Tag: ETF Investing 2021

Real Estate ETFs React To Rising Mortgage Rates - Part 1

Posted on by Chris Vermeulen

US Mortgage Rates have risen from levels near 2% to 2.25% earlier in 2021 to levels now above 3%. This increase in the cost of borrowing money for home purchases has a downward effect on home prices and sales. The affordability of homes is directly related to the sales price and the cost of the mortgage to secure the purchase of the home. As interest rates rise, home affordability becomes less attractive and feasible for many potential buyers, and home prices start to fall in an attempt to allow a quicker sale.

The Making of Another US/Global Housing Crisis

The easiest way to think about this is to consider the ability of buyers to secure and satisfy mortgage payments for homes. The more expensive the sales price of the home and the interest rate of the loan is, the more likely the affordability of the home is going to be perceived as undesirable.

As concerns related to the US economy, and the indication by the US Federal Reserve that rates will likely start to increase before the end of 2021 or very early in 2022, mortgage rates have already increased by nearly 45% over the past 60 days. A $500k home would have cost about $2500 a month at a 2.25% mortgage rate (including property taxes, homeowners insurance, mortgage insurance, and principal & interest). That same $500k home costs more than $2700 a month at a 3.25% interest rate (including all fees and costs).

US Interest Rate Chart - Home Buying

Over the lifetime of the loan, the total costs of buying the $500k home have now increased by more than $70k for the buyer. If rates rise to 4.25%, the new monthly cost of that same $500k home rises to nearly $3000 per month. Raising the total cost of buying that $500k home by more than $180k over the lifetime of the loan for the new buyer. Continue reading "Real Estate ETFs React To Rising Mortgage Rates - Part 1" →

U.S. Default Could Be A Disaster

Posted on by Matt Thalman

On September 30th, the United States Congress sent a bill to President Biden's desk to avoid a government shutdown, at least until December 3rd. In the past, when the government has shut down or come close to a shutdown, similar to what just happened, we have seen market turmoil caused by the uncertainty surrounding the situation. However, even with that uncertainty removed temporarily until December 3rd, the markets may not have much breathing room since lawmakers still need to raise or suspend the debt ceiling before October 18th.

If the politicians in Washington can't agree on the debt ceiling, the U.S. could default on U.S. debt, something that most market participants believe would be "disastrous." However, the United States has never in its history defaulted on government debt. So, we honestly do not know what would happen if it were to happen. But, since U.S. Treasury bonds are widely considered "zero" risk and used as a benchmark or starting point to determine the risk of other alternative investment options if the government did indeed default, it would send shock waves throughout the market as other assets would need to be repriced based on their risk level when compared to U.S. Treasury bonds.

The uncertainty which would follow and potentially dramatic rise in interest rates across the board could and very likely would send the U.S. economy into a tailspin with the stock market falling and potentially a rise in unemployment. Some even believe that government spending in the forms of social security payments and bills owed to contractors would be suspended for a period of time while the U.S. Treasury determines what to pay and what not to pay. This would obviously hurt the overall economy as potentially millions of Americans would not receive social security checks and or paychecks if they work for a government contractor. Continue reading "U.S. Default Could Be A Disaster" →

New ETF To Play Bitcoin And Cryptocurrency Market

Posted on by Matt Thalman

Just as Bitcoin and the cryptocurrency markets are once again heating up and hitting new highs, a new ETF opened up, which offers investors another way to play the industry. The Viridi Cleaner Energy Crypto-Mining & Semiconductor ETF (RIGZ) is a very interesting ETF that just launched on July 20th, 2021 and offers investors a sort of backdoor play into the cryptocurrency world, without fully relying on cryptocurrencies increasing in value in order to realize a decent return.

RIGZ offers investors the ability to invest in cryptocurrency and semiconductor firms located in developed countries that focus on clean energy and environmental sustainability. The cryptocurrency firms that RIGZ invests in are crypto-miners.

These crypto-miners also are the ones that have reportedly switched to "cleaner" energy sources than what other miners or miners in the past have been accused of using. As you may know, mining for cryptocurrency is, in most cases, a very energy-demanding operation. The amount of electricity the mining rigs (The main components of any crypto-mining rig are power supply, a motherboard, an operating system to run on your motherboard, computer memory, and a graphics processing unit) need has been estimated by the Bitcoin Energy Consumption Index at one Bitcoin transaction takes 1,544 kWh to complete, or the equivalent of roughly 53 days of power for the average US household.

So, if a miner is using clean energy, that is advantageous to the environment and potentially could even make the company more profitable, especially if the company is producing some of the energy themselves with the use of solar panels or small wind-powered turbines. Continue reading "New ETF To Play Bitcoin And Cryptocurrency Market" →

Using ETFs To Help You Cherry Pick Stocks

Posted on by Matt Thalman

Cathie Woods and her ARK Invest group of funds are changing the way investors look at Exchange Traded Funds in a number of ways. Whether it's from the standpoint of high-performing funds or innovative investment strategies that are looking years or even decades down the road, what Cathie and her team are doing is extraordinary. But what may be the biggest and most important innovation ARK is bringing to the investment community is the transparency her funds have shown investors.

ARK Invest gives investors the stocks they are buying. Well, every fund does that. But what ARK does, is they give you their stock buys and sells on a daily basis. Yes daily.

Furthermore, they tell you the exact amount of shares they bought or sold, the amount of money they spent (which allows you to determine the average cost), and which one of the ARK funds the shares were bought or sold in.

This is a big change from the way most funds operate, in which they post quarterly or monthly their holding list, number of shares, and percent that the company makes up in the fund based on assets under management.

While what Cathie and ARK are doing is ideal, investors can still use the information other funds provide in order to ‘cherry pick’ stocks in certain industry’s that they believe will do better than others. While this idea may not be for all investors, it is something that investors who prefer to buy individual equities, as opposed to going down the ‘fund’ route, can still use ETFs and other funds to their advantage, without ever owning them. Continue reading "Using ETFs To Help You Cherry Pick Stocks" →

Owning Berkshire Is Like Owning An ETF

Posted on by Matt Thalman

Over the past 10 years, the ETF market has exploded and changed the way most investors invest. The ability to find a fund that focuses on specialized niche markets or just plow money into a major index fund has never been easier or more accessible to the average investor.

In the past, investors would have to have minimum amounts of money invested in a mutual fund, and the liquidity of those funds was very limited. Thus, it is difficult to get into and out of if and when you need the cash. But ETFs have changed all of that. No minimum amounts, no liquidity problems, and not to mention the very low fees, typically much, much lower than what you will find with a traditional mutual fund.

However, one equity that investors have been able to buy for years and decades has essentially offered, and still does, investors everything a large index ETF offers, but with even lower fees. That stock is Berkshire Hathaway (BRK-A, BRK-B). The stock that the famed investor, Warren Buffett, owns and stills runs to this day, despite being 91 years old.

Due to its large swath of companies, it owns Berkshire outright, and its investment portfolio is essentially a large index ETF, except you don’t have to pay fees. Berkshire’s current equity portfolio consists of 44.5% in technology companies, 30.3% in Financials, 12.7% in consumer staples, 4.7% in consumer discretionary, and 3.3% in telecommunications. Its largest holding is Apple at $120 billion, representing about 1/6th of Berkshire’s total market cap. But is still smaller than the companies most recent cash pile of $144 billion.

Most ETFs wouldn’t be permitted to have such a large cash pile, but Berkshire is because it's not an ETF. This cash allows the company to make deals and buy stocks when prices are primed and juicy. This has allowed Buffett and company to take advantage of some serious market miss pricing. In addition, it gave the company the ability to make very favorable deals during the financial crisis when companies were in dire need of cash. Other investors didn’t have the means or funds available, but Buffett did, and it paid off big time.

While most investors don’t think about the low fees index ETFs charge these days (and honestly, most of the big S&P 500 index ETFs have fees so low, they don’t really matter), the fact remains that once you buy BRK-B or BRK-A, if you have $425,000 lying around, you don’t pay any expenses as long as you own the stock.

Unfortunately, though Berkshire doesn’t pay a dividend, the company doesn’t give you an idea of what it will invest in, unlike most ETFs. ETF managers are typically required to adhere to the ‘fund invest prospectus,’ which spells out the goals and investment strategy of the fund. Essentially telling investors what industries and types of companies it will be investing in. With Berkshire, you buy and are signing up to allow Warren and his team to drive you down whatever road they decide to go on.

With that being said, Buffett’s track record has proven to be better, actually much better than fund managers track records over the course of not just a few years, but decades. Moreover, Buffett doesn’t have to adhere to certain rules and can buy companies whole; he has an advantage that fund managers don’t.

However, Warren did recently turn 91 years old. And his longtime partner Charlie Munger is 97. So, it's easy to make the argument that Berkshire may not be the same company in the future as it has been in the past, simply due to Warren’s and Charlie’s age. However, investors have been concerned about this for years, and Warren and Charlie are confidently handing the reins over to Todd Combs and Ted Weschler, who have proven themselves over the last few years as investors who may someday rival their two predecessors.

ETFs are great, and most investors should own them over trying to cherry-pick stocks. However, if you are a stock cherry picker or strictly a fund investor, you should still consider Berkshire as an investment since it's sort of the best of both worlds.

Matt Thalman
INO.com Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor Thalman owns shares of Berkshire Hathaway and Apple at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.