The Basics of Investing: Real Estate

Real Estate is another asset that you can add to your portfolio to further diversify your overall investments. You’re probably wondering how you would be able to invest in real estate now when you barely make enough money to pay rent, but there are two main options that allow people like you and me to do this.

The first option is called a Real Estate Investment Trust or REIT. You can find many REITs publicly traded on Robinhood or any other platform. These companies buy investment properties, whether commercial or residential, to lease out and collect rent. This rent is then used to buy and develop more properties, pay employees, and pay out dividends. The dividend is very substantial because REITs are required, by law, to pay out any cash they have left over to stakeholders in the fund.

This advantage makes REITs perfect for income from investments and also perfect for acting as an anchor for your money. REITs are typically far less volatile than the rest of the market.

The second option to invest in real estate right now, with minimal funds, is to open a portfolio in Fundrise or similar platform. Fundrise allows you to view the individual properties that you invest in as well as the expected returns from those properties. Fundrise is also aggressively acquiring properties in areas that they expect to grow significantly in the next 10-20 years.

As a result of this investment, Fundrise also offers far less liquidity than REITs. They give you an initial period of 14 days I believe (I’m not exactly sure so correct me if I’m wrong) to pull out your money from their platform, but after that, you have to wait five years before you can withdraw without a fee. This ensures, for them, that they have the funds to make wise purchases, especially in the event of a downturn. Many people may freak out and sell if the real estate market crashes when that is, in truth, the perfect time to begin buying properties.

Overall, if you require liquidity, REITs are probably a better option for you, but the ‘babysitting’ by Fundrise may result in higher returns.

Robinhood’s 100 Most Popular: General Electric

General Electric (GE) is a well known American industrial conglomerate. The Businesses it operates are GE Aviation, GE Power, GE Healthcare, and other subsidiaries. It also formerly owned GE Transportation and GE Appliances. Over time, GE has shed portions of its business to stay afloat. At the current moment, GE as a whole is weighed down by Power and a few other struggling businesses, hurting profitability and growth. GE is also making the unwise decision of selling off its profitable businesses to keep its struggling ones afloat.

Many average consumers don’t realize how much GE is struggling, so people may be tempted to buy it seeing it’s cheap valuation. It definitely has an advantage with it’s great brand identity and recognition, but management is not utilizing their recognition wisely. I personally believe GE will likely recover from its current position, but the extent of their recovery and their future growth is unknown. For this reason, I cannot give my full faith recommendation that GE will be a good investment in the future.

Another problem with GE is its significant debt. GE has 110 Billion in debt versus just 16 Billion in cash. This disparity does not give me confidence that GE can properly service its debt without selling off more portions of its business.

Verdict: GE has debt problems and is no longer profitable. The consensus is that GE will become profitable again, but to what extent is unknown. It is also likely that GE will shoot itself in the foot in the future by reinstating a dividend when it should be working on stabilizing its margins and reducing costs. For these reasons, I rate GE a 1/5 due to its unknown future prospects. Despite there being a high likelihood that GE will pull through, there is also a high likelihood that GE will liquidate its businesses to service its debt. This stock is another unwise investment, at least right now, that our generation believes will be wise.

5-Strong Buy 4-Buy 3-Hold 2-Sell 1-Strong Sell

The Basics of Investing: Bonds

Bonds are typically a significantly safer form of investment compared to stocks. They have an initial buying price and a maturation period of several years until they reach their full value. Bonds also provide high income yields because of cash payments from interest. I’ll admit, I don’t have a significant amount of experience with bonds, mainly because I am young. Another reason is that most of the brokerages I mentioned (Robinhood, Webull, M1 Finance) don’t support bonds on their platforms.

As a replacement, you can buy the Vanguard Bond ETF, BND, or research any of the other Vanguard bond ETF’s. Be cautious, though. Just because the majority of bonds present much less risk, some entail a lot more, such as junk corporate bonds, which may seem attractive because of their high income yields. These bonds are dangerous because they are at high risk of default (not paying on time or at all) and may have a higher probability of default in the near future. We may enter a recession soon, which will result in a high default and bankruptcy rate of companies with unhealthy balance sheets.

This risk is why it is very important to research whcih bonds you buy and whose debt they represent. Another lesson can be learned from the 2008 recession when large amounts of mortgages were defaulted even though the bonds were rated well. Diversification in the bond market is just as important as the stock market.

A rule of thumb to determine the breakdown of your portfolio (percentage in stocks and percentage in bonds), is to subtract your age from 100. The number you get is the percentage you should hold in stocks and the rest will be held in bonds. For example, I’m twenty, so I would hold 80% of my portfolio in stocks and 20% in bonds. These numbers can be adjusted, though, depending upon your personal risk tolerance. If you are ok with higher risk, you may want to hold a higher percentage in stocks than 80.

If you are interested in signing up for Robinhood, here is my referral link. When you sign up with it, you will get a free stock.

Robinhood’s 100 Most Popular

Robinhood’s 100 Most Popular is a list of the most held by users on the platform. This list provides a good idea of what millennials and post-millennials judge as a good investment. I am going to analyze each stock on the list in order to determine if our generation is making smart investment choices or if we are simply following the crowd.

Stock #1: Aurora Cannabis (ACB)

Aurora Cannabis is owned by 370,000 people on the Robinhood app. As you can tell, ACB grows and sells medical marijuana. With the recent country-wide legalization in Canada, they sell cannabis in retail settings as well to consumers. With legalization, ACB and other pot stocks have significant growth potential, not only in medical use, but also in recreational combinations.

Weed infused coffee, soda, and tea are a few of the potential high demand products for consumers. From these sources, cannabis can be consumed without the harmful effects of smoking it, possibly attracting more consumers.

Now that you know the potential of the stock, let’s analyze its balance sheet to determine the company’s health.

Profitable?

ACB is not currently profitable and isn’t really expected to be for a long time. Despite this, they are continuing to significantly grow the company’s top line (jargon for revenue). The last time they reported their earnings, they reported revenues of 54 Million, which represents a whopping 300% compared to the prior year. This revenue growth is amazing, but ACB’s profitability took a much harder hit. They reported net income of -238 Million, representing a more than 3000% decrease compared to the prior year.

This basically means that ACB increased their losses at 10x the rate that they increased their revenues. I don’t expect this to change very much and indicates that ACB management is, at the very least, extremely incompetent. They still could succeed in the future, but they will have to stop the money bleed and improve their net margin (revenue-cost-taxes divided by revenue).

Summary:

ACB has a lot of potential but is bogged down by incompetent management and incompetent use of money. The fact that this stock is the most popular on Robinhood doesn’t give me a lot of faith in the rest of the stocks on the list, but we will see as we go along. It is comforting to note that the 370,000 people that own it represents only 7% of Robinhood’s user base, so the majority of people from our generation may still be making wise decisions.

Final Verdict:

I rate ACB a 2/5, which corresponds to a sell rating.

5-Strong Buy 4-Buy 3-Hold 2-Sell 1-Strong Sell

Disclaimer
Please note that I am not responsible for any use of your funds. If you decide to buy a stock, you buy it understanding that there is inherent risk therein and that it is your responsibility for whatever investment decisions you make.

The Basics of Investing Part 2

In my last post, I explained an approach to investing that included only two stocks, VTI and VXUS. These two stocks, specifically referred to as index funds, would diversify your portfolio. Diversifying significantly decreases your risk without decreasing gains. In fact, these funds are so powerful that they beat ninety percent of investors.

These funds are capable of beating these investors while also being extremely simple for two reasons. The first is that many investors attempt to pick their own stocks. This is risky because your ability to make money would be significantly dependent upon your knowledge of the companies you pick and, simply, luck. If you don’t pick companies that perform well, then your portfolio won’t perform well.

Although picking individual stocks adds extra risk, it is the only way to beat the market. Therefore, I recommend to pick a combination of VTI, VXUS, and any individual stocks you want to ensure proper diversification. This will also create an ‘anchor’ for your portfolio to general market trends, minimizing risk.

The second reason investors do worse than the overall market is because they sell at bad times. If you have low risk tolerance, then you are more likely to panic when your investments fall. This is bad because it locks in your losses and creates a higher cost basis if you decide to re-enter the market later. It is significantly better to weather through the storm than to bail. For example, after the 2008 market crash, investors who held their investments performed twenty percent better than those who sold.

It is important to know that holding through market tribulations is not the same as recovering capital from a bad investment. If a company didn’t perform as well as you expected, then it is perfectly acceptable to sell that position. The money you recover can be better used in stocks that you have high returns in or for exploring new investment options. Typically, you can tell if a company was a bad investment after 3-5 years. Risk of picking a bad investment can be avoided if you properly analyze the fundamental factors of each company you choose. Even then, some companies that were very successful can significantly decrease in quality over time, such as General Electric.

Basically, make sure to do your homework and research each individual company you choose. This way, you may find the secret sauce to beating the market returns.

If you are interested in signing up for Robinhood, here is my referral link. When you sign up with it, you will get a free stock.

The Basics of Investing: Stocks

Stocks are the most famous form of investing. If you have ever seen Wolf of Wall Street, you will see that they contain a hint of romanticism as well as pessimism in the eyes of people. Despite this image, stocks aren’t that much of an enigma.

Basically, a stock is a share of a company that is tradable on a stock exchange. A share is essentially a percentage of a company, where the sum of the shares multiplied by the price of one share is the company’s value.

Stock in companies can be bought through a brokerage. Some common brokerages are E-trade, TD Ameritrade, etc. You can google these for yourself if you want to compare all of your options. Personally, I use Robinhood, which brings me to no-fee brokerages.

Many brokerages charge a fee on every transaction you make. For every stock you buy and every stock you sell, a portion of the money will be taken, cutting into your profits. That is why many people, like myself, opt for no-fee brokerages. Some common no-fee brokerages are Robinhood, M1 Finance, and Webull.

Although it is advantageous to have no fees, these brokerages often lack the features of more traditional brokerages. They lack Mutual Funds, Bonds, and certain order types. Mutual Funds and Bonds can, to an extent, be replaced with ETFs, but it is not exactly the same. I would recommend that beginners use a combination of each of these no-fee brokerages to maximize learning about the market.

Robinhood is advantageous because it provides access to a simplistic user interface. It allows you to simultaneously view stocks and important news. It also features a watchlist below your investments to keep you up-to-date on companies you may be interested in buying. Personally, I enjoy the simplicity of the app, but it also has a severe lack of information about companies that is required to make good investment decisions.

M1 Finance, in contrast, has a lot more features and a slightly different investment style. Rather than choosing individual stocks, you can pick an investment ‘pie’ that suits your age group and risk tolerance. M1 Finance essentially takes the simplicity of Robinhood and simplifies it further by having premade investment pies with stock allocations. This simplicity is certainly very useful for people who would like to lock in a consistent, decent return, but it would be difficult to perform better than the market. This investing style also limits the amount you will learn because it is essentially done for you. Despite these drawbacks, it does not mean that M1 Finance is not good for research. I find, in particular, that the ‘Hedge Fund Followers’ are very useful to look through and study. These pies are representative of the largest and most successful hedge funds and their investments. Looking at the positions held by these funds will allow you to spot potentially high return investments and to study what investment professionals believe to be a good company.

Webull, in contrast, is fairly complicated. It provides access to a large amount of charts with trading volume and other indicators. This information is useful, but the main feature that I use is paper trading. Paper trading allows you to simulate investing in real time without using any of your actual money. Practicing this way will allow you to test your stock picking skills without placing yourself at risk. This feature is also useful if you don’t have enough money to start investing. Practicing now, even without starting to invest, will place you at a much greater advantage compared to your peers.

Now that you know where to trade stocks, I will teach you about what stocks to pick. For people who are risk averse and want a good return, I recommend buying only two stocks. You should place your money in VTI and VXUS. These stocks are ETFs managed by Vanguard. VTI is an ETF that holds every stock on the US stock market, and VXUS holds every stock outside of the US. These two ETFs will provide you with a high amount of diversification, which significantly decreases risk. If you invested $100,000 in an 80-20 VTI-VXUS split, you would have profited $37,500 from growth alone. If you include dividends, your return would be much higher. Dividends are cash payments made to shareholders every quarter of a year. These payments compound your return because they can be reinvested back into the stock for more growth and more dividends.

In my next post, I will go over another investment strategy involving individual stocks and diversification.

For anyone interested in Robinhood, this is my referral code. If you sign up with it, you get a free stock: link.

The Post-Millennial Investor

This is my first blog post, so I’d like to outline the purpose of this blog. I hope to teach people of Gen Z how to invest and prepare for the future. I, myself, am 20, so I might be a bit older than your typical Gen Z, but I am in college, so I haven’t gotten that much of a head start so far.

I hope that, as we get older, we can learn to invest our money wisely and prepare for retirement. After all, the earlier we begin to prepare, the cushier the retirement. We all want yachts and fancy vacations, but the important thing is to start in the first place. I’m not sure if I am quoting it perfectly, but an old Chinese Idiom says, “The best time to plant a tree was ten years ago. The next best time is now.”

This may seem sort of like a cliche ‘carpe diem’ quote, but it doesn’t detract from its importance. If you start investing now, you can maximize the growth of your money over the long run. This concept is called the ‘Time Value of Money’. Essentially, it is better to use your money to invest now than to begin investing in 30 years.

Now that you’ve been convinced, I hope to teach you the basics of investing as well as different forms of investments. I also want to inform you about their expected returns and risks in future posts. I have another idea for future posts that involves Robinhood and the 100 Most Popular stocks list, but it is just in the planning stages as of now.

I would also like to clarify one thing. Although this blog is called ‘The Post-Millennial Investor’, it is open to people of all ages. It is just more beneficial to people of Gen Z since it will be from the perspective and life stage of someone from that generation. Basically, I’m not close to retirement age and don’t have significant assets. I am pretty much starting from scratch.

Thanks for reading my first blog post!