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About InvestmentPathfinder

Knowledgeable about Personal Finance, loves to read, and enjoys waking up early.

What is the “best” way to Value the Stock Market? 

Why value the stock market? 

As an investor its often tempting to attempt to predict the future. The incurable human tendency to back decisions with emotion combined with the impossibility of fully anticipating the future makes this exercise laughable. 

However, with a proper context of “value”, investors in aggregate have always determined market prices that, long-term, move in tandem with actual value. This idea is known as “market efficiency”. 

While markets are either nearly entirely or mostly efficient, there are always opportunities to find value and outperform. Bust asking simply if the stock market is overvalued is a bit complicated. 

What do we mean by “stock market”?

The entire universe of stocks is encompassed by a diverse source of demographics, industries, and legal systems. In 2023 the U.S. market is by far the largest equity market and certainly most investors both in the U.S. and globally would consider this market a key representative of stocks generally. 

But even within the U.S. there are small-caps, large-caps, value, growth and even a breakdown between stock sectors. As far as this examination will go its entirely appropriate to look at the stock market through the most widely regarded indexes: the S&P 500. 

Can we accurately measure stock market value? 

Measuring the value of anything can be difficult, especially something as large and complex as the S&P 500. However, based on their correlation to future returns, 6 indicators have actually be reliable in the past. 

Ways of measuring the stock market

Advisor Perspectives tracks four out of the six indicators monthly. On their site they chose to average the four and compare them to historical returns. This format is useful because it illustrates just how risky or cheap the stock market is in any given month. I check their page frequently and I encourage anyone interested in market valuation to check it out

The four listed on their site are: Crestmont Research P/E ratioCyclical P/E ratiothe Q ratio and the current deviation from the market’s regression trendline. In April 2023 the average of the four sits at nearly 100% overvalued. For comparison this is somewhere close to the value the S&P500 traded at during the 90’s dotcom boom before 2000. 

While these four give a useful datapoint as to the markets value, there are two others that I believe are just as, if not more indicative long-term. These two are the market to GDP ratio(also called the Buffet Indicator) along with the household equity allocation

The market to GDP ratio, popularized by Warren Buffet, has long served as a crude assessment of stock market value. It compares how the value of U.S. equities weigh against the size of the economy. Currently the buffet indicator is somewhere north of 150% which is overvalued. In context this level is as high as it was in the early 70’s (which saw lower subsequent 10-year returns) and the mid 90’s (which led to the dot com crash of 2000). 

All of this does not guarantee that the stock market will crash this year. In fact, the stock market could continue to rise as it did in the late 90’s even past the point at which the market is currently valued. Predicting the future can be difficult but it is useful to have some context into where U.S. stocks currently sit. 

Lastly, a 6th indicator I have used is the household equity allocation. This indicator uses information provided by the FED to measure the average current percentage of equities held by investors in their portfolio.

The reason why this is useful is that it gives crucial insight into the supply-demand reality of how much capital is available for investors to move from other assets into stocks. Logically the higher the percent of assets invested in equities, the lower potential future influx of capital into equities. 

The latest reading from the FED shows that around 45% of assets are invested in equities. This is one of the highest we’ve ever seen in recent decades. In fact there have only been two peaks with a higher percent of assets in equites for any of the last 70 years. Those two times were the stock peak of 2000 and the peak in December 2021. This number is sitting at around where investors were in 1997 or 2018. 

An alternative question

As I discussed at the beginning, there is always an inherent risk of A) miscalculating stock market value and B) benefiting from this knowledge. It is both possible to inaccurately calculate the frothiness of the market and at the same time over (or under) react the forementioned information. As an example, an informed investor in 1995 might have looked at the relatively quick rise in stock prices, compared them to historical prices, and decided to step out of the market. Anyone familiar with what followed knows that stocks were poised for one of their largest bull runs in market history. 

Instead of looking at stocks through the lens of “cheap” verse “expensive” a more beneficial way of viewing the market is to ask where the risk/reward tradeoff lies. More precisely, there is more to risk/reward than simply value. There are four total factors that should influence an investors decision to decide whether to stay the course. Not only does “value” in the historical sense matter, but also the investors time horizon, alternative options, and the current trend of the market. 

Value can give us an understanding of the long-term return prospects of the market or a particular stock, but value won’t tell us whether the price will go up in the next week, month or even several years. However, for long-term investors who view the market in terms of decades, not years or months, value is ultimately all that matters. 

Time horizon matters because for those with a shorter time frame(like those nearing retirement) cannot afford to wait out the long-term market cycle in the hopes of a rebound. Younger investors who are willing and emotionally capable of waiting out bear markets should not try to time the market. 

A natural part of the market cycle is an ebb and flow of various stock market segments going from overperformance to underperformance and back again. Not only do stocks work in this way, but all other asset classes also have segments within them that vary in performance. Weighing your stock alternatives may not only be prudent within the stock universe, but among all asset classes. 

Lastly, trend watching, which has a bad reputation in certain investment circles, can sometimes add a valuable layer of actionable insight. Historically when the stock market is above its 200-day trend line stocks have performed better with lower volatility. Gauging the trending risk or opportunity in an asset or whole asset classes may help improve outcomes that are not available to purely value investors. 

Back to the question: What’s the best way to value the stock market?

There is no “right” way to value the stock market. And in fact, as we have discussed, value is not the only factor that should determine our current stance on equities. This is especially true for the young investor. For those of us who are not in a particular need of capital in the next 15-20 years, staying put in the market may be the most prudent decision. After all, we have no way of knowing if stocks are in for another rip higher like they did in the late 90’s. 

On the other hand, for those who take a more active investment stance or those who may need their money sooner, reducing exposure to equities may serve as an appropriate risk mitigation technique. 

Rocky Mountains From Orbit

75 Investment ideas for 2023

As we enter the second quarter of 2023 we not only have concerns with inflation, war in Ukraine and friction with China. There is also a continued interest on the part of investors of how to perform well with all the uncertainty and the relatively high valuations of U.S. equities. Here are 75 investment approaches you should consider for the rest of 2023.

  1. All World Stock Index Fund

One of the easiest ways to take advantage of the long-term growth of the stock market is to diversify broadly across the entire stock universe. One way to do this is by weighing each country by its market cap. For example, as a general rule you could put half of your funds into a broad U.S. stock fund, one quarter into a Developed Markets fund and the last quarter into Emerging markets.

  1. Ray Dalio All Weather Portfolio

Ray Dalio, known as the founder of the worlds largest hedge fund (and has since retired), famously came up with a simple portfolio that weights assets based on their riskiness. This portfolio has had extremely low volatility relative to return. The portfolio contains 45% Long-term government bonds, 10% intermediate bonds, 30% US stock market 7.5% into broad basket commodities and 7.5% into gold. 

  1. Pick a small handful of Value Stocks

Warren Buffet has made his fortune on selecting undervalued stocks and holding them for long periods of time until they appreciate in value. To the average investor, his returns, while staggering, shouldn’t be expected going forward. However, there are a number of principles he can teach us about stock selection. The most basic of which is that stock performance will ultimately come down to a businesses long-term ability to generate profit.

  1. Build a diversified portfolio of Small-cap Value ETFs

Over the last century of stock market data the best performing stocks have been small cap value. What’s called the “size factor” and the “value factor” have been shown academically to outperform other stocks over the long term. While there are no guarantees, historically betting on small cap value has been a wise choice. 

  1. Cryptocurrency

A decade ago most hadn’t heard of Bitcoin or even blockchain technology for that matter. Even five years ago Bitcoin was seen as a short-term trend. But here in 2023 we know that cryptocurrencies will not be disappearing anytime soon. While the investment merits of x or y crypto can be debated, there is an argument to be made that incorporating a broad group of cryptocurrencies is a smart risk-adjusted investment decision. 

  1. Commodities

Commodities are tangible goods that are used in the real economy like wheat, copper or lumber. Historically, a basket of these has just about broken even with inflation. The ultimate goal with investing in commodities in general is to hedge yourself against inflation. 

  1. Corporate Bonds

While slightly less volatile on average than stocks, corporate bonds do share a lot of the risk characteristics of government bonds. Interest on these bonds is higher than the same duration government bond. 

  1. U.S. Government Bonds

Government bonds are without a doubt the lowest risk mainstream investment. Specifically U.S. T-bills are short-term bonds issued that have less than a year of duration. As a general rule interest from bonds goes up the farther out you get with the duration. However in 2022 and 2023 interest rates for shorter-term bonds have been extremely competitive with longer-term rates due to the concern with inflation. 

  1. 60/40 Portfolio

The 60/40 portfolio is famous in the investing community as one of the most “basic” go-to approaches to portfolio strategy. The approach is to simply put 60% of your money in stocks, while the other 40% goes into bonds. 

  1. I-Bonds

The I-bond has gained in popularity recently due to the concern with inflation. It’s essentially a bond-type product that is not available on the open market. You can put up to $10K online into your I-Bond while receiving an interest rate that is tied to inflation. This means unless the U.S. government runs out of money your money is guaranteed to keep up with inflation. 

  1. Find a few Metaverse Stocks and bet on the Future

The “Metaverse” is a very vague term when it comes to technology but generally refers to the next frontier of the internet towards more connectivity and interactive experience. An example of this is virtual reality and augmented reality. Both of these developing technologies seek to allow someone to either function in a virtual world or overlap virtual objects into the real world.

  1. Diversify between a handful of Robotic company stocks

While you are probably aware of some of the coolest technological changes on the horizon, taking advantage of them is a whole different challenge. How do we know which companies will make it and which are even open for public investment? Boston Dynamics is a private company that has developed robots that can jump, run and perform parkour. Imagine the possibilities (both intriguing and frightening) of combining the movement based developments with some of the machine learning advancements. There are a number of stocks that the public can invest in related to robotics. 

  1. Deploy a Sector Momentum Strategy

Sector rotation involves using a list of stock categories and ranking them based on momentum. The trader will then pick the stock (or handful) that meet their momentum threshold. The advantage of this strategy is that you are buying sectors like utilities or technology when they have been doing well and therefore are hoping to profit from their continued outperformance. The downside risk is that you end up purchasing sectors that suddenly change course (which happens often).

  1. Dogs of the Dow

This strategy has been around for a while but it has come back in popularity recently due to online investment forums giving it increased attention. It involves looking at last year’s worst performing stocks on the Dow Jones Industrial Average and then selecting 10 with the highest dividend yield. In some sense this strategy is like an anti-momentum or contrarian investment stance. It historically has had decent performance but clearly there are risks, the idea of only investing in 10 stocks being one. 

  1. Dividend Stocks

Similar to the Dogs of The Dow, dividend investing involves picking stock with the highest yielding dividends. On the flip side though, you aren’t limiting yourself to simply the top 10 stocks from the DJIA, but all stocks in any given market. For example a U.S. dividend investor could pick a dividend fund from a U.S. exchange. 

  1. Play it Risky with Leveraged ETFs

Leverage is like a double-edged sword. Historically leveraged is like a fire, it can certainly turbocharge your investment returns but has the potential  (and often probability) of getting out of control. Leveraged ETFs, which are simply packed versions of investing with leverage, are no different. However, unlike traditional leverage, there is no debt involved from the investors perspective, instead you invest into an ETF that uses derivatives in a way that makes the fund experience multiple returns. There are more complicated strategies of dealing with this risk but for now if you are not a nuanced investor it is best to stay away from Leveraged ETFs.

  1. Buy a SFH(Single Family Home)

A tried and true American ideal has been to purchase a single family home (SFH), own it for the long term while paying off the mortgage and at the end have an appreciated asset with no debt. However in reality most households do not currently own a home. The simple act of purchasing a SFH in a desirable market at a reasonable deal and holding for the long-term certainly has the possibility (even the likelihood) of working well. But after all is accounted for, you have to wonder if “The American Dream” as is often referred, is really that profitable when compared to other alternatives. 

  1. House Hack

House hacking is the practice of using a property you have control of and live in. What you do is rent out part of the building (whether that’s another unit or simply a room) to generate enough income to either get your housing costs close to zero or actually even make a profit. 

  1. High-yield Savings Accounts

This was not something on most peoples’ minds a few years ago. But after 2022, which could be called “the year of the rising interest rate” we now have some of the most competitive rates we’ve had in a while. Instead of risking money in the stock, bond or other alternative markets, why not simply get yourself a safe, easy rate of return from your bank? 

  1. Buy a Multifamily Apartment

If you’ve been involved in the online apartment investing space at all you’ll have heard of a man called Grant Cardone. He is a business/sales/real estate promoter who has made a name for himself online. While a lot of his advice should be taken with a grain of salt, he certainly has a few interesting things to say about real estate investing. One of those ideas is that you should not invest in small deals but instead save up until you can buy apartment deals of 16 units or more. This may sound unrealistic from a funding perspective but where Grant is coming from is the mentality of “go big or go home”. His general advice should be filtered with a little more nuance but the general idea of apartment real estate does hold a lot of merits. For example mid-sized apartment real estate can potentially give you advantages that a lot of other investments cannot, one being the economies of scale. 

  1. Commercial Property

Larger apartments are technically categorized as commercial but for this example I’ll leave them out since I just discussed them. Commercial property has many different dynamics than residential some of which include valuation metrics, legal structure and complexity and of course scale. But with that complexity comes the possibility of higher profits or maybe even brand recognition. In a lot of ways commercial property is better thought of as just another form of business avenue instead of lumping it in with small scale residential landlords. 

  1. Certificates of Deposit (CDs)

CD’s are just another one of those shorter-term bank-interest options. Unfortunately CDs come with a time commitment just like a bond. In exchange you will receive a slightly higher rate on your money. Whether it is worth going over from high-yield savings is a different question that should involve more personal reflection. 

  1. Flip Collectables

Another way to diversify your investment returns is by dipping your toe into the world of collectables. Some, like baseball cards, have been historically difficult to profit off. However, for speculators who have an above average sense of their respective industry, they may be able to profit long-term by diversifying their collectable portfolio, maintaining proper care, storage, and carrying insurance for protection. Even with all this, there is no guarantee of even breaking even, let alone making a profit. This is why collectable “investing” is best left to professionals. 

  1. Farm Land

Billionaires like Bill Gates have recently been purchasing vast swaths of farmland. Why is this? They recognize the long-term value of land and how the underlying supply of those assets are limited. Farm land is best for investors with large reserves and an extremely long time-horizon. 

  1. REITs

REITs are real estate investment trusts which essentially manage large portfolios of hotel, apartment, or other commercial property for rends and appreciation. REITs are simply another sector of the stock market but for those who would like to profit off real estate in a more specific way without major time hassle, REITs may be the answer.  

  1. Pick 3-4 Publicly Traded Hedge Funds You Believe In

A hedge fund is different from a “mutual fund” in a few key ways. Firstly, while mutual funds are funded by the public, hedge funds generally can only by bought by private or large “accredited investors”. This basically means unless you are an industry expert or have tens of millions of dollars hedge funds are inaccessible to you. Despite this fact there are a handful of hedge fund-like portfolios that are available to the masses. Another key difference is the investment objective. While mutual funds have the mandate of generally focusing on one investment niche like U.S. growth stocks or international bonds, hedge funds generally have the optionality to choose more risky/unconventional investment options. The fee structure between mutual funds and hedge funds is also different. Lastly, hedge funds are different because the benchmark upon which they are analyzed is generally much different. While each respective mutual fund is compared to others in its asset class, hedge funds generally are weighted on whether they can maximize risk-adjusted returns. 

  1. Buy into a Target Date Fund

Target-date-funds were first introduced in the mid 1990’s. Since then they have become a major building block of most 401k plans. The concept behind them is to expose the investor to a broadly diversified portfolio of both global stocks and bonds. The choices provided are usually categorized into conservative, moderate or aggressive risk tolerance and then offered in categorize based on the chosen retirement age. For example an “aggressive investor” might have the option to pick an aggressive 2065 retirement fund. This fund would start with almost entirely stocks and gradually increase the bond exposure as the investor nears their retirement age. 

  1. Bet on the Continued Outperformance of Energy Stocks

In 2022 energy stocks were the only major stock sector to have a positive performance. The obvious reasons include the rapid rise in oil prices(due in part to the war in Ukraine), as well as general inflation concerns and the fact that energy has been one of the “cheapest” sectors for a decade or so. Energy is no longer as “cheap” as a sector as it was in 2022 but going forward it’s not difficult to see how some of the same factors could continue to push prices higher. That said, each investor should consider the various types of energy stocks and make sure they don’t take on too much risk relative to their situation. 

  1. Buy into a Franchise

Taking a step away from the securities market, one way to invest a large sum of money is to invest into a reliable restaurant franchise. In terms of business risk this is perhaps the most hybrid option between starting your own business and buying another. Franchises have an existing brand and product chain. But on the other hand opening a franchise has the same risks involved that a normal start-up has. Another huge hurdle to success in this area is the barrier to entry: the upfront cost. Many franchises require an initial investment in the hundreds of thousands. With all of this taken into account, there may be a handful of franchises you decide provide a good opportunity. 

  1. Buy some of your own Company’s Stock

Most Americans work for an employer. In many cases those employers happen to be publicly traded. In addition, there are some benefit packages that provide the opportunity to purchase company stock at a discount. These “stock options” have their own set of contingencies like how long you must hold the stock. If you get a good deal you may consider putting some money into your own company stock. However, this has major risks. Think about the risk you already carry of getting let go from your job due to stress in the economy. What happens if you not only lose your job due to a slow economy, but the stock market takes a hit and you lose much of your asset values as well? The double edge sword is that you may believe in the company you work for enough to invest but this may come back to haunt you if the economy takes a hit. 

  1. Own some Alternative Assets through a Self-Directed IRA

Businesses, realestate, and other assets like crypto, commodities or traditional assets can be purchased through Roth IRAs. If you are one of the most eclectic investors who enjoys taking risks outside the normal asset classes, you may be curious about how you can deploy your investments into tax-advantaged accounts. There are a number of IRA custodians who can help navigate this process with you. Granted, there is a fee but the peace of mind knowing your investments are set up correctly can relieve a lot of stress. 

  1. Pay off Credit Cards

While this option is not a traditional investment option, the ROI (return on investment) of paying off credit cards can be better than anything else available. Think about how high your credit card interest is. For most Americans this can be anywhere from 14% all the way up above 30%. Making sure you pay off high interest debt can be a guaranteed way to see your money work for you faster than any investment. 

  1. Buy a recommended Personal Development Book

Another unconventional way to view investing is by considering the asset over which you exert the most control: yourself. Over your lifetime you will likely make millions of dollars in income, even if you only make a middle class salary. This fact means that shifting a small percentage into increasing your “market value” can pay huge financial as well as career gains over the long-run. Books in all their forms have historically been the most repeatable way to increase your knowledge and ability to make more money. Of course not just any book will do. You must find some books that are personal-development related. Expanding your mind in whatever career field you reside can pay dividends both personally and financially. 

  1. Buy a Course to increase your skill set

In the same vein of personal development, taking a course or passing a certification exam is another way to step up your worth to employers/clients. There are a number out there. Be sure to choose a course that you believe will actually make you more valuable by checking out reputable reviews. 

  1. Go back to school

Education can pay for itself many times over. The most traditional form of this can be found in a 2 or 4-year university. The payoff is generally based on your chosen field and if you find employers preferring or require particular levels of education. A formal degree is not necessarily always the best investment but in many situations it can provide a way to turbocharge your opportunities. 

  1. Art

Art is not only something to listen to or look at. Art in all its various forms can be bought and sold. There are a lot of ethical concerns with businesses owning rights over an artists’ work (as Taylor Swift has recently brought to our attention). But for some types of artwork in which the original creator is no longer around or the artist chooses to consciously part there is the potential for profit. 

  1. Purchase an established business

Similar to buying into a franchise, obtaining a standalone business has its own set of challenges and opportunities. On one hand you have a seemingly unlimited seiling on profits. On the other hand the name-recognition of your new business may not be as well established as a similar sized franchise. Purchasing a business that isn’t a franchise is generally higher risk and higher reward than franchises. 

  1. Crowdfunding

Crowdfunding as an investment can be viewed from both sides of the transaction. On one hand you can go to investors seeking to be “crowdfunded”, but on the other you can make profits by lending your money to similar investors looking to kickstart their business. Crowdfunding is a whole alternative funding mechanism for business and should be carefully considered alongside the traditional mediums. 

  1. Peer-to-peer Lending

Peer-to-peer lending is very similar to crowdfunding in the sense that there are people doing the funding and those being funded. However peer-to-peer is used primarily for non-profits, which, by definition, are not out to make money for themselves. On the lending side though, investors willing to part with their money may be able to make a higher interest rate than conventional lending investments. Of course it should be noted that these non-profits are generally a more risky lending investment than government and municipal lending options. Therefore, you can potentially make a higher return by taking on higher default risk with peer-to-peer lending. 

  1. Private Equity

Private equity refers to the general investment in businesses by private investors. These businesses generally are more established and have no intention to go public. The investors are looking to help out the established business as well as profit from long-term ownership either by owning part or by taking a majority steak. 

  1. Private Debt

In the similar category as private equity, private debt seeks to accomplish a lot of the same things but with less risk but less potential return. While private equity seek to take on responsibility for future growth and has theoretically unlimited profit potential, private debt is more a risk-conscious decision about how to make a higher return on the fixed-income side of the investment world. 

  1. Structured Products like CDOs and MBS

MBS (mortgage backed securities) and CDOs (collateralized debt obligations), are both examples of different types of debt that are bundled together. Mortgage backed securities are simply a bundle of various individual mortgages that are put into a “basket”. Stepping back, CDOs are simply a broader term to refer to a bundle of debt securities, some of which can include MBS. For the most part MBS and CDOs cannot be purchased by the general public. However, CMOs(collateralized mortgage obligations) are a similar arrangement of debt securities. But they can be purchased by retail investors for sometimes as low as $5K initial investment. 

  1. Physical Gold

Physical gold is one of the oldest and most well-established asset classes. Over long periods of time a straight investment into gold has not performed much better than the rate of inflation. In fact there are decades in which gold actually loses value and then years in which it rapidly rises after a sudden concern with inflation, government stability or other global scares. Gold may have a place as a small percentage of a portfolio but long-term it does not hold up as a high-return investment. 

  1. LEGOs

Believe it or not, legos have been a solid investment option for many decades. They have a well-established, multigenerational client base. In addition, lego sets are usually only available for a limited time. So by owning a “portfolio” of unopened lego sets inventors have historically been able to make returns equal, or in some cases greater than the stock market. Of course there are risks such as a loss in brand or of a particular lego set losing its desirability over time. 

  1. Tax Liens

These investments are often touted as a quick and easy way to gain ownership of real estate. What happens is the investor takes responsibility for the tax liability of a property and if the current owner cannot complete payment for taxes owed during a certain period of time, the investor can gain ownership of the property by taking over the tax bill. The risk of this strategy that is often not mentioned is the risk of losing priority in the event of a bankruptcy. Another risk not discussed enough is the possibility that the property is simply not worth owning to begin with due to the maintenance costs or other factors that make it “univestable”. 

  1. Venture Capital

Like private equity, venture capital seeks to allocate money to private businesses for potential long-term profit. Unlike private equity, venture capital generally invests in faster-growing/less established businesses. The venture capitalist is generally looking to create a portfolio of smaller investments in risky businesses and hoping that a few will make a huge return. 

  1. Managed Futures

Futures are a type of financial product called a derivative. Futures obligate the investor to either buy or sell a given asset at a certain time. A managed futures strategy is simply the concept of arranging various “bets” about the future into a portfolio of futures with regards to a certain asset class. 

  1. Net Neutral and Net Short Funds

Net neutral and net short funds are a more nuanced strategy of making predictions about the future relationship between various assets. For example a net neutral fund could bet in favor of energy and bet against utilities. But to be “net neutral” their fund would have to have equal risk in both their positive bets and negative bets. You can probably guess a net short fund is the same concept but with added pressure on the negative prediction for future returns. For example a net short fund could bet against growth stocks. 

  1. Hedge with Options-based Volatility ETFs

Volatility has always been a factor in equity and bond investing. However, instead of simply investing in the underlying assets, some choose to bet on the future volatility or lack thereof. A common approach is to bet on an index called the VIX. This index measures the volatility of the S&P 500. Betting on future volatility can be both hard to predict and costly to get wrong. 

  1. Take a look at popular Growth stock funds

Dave Ramsey, the personal finance guru who is big on debt-free living, has a simple investing approach. He recommends investors split their funds between growth stocks, international growth, growth and income as well as aggressive growth. One risk with this thinking is that it is often not the case that growth stocks outperform the market simply because they have the word “growth” in their name. As of this writing though, growth stocks have outperformed value stocks over the last ten years so there are definitely periods of outperformance. 

  1. Equal Weight Funds

The S&P 500 index represents some of the largest public companies in America. The index weights each stock based on its size. A company like Apple will get a larger weight into the index than a smaller company like Spotify. One spin on this approach is instead of weighting each stock differently based on their size, an investor can equally weigh each stock. This ends up meaning Spotify and Apple both represent the same percentage of the overall portfolio. This has actually had historically higher returns but often higher volatility. 

  1. Sustainable Investing

The term ESG did not exist before the 21st century. Since the early 2000’s conscientiousness about the environment and system health has created a rise in awareness. Social and governance concerns (ESG) is a common way of categorizing companies who have shown more concern for sustainability. If you care about ESG investing there are a number of funds to choose from. 

  1. Emerging Markets

The word emerging seems to imply improvement, or at least some sort of increase. But often with “emerging markets” there are systematic risks that have resulted in these countries staying below the poverty level of more developed countries for decades. Emerging market countries have an intrinsic risk that doesn’t exist with most developed ones. For example, the government tends to be more stable, the infrastructure tends to be more intact, and the economy overall is less diversified. Stocks from these countries, while risky, can offer the potential for higher returns. For example during the early 2000’s while the U.S. dotcom bubble was bursting, many of these emerging markets’ stock markets experienced a rapid increase in stock price. 

  1. Developed Markets

The flip side of emerging economies is the developed economy. Most of these countries are either in Europe but also include Canada, Japan and Australia. Developed markets are the emerging markets of the past who have grown and stabilized to the point of having more diversified industries. The currencies, growth and government of these countries are more stable. While the risks are lower, there is also the concern for war, the possibility of a recession, or social unrest. 

  1. Currencies

Putting your money to work in currencies is one of the more niche approaches to investing. The concept is that you invest in a certain currency, or basket of currencies, and watch it increase in value relative to other currencies. However, the risk of investing in currency is extremely high. In fact currency should not be considered a true investment in the sense of stable income. The truth is that currency investing is more akin to speculation and should be viewed through this lens.

  1. Undeveloped Land

Bill Gates, the founder of Microsoft, has been purchasing large swaths of land in the middle of the country. Most of this land is farmland but the reason behind it is clearly for inflation protection. Undeveloped land is one of the more risky ventures in the real estate realm. This is because undeveloped land has not shown the promise of having demand for its use. 

  1. Horse Racing

On the massively risky side of the spectrum, horse racing is certainly an option. Besides putting your money into a no-name cryptocurrency and hoping to make millions, horse race investing is perhaps the top of the list of riskiest investments. Not only is there risk involved in the actual performance of the horse, there is security, health and reputational risk involved in putting your name behind a racehorse. 

  1. Pick best performing Actively Managed Fund

Dave Ramsey, the personal finance guru, has a long-time piece of advice that has many financial advisors scratching their head. He suggests you can scroll through a list of mutual funds, look at the funds with the best performance over their lifetime and the last decade, and pick the winners. However, what the best data we have on the history of “fund picking” says is the opposite. It is unsustainable and unrealistic to expect you can get lucky enough to pick the winning mutual fund and outperform over the long-term. I agree with this industry “common knowledge” but with one caveat. There is certainly the possibility that fund picking can work in rare situations. Perhaps part of it is luck and another part is analyzing funds in ways that are unusual for people looking at funds. 

  1. FAANG Stocks

Facebook, Amazon, Apple, Netflix, and Google. Those are the companies that represent this iconic and dominant list of companies in the S&P 500. 

  1. Preferred Stocks

Preferred stocks lie somewhere between the stock and bond worlds. Owners of Preferred stocks hold priority over other common stock owners. Usually the dividends on this are paid out in fixed amounts sort of like a bond. 

  1. TIPS

With the recent concern over inflation, the protection against inflation is immensely valuable. TIPS (or Treasury Inflation Protected Securities as they are formally called) provide a small yield like any bond does, but they also lock in a guaranteed return that matches the rate of inflation. While traditionally there is a slight reduction in returns due to the fact that there is added security with TIPS, the conservative investor can benefit from added certainty. 

  1. Annuities

Being part insurance and part investment, annuities have been around in one form or another for ages. The types of annuities range from fixed, variable or semi-variable. The goal of annuities is to provide some return of income along with added protection that the insurance aspect adds. 

  1. Cash

Cash is not often thought of as an investment but, similar to currency investing, cash represents a bode of confidence in that medium of exchange. Socking money away into your local country’s form of currency is a way to receive a small yield from your savings account and hopefully ride out the growth in popularity in that currency. The truth though, is that currencies, in their long history, have inevitably clapsted under the weight of oversupply and disaster. 

  1. NFTs

Nonfungible Tokens are a new form of digital art that have the potential to revolutionize the way we look at ownership. With NFTs you can purchase something online, and then have a way to prove your ownership, license it out, and even collect royalties from it.

  1. S&P 500 Index Fund

Warren Buffet claims that when he dies the money left will go into a trust that invests 90% into an S&P500 fund and the rest in treasury bills. This confidence in the U.S. stock market is not only well-founded, it is also practically simple to execute. In my view the major downside to this approach is both missing out on international growth as well as being hurt form economic disasters that end up striking the U.S. economy particularly hard. 

  1. Money Market Accounts

Money Market Accounts are a step up in terms of restrictions and yield from your traditional savings account. 

  1. Municipal Bonds

If a local government needs funding for a current project, how do they fund it? Often by issuing bonds they are able to complete their goals on time and with the lowest interest rate possible. These bonds are called municipal or muni bonds. Like government bonds they are generally going to pay you a higher rate of interest the longer you are willing to give them money. They do carry a higher interest rate they government bonds but also a higher risk of default in the even that particular municipality goes under. 

  1. IPO’s

IPOs or Initial Public Offerings as they are formally called, are one of the more sexy, new investments that inevitably get rolled out. An IPO represents a new company getting introduced to the public by the investment banker that’s backing it. Company insiders get the first dibs on the stock purchases and usually you will not be able to get a good deal by the time it becomes publicly available. Historically IPOs have been extremely risky. However in the rare event you make it big, your friends and family will come to marvel at your investment foresight. 

  1. Foreign Bonds

Why invest your fixed income allocation into just the U.S.. While by far the largest bond market is located in America, global bonds in developed and emerging markets provide both diversification and higher returns. 

  1. Make Your own Stock Index

There are many sites available that allow the investor to create their own stock filter and build their own portfolio. These sites allow you to better formulate where you would like to go as an investor and what risks you are willing to take. 

  1. Make Your own Crypto Index

On a similar vein, if you feel particularly convicted in the crypto sector, you may want to check out some of the crypto aggregators. 

  1. Bitcoin or Ethereum Mining Business

If you are one of the tech savvy believers in the future of crypto, why not profit by starting your own mining business. Some of the upfront costs can be egregious but there are a few acquaintances I know who have made considerable profits from this business idea. 

  1. Junk Bonds

While the fixed income space is generally one of the lowest-risk, lowest-reward places to invest, junk bonds provide the investor a rare opportunity to step up their aggressiveness. 

  1. Real Estate Investment Groups (REIGs)

REIGs are an interesting way to access a network of real estate inventors, capital and properties. 

  1. Turkey Rental Real Estate

There are a number of turnkey rental services available for whattobe real estate investors who don’t want the hassle and risk of fixing a property. 

A Blueprint for Young Investors

Anyone under the age of 30 can consider themselves a “young” investor. What steps should I young investor take to set themselves up for the future?

There are three steps each young person should take to retire with millions in the bank.

  1. Make sure your finances are ready to handle investments

Before you can invest your consumer debt should be manageable (meaning credit cards are paid off and there isn’t any significant amount of auto loan or student loans).

2. Set up a Roth IRA and begin automatic contributions

This shouldn’t take longer than 15-30 minutes. To set up bank connection with the brokerage account you need to wait a few days to verify the transfer. I chose to open my Roth IRA with M1Finance but you can set yours up with a number of others like vanguard, fidelity or Charles schwab.

3. Plan for big expenses like college, cars, house or first children

After setting up an automatic deposit of whatever you can afford each month, make sure to plan for major purchases coming up. A typical first house downpayment can range anything from a few thousand to $10k or even $20k.

These steps are only the beginning but for anyone who likes things simplified, this is a good place to start.

Keep in mind the advice contained in this blog is meant to be taken at the reader’s discernment. Talk to your financial planner to see how the advice may or may not apply to you. Ultimately you are fully responsible for you finances so make sure you have someone who is willing to walk with you on your journey.

Warren Buffet: How a Sixteen Year Old Turned $5,000 into almost $1B

Almost everyone has at some point heard of the famous figure Warren Buffet. However did you know that Warren’s success didn’t just start as an investor. Mr. Buffet actually began making strides towards his massive fortune in his high school years.

In high school he was making more than a lot of his teachers by running a pinball machine business and delivering papers. At the age of sixteen he had amassed five grand. $5,000 at his age would be the equivalent of around $60,000 today! He was just sixteen.

While most of us can’t redo our high school years, childhood or even college experience, we can chose to adapt many of the principles that Warren did in his younger years and implement them long term.

There are three things that we can use from Warren’s life to make changes today:

  1. Win Friends and Influence People

Warren implemented (not just read) this book. Simply reading it and taking daily action to change behavior and habits can go a long way in making your life a more successful one.

2. Understand the time value of money

Warren, even in his teen years, didn’t squander his cash on toys, games or nice clothes. He understood that a dollar today could be worth $30, $100 or (in his case) $1000 in the future.

3. Be entrepreneurial

This doesn’t mean you need to start a company or quit your day job. Just like Warren, you can figure out creative ways to make side money. If Warren Buffet at the ages of 13, 14 and 15 could figure out how to make side money, then you, as an adult can figure out how to do the same.


Warren Buffet is extraordinarily rich. I can’t tell you that you’ll be as rich as him. I can’t even guarantee that you’ll have $1M. But I can guarantee that you’ll grow as a person and become richer then you are now if you implement these three steps.

Try them, you may find that they actually work.

4 Common Investments and How to View Them

When it comes to investing, it can often feel like there is no clear way to make smart decisions. With the countless options and opinions the obvious path can seem far from clear.

Despite this confusion and complexity, the best way to deal with this is by simplifying the decision. The following is a list of four of the leading investment groups and how you should approach them.


When most people think of investing they think of stocks. Stocks are pieces of ownerships in a company that entitle you to the earnings, dividends and appreciation of the company. There are literally thousands of stocks in the U.S. and many thousands more around the world.

You can buy stocks by yourself through a brokerage account, or you can purchase a basket of stocks called a mutual fund. Mutual funds are either actively managed or passively managed to track an index.


Just as in purchasing stock, bond ownership involves handing money over to a company, agency or government entity. But this time, instead of receiving ownership you receive a right to assets. With a bond you are lending money with the expectation of receiving regular cash payments at a specified interest rate. At the end of the bond term you receive your money back.

You can buy corporate bonds, which are the riskiest, or you can buy agency bonds, or government bonds, which are clearly safer.


Instead of buying company ownerships (like with stocks) or lending (like with a bond) commodities are ownership of a physical resource. If you believed gold was undervalued  you could buy gold with the expectation of it going up in the future. This would be commodity trading.

The thing with commodity trading is that it tends to be more of a speculation game than an investment decision. While this doesn’t mean you should stay away from all commodities all together, it does mean you should be careful about how much you buy and sell this speculative option.


Stocks represent company ownership. Bonds represent lending. Commodities represent physical resource ownership. Derivatives, like all these things can be bought and sold on an exchange. However unlike all these assets, derivatives’ price isn’t based on an underlying asset or lending agreement, but rather is based on other financial assets and their behavior.

For example if you were to buy a put option on Apple (AAPL) you would have the right to sell AAPL at a certain price at an agreed upon time. So while you wouldn’t own apple directly, you would benefit from it’s fall in price and lose from it’s increase in price.


These four forms of investment are by no means a complete list of all your investment options. But they do represent possible options for you to consider with your financial planner. Make sure to talk with an investment advisor about the next steps.

Three Ways You can Make Side Money This Year

Most folks in the U.S. struggle with money. Whether that means they don’t know what to do, or they don’t have the discipline to do what they know. Whatever the reason, there’s no doubt that often an extra flow of income can help bridge the gap between making your goals and falling short.

The following are three ideas of ways you can make money this year and every year after:

Plasma Donation

This is often one of the toughest ways to make money, especially for those who faint a the sight of a needle. I know for me personally I used to literally walk out of movies that had needle-type medical scenes.

However this past winter I have been overcoming my fear and at the same time making decent money! I have made about $300 in the past month with limited time commitment as well as gaining confidence in myself. (Not to mention plasma donation is literally saving lives.)

I have found you can make about $40 to $45 per day on average for just an hour or two, depending on where you go and the bonuses they provide.

Online Ads

If you have a blog, youtube channel, or some other form of online website, you are able to add ads and make the site profitable. This obviously doesn’t happen over night. But given some time, you will be able to make some extra cash.

I have recently set up an Adsense account and am working on creating an extra income stream from writing.

Online Resale

If you’ve ever gone to a thrift store, or bought something on craigslist you know that it’s possible to buy online and resell for a profit. While there are no guarantees, it’s definitely possible to develop a niche and eventually make decent money with limited time commitment.


There are no clear answers to the income question. Ultimately income alone won’t improve your finances. Managing the money you have is a first step. But for many people extra income is a massive boost. For those people this might be the push that you need.

3 Things Young Adults can do to Prepare for Their Future

As millions of young adults enter the workforce, finish education, and begin a life of financial responsibility, there are many of us who have a lot of uncertainty for the future.

The following are three key things to anticipate for the future:

An Older, More Diverse Population

Let’s face it, as time progresses there will be more and more old folks in the economy. This isn’t necessarily a bad thing (after all, someday we’ll be those old folks), but this is just one more thing to anticipate in the future.

In addition, there will likely be more ethnical and gender diversity. More and more women will enter the workforce, as the population of African Americans, Hispanics and Asians increases in the U.S..

These are all positive changes. Not only will we be experiencing more diversity of creed, religion, nationality and ethnicity, but we will also be seeing more and more women in the workforce. This is all at a time when we are living longer and longer.

More Technology and Automation

Unless, in the unfortunate event the world enters WWIII, we will likely see continued progression of technology both in terms of software, like AI and automation and in terms of machines and physical advancement.

Key areas to keep and eye on are in the medical field, biotech, vehicle automation and AI. These massive changes will likely lead to an ever-evolving need for labor. Automation will likely destroy certain jobs forever, while technology will create new demand and new industries.

Potentially Higher Taxes

At this moment taxes are historically low. After the tax cut of 2018 there are many economists and financial advisors anticipating higher taxes in the future to cover our increasing deficit. While there is no crystal ball that can see the future, we do know that it’s unlikely for rates to stay this low forever.

That said, it would be prudent to plan for this by utilizing tax-advantaged accounts like Roth IRA’s and Roth 401K’s.


Preparing for the future doesn’t have to involve knowing all the details. While you don’t have to know everything, you should prepare for what’s likely to happen.

The advice contained in this blog is meant to be taken at the reader’s discernment. Talk to your financial planner to see how the advice may or may not apply to you. Ultimately you are fully responsible for your finances so make sure you have someone who is willing to walk with you on your journey.

Atomic Habits: What I Learned from James Clear’s Book

We all know habits are important – whether for our personal fitness or our finances. Yet nearly all of us acknowledge the fact that we don’t have the best habits for our personal development.

This book, which I read and reflected on the last two weeks, revealed just how important habits are. I took away many points – some of which I already knew and some of which were completely foreign.

In summary, I learned that habits are crucial for success. They form by a cue and often are formed in large part by our environment. Controlling your environment is a huge part of success. Making your habits Obvious, Attractive, Easy and Satisfying is what the book was really about.

One thing that really stood out to me was the fact that many of the most successful people got to where they are because of environment and habits. Good habits can come from accountability partners, from creating a good environment or simply working to create the obvious, attractive, easy and satisfying habits the author talks about.

I would highly recommend the book for anyone interested in habits or personal development.

Getting on the Grid: The Importance of Communication

We all like to think, especially here in the U.S., that we’re capable of doing nearly all of the things we set or minds to– and doing them well.

While it’s certainly true that almost anything we set our minds to can be done well, the reality is that we have to pick a few things to become great at. Everything else has to either be left in a mediocre/neutral/average state, delegated or abandoned.

While this might sound like a negative, pessimistic view, it’s actually the truth. There is only so much energy, time and resources in our limited life to do everything we set out to do.

With that in mind, we can understand that facilitating our strengths and weaknesses will ultimately determine our success in life. A big part of this is delegation and communication.

Communication, at it’s simplest level, is just transferring knowledge or feelings from one party to another. And the main way this happens is through connection–through authentic mutual understanding.

Your ability to connect, and therefore communicate, plays a massive role of where you’ll be in 20 years. Take time to focus on it, focus on your strengths, and focus on others.

Are Markets Efficient?

When investing your money you’ll hear many different forms of opinion. Experts like Dave Ramsey will tell you to invest in growth stock mutual funds, others will say that index funds are the way to go. Then there is a group of investors that says you can beat the market by buying “undervalued” stocks.

The question that arises is, is there such a thing as an undervalued stock, and if so, is there a reliable way to take advantage of this “market inefficiency”.

Your investment philosophy in stocks is largely dependent on your opinion on what’s called the Efficient Market Theory (EMT). This theory states that markets are fully efficient. In other words any given price in the markets reflects the cumulative “wisdom” of all investors actings logically on fundamental data regarding value.

Essentially the market, according to this theory, is always acting completely logically based on the current information. So at any given point the market isn’t overvalued or undervalued – it’s priced at the fair equilibrium price given the current information available.

Some practitioners and theorists have brought up concerns with the theory stating that it doesn’t accurately reflect the actual results we see in the real world. For example, in the tech “bubble” of 2000, were investors acting completely logically on the market’s information or was there inefficiency?

Ultimately you’ll have to make your own determination. At the moment there isn’t unanimous agreement by the community.