investing is a long game, so be patient and invest for your future. The key is your time in the market and not timing the market.

(Disclosure: Please review the Disclaimer section prior to any investments.)

Cash Is King - How To Make Cash Work Hard

noreply@blogger.com (Unknown) — Sun, 27 Feb 2022 17:26:00 +0000

If you have read a number of my posts then you probably know cash is my least favorite savings option because it's very hard to put it to work. What I mean by that is liquid cash earns a very small amount of interest when you compare it with the rise in inflation. Hence, I do not recommend to maintain more cash then what you need in the form of a monthly supplies fund or an emergency fund. There may be other situations, where for example you could be close to buying a home and yes it would make sense to hold the down payment money for the home in cash.

For maximizing the value of liquid cash, there aren't a lot of great options, but there are a few where you still get something back to fight inflation. How an average American saves varies by each household, demographics and their income status. In 2019, the U.S. Federal Reserve did a study where they found the median transaction account balance was $5300 and the average transaction account balance was $41,600. Transaction account balance signifies a combination of checking accounts, savings accounts, money market accounts and prepaid debit cards. This is indeed a good amount of money and hence needs a good strategy to increase its value.

A lot of people don't really think too hard on where they may be holding cash and hence this results in them losing some of the value they could have earned in a higher interest vehicle. Checking accounts should mainly contain your account balance for the recurring monthly costs like your credit card bills, electricity bills, groceries etc. These do not (usually) earn any interest rate unless you have a relationship account status with your bank which means you maintain a much large balance with them. Hence the money you keep in your checking is really depreciating with time as inflation is increasing. So I recommend people to keep the least amount of money in these accounts as possible.

Next comes savings accounts, traditionally savings accounts offered by large banks have been very close to checking accounts; meaning they earn minimal interest (example 0.01% Annual Percentage Yield). This is why it is important to start looking at High Yield Savings Accounts (HYSA). The High Yield Savings accounts are usually from online banks which are not your traditional brick and mortar banks. These online banks save a lot of money because of their pure online presence and offer a much higher interest rate (example 0.50% Annual Percentage Yield).

Another investment vehicle is Money Market Accounts (MMA) which could act as a good savings vehicle. Money Market Accounts are very similar to Savings accounts and hence are FDIC insured. The most important point to still remember is that you need to be careful about where you open the MMA - traditional large bank vs online bank. To stress on this point, you will earn a higher interest through an online bank rather than the traditional large bank.

Money Market Accounts and High Yield Savings Accounts are both great investment vehicles but there are a few differences. MMA allows you to write checks, use an ATM debit card while with HYSA its more of a money holder. You may move money between high yield savings accounts but don't get the benefits of MMA which I mentioned above. In simple terms MMA comes with some of the checking account pros with the power of earning higher interest as a HYSA.

It is very important while you are doing your research to carefully look at the benefits when you look at your options, example rates, fees and minimum account balance requirements. You might find a higher interest rate on MMA vs a HYSA in some institutions, but the vice-versa also holds true for some other institutions.

If you need the ability to write checks and the flexibility to get your money out from ATMs then MMA are a better strategy. For me, I would rather restrict the means to get the money out of my HYSA account for obvious security reasons - like ATM and check frauds. Hence for me personally, HYSA makes more sense.

Usually both HYSA and MMA come with transaction limits, hence you have some transaction restrictions which are not there in a checking account. But my point is to use these investment vehicles to save your cash. There are 6 transactions (usually) that you may get each month in these accounts so you can always move money from your HYSA/MMF to your checking account. The important thing to remember is to keep only enough in your checking account that you would need for your monthly expenses. This way you earn more interest and can move money to your checking only when you need it.

Another investment vehicle you may hear about is Money Market Funds (MMF). MMFs are mostly offered by traditional brokerage companies that is very similar to a mutual fund on how they operate. MMFs would come with an expense ratio and potentially some management fees and they don't come with FDIC insurance that you may get from banks. They are obviously less riskier as they invest the money in U.S Treasury bills as an example when compared to a mutual fund which invests in stocks. Personally, I recommend using MMA or HYSA as they are a safer bet and you also beat some potential volatility in MMFs.

If you are willing to take on more risk and are looking to earn even a higher interest on your cash, then maintaining your cash in stablecoins could also be another option. I have discussed stablecoins in much depth in one of my prior article here. Please remember stablecoins are not FDIC insured and come with a much higher risk than your usual bank accounts.

So to summarize, High Yield Savings accounts and Money Market Accounts are two of the best investment vehicles when you are thinking about saving cash and maintain your peace of mind. This gives you an ability to fight inflation to some degree and make your cash work for you. They come with less risk and hence less return but they are definitely a better strategy than to maintain your money in a checking account.

(Disclosure: Interest rates are subject to change so please review the bank website for most up to date information. Please review the Disclaimer section prior to any investments.)

Staying Strong In Withering Markets

noreply@blogger.com (Unknown) — Tue, 22 Feb 2022 04:38:00 +0000

If you were watching the news on Saturday (2/19), the Ukraine Russia conflict did get heated up. There was an increase in fire exchange between Ukraine and Russian-backed separatists. I believe the market will show a negative impact due to the growing tensions as has been seen historically when war news usually breaks out. Markets never like uncertainty and tensions and hence it reacts in a negative manner.

The futures are significantly down and similarly the major cryptocurrencies on 2/21/2022.

Here is a view of the S&P500 futures as I am writing this article -


Source: finviz.com

Bitcoin has similarly taken a constant dive since the last week with some resistance but trending downwards overall.


Source: Finance.google.com

The increased chances of the US, UK and other EU nations imposing sanctions could further create more turbulence in the markets. I am following the situation very closely and if Russia takes over parts of Ukraine then things are going to go sideways for the global economy in the short term.

Surprised? I am not to be honest. This is an opportunity to invest in the markets for the long run and ignore the turbulence. I can understand this can create anxiety which is very normal, but that's how historically markets react initially to any negative geopolitical conflicts. One of my mantras is to stay strong, ride the waves and be patient. I am deploying my cash reserves in diversified portfolios across index funds and cryptocurrency assets with the idea of investing and forgetting for the short term.

If you did not have a chance to read through my February Market Health post, I highly recommend to read it here: https://frugalisrich.blogspot.com/2022/02/february-market-health.html

(Disclosure: I actively invest in the S&P 500 index ETFs/mutual funds and the Bitcoin Cryptocurrency. Please review the Disclaimer section prior to any investments.)

February Market Health

noreply@blogger.com (Unknown) — Sat, 19 Feb 2022 17:35:00 +0000

I have been keeping a close eye on the market movements and particularly two themes have still maintained uncertainty in the last two months. Firstly, the timeline around when does the Fed hike interest rates and secondly the Russia-Ukraine situation. Multiple banks and Fed Presidents have chimed in with various different strategies, the common theme being a consecutive rise in interest rates to fight inflation. I believe the Fed will take a cautious approach with series of 25 basis points (bps) increase over the next few months to spread the negative impact rather than straight off go to a 100 basis points increase. This will be inline with the Bank of England approach to fighting inflation as well which raised 25 bps in February 2022.

Please see below the strategy of gradual uptrend in the interest rates by the Bank of England between Nov 2021 and 2022.

Source: Tradingeconomics.com (UK Interest Rates)

At the same time, the US has held steady but I believe the trend to raise interest rates will be very similar to the approach it took in 2016.

Source: Tradingeconomics.com (US Interest Rates)

Overall the S&P 500 is down roughly 9.33% since the start of the year. I believe the market correction that I was expecting has occurred as it was long awaited given the exorbitant values of some businesses. There may be a few more blips as the Fed pushes in the course correction in rates and I am hopeful the trends slowly start going green from there. There is still a great opportunity to put your extra cash at work and reap the returns in the long run from the markets.


Source: Google Finance

New home sales have been up for the year overall but I do foresee some course correction happening seeing how the rates have picked up and given that home prices have not gone down significantly. Rental properties will still be a good source of revenue as rents have gone up and will gradually decline if and when we see a decline in inflation. Here's a look at the 30 year fixed mortgage rates for the last two years and you can see rates growing up swiftly.

Source: Federal Reserve Bank of St. Louis

The approach I have taken for the last two months is investing heavily in the indexes and I have made a few significant investments to my crowdsourced rental portfolio. To be very honest, keeping cash on hand has been very hard for me seeing the buyers market at hand.

It will be interesting to see how the Russia-Ukraine situation turns out in the longer run. For the short term I have definitely seen a negative impact and the market reacting positively few times when there has been news for cooperation between or reduction in tension between two nations. Historically, majority of the tension or war events have been upward spikes for the US market in the long run (12 months later) looking at the last 10+ events. Here is some data to prove the fact [1] [2]. Similarly I believe in the long run the market to have course correction as earnings, GDP and job growth keeps improving in the US.

(Disclosure: Please review the Disclaimer section prior to any investments.)

Looking Back - How I Started Investing - Part 2

noreply@blogger.com (Unknown) — Sun, 13 Feb 2022 22:24:00 +0000

This is the continuation of how I started investing Part 1 of my blog. If you have not read it, I recommend giving it a read prior to starting with this one.

Once I had maximized my 401K, it was time to look at other opportunities to grow my wealth even further. I had started to understand how mutual funds work, specially after the research and study I did as part of getting my 401K in a good spot. Next I was onto individual stocks and I felt I could win the world by being an excellent trader. I had already started imagining my self on Wall Street as a brilliant investor. But as all things in life, nothing is ever so simple.

I opened an app based trading account and was amazed seeing the individual stocks all online. In the past, stock trades had a price per trade and it was not as "free" in today's times. Hence I wanted to be cautious to recoup my investment and the money i spent on executing the trade. Initially, I was a little nervous hoping not to make a mistake as seeing the price changes was making me anxious if I would be able to get my investment back. The individual stocks world seemed a little different as with mutual funds I had a very long approach. But as a young person, looking at individual stock price rises and potential gains, it may make you think more short term.

The initial approach that I took on buying a stock was very flawed. I had no idea about earning reports, reading financial statements, market news and I was purely going with the instinct that I knew this company well as it was a big name and obviously it had to go up. Well, I quickly realized its not that simple and markets do not work this way. I also had no idea of market movements or buying low and understanding intrinsic value. To simplify, my approach to stock markets was pretty close to pure gambling.

In a short amount of time making some horrible stock buys, I had quickly realized this game isn't that easy. It definitely taught me a lot of things, like predicting the markets isn't that simple, instincts don't result in profits and it takes a lot of time and effort to understand the value of stock. At the same time I had started reading about Ben Graham and Warren Buffet and their approach to value investing. I took a step back to analyze my performance and I realized that I wasn't doing that well with my initial approach.

So I went back to the game I knew, playing long with mutual funds. Day trading was not fun and value investment made more sense to buy the right business and hold for the lifetime. Hence for the whole year I was actively investing in low cost mutual funds. I recommend looking at the largest brokers and closely looking at expense ratio, annual growth over 10 years and the market spread of individual stocks. Expense ratios or cost of investing in the fund is a game changer. An example, lets say you invest $10,000 each in 2 funds - Fund A with expense ratio 0.1% and Fund B with expense ratio of 2.5%. With Fund A you would spend $10 while with Fund B you would end up spending $250 as investment costs for an year.

The best part about investing in large funds is that your risk goes substantially down because rather than buying 1 stock, you are rather buying 500 stocks. The probability of your 1 stock going down is much more higher than all of 500 stocks going down. The other positive is that you may not need to do a deeper analysis of the single stock as your risk gets reduced when you invest in a larger fund.

Once I had developed a strong position in large cap mutual funds, I started exploring mid and small caps. Now rather than diversifying with just large caps, bonds and international funds, I also had mid, small caps and total market funds into the mix as well. Obviously my spread in large caps was much higher, followed by mid caps and then the least spread was small caps.

Even to date, my larger investments are in low cost mutual funds and ETFs for the long run. I do invest in individual stocks but those are again mostly value businesses that I have thoroughly studied the financial statements and year over year earnings.

(Disclosure: Please review the Disclaimer section prior to any investments.)

Looking Back - How I Started Investing - Part 1

noreply@blogger.com (Unknown) — Sat, 12 Feb 2022 22:48:00 +0000

Growing up in my early teens, I used to have a piggy bank. Anytime someone gave me any money as a gift or what I received from my parents, I used to quickly put it all in my piggy bank. In those days my understanding of investment was if I kept the money in the piggy bank, it somehow would magically grow over the years. Well, I never thought about the laws of compounding as a child, hence all I dreamed of is one day I am going to take out all the money and be a rich person.

At that time, no one really taught me that putting the money in the piggy bank was not really helping as the value of money was actually depreciating each day as inflation increased. This kept going on and on for years. After several years, I was exposed to financial banks and learnt that these banks provided you some interest for keeping your money with them. The other cool factor was that you could quickly know how much money you had saved by going to the bank rather than having to break your piggy bank. Online banking was not a thing earlier and neither did ATM machines existed and hence you had to physically go to the bank to check your current balance.

The idea of getting free money through interest was very compelling and hence I was all in with the strategy. I ended up emptying my piggy bank one day and walked to the bank to have an account opened. The bank representative helped me out with the account opening and gave me few tips on how to deposit and withdraw the money. I walked back home with a feeling of victory thinking that each day now I get free money, just to park my cash. This was happiness and in the future any time I had a little bit of cash, I used to quickly go and deposit at the bank.

Fast forward a few years I get into college and there was no such thing as savings because the cost of education with my $1000 that I had saved in the bank could never be an apples to apples comparison. There was also a lot of debt because of college loans and hence the reverse hypothesis that it was better to pay off loans rather than save money started to kick in as I started to compare interest rates. It just did not make any sense to earn < 1% in a savings account while having to pay around 8% interest on the debt that I had accumulated through college. So my investment aim shifted to basically paying off all my debt. I still feel this was a good decision because at that time I did not really understand financial markets and I had no other means of earning more interest than what I was paying on the debt.

After completing college, I still had a good amount of debt accrued but luckily I had got a nice paying job in a large company as I graduated. So my first few initial bonuses and salaries essentially went towards clearing off my debt. Within a month or two of getting graduated, I remember I had basically paid of all my debt. The best part of this journey was that I did not have to depend on my parents for a single penny during college and managed all of this through the loans I took.

Working through my first few months of corporate life, I was now actually saving some real money and putting it all in my savings account. The bank representative had taught me the difference between checking and savings account, making me very diligent about how much money I had in each of them. Savings account pays a higher interest rate as compared to checking accounts but are also restricted in the number of transactions you can do. Very quickly I started to realize that I was accruing a lot of cash in my savings account and I started thinking if this was the best I could do with my money. Hence I started looking around and started to learn about investing and saving money.

In a short time, I learned about a thing called 401K or retirement accounts and the potential savings and tax benefits you may receive from them. As I learned about the benefits of depositing money in a 401K account, I did not know much about the investment vehicles that needed to be selected. Hence for may be a month or so, my money kept getting invested into a target date fund. But on the other hand I was saving on taxes by doing a pre-tax 401K and the money was just going into this account which I was told will keep growing over the years.

I quickly started feeling as a winner again as I had discovered the edge of earning more free money by investing it in a 401K account. 401K accounts are retirement accounts that you yourself can open or they may be provided by your employer. There are limits on how much you may contribute in an year and specific age limits to take this money out penalty free during retirement. I will be doing a separate article to provide more in depth insight into how I handle my 401K accounts. There are 2 main types of 401K accounts - pre-tax or after tax (to keep it simple). I started off with a pre-tax 401K account and was saving on my taxes today which would grow in this account. Once I would retire, I could take this money out and then pay taxes on it hoping I would be in a lower tax bracket when I retire. I started maximizing my 401K because I was saving on taxes and growing my money faster than the cash in the bank.

From there, I dived into learning about mutual funds as they were the primary investment vehicles in my 401K. It was over a period of month that I went through YouTube videos, a number of beginner finance books, articles to learn about how mutual funds worked. Finance and investment quickly started to become another passion that I was really liking. I learnt about large, medium and small cap funds which are basically the type of companies (size) the funds invests in. Small caps could be more volatile as compared to large caps because of the large company being already well established and may have decent cash flows. Another very important term was expense ratio, which in simple words means the cost/fees the fund charges you to invest your money with them. The other area that spiked my interest was annual performance returns over 10 year periods. I was a firm believer in long time growth and returns and hence comparing the funds with better growth and lower expense ratios looked like the perfect fit for my portfolio.

There was a lot of anxiety while I was selecting these funds because I did not want to lose my money. Hence I went ahead with having a large cap portfolio along with a mix of bonds and some international funds as I had learnt maintaining the right balance was important. As I learnt more, I started taking on more risk and shifted to at least 90% of my portfolio into all US stock mutual funds, some bonds and some international funds. The large cap felt like a safer place as the names of these Fortune 100 and Fortune 500 companies were familiar and I knew something about their business.

Over an year, I started seeing some decent returns in the range of 10% for my portfolio which I had never seen with the cash in my bank. This got me more excited and I started venturing out and learning more about investing. Let me pause here and discuss more in the Part 2 version of How I Started Investing. In it I will be sharing about how I got my first brokerage account, other investment vehicles that I started diversifying in, some of the risks I took and mistakes I made.

(Disclosure: Please review the Disclaimer section prior to any investments.)

Are Stablecoins The New Digital Currency

noreply@blogger.com (Unknown) — Sat, 12 Feb 2022 17:33:00 +0000

It is very exciting that the Federal Reserve has been thinking deeply about the idea of digital currency. A series of papers released by the Federal Reserve on Stablecoins, the idea of central digital currency this year backs this assertion and hence the excitement about writing this post.

In very simple terms Stablecoins are cryptocurrencies whose price is pegged to an external asset like the US Dollar or gold. Examples of such cryptocurrencies are USD Coin (USDC) or Tether USD (USD) that are pegged to the US Dollar and Digix Gold Token (DGX) that is tied to the value of gold. There is a third type of Stablecoin that is cryptocurrency backed, an example being DAI. To simplify how DAI works, it maintains its value through cryptocurrency which is used as collateral. Thinking of it, you may say that the price of cryptocurrencies is volatile and hence the collateral ratio between DAI and Ether is managed to maintain the price stability. This interestingly all happens through smart contracts which maintain the proper ratio of having adequate Ether to keep the value of DAI steady.

The two papers from the Federal Reserve that have been very exciting around central digital currency and Stablecoins are [1] and [2]. I recommend reading through the summary at least which would give you an idea of the optimism but cautious stance that the Fed is taking.

A number of large banks have already recognized the ease and pace of transactions you can achieve with digital currencies that use distributed ledger technologies (DLT) like cryptocurrencies. The usual bank transactions also known as Automated Clearing House (ACH) transactions take anywhere from 2-3 days whereas transactions using DLT could make it happen in a matter of seconds or minutes. A number of banks have already made strides like JP Morgan with its JPM Coin, Silvergate, Ripple partner network. I was an early adopter of XRP (Ripple Cryptocurrency) as I was excited about the idea of faster global transactions.

Now coming to the point on what's in it for me? Great question, to start off with is to make people aware that the market cap for Stablecoins has surpassed $150 Billion. That is huge and the Fed paper [1] states that there has been a roughly 500% increase from 2020. This basically means that a lot of people are getting on the idea of maintaining their savings in Stablecoins. There are some obvious pros and cons.

Pros -

These Stablecoins offer a much higher rate of interest that can be anywhere from 4% to 8% depending on the Stablecoin that you buy. Just a reminder, interest rates are subject to changes and hence the exact percentage may vary. But they have so far remained higher than what's offered for putting your money in the largest banks.
Faster transactions for buying cryptocurrencies and you do not need to wait for your ACH transactions which could take days to settle.

Cons -

They are not insured by FDIC and the US Government cannot guarantee the value of your Stablecoins like the US Dollar and large banks.
Given the number of cryptocurrency exchange platforms and online wallets that have got compromised, the safety of your money is not the same as in one of the largest banks. This is a highly debatable topic, but the one main reason I think is if someone compromises your wallets and drains your coins, there is a very small chance that you are going to get it back. With ACH transactions, I personally think bank has a little more power to stop these transactions and more reaction time as transactions are slower.
The transparency around assets that back the cryptocurrency could be a concern. To explain further, the cryptocurrency may not be backed 1:1 with a US Dollar as an example. This was brought to light in recent investigations.
They are still subject to volatility although strong measures are taken to react quickly. But any huge moves in the overall cryptocurrency market as we saw during early Covid times, could cause volatility across the price. (See below)


Source: CoinMarketCap - Tether to USD Price volatility

Given the pros and cons, I believe this is still a good diversification vehicle, but always remember the golden rule to never put all your eggs in one basket. The approach I follow is to diversify across a few different well known Stablecoins and then further diversify my balances across different cryptocurrency exchange platforms. Here is a good list of different Stablecoins by market capitalization. I also covered some of the Stablecoin strategies in one of my previous articles and recommend giving it a read if you have not already.

Maintaining the balance across different exchange platforms reduces the risk if one gets hit with a security issue, a person may end up losing these coins. I still maintain an emergency fund in my online savings bank but have moved a large amount of my extra savings into these Stablecoins, thereby reaping monthly benefits that allow me to fight the dollar inflation.

As a user of these cryptocurrency exchange platforms, what you can do to ensure the safety of your account is to choose a strong password, enable multi-factor authentication, enable security notifications and in some of the platforms you may be able to setup an allow list where you can move your cryptocurrencies. I also make it a point to keep a closer eye on these balances, much more than I would look at my bank account. This is for two main reasons, its a nice feeling to see that interest earnings grow on a daily basis with the power of compounding and then it keeps my anxiety low that the balances are safe.

(Disclosure: I invest in the USD Coin (USDC), XRP, DAI, USD Tether (USDT). Please review the Disclaimer section prior to any investments. I am not receiving any compensation from any of the companies mentioned above in the article.)

Is Leverage Really The Edge

noreply@blogger.com (Unknown) — Wed, 09 Feb 2022 05:01:00 +0000

It is phenomenal to know how many different types of financial products exist. The more I read, the better I get. Some concepts are easy, less risky to follow as individual investors while some are complicated and come with higher risks.

Putting my individual investor hat, I feel if you spend a little bit of time, then index funds can be your friends and you may become your own fund manager. I highly recommend looking at the Vanguard funds and starting your journey there. I will do a separate blog on how I started my investment journey and will discuss all my anxiety and excitement. This path of low cost investment is really awesome. Invest early and invest often is the key to success. This is the number one advice I would give to start with in the field of investments.

There are a number of complicated products like options, futures, swaps which are also known Derivatives in finance. In simple terms these are complex financial products that allow you to hedge some of your risks example futures which is an agreement between two people for the purchase and transfer of an asset at an agreed price and on a future date. The risky piece is that you might think that the price of company X might go down 6 months in the future, but you can never be absolutely sure.

There are some type of people who are good at this (lets call them financial gurus) but I personally try to stay away from such complicated products for the most part of my investments. To clarify, it is still really interesting and exciting to learn about how these products work, but to spend the time to actively monitor and day trade is unfortunately a challenge for me because of my other responsibilities.

I still allocate some of my money in a research account, the whole portfolio of which is comprised of complex financial products that I am interested in learning about. (Disclaimer - Using leveraged products is very risky and I do not recommend investing into it without having professional advice). One such product I started looking at is Leveraged Exchange Traded Funds (ETF). The exciting part about this is leveraged ETFs can "potentially" provide 2x or 3x returns from the market. The big word is "potential" as there are large risks at play here. Some examples are leveraged ETFs that track 2x or 3x times the S&P 500 or Nasdaq 100. So if an index goes 1 point up, the leveraged ETF rises to 2 points. Its all about hedging risks, if you feel the market is going to go up, its a good bet. But at the same time, it can go down, causing you to lose twice or thrice the amount of money. Hence I am always extremely cautious while working with these.

The SEC has put together a pretty detailed article on these risks highlighting it is not for the daily investors. To call out these risks again -

The ETF may not actually go up the exact number of 2x or 3x the index, this could vary significantly.
There are higher fees involved as compared to your normal index ETF.
There is daily re-balancing that happens which will lower down your returns and on a flat day could even give you negative returns.
When the market goes down 1x, your portfolio may go down 3x or may be more.

I mainly wrote this article because I started looking at this last year and the strategy did well when the market was up. Down in the picture below I have compared UPRO vs SPY. UPRO is a 3x leveraged ETF for the S&P 500 index whereas SPY tracks the S&P 500 index itself.


Source: Google Finance (Comparison of UPRO to SPY)

Now the graph above looks fascinating with the returns as I said when the times were good, but here is a picture of the other side of the story. I compare TQQQ vs QQQ when times were not so good. Remeber, TQQQ is a leveraged vs QQQ is the normal Nasdaq 100 index.

Source: Google Finance (Comparison of TQQQ to QQQ)

This is depressing as the Nasdaq index is still down for the last 1 month and hence the leveraged ETF is down 3x. Not for the faint of heart! I am still going to stay invested for some time and keep watching as the Nasdaq improves in the next couple of months.

Its definitely something exciting to learn as you all know I am always looking to diversify and find new ways to grow my money but I am proceeding with caution and only using a small portfolio which I can afford to lose.

(Disclosure: I do invest and own UPRO, TQQQ, QQQ, SPY and Vanguard Funds. I am not receiving any compensation from Vanguard itself for writing this blog. Please review the Disclaimer section prior to any investments.)

Is Carbon The New Gold?

noreply@blogger.com (Unknown) — Sat, 05 Feb 2022 18:40:00 +0000

Carbon, a chemical element with the atomic number 6 is an interesting investment topic and hence this post. Some people might feel like I am talking about chemistry rather than investing while others might think I am talking about the environment. The focus of this post is definitely investing and I will get into the details as you read further.

Gold, the shiny metal has been valuable for many years as a form of alternate investment. If you are one of those that live in developing nations, it is still regarded as a safer asset in many cases as compared to the local currency because it appreciates and can be used as a medium of exchange during times of inflation and in the longer run. A lot of people end up holding physical gold as an asset, although the market is quickly evolving into Exchange Traded Funds (ETF) and Gold Bonds.

When we think about assets, the more common ones would be gold, silver, platinum and may be diamonds. Who thinks about carbon? Absolutely true, but this is rapidly changing with more and more nations trying to reduce the overall carbon footprint, the most common form of it is reduction in carbon dioxide (CO2). There have been a number of global treaties amongst nations like the Paris Agreement, US Clean Air Act and United Nations' Kyoto Protocol that have pushed countries to think about their overall carbon usage. This is evident with the figure below on what has been the global carbon usage, a sad story but the true reality.

Source: ourworldindata.org/co2-emissions

In order to reduce the overall footprint, countries have started creating carbon credits which are allowances allowing companies to keep a check on the amount of greenhouse gas emissions each year and then to reduce such emissions over time. Companies who do better at keeping tab of their emissions can go ahead and sell their accumulated credits to other companies. Governments across the world have supported such trading and that has allowed a new market to track the futures of carbon pricing. For the beginners, futures trading is about investing in the future price prediction of a commodity like gold, silver, oil and even the general market like S&P500.

Obviously, the futures trading is very risky and I do not recommend this for long term investors because predicting whether the price of something will go higher or lower is extremely hard because of the different market forces that may be involved. But as an asset diversification strategy, may be a small amount of investment could possibly be the right way to look at it. Carbon futures trading is more recent than gold but the way it has picked up is truly amazing.

Importantly, the data and view is relatively short term as compared to the price of gold, but given the stronger push towards carbon net neutrality makes me think bullish about this. At the same time, to reduce my risk with futures, I try to be short term and trade often if I see enough upside.

Here are some interesting yearly trends when I am looking at the SPDR Gold Trust ETF (GLD) and the KraneShares Global Carbon Strategy ETF (KRBN).

Source: finance.google.com - Comparison of GLD vs KRBN

The value of global markets for carbon dioxide (CO2) permits grew by 164% to a record 760 billion euros ($851 billion) as per analysts at Refinitiv. Overall it is good in a way as it puts the onus back on the companies responsible for the spread of greenhouse gases. A great model to look at is the California Cap-and-Trade Program which acts as a supply and demand example. With time, the caps must reduce to thereby support reduction in these gases and hence the price will potentially go higher if companies don't change their operations fast enough to go carbon net neutral. The other upside is companies that can go carbon net neutral can then sell these credits to others in need.

Seeing an uptick of creation of ETFs to track carbon prices, I am relatively bullish about this sector for the short term to provide valuable returns and hence I am diversifying in this area. Given how quickly inflation has picked up in the recent year, I have not seen a lot of movement around gold which is surprising. But a strong reason for lack of movement in gold prices is because people are investing more money into cryptocurrencies as another alternate investment. Given the attraction of cryptocurrencies in the younger generation as compared to gold, it all makes sense.

Personally, I am not big on commodities because I don't feel it creates an overall value but compared to others like gold and silver, I feel reduction in carbon does. This is a highly debatable topic and there are obvious pros and cons which I don't plan to get into with this post. But as you all know I am always looking to diversify my wealth and get more value for my money, carbon investing seemed like an interesting opportunity to me.

(Disclosure: I own gold and carbon ETFs like GLDM and KRBN. Please review the Disclaimer section prior to any investments.)

Inflation - The Ugly Reality (Ouch!)

noreply@blogger.com (Unknown) — Wed, 02 Feb 2022 01:46:00 +0000

People love their money and any chance of getting higher returns gets them all excited. So does more money mean more happiness? Well, that's an intense topic but my "personal" beliefs are that if you have the money, then you have the ability to pretty much buy anything. To dive into the reality, things that you bought lets say 10 or 20 years ago wouldn't really cost you the same any more. The box of chocolates that you bought 10 years back for $10 would now cost you may be $15 in the current market. So the moral of the story is you need more dollars with time because the purchasing power of the dollar decreases as the prices increase. This wonderful phenomenon is called Inflation. In real life, you see inflation in effect with higher rents, increasing food precises and travel costs.

To see this in effect, see the buying power of $100 back in January, 2000 now equals out to $165.17 in December, 2021. Hence you would need 65 more dollars to buy the same thing which you bought for $100 roughly 20 years back.


Source: US Bureau of Labor Statistics (CPI Inflation Calculator)

The Bureau of Labor Statistics publishes a lot of data on inflation. Here is a view of inflation over the last 20 years.

Source: Bureau of Labor Statistics

The big hurdle that majority of the people face, is that their salaries or paychecks don't increase with a similar pace as inflation. Hence the need to make the money work for ourselves is real, else we keep losing on the value of cash if its just sitting in the bank. To follow this fundamental rule, here is an example breakdown of personal finances. If you see carefully, one of the smallest percentages is really cash in hand or savings which generate the least amount of interest (usually).

70% in stocks - domestic, international and commodities
20% in real estate
2% in alternate investments mainly cryptocurrencies
5% in cash in savings account
3% in bonds

Disclaimer! - This is a relatively aggressive portfolio, as it takes on more risk for greater returns because of potential volatility in markets. This might not be the right strategy for everyone.

Yes the approach is higher risk, but it may feel comfortable to individuals who feel confident about their cash reserves, strong employability or due to their side hustles. There can be many different approaches that one may follow. Some people are heavy on real estate, followed with stocks and then lastly cash. If you are slightly towards the older side of the age curve, a heavier percentage towards bonds and cash would make more sense as a safer bet. Whatever be the way you like to beat inflation I would recommend doing it, but don't let that money sit in the bank. That money will not invest itself, so be careful there!

The thing that could make it a little easier for people is if they try to maximize their 401K, Health Savings Account (HSA) and then setup recurring investments, they will end up with less cash in hand. Less cash in hand is less money to worry about or to go out and spend.

Another important point to remember is if you are offered cheaper ways to get cash at a lower rate and then turn it around to earn higher interest on it, I recommend doing it. Make sure you are careful on the fees and the costs that come out of the loan. An example is leveraging 0% APR credit cards that I covered in this article. If you are buying a car and the bank offers you a deal of 1% fixed interest loan, I would take it. I would not pay for the car using my cash savings, rather use the 1% loan and invest the savings to get 7% back on the money. Now the risk is that you don't always win. Some years the markets might just be in negative returns, but in the longer run, I feel its still a safer bet if going long is your strategy.

Hopefully, this was helpful in understanding on how important it is to make your money work for you! If you don't act, inflation will come and bite you.

(Disclosure: Please review the Disclaimer section prior to any investments.)

Thinking A Startup - Know Your Options

noreply@blogger.com (Unknown) — Sat, 29 Jan 2022 20:25:00 +0000

The tech bubble in the late 1990s helped us all learn a lot of things about startups, both exciting and stressful. People who were successful made millions and billions but yes there were people who lost a lot of money as well. History teaches us many things and its impressive on how much perspectives you can get just looking back and learning so much from time.

The Silicon Valley boom still exists and a lot of people are excited about startups and doing great things. An attractive way for startups to get talent has been to offer a piece of the pie. Hence the idea is to take on a larger risk for a larger return. The conventional way of providing a piece of the pie (a percentage share in the company) has been through Options. Its a phenomenal idea, since it gives a person the right, but not the obligation to buy or sell a stock at a price. To give you an example, Company X may offer me 100 options at $1. Now I have the right to sell them if I want or just let them expire away. Let's say if the price of those options goes to $2, then by exercising these options I have the right to make the difference $2-$1= $1 which is still a 100% gain for just an offer that I was given. Again, I not obligated to execute on it, let's say if the price went down to $0.50.

Startups commonly provide these options to their employees to have a share of the return or the risk. These options usually have vesting schedules. So lets say you are granted 1000 options that vest in four years, it could be broken down to the first 25% that you receive at your one year cliff and the rest 75% could be equally distributed monthly going forward for the next 3 years.

Now when you receive your grant, you could get a deal like 1000 options at $1 as a exercise/strike price. This basically means you have an option to buy 1000 stocks in the company at $1 by paying money for it or using the cashless option if the value went higher so that you can pocket the difference. Another important point which a lot of people do not read through on the contract is when does their options expire. It is one of the first things you should look for, because if they expire then the contract technically is no longer valid and you really have nothing. Options could be provided an expiration of anywhere from 5 - 10 years. Please make sure you read the fine print!

When companies are private you could exercise your options once they vest by putting in $1000 out of pocket, but its not very lucrative for people as who knows what that 1000 stocks now would result in. Again, you were provided an option to buy and you exercised it and hence you have 1000 stocks. If the company is private, it might not mean a lot for you since trading would be hard due to lack of liquidity as its not a public market.

The way I have seen people more commonly use it, is hold on to the options before companies go public on the stock exchange which is also referred to as an Initial Public Offering (IPO). Now what happens is lets say if you work at an exciting company and the company goes public on the stock exchange at $2 a share, given that you have an option to buy shares at $1, there is already a 100% return on your money. So what people then end up doing is they exercise their options and make the difference.

There are two most common type of options that are offered - Non-Qualified Stock Options (NSO) and Qualified Incentive Stock Options (ISO). ISOs are mainly offered to employees whereas NSOs are offered mainly for consultant and advisor roles. The other reason is how the taxation works for these. I won't get into the specific details with regards to taxes as I would rather recommend discussing this with a tax advisor when in this situation.

An important point that I mentioned above was expiration, the terms of expiration could change depending on the situation and hence you must look through the contract very carefully. Very commonly, the options could expire in roughly 3 months of your termination. They could potentially expire in a different timeline on a death or a disability event and hence knowing what the rules of the game are is very important. If you miss out exercising those options, you essentially lose on that contract and hence potentially the money that you could have earned out of it.

In the instance of a private company, you could exercise your options prior to exit if you believe its a good investment as you would need to pool in that cash to exercise your right. When the company is public and you have options, the decision becomes a little easier if lets say the price of the option is lower than what the company is trading at, because then you can just pocket the difference and leave. With the private company, since you can't really sell the stocks, you might have to just wait more longer to when the company goes public.

I will wrap this up with the famous quote from Mr. Jobs - "Stay Hungry Stay Foolish". There is so much to learn about these markets and the various investment vehicles that its incredible to see how you can make your money work for you!

(Disclosure: Please review the Disclaimer section prior to any investments.)

Each Penny Counts - Make Your Money Work For You

noreply@blogger.com (Unknown) — Fri, 28 Jan 2022 04:50:00 +0000

A number of people don't realize the value of using credit cards the right way. If you use your credit with certain rules, it is a friend otherwise it can keep haunting you for years. When I learnt about credit cards and the idea of cash back, I made some rough calculations in my head and felt I was losing so much by not having one. Earlier in life when I didn't had income, I tried but I got rejected by credit card companies every time. You won't believe but even my secure credit card application which you apply for by providing a deposit upfront also was rejected.Imagine the fun!

But I never stopped trying because it was a simple math example that got me motivated. Lets say I was spending $300 in groceries a month which is fairly standard, you end up paying roughly $3600 for the whole year. Now imagine, if I paid just using a debit card or cash then I would have hardly gotten anything in return. On signing up with one of the credit cards, I got 3% cash back for my groceries and hence in an year I was able to save $108. Over the next $25 years lets just assume my monthly spend on groceries doesn't even change by a dollar, I would still end up making an approximate of $4372 if I would have just invested my grocery change in the stock market with a basic 7% return.

Source: Fidelity.ca growth calculator

Its amazing how the power of compounding works, and by just replacing one plastic card with another, you end up putting $4K back in your pocket. Since then I have just started to think smart and now have a credit card for each category of spend thereby significantly growing my savings rather than paying using cash or debit. Some of my credit cards even have a larger cash back percentage like 5%-6% so that's more money right there for you.

Fortunately, I have a good credit score and I had always learnt to pay my credit card bills in time so as to not rack up fees and interest that the card companies could charge. I was always a little afraid to accumulate any balance on my credit card and to keep my anxiety in check even paid for the transactions as soon I made one so as to maintain a $0 balance.

I had heard about the term 0% APR (Annual Percentage Rate) on credit cards so many times but just because of the anxiety of having to think about anything other than paying my card in full always just made me uncomfortable. But with a leap of faith, one fine day I started diving into this to learn more. I read on the topic, talked to a number of customer representatives from the card companies and tried to understand how this really worked.

Reading and talking to multiple people I quickly learnt that for the promotional period of 0% APR, you can maintain a balance on your credit card if you paid the minimum monthly balance off. The minimum balance on a credit card is a fairly small amount when you consider your full monthly credit card bill. Some companies could even cap the minimum payment to something like $25 or $35 depending if you get that deal.

Now given the savings rate were so rock bottom and now that I was getting free money which I did not had to pay back at least till an year, I was excited. Hence rather than lets say paying roughly $6000 worth of credit card bills in an year, I could just use this money and invest it to earn a higher interest rate. Then use the money I earned from investing to pay off the credit card bill at the end of the year.

The downside of this is once you accumulate debt, because of the bills you don't pay, it ends up impacting your credit score. In my situation, it was less of a concern as my credit was very high and hence pushing my accumulation of debt to 10% of total credit was not too bad. I am still executing on this strategy in the year 2022 as you could every year qualify for some promotional offer each year by these credit card companies (you should ask), just be careful to pay the minimum balance.

Moral of the story is that money in your hand right now is worth way more than just giving it away since then you cannot make your money work for you. Hence I am taking a back seat and letting my investments do all the hard work for me.

(Disclosure: Please review the Disclaimer section prior to any investments.)

Metaverse Or a New Universe

noreply@blogger.com (Unknown) — Thu, 27 Jan 2022 04:23:00 +0000

Metaverse aka the network of 3D virtual worlds or as some some people call it true virtual reality. The whole idea is to allow people to live virtual lives and not hold themselves back in trying out what they might miss out on in the real world.

Looking at some of the trends of how excited this gets people, a search across Google Trends tells the story. If you carefully look, the search term Cryptocurrency and Metaverse are trending really close, given the latter has really picked up in the recent months.

Source: Google Trends - Comparison of Metaverse, Cryptocurrency, Bitcoin & Stocks

Virtual Reality definitely is an incredible way of doing what you wanted to do in real life and also run a social experiment around it. Oculus, Sony and Microsoft got us excited about virtual reality (VR) by allowing us to play games using VR headsets, but even if you take a step back I feel gaming is virtual reality. Let us take any game, for example Call of Duty that I am a big fan of, it is a form of virtual reality and they just keep getting better. Now you can choose your avatars and be what you want in this small virtual world of yours at a price.

This has morphed into a whole new world of what you can buy "virtually" and a great example of this is the 3D virtual platform Decentraland. In this game you have the ability to buy avatars, costumes, property and a lot of different things in a virtual world. The users all interact and buy these virtual things through a certain type of Crypto assets called non-fungible tokens or NFTs. You end up paying for these assets using a MANA cryptocurrency that is dependent on the Ethereum Blockchain.

A NFT is really a one of its kind unit of data example a picture, art that can be stored as data on the blockchain and be bought by users using their Crypto wallets. One of the NFTs that is currently big in the news is the Bored Ape Yacht Club which are unique digital collectibles stored on the Ethereum Blockchain.

Hence the point I want to bring up is that virtual reality and transaction of virtual assets is the new thing on the block. Grayscale published a very interesting report on Metaverse that talks about how the virtual gaming world revenue could grow from roughly $180 Billion in 2020 to $400 Billion in 2025 and opens up an opportunity of $1 Trillion in revenue. This is huge!

There definitely are some winners popping up like Microsoft, Facebook, Roblox, Unity, Nvidia which are making strides in the Metaverse space along with Roundhill Investments releasing an ETF (META) focused specifically on companies working on Metaverse. I believe this is going to create a new line of investments in the NASDAQ stream of companies and provide another growth opportunity to go long. I can clearly see the path given the increase of investments that will go into chip making, gaming, infrastructure and platform support. That all sounds like technology to me, hence the future is bright and I will continue to invest more and more in growth stocks. There are some obvious risks when you get into collectibles on how can you define the true net value of things in a more sustainable way, lets say is picture X really worth 2 Bitcoins vs 0.005 Ethereum. Hence values can get inflated for some time and then really come down to rock bottom in the next moment. I think this fact is still going to hold true for these digital assets but we can hope a little more stable stock market as compared to the Cryptocurrency industry.

(Disclosure: I own stocks of Microsoft, Nvidia, Facebook in my portfolio. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it from any of the companies mentioned above. Please review the Disclaimer section prior to any investments.)

To Be Bold or Bolder

noreply@blogger.com (Unknown) — Mon, 24 Jan 2022 00:12:00 +0000

It's been a rough start for 2022 when you compare the markets and how they have performed the month of January 2022. If you carefully look at the last 6 months in this picture below, we are pretty much back at where we were at July 30, 2021 (with the S&P 500 at 4395.26). Amazing how fast things can change, basically pushing you back to 6 months in time.

S&P500 in last 6 Months (Source: Google Finance)

In the past month itself, (as of Jan 23, 2022) it seems like the S&P 500 is down roughly 8.21% , Nasdaq which further got a heavier blow is down 13.25% and Dow is roughly 5.61% down. Similarly in Crypto land (cryptocurrencies), Bitcoin is down 28.89% while Ethereum is at 34.52% downwards. So scary moments?

Bitcoin to USD in last 1 Month (Source: Google Finance)

I disagree to call this a scary moment as Warren Buffet has rightly said "Be Fearful When Others Are Greedy and Greedy When Others Are Fearful". I am getting greedy at the moment, and buying as much as I can. I am not trying to be picky or particular about certain stocks, I am just focusing on investing passively as a safer bet and putting in more money in the indexes as I can. As a long term investor, I consider this as a safe bet, given that I invest and forget and not worry about the short term downsides of things. I have also taking a slightly risky approach and buying some more Crypto. Yes for me it is risky but given some of the past trends, it makes sense to put some money in alternative investments.

If the market volatility concerns you, I would be cautious as the upward and downward movement in cryptocurrencies can be a little scary. Personally, I feel this is the right time for me to take in some extra risk and invest heavily after which I plan to take out some of the profits and move them into real estate.

(Disclosure: I invest myself in the S&P500, NASDAQ, DOW JONES indexes, Bitcoin and Ethereum. Please review the Disclaimer section prior to any investments.)

To Do Or Not To Do - Take on Indexed Univeral Life Insurance

noreply@blogger.com (Unknown) — Sat, 22 Jan 2022 18:39:00 +0000

I am always interested in knowing about how to save better for retirement and learn about tax deferred opportunities to save on as much money. I started thinking seriously about life insurance and how it could be beneficial. Everyone has different situations but I believe life insurance could be helpful if you have dependents that you directly support and who would be financially strapped if something were to happen to you.

As you can imagine with financial instruments, things can get complex and its not easy to similarly traverse the land of insurance as well. Products are complex and too many and its hard to figure out which one's the best for you. The other thing you have at the back of your mind is sales people want to think whats best for them and not you since there are big sales incentives tied to the product they sale. Meaning a kiwi would be more beneficial than selling an apple. At the end of the day, its all about margins but that's just how sales works. Hence as a consumer you got to do the research whats best for you.

I particularly got interested in a product called Indexed Universal Life Insurance by reading about avenues to grow wealth. The reason this was attractive is because they act as a death benefit and also allow you to accumulate cash value. Hence part of your premium acts as going towards a term life insurance whereas the other half goes towards building wealth through cash value. The other interesting part about this product was that this follows an equity index like the S&P500 with not the downside if the market was suppose to go down. This further spiked my interest to start digging into it a little bit more. The way insurance companies do it, is they would cap your upper returns to a certain limit and keep your downside to 0. So for example lets say the S&P would rise to 20% returns you would receive 8.5% but if it went down to -15% your loss would have a floor of 0 hence you won't have the great losses.

Some other potential upsides were the capital gains can be tax deferred so unless you take those gains out you don't get taxed for them every year. Money that comes from your premium payments isn't taxable as you already paid the taxes on it. The death benefit is also tax free for your beneficiary. You can further take out any loans you want and there are no required minimum distributions for cash that you need to make unlike in a 401K.

I came across an experienced insurance blogger who has provided a lot of data into current cap rates here.

So guess what, sounds exciting right? Well sure, it does. And that made me pick up the phone, well not literally the phone but I submitted requests to get a quote for an Indexed Universal Life (IUL). The Term Life Insurance which is mostly focused on death benefit was not really exciting to me, given my circumstances. Hence I started looking at some of the quotes and what started scaring me were the costs.

There can be a number of underlying fees and costs attached to providing you the life insurance cover and then the costs of the insurance, some of them would show up as Premium expense charges, administrative charges, surrender charger, riders etc. Its a long list and hence you might quickly start thinking what is the benefit I get out of it?

I started thinking about what additional benefit do I get from rather using a term life insurance policy and then just putting in all the other money in a low cost mutual fund or an Exchange Traded fund (ETF) that tracks the S&P500. I really didn't feel like I needed the term insurance and then thinking about paying the upfront costs that came along with the premiums just for the fact that my capital gains would be tax deferred didn't really feel worth it.

I am a following of the Personal Finance subreddit and learnt about some interesting experiences that people had which was good to read. There were multiple blogs as well that shared their perspective. Two very interesting experiences/stories that I came across were these [1] [2]. Now, I don't know if the stories are real or completely made up, but the costs did make sense based on the research I did.

Hence I ended up going the route of following my gut and investing in the finance vehicles I had faith in, thereby giving up the idea that the Indexed Universal Life Insurance were really a great product for me. As I said, you might be in a different situation where you have dependents, in that case having some sort of life insurance that gives you death benefits definitely makes sense and you should have one. Just make sure to do the right research and understand well all the costs before you make a decision.

(Disclosure: Please review the Disclaimer section prior to any investments.)

New Year and New Beginnings

noreply@blogger.com (Unknown) — Mon, 17 Jan 2022 17:41:00 +0000

The year 2021 is a wrap and so are the market numbers which again have been impressive. Based on the S&P Global Website, the numbers are looking great this year as well. S&P500 is up 26.89%, Dow Jones 18.73% while the Nasdaq Composite was up by 21.4%.

As spectacular it could be making me realize do I really need to work that hard with my portfolio as beating the indexes have been extremely difficult. This year my plan is to keep focusing more and more on passive investing in these 3 indexes. Given the state of inflation, I need to make my money work harder for me given the Consumer Price Index (CPI) topped 7% in December.

People whose wages have increased this year to match inflation are definitely fortunate but for those for whom things have not changed require new avenues to ensure they don't get into negative return zones keeping their money stagnant. Given the state of inflation, I am looking for other deals to not have my money sitting there in the bank. Last year, I took the opportunity to invest in Series I bonds which are offering a 7.12 percent rate of interest through April 2022. This was the safest of investment given these are backed by the US government. You can buy up to $10,000 worth of electronic bonds each calendar year which is awesome. I plan to keep an eye on the rate of interest and stay invested at least for an year after which i can cash them out. The worst case scenario is if lets say the inflation is zero from the high mark over the second six months, I will still earn an annualized rate of 3.56% which is still a lot more than the 0.5% being offered by FDIC insured online banks. So the rule applies, make your money work for you and not let it sit stagnant.

In 2021, I also started looking into real estate and had deep long thoughts whether I should invest in rental real estate. The thoughts were very exciting and I am motivated to invest in real estate, but the primary fear I have is rental property management. That's always been holding me off because of my lack of time with oversight and potential tenant issues that could arise. Hence I started looking at crowdsourcing options. Two options I strongly looked at were Fundrise and Crowdstreet. Both the options sound terrific but I went ahead with Fundrise due to less startup costs and they idea of diversity. When you invest the money, that gets invested into many rental properties and hence substantially reduces the risk. With Crowdstreet, there are great deals but they are individual deals and investments and hence I wanted to take it a little slow before I started with it. Fundrise has so far played out very well for me with its track record.

Source Fundrise.com

I have also diversified more money towards Public REITs (Real Estate Investment Trusts) as another area of diversification given the stock markets surging numbers. REIT in general is a company that owns and operates income producing real-estate. Hence that company could be owning apartments, offices, retail spaces etc. In short, they are a good way to own real estate without the hassle of managing it by yourself. You essentially invest in the company which then manages the real estate charging a very small fee for it. I personally feel its more worth it in my situation, given the liquidity is easier and it less hassle from an oversight standpoint of having to deal with a tenant. They are also a good dividend source and hence steady income time over time.

Again, I believe in long term investments and holding in my investments perpetually unless the future of a certain investment looks weak in which case I need to re-balance. But otherwise, I just put the money and not worry about the ups and downs too much.

The Federal Reserve has made an announcement to hike interest rates this year and several hikes may be expected in 2022. This will impact the overall stock market as there would be other areas with larger rate of return like bonds, savings accounts etc but again if you are a long term investor this should not deter you. The way the Fed rate works out is the Federal Reserve by increasing the rate is trying to effectively shrink the money supply that is available so that the rate of inflation can come down. Hence it makes it expensive to borrow money for homes, car loans, credit cards etc.

The golden rule still applies, invest early and invest often. Cheers to the New Year and new beginnings!

(Disclosure: I am a user of Fundrise and Crowdstreet. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it from any of the companies mentioned above. Please review the Disclaimer section prior to any investments.)

Compounding Wealth - Why I started looking at other options

noreply@blogger.com (Unknown) — Sat, 15 Jan 2022 17:30:00 +0000

I have been a firm believer in keeping more money in high interest savings account and skipping the brick and mortar banks. Essentially the rate of interest is way much higher and you have an option to setup high yielding Certificate of Deposits (CD) or No Penalty CDs which is an easy way to grow your money. The best part about No Penalty CDs is you can think long term and get a higher rate of interest for your money but if you absolutely need the money, you have an option to close it and keep the interest without fees. Its a sweet deal because if you rather go with the usual CDs and if you want your money back prior to maturity, you end losing interest earnings plus fees. There are a number of online banks that have started offering this which is great but the challenge has been the rate of interest has been going down with each day/month. The best savings interest rate as of today with a quick internet search has been around 0.45-0.55% APY. How good is that ? Well it basically means, lets say you start today and deposit $10,000 in the bank offering 0.55% APY for the next 5 years, your money will rise to a final balance of $10, 302.40. But don't forget inflation which I covered in the previous article, it essentially eats into the power of what $1 will be able to buy in the future. You can try out a number of inflation calculators out there to estimate how much $1 has depreciated over the years.

Based on the inflation calculator on officialdata.org "$1 in 2000 is equivalent in purchasing power to about $1.59 today, an increase of $0.59 over 21 years. The dollar had an average inflation rate of 2.22% per year between 2000 and today, producing a cumulative price increase of 58.54%." The bottom line is your savings from the interest earned in the bank is not really enough to keep your money really growing. Technically speaking at this rate, we end up losing money.

This can also be seen across if you carefully observe the Consumer Price Index (CPI). That sounds complicated, but let me explain. CPI essentially is a way to measure inflation (purchase power of $1). It measures the average variations across the prices of products consumed by household - example Food and beverages, housing, apparel, transportation, medical care etc.

That started tricking my memory on where to invest extra cash. As an investing fundamental I have always learnt to diversify my money into different buckets. There are going to be some risky buckets, but that is why you diversify to as much reduce the risk to your overall investment value.

This brings me to the main point of today's blog is looking into Cryptocurrency investments. Full disclosure, cryptocurrency investments can be really volatile if you see the value of bitcoin or any such other currency out there. Cryptocurrencies are also not FDIC insured and hence the US Government will not step in to protect your investment. The third reason for risk is cryptocurrency accounts can get hacked and your cryptocurrency moved to a hackers account which makes it extremely hard to recover back.

Source: https://www.google.com/finance/quote/BTC-USD?window=MAX

The Cryptocurrency community came up with the concept of Stablecoins. These are a type of a cryptocurrency that are linked to an asset like the US dollar which doesn't change its value in time. In simpler words, 1 Stablecoin may be exchanged for $1. Some example stablecoins may be TrueUSD (TUSD), USD Tether (USDT), USD Coin(USDC). This is how it all started, but there have been recent disclosures which where some of the stablecoins have disclosed that a single coin may be backed by other assets. For example, the recent report from the auditors of USD Coin provides the USDC Reserve Breakdown chart disclosing that the assets include commercial paper, corporate bonds and other assets which may be lesser liquid. Hence liquidity may be a challenge in case everyone plans to redeem all their stablecoins.

But on the other hand, there is large amount of interest being paid by a number of cryptocurrency exchanges to invest in cryptocurrencies up to 8-9%. The fundamentals are based on economics - they provide a rate of interest to users who deposit money and charge a higher interest rate to borrowers. There are a number of crypto exchanges online that you can buy stablecoins and invest your money in. So far the good part about investing in stablecoin is you don't see the drastic ups and downs of the crypto market as you may see in Bitcoin or other crypto currencies. Hence this could be another vehicle to diversify your funds.

(Disclosure: I invest in the USD Coin (USDC), please review the Disclaimer section prior to any investments.)

Nervous and Excited - Starting Your First Investment

noreply@blogger.com (Unknown) — Fri, 20 Aug 2021 22:47:00 +0000

The fight or flight response is an interesting phenomenon that surfaces many times in our life. The way it works is the brain pretty much figures through physiological response whether to be in the ring and fight or to leave and run. It is phenomenal how the human body reacts in so many different ways. It’s a very similar feeling a lot of people can have while thinking of investing the first time. As a safer approach you would always hear, banks are your best bet because you can get your dollars of the same value any time and the price does not go up or down. Banks definitely are a safer bet because most of them come with FDIC insurance which ensures that the government will step in if the bank is in trouble. But what you don't realize is inflation and how it eats into your capability to buy the same thing with $1 year over year. For example, an ice cream might cost $1 in 2021 but costs $2 in 2022 and hence the same dollar has less power to buy than it did in the previous year. As students, we usually don’t have a lot of money and it’s a safe strategy to hold on to what you have. But think about the endless possibilities you can get once you start investing your money early in the stock market. To clearly think about the possibilities, you need to have a long view of things and that’s what I have tried to reflect.

S&P 500 is a stock market index tracking performance of 500 large companies that are listed on the US stock exchanges. So assume you have 500 candies in a big box instead of just 1 candy (an individual stock). Hence you have a larger variety of candies and so lower risk, if you don't like one then you still have more candies.

Now, if you look at these graphs which reflect the S&P 500 story from 1981 to the present in the first image, the story from 2017 to the present 2021 in the second image and the last one from 2020 to 2021. What do we learn? There are going to be ups and downs in the market but if you see the overall graphs left to right, the trend has been constantly going upwards. What the math breaks down to is if you had invested $1000 in the S&P 500 at the beginning of 1981, you would have about $77,674.74 at the beginning of 2021, assuming you reinvested all dividends. This is a return on investment of 7,667.47%, or 11.50% per year. How does that sound? Am guessing awesome, that is the power of compounding as the Oracle of Omaha, Warren Buffet explains it.

S&P 500 since 1981

Source: https://g.co/finance/.INX:INDEXSP?window=MAX

S&P 500 index since 2017 (a 103% increase)

Source: https://g.co/finance/.INX:INDEXSP?window=MAX

S&P 500 index since 2020 (a 30% increase)

Source: https://g.co/finance/.INX:INDEXSP?window=MAX

Hence the lesson that I am trying to provide is even though you have only $10 to invest every month, just do it. You can sign up for any brokerage account online in a few minutes and buy an index fund. There are several index funds that replicate the S&P 500 index. A number of brokerages allow you to invest based on dollars and hence you do not need to buy a complete stock of these funds you can just buy $10 worth of the fund. Each month if you set aside a little, the power of compounding and dollar cost averaging will give you enormous returns in the long run. Dollar-cost averaging is an approach where you keep investing small amounts of money regardless of the market price, as a passive strategy you reduce your risk of losing money when you rather invest lump sum. I believe whatever strategy you follow, go for the long run and you will reap the benefits.

Similar to the S&P 500 market index, there are two more famous indexes - Dow Jones (30 prominent companies listed on stock exchanges in the US) and the Nasdaq Composite (more focused towards information technology). The S&P 500 gives you a good balance of Information technology, Health care, Consumer discretionary, Communication services, Financials, Industrials, Consumer staples, Utilities, Materials, Real estate and Energy. Hence going back to the example of candies, basically S&P 500 has all your flavored candies and so you have a lot of options and lesser risk. That's all for now and I will come back with new ways to be frugal and rich.

(Disclosure: I invest in the S&P 500 index, please review the Disclaimer section prior to any investments.)

The American Dream – College and Saving Money

noreply@blogger.com (Unknown) — Thu, 19 Aug 2021 00:59:00 +0000

United States is the land of opportunities. People from all parts of the country come to the US to live the American Dream. US can be expensive when you compare to the other nations and use the currency conversion math. One such case are students, who come here to the best universities of the world. As you land here, one of the things in the mind of these students is saving money. Not everyone is financially capable which is where this blog will teach you how to live frugal but get richer at the same time. Please keep in mind, living frugal is not being poor. Some of the world's richest people don’t live lavish lives and try to save money living cheap and spend where it really matters. Remember, a dollar saved is a dollar earned.

As you get to the US, one of the first surprises students usually get is that the luggage carts are not for free. In a lot of countries, on the airports you will get luggage carts for free, so an advice – save those dollars. Quickly doing the math every time in your mind can be quite a difficult experience when you try to compare how cheaper things could be in your country. Do your research before coming on how you plan to travel to your destination. Taxis are comfortable but they are expensive plus the 10-15% tips on top can easily start giving you some chills. Buses are a cheaper option or if you have university student associations that can a number times help you with pickup if you are coming first time to this country. The point is to make sure you research your options – look at Google Maps and see what could be your options with the buses/trains or app based taxis (Uber/Lyft).

Now you reach your destination and I bet you are hungry. Eating out can be easy but expensive. Map out your grocery store and make a trip. Some key things to keep in mind if its your first-time doing groceries is to make sure to get a Grocery Savings card. A number of grocery stores have these usually to track your spending and give you the items a little cheaper in return. These are free so I recommend to sign up for one since some stores also can give you points to avail on gas or other items. When you are in the store, a common mistake people do is usually pick up brand names of items. Skip the brand, in the US most grocery stores have their local brands which are way cheaper and very good quality than the names you hear on the television or the internet. These local grocery branded things are good as your commercial brands. You cannot imagine how much money you save every month skipping the commercial brands.

Another thing on your checklist should be opening a bank account. If you are an international student currently are on a student visa or another type of visa – the biggest banks is your best bet. This should be part of your research as well, try to find out which are the nearest ATMs or banks to the place where you plan to live. It will provide easier access to cash for emergency purpose. One of these big banks might have a branch – Bank of America, JP Morgan Chase, PNC, Wells Fargo etc. Make sure to ask for student account. Normal customer accounts can be expensive and require you to maintain a daily or monthly minimum balance or some direct deposits. There might be a university relationship with one of the banks and that could allow you to maintain a $0 account without paying any maintenance fees.

In the US, you have two types of accounts – checking and savings. Checking essentially is meant for daily transaction while Savings as it literally means is to keep your extra money that you don’t need on a daily basis. As you create an account, sign up for both a checking and savings. The savings account usually will earn you some interest (0.01% or even lesser at times) but the checking does not earn you any interest usually. If you are not on a visa and are a citizen or a permanent resident, go for an online bank rather than the big banks (more interest on your money) example Ally Bank, Marcus by Goldman Sachs etc. It is also a better account security strategy since you will use your Checking account number to move money and hence keep the only minimum dollars required in Checking and move the rest to Savings. Get a debit card as well and start using them instead of cash since some debit cards have offers and can give you some discounts.

Credit cards are definitely better because most of them come with cash back but you cannot get a credit card without a Social Security Number (SSN). SSN is like a unique identity number that can be requested once you start working or if you are born in the US. This number allows the financial organizations in the US and the government to track your financials, taxes and identity. The earliest you can get a SSN, the better it is for your future. In the US, your credit worthiness, your ability to get loans, open a credit card, even utilities sometimes require a SSN. Once you have a SSN and have a job, first thing is to get a credit card. You need to start building your credit as soon as you can. The way the credit system works in the US is the earlier you start, the less you borrow, earlier you make the payments, the better is your credit score. While selecting a credit card, usually smaller credit card companies would give you a first-time credit card easily rather than going for a big bank, so try the small credit card companies. While selecting credit cards make intelligent decisions as to where would you be spending the most money, common examples are grocery store and eating out. Based on that, make the decision to get the credit card where you get the most cash back. There are a number of websites that you can look at to compare the various different cash back categories and which companies offer the most money. Another thing to keep in mind is the introductory offer that you may receive on the credit card, for example if you spend $1000 then you may get $200 back. That is some extra cash back for you, so pick the best offer.

If you are looking into loans, I highly recommend looking at Federal loans first before you look at private loans. There is a small caveat, federal loans aren’t cheap as well. Surprisingly education is very expensive in the US and also the loans. You can buy a car or even a house at much cheaper rates than the rate on student loans. But there is strong chance you get a better deal on a federal loan based on terms, interest, repayments. As I write this article, the federal student loan rates are anywhere from 3.73% to 6.28% depending on Graduate or Undergraduate. Definitely look at private lenders as well, there are a number of online lenders which could get you a better rate example sofi.com, ascent, earnest, discover loans.

As a student, you will try find more ways to save money. There are just so many options but I will try to cover some of the ones I like. Remember receipts? You are going to do grocery shopping, eat out, shop online etc, save the receipts as a number of platforms will give you points for uploading your receipts to earn money. Some of the platforms are Fetch Rewards, Ibotta, Receipt Hog, Receipt Pal, Coinout etc. Amazingly it pays to use a search engine, Bing Rewards from Microsoft provides you an option to earn rewards for your daily online searches which you can redeem for gift cards. If you are buying stuff online, there are platforms like Rakuten that will give you extra cash back for your online purchases, you can potentially save good money if it’s a large purchase.

I recommend starting with these mechanisms and be on the lookout for more tips, tricks and ways to save money.

(Disclosure: I am a user of the applications mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it from any of the companies mentioned above. Please review the Disclaimer section prior to any investments.)