Investing

Precious metals rally as investors seek haven amid increased uncertainty

July 27, 2020 By Susan Paige Leave a Comment

The economic fallout caused by the COVID-19 pandemic has had a mixed impact on the commodities market, as safe-haven assets such as gold and other precious metals have rallied as investors seek to protect their portfolios from increased market volatility, while other commodities have slid amid increased uncertainty. [Read more…] about Precious metals rally as investors seek haven amid increased uncertainty

Here’s How RobinHood Is Changing How We Invest

July 23, 2020 By Kathryn Vercillo Leave a Comment

Robinhood has been struggling a little bit during the pandemic. Nevertheless, this is a tool that has done well for a lot of people. It’s changing the way that we invest. It’s making investing more accessible for a lot of people. Moreover, despite the problems, there are things about the investing platform that could offer benefits during and after COVID-19.

Robinhood Was Immediately Popular

Robinhood is a stock trading app. When it launched just five years ago, a lot of people in the industry failed to pay it immediate attention. Perhaps they thought, “oh, this is just another fintech app.” But the app ended up taking off like wildfire.

According to senior investing reporter John Divine, more than 100,000 people signed up for the Robinhood app in the first month after launch. By 2018, the app had more than four million users, surpassing E-Trade. There are now more than six million people using the site to trade stocks.

Biggest Change: Trading Doesn’t Have to Cost Fees

The number one way that Robinhood changed how we invest is through the elimination of trading costs. Commissions were common in the old days of trading stocks. Even in the 21st century, when stock trading went online, companies charged fees for trading. However, Robinhood has proven that a business model exists without trading costs.

Tracing the history of trading costs, Divine reports that a single trade would typically cost:

Hundreds of dollars until the early 1970s
$70 in the mid-late 1970s and into the 1980s
$20 or less in the 1990s
$5 – $8 in 2014 if you used the least costly online brokers

Robinhood changed everything by creating an app that allows you to trade stocks without paying a per-trade fee. Others in the industry took notice when Robinhood began to succeed. Existing brokers eliminated their own trading fees. New apps popped up offering no-fee trading. But that wasn’t all that Robinhood brought to the table.

Robinhood Adds a Social Aspect to Trading

The other big thing that Robinhood did differently was to combine stock trading – normally a solo experience – with the popularity of social media and social networking. As a Robinhood trader, you could invite others to use your link or personal code to sign up for an account. In return, you yourself would get a free stock. This was certainly part of the reason that Robinhood grew so fast; the company used the power of social media and incentivized referrals to grow the business.

Other Things Robinhood Got Right

Here are some of the other game changers that Robinhood has gotten right:

No account minimums, which means that stock trading becomes very accessible for many more people
Penny stocks, which have been popular for investing during the coronavirus pandemic; while this isn’t a game-changer per se, they’ve really gained attention for how well they’ve implemented them into their platform
“Cryptotrading and margin buying” (according to John Divine) who also importantly points out that all of this makes investing “frictionless, cheap and accessible.”

Robinhood: The Downside

Robinhood has been particularly controversial lately after a young investor died by suicide reportedly following a glitch in the system that caused him to think he lost hundreds of thousands of dollars. Although that’s an extreme example, it reflects a potential downside to Robinhood’s innovation and popularity. That downside is that the app is particularly popular with very young investors who often don’t know what they’re doing and sometimes this does lead to actual large losses.

The New York Times shares the sad tale of someone who took out credit card loans to fund his Robinhood account and ended up deep in debt. They say:

“one-click trading, easy access to complex investment products, and features like falling confetti and emoji-filled phone notifications that made it feel like a game.”

That gamification that makes the app so fun and easy can also be misleading. Some users might not feel like they’re spending real money. As a result, they can make terrible life decisions as exemplified in this article. The article argues that Robinhood’s approach, which relies heavily on that social media and gaming feeling of the app, leads people to make the riskiest investments and to do so more quickly than on other platforms.

Where Will Robinhood Go From Here?

That said, online trading and investing via app is probably here to stay, with or without Robinhood. These mistakes might just be part of the learning curve. Young investors may be more prone to risk-taking anyway, and Robinhood just makes it easier to do. Will the app continue to use push notifications and other tools drawn from the world of social media to encourage activity from investors? Only time will tell.

John Divine predicts that things could go one of two ways for Robinhood. One path is that the bigger companies that have been around longer are going to end up surviving by adapting Robinhood’s tools to their own. Investing businesses have already started eliminating their fees in response to Robinhood’s success. All other things being equal, people might opt to invest with the company that’s been around longer rather than the “new kid on the block” especially in the wake of controversy.

On the other hand, Robinhood might continue to innovate. If they can do that, then they might be able to continue to outshine and outpace the older companies in the world of investing. Of course, simply eliminating trading fees won’t move the needle in the future. That changed the game. It changed the industry. It changed our expectations of investing. However, as more and more companies take that approach, Robinhood doesn’t stand out for it as much.

Their niche might be in pushing forward with the tech aspect of fintech. They might do best to keep pushing the envelope with social media aspects of investing. But whether or not that’s the route that they will go, and if they’ll succeed should they choose to do so, will be up to the test of time.

Do you use Robinhood to invest? What’s your favorite part of it? What do you think that they could do better?

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ETFs Can Help You Recession-Proof Your Retirement Savings – Here’s How

July 21, 2020 By Amanda Blankenship Leave a Comment

Amid the COVID-19 pandemic and what seems like a million other things, we are entering the beginning of what is likely to be an ugly recession. Thankfully, there are a few things you can do to safeguard your finances in the event of another economic collapse. Here is a look at how to recession-proof your retirement savings.

Yes, A Recession is Coming

Personal finance expert Suze Orman has warned that the financial situation in America is about to get significantly worse. Although the coronavirus pandemic is still a large issue in the United States, many of the relief programs put in place to help individuals impacted are coming to an end. The expiring programs include:

Eviction and foreclosure protection
$600 unemployment checks
Student loan forbearance

These things together add up to be more harmful than The Great Recession of 2008. “We have a perfect storm coming right now,” said Orman. “You have all these things happening at once.”

Orman’s biggest piece of advice at this point in time is to stack away as much cash as you can into an emergency fund. However, many Americans are left wondering about what they should do when it comes to investing in and protecting their retirement savings.

How Index ETFs Recession-Proof Your Retirement

Three words: Exchanged Traded Funds (ETFs for short).

ETFs are one of the best ways to help you recession-proof your retirement portfolio. Index ETFs specifically allow you to track indexes like Dow Jones or the S&P. While you cannot invest in an index directly, you can invest in an index ETF. This means you are investing in all the companies within the Dow Jones (or your chosen index).

You can also invest in ETFs that focus solely on one type of business. For instance, there are tech ETFs that allow you to invest in a variety of tech companies at once. There are ETFs for beauty, pet-care brand, energy, retail, you name it!

Because ETFs are typically a good gauge of the market as a whole, your investments will follow the market trends. You may be thinking, “Well, if we are about to go into a recession, why would I want that?”

Well, the truth is, the stock market will likely bounce back and, with it, so will your retirement savings. Even if your ETF investments take a hit at first, they will also grow exponentially when the market starts to climb again. And, unlike investing in specific companies, it isn’t likely it will ever completely tank and you won’t lose everything.

Top-Performing ETFs Last Week

ETFs are good investments for most people because, as mentioned above, they typically bounce back with the market. They also provide diversification in your investment portfolio without any additional effort. This year, due to the pandemic, the types of ETFs that are performing well have been altered slightly.

Tech stocks and ETFs have been the standout star performers on the market in 2020. This is because many people are practicing social distancing and staying at home, which means more online shopping and technology use. Other ETFs that seem to be performing well are…

Biotech ETFs (specifically those looking in COVID treatments and testing)
Cannabis ETFs
Energy ETFs
Healthcare ETFs

If you are interested in learning more about ETFs and how index ETFs can help recession-proof your retirement, consider signing up for The Motley Fool Stock Advisor.

Benefits of Saving Using the Investing Rule of 72

July 9, 2020 By Kathryn Vercillo Leave a Comment

There are many different tools, techniques, and tips that can assist you in improving savings and investments. One popular one that you might want to check out is the Investing Rule of 72. Using just a little bit of simple math, you can figure out how long it will take you to double your investment.

What is the Investing Rule of 72?

The Investing Rule of 72 is a quick-and-easy way to figure out how many years it will take to double an investment you have made.

For example, let’s say that you invest $2000 into a fixed-rate CD. You want to know how long it will take to double it up to $4000. That information might even help you decide the length of CD you want to choose.

The investing rule of 72 will provide you with the answer. It will tell you, based on your annual rate of return, how long it will take to double your investment.

Investing Rule of 72: The Math

All that you need to know in order to use the investing rule of 72 is what your annual interest rate (rate of return is). Of course, it’s also helpful to know how much you are investing, since that’s what gives you the number that you’ll have in the bank at the end of the investment period.

Then you just do this math: Divide the number 72 by the interest rate. The answer is how many years it will take to double your investment.

Use this personal finance calculator to do the math for you.

How Long Does It Take to Double an Investment?

Obviously 72 divided by 1 is 72, so let’s first use that as an example. If you invest a specific amount at a meager 1% interest rate, then it will take 72 years to double that amount. Therefore, if you invested $10000 at 1% then in 72 years you would have $20000 in that account.

Of course, nobody wants to wait 72 years to double their investment. So, let’s say that you’re able to find a terrific savings account that gives you 10% interest. 72 divided by 10 is 7.2. Therefore, it would take just over seven years to double your investment. If you invested $10000 at 10% then in just over 7 years, you’ll have $20000 in that account.

How to Use the Investing Rule of 72 to Improve Savings

This is simply a tool to help you better understand your money. Interest rates can get confusing. Therefore, you might not exactly understand how much money you can expect in the future when you invest in various savings accounts today. This tool increases that understanding. The more you understand your money, the better the decisions that you can make.

So, obviously, you’ve always known that you would rather have 10% interest than 1% interest on your investments. But now you understand what this means in terms of actual numbers and the length of time it takes to double your money. Doubling your money is a tangible goal that you can readily understand.

Therefore, you can use this information to make plans for your finances. If you know that you want to have X amount of money in Y years then you can figure out how much you have to invest and what interest rate you would require in order to meet that goal.

For example, let’s say that you know you want to have $40000 saved for your child’s college education. They will be going to college in ten years. You currently have $20000. Therefore, you need to double your investment in ten years. Do the math to figure out what interest rate you need to make that happen. (72 divided by 10 is 7.2; therefore, you need at least 7.2% rate of return to double your money in ten years.)

Use the Investing Rule of 72 to Understand Debt

As CNBC points out, you can also use this formula to figure out how much money your lenders are making off of you. In other words, you can enter your credit card’s interest rate into the math for the investing rule of 72 to find out how fast they’ve doubled your money and put it into their pockets.

For example, if you have a credit card balance with a 10% interest rate, we already know that’s going to double in about seven years. Of course, there are variable interest rates to consider. Moreover, as you pay down your debt, the numbers will change. But the investing rule of 72 gives you good insight into how fast they’ll be taking your money if you only make the minimum payment.

How does this help you? More than anything else, it offers incentive. If you realize that the credit card company is going to double your money (straight into their coffers) in seven years, it might remind you that you don’t want that to happen. You want that money in your pocket. While you always know that, it becomes more tangible when you think about how few years it takes to double your losses. This can help you resist impulse buys and pay down that debt.

It can also help you think twice about purchases. After all, if you realize that the $1000 you’re spending at 20% interest rate will become $2000 in less than four years, then you might think twice about spending that money at all. If you’re really smart, you’ll put that money into savings and let it grow for you instead of against you!

Is the Investing Rule of 72 Accurate?

The Investing Rule of72 isn’t exact. However, it gives you a fairly accurate number. It is particularly accurate with interest rates between 7% and 9%. Rates that are lower or higher vary a little bit.

For example, with an interest rate of 2% it takes you 35 years to double your investment, although the investing rule of 72 will tell you that it takes 36 years.

Similarly, with an interest rate of 25% it takes you 3.11 years to double your investment, although the investing rule of 72 will tell you that it takes 2.9 years.

So, there are some slight inaccuracies when using this tool. That said, if you’re using it for planning and incentive towards saving then it’s accurate enough to meet your needs.

Here’s What You Should Know About Nikola Stock

July 8, 2020 By Tamila McDonald Leave a Comment

Nikola – the second alternative energy vehicle company to enter the mainstream named after inventor Nikola Tesla – began making waves early this year. Investors believe that the company is worth adding to their portfolio. The stock has had several jumps since trading began on June 4. However, many people aren’t overly familiar with Nikola stock. Nor are they aware of the company as a whole. If you’re considering investing. Here’s what you should know about Nikola stock.

Nikola’s Offerings

Founded in 2015, Nikola focuses on the production of alternative energy vehicles. mainly zero-emission hydrogen-powered trucks. These range from pickups to semis. The potential impact on the transportation sector is significant. There are also possible positive effects on the environment due to a reduction in carbon emissions.

Initially, three trucks were developed. Two of the trucks were intended for potential mass production within the United States and European markets. However, the company did branch out. They added battery-powered variants to its lineup.

The Hydrogen Fuel Battle

By and large, hydrogen-fueled vehicles didn’t appeal to the masses when it came to passenger vehicles. There was very little headway when it came to adding fuel stations, for example. While electric vehicle charging stations were also an uphill battle. More progress was ultimately made in that arena.

But Nikola feels that hydrogen power makes sense. at least from a commercial perspective. By focusing on main trade routes, refueling stations could be placed strategically. The company also believes that for long-haul trucking, it’s superior to battery version due to faster refueling times. Plus, battery packs are heavy. The added weight harms a battery-powered truck’s efficiency.

Existing Deals and Projections

Nikola has already received some sizeable orders for their vehicles. For instance, in 2018, Anheuser-Busch requested hundreds of alternative energy trucks. The company also partnered with Nel to get fueling stations in place. Bosch is working with Nikola to develop truck parts.

Last year, Nikola and European truck manufacturer Iveco settled on a joint venture. This move added more fuel to the fire. By next year, Nikola expects to have at least 600 trucks delivered. They also have a plan for doubling output for the next few years following.

By 2024, Nikola expects revenue numbers near $3.2 billion. That’s based on selling 7,000 battery-powered and 5,000 hydrogen-fueled trucks.

Nikola Stock Prices

Nikola (NKLA) hasn’t been available for long. But it’s already made some headway. After starting with a price in the mid-$30s, the stock’s value jumped. It crossed the $83 mark at one point. Although, it has mainly been drifting between the upper $50s and low $70s.

When the company received its first rating in mid-June. It was quickly labeled a buy. However, the company isn’t expected to make any money during the upcoming year. Many of its truck designs are still in the prototype phase. This includes the newly hyped Badger pickup.

But many believe the company has a significant amount of potential. Particularly since it plans on tapping the transportation, consumer vehicle, and even Powersports markets.

New Ventures Come With Risk

As with all new ventures, there is a risk involved. It isn’t clear whether Nikola will meet its targets. Particularly those associated with production and presales on the consumer vehicle end. This is especially true while the COVID-19 pandemic is still in play. An event that’s created financial hardships for many and put limits on production facilities, group gatherings, and more.

Plus, it’s hard to determine what a reasonable price for Nikola stock looks like. As the company seemed to enter the market at a smart point and may have already reached an ideal zone in the eyes of investors. At least at this stage.

Ultimately, Nikola stock is fairly new. So there isn’t much history to review to figure out whether it’s a wise buy. But, for investors who have faith in alternative fuels or enjoy green investments. It’s worth keeping on the table. If the company can live up to the hype (and its projections). It could be, as some experts put it, “the next Tesla.” However, there is no guarantee. So risk-averse investors may be better served heading in a different direction.

Is there anything else people should know about Nikola stock? Share your thoughts in the comments below.

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5 Tips on How to Short a Stock

June 30, 2020 By Trey LaRocca Leave a Comment

The market has been extremely volatile as of late. As a result, there are many people making ridiculous amounts of money day trading. Day trading, or shorting a stock, is essentially the act of buying and selling a stock in a very short amount of time. This sort of trading is high-risk and is more akin to gambling than investing.

That being said, it can make for much quicker gains than other types of stock trading. The issue is, it doesn’t take very long to lose a lot of money. This is due to the types of stocks people short. To make sure you don’t fall into some major losses, we have a few things you should know. Here is how to short a stock:

Set a Conservative Goal

If you are trying to keep yourself as safe as possible, it is important to set a goal for your gains from the outset. When buying a stock, decide on a percentage gain you are looking to make from it. Once you have chosen this percentage, stick to it. If and when the value of the shares you purchased reaches that goal, sell immediately. Don’t hang on and try to wring extra money out of it, as this is the way that people most often experience losses. On low-value stocks that people like to short, it takes only a few seconds for values to drop astronomically. So, if you are looking to make 5 percent, sell at 5 percent. Most people consider 5 percent gains a good goal for the year. Don’t lose money trying to beat it in a single day.

Set a Stop-Loss Around 1-2 percent

Due to the volatility of shorted stocks, it is important to use technology to your advantage. Most brokerage apps allow you to set a “stop-loss”. Stop losses are values at which your brokerage will automatically sell your shares. These make sure that you don’t look away from your phone and lose 10 percent of your portfolio. For most casual day-traders, you are betting almost your whole brokerage account on each trade. So, set a stop loss of only one or two percent of the current value of the shares when you buy them, and you will ensure that your losses never get worse than 1-2 percent. this will lose you a lot of shares, and you may miss out on a few upswings, but the security is worth it.

Only Short 3 Times Per Week

This one has less to do with strategy, and more to do with the statute. In the United States, you will usually be marked as a “Pattern Day-Trader” if you buy and sell four or more times in a rolling five business-day period. Once you are flagged under these PDT rules, you are required to have $25,000 in your brokerage account to short a stock again. This is obviously an instant disqualifier for many, and so we recommend you keep it to 3 each week.

Join a Group

There are many day trading communities out there. Many of them use live chats to call out what stocks are looking good, which are most volatile (which leads to the fastest gains), and when certain stocks are spiking or falling. This can all be extremely helpful information and can maximize both your gains and your security when shorting stocks. Information is king in the stock-shorting game, and joining a community with a live chat like this is a great way to maximize your information.

Don’t Short a Stock

My best piece of advice for most people who want to short a stock is simple: Don’t. Why do I tell most people not to short stocks? Because most people lose money shorting stocks. In fact, according to the stock trading firm eToro, 80 percent of people lose money doing it. Unless you are going to be as safe as possible, follow this advice exactly. Don’t get involved in day trading. I’ve written another article regarding your personal ability to become a day-trader, even casually. It all comes down to discipline and the effects of a loss on your life. Make a smart decision, and be responsible.