Wishing you a safe and joyous holiday season. I hope that your resilience, hard work, and optimism pays off even more in the new year. We made some ornaments and characters out of salt dough today… I call this piece “Tired Snowdaddy and his three little snowgies”. (Posting will be light for while.)
Here’s another caffeine promo from Dunkin Donuts: Buy $30 worth of Dunkin gift cards, get $10 in promo gift cards. There is a banner at the top and you must use buy via this specific page, but you can use any credit card. You can buy physical gift cards with free USPS First Class shipping, but the free promo gift cards are digital-only. You can also explicitly buy it for yourself. Here is the fine print:
Minimum purchase of $30 in total Dunkin’ Gift Cards during one transaction on www.giftcards.dunkindonuts.com only. Limit 1 promo card per customer from now until 12/24/20 or while supplies lasts. Promo card value expires on 1/31/21.
Here’s a simple Starbucks promo that expires soon: Buy a $20+ Starbucks eGift, Get a $5 Starbucks eGift Card. You should be able to see a banner on the front page of your Starbucks app, but the terms say you can order via Starbucks.com too. Surprise a friend or just give yourself the wonderful gift of caffeine. 🙂 If you’re interested I’d take advantage of this offer as soon as possible. Offer for 12/23 only. They usually take down the banner if the promo ends.
The Promotion is valid only on 12/23/20 beginning at 06:00 AM PST and ending the earlier of 11:59 PM PST) or when all 100,000 Promotional Gifts are distributed.
Although I avoid daily stock market quotes, I have been reading Jeremy Grantham’s quarterly letters and the GMO 7-Year Asset Class Return Forecasts for over 10 years now. These projections are based on their proprietary models, with a strong focus on historical valuation. Each year, I can now compare their current forward-looking forecast against how their past forecasts have turned out. Here’s the GMO forecast looking forward as of November 2020:
Here was their forecast back in July 2013:
Using the S&P 500 as US Large Cap, we see that the forecast of -2.1% annualized real return was quite far off. ETFReplay shows that both the IVV and VOO S&P 500 ETFs returned +117% between July 30, 2013 to July 30, 2020. That is an annualized return of 11.7%. SmartAsset shows annual inflation ran 1.8% during that time. That results in a 7-year annualized real (inflation-adjusted) return of 9.9% between July 2013 and July 2020.
One takeaway here is that making investment moves (market timing) based on valuation can be quite unreliable and painful. If you’re out of the market and get it wrong, when do you go back in? You’ll have to swallow your pride and admit a mistake. In my experience, it is simply easier to do nothing than to jump in and out. Instead, I use these forecasts to help me remain a buy-hold-and-rebalance investor. Here’s how:
Update: My apologies, Google is changing up the details of these promotions on everyone rather quickly. The referral bonus looks to be decreased and the Target promo is no longer taking new activations. Please assume this post is outdated and go by whatever you see on their website and in-app.
Original (outdated) post:
The newly-redesigned Google Pay app is offering several different incentives for you to try it out. It as available on both Android and Apple iOS devices. First up, if you join via a referral link (open on smartphone), you can get a $21 bonus after you either send $10 to a new friend or pay via a contactless NFC-enabled Android phone. That’s my referral link, but you could next refer another friend and then simply agree to send $10 to each other.
Download the new Google Pay app with my invite link – we’ll both earn $21 when you make your first qualifying payment of $10 or more. While supplies last!
$21 cashback at Target when you make a qualifying $50 transaction at Target or Target.com. As long as you enroll your credit card in Google Pay Rewards first, you don’t even need to pay with Google Pay. You can just pay normally with your linked credit card. It also appears a Target gift card purchase works, so that’s another $21 back on a $50 gift card without changing your spending habits if you already shop at Target.
$30 cash back on Walmart+ annual plan subscription. Walmart+ is the new direct competitor with Amazon Prime, including the free next day and 2-day shipping with no minimum and free grocery deliveries with $35 minimum.
Here are some other deals that caught my eye:
A couple more screenshots:
Paul Merriman is a long-time financial advisor known for his “Ultimate Buy-and-Hold Portfolio” that utilized a more complex 10-fund version of a low-cost index fund portfolio. Although now retired from advising, he continues to add new content to his website for the Merriman Financial Education Foundation that is geared more towards to DIY investors.
He has published a new book called We’re Talking Millions!: 12 Simple Ways to Supercharge Your Retirement by himself and co-author Richard Buck. For a very limited-time, you can download this book in PDF format for free. I would recommend downloading it now and saving it to read later. I haven’t read it yet, but a quick skim shows that it appears to be a condensed version of everything on his site.
This book is designed to show you how you can change your life by making a handful of smart choices. It’s a recipe for potentially accumulating millions of dollars you can spend in retirement and leave to your heirs. […] But one thing is new: an action plan that applies them in a single solution that can be carried out easily by just about anybody who has a job. We call this plan Two Funds for Life.
Much of the 12 steps are based on common personal-finance advice, and they are still good advice. But if you’re looking for what Merriman offers that is different, that’s the “Two Funds for Life”. It appears that Merriman is still a strong believer in the future outperformance of small-cap value stocks. Here are the bare basics:
The basic Two Funds for Life recommendation for your 401(k) plan is pretty simple:
• Multiply your age by 1.5.
• Use the result as the percentage of your portfolio that should be in a target-date retirement fund. The rest goes into a small company value fund.
• As you get older, rebalance these two funds periodically, ideally once a year, based on your age at the time. This will gradually reduce your small-company value exposure.
Based on this formula, a 30 year-old today would hold 55% of their portfolio in a low-cost US Small-Cap Value index fund and 45% in a Vanguard Target 2055 Retirement Fund (assuming retirement at age 65). The Small-Cap Value percentage decreases each year by 1.5%. By the time they are 65 years-old, they would effectively transitioned to 100% Vanguard Target Retirement (Income) fund.
I appreciate the simplicity as this is much easier than juggling 10 funds yourself (Merriman also recommends M1 Finance to manage your DIY portfolio automatically). Still, 55% is a lot to hold in Small Value and you will definitely want to have read enough about company size and value factor investing and have faith in the fundamental reasons behind this approach before implementing this plan. I’m sure the book will contain his supporting evidence, but you should read about all the drawbacks as well before making the final decision. I own a small-cap value fund myself, and you must accept that small value stocks have gone through very long periods of underperformance relative to the S&P 500.
Here’s my monthly roundup of the best interest rates on cash for December 2020, roughly sorted from shortest to longest maturities. I track these rates because I keep 12 months of expenses as a cash cushion and there are many lesser-known opportunities to improve your yield while still being FDIC-insured or equivalent. Check out my Ultimate Rate-Chaser Calculator to see how much extra interest you’d earn by moving money between accounts. Rates listed are available to everyone nationwide. Rates checked as of 12/10/2020.
Fintech accounts
In the currently low-interest rate environment, individual investors can get higher-than-market rates by moving their money into fintech accounts that are trying to achieve high short-term growth through a combination of lower cost structure and venture capital. I will define “fintech” as an app software layer on top of a different bank’s FDIC insurance backbone. You should read about the story of the Beam app for potential pitfalls and best practices. Below are some current options with decent balance limits:
High-yield savings accounts
While the huge megabanks pay essentially no interest, it’s easy to open a new “piggy-back” savings account and simply move some funds over from your existing checking account. The interest rates on savings accounts can drop at any time, so I list the top rates as well as competitive rates from banks with a history of competitive rates. Some banks will bait you with a temporary top rate and then lower the rates in the hopes that you are too lazy to leave.
Short-term guaranteed rates (1 year and under)
A common question is what to do with a big pile of cash that you’re waiting to deploy shortly (just sold your house, just sold your business, legal settlement, inheritance). My usual advice is to keep things simple and take your time. If not a savings account, then put it in a flexible short-term CD under the FDIC limits until you have a plan.
Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, beware that many brokers pay out very little interest on their default cash sweep funds (and keep the difference for themselves). The following money market and ultra-short bond funds are NOT FDIC-insured and thus come with a possibility of principal loss, but may be a good option if you have idle cash and cheap/free commissions.
Treasury Bills and Ultra-short Treasury ETFs
Another option is to buy individual Treasury bills which come in a variety of maturities from 4-weeks to 52-weeks. You can also invest in ETFs that hold a rotating basket of short-term Treasury Bills for you, while charging a small management fee for doing so. T-bill interest is exempt from state and local income taxes. Right now, this section isn’t very interesting as T-Bills are yielding close to zero!
US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. If you redeem them within 5 years there is a penalty of the last 3 months of interest. The annual purchase limit is $10,000 per Social Security Number, available online at TreasuryDirect.gov. You can also buy an additional $5,000 in paper I bonds using your tax refund with IRS Form 8888.
Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with exceptionally high interest rates. The negatives are that balances are severely capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). Some folks don’t mind the extra work and attention required, while others do. There is a long list of previous offers that have already disappeared with little notice. I don’t personally recommend nor use any of these anymore.
Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with unique risks. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Some folks don’t mind the extra work and attention required, while others do. Rates can also drop to near-zero quickly, leaving a “bait-and-switch” feeling. If you want rates above 2% APY, this is close to the only game in town.
Certificates of deposit (greater than 1 year)
CDs offer higher rates, but come with an early withdrawal penalty. By finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider building a CD ladder of different maturity lengths (ex. 1/2/3/4/5-years) such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account. When one CD matures, use that money to buy another 5-year CD to keep the ladder going. Some CDs also offer “add-ons” where you can deposit more funds if rates drop.
Longer-term Instruments
I’d use these with caution due to increased interest rate risk, but I still track them to see the rest of the current yield curve.
All rates were checked as of 12/10/2020.
I’ve invested over $50,000 of my “alternative” money into PeerStreet real estate notes because of the ability to diversify into 50+ different high-interest loans backed by physical real estate. Here is a case study shared by a helpful reader about a “disaster” loan with multiple bad factors – bankrupt building owner, bankrupt tenant, a charitable donation, poorly-aligned incentives, COVID-19 pandemic, civil unrest, and forced selling. You can find additional case study links and the most recent update to my overall portfolio performance in my Peerstreet review.
Initial investment details.
Timeline.
How did a $3.6 million loan backed by a building that was appraised for $7.8 million in 2018 end up only giving back investors $580,000 less than two years later? How did a loan with a supposedly 60% loan-to-value ratio end up paying back only 18 cents on the dollar? After reading all the screenshots and documentation provided along with some poking around online, here’s what happened in the background.
A wealthy couple donates what might be the most prestigious commercial address in downtown Springfield, Ohio. The address is literally “1 Main Street.” Look at the building entrance from Google Maps Streetview. The lucky nonprofit recipient immediately agrees to sell it to EF Hutton, which renames it EF Hutton Tower. The nonprofit is happy, but they are on a payment plan and also get paid partially in EF Hutton stock. (Cue ominous music…)
EF Hutton is now both the building owner and the anchor tenant. So the same company that owns the building is also the source of most of the rental income. They now want a cash-out refinance, and obtain an appraisal of $7.78 million in January 2018. Now, if there was an independent buyer for this property, the appraisal might have been done with more skepticism. But it was appraised as a charitable donation (i.e tax write-off) for a needy non-profit! Many people potentially benefited from a high appraisal. The building owner gets more money from the cash-out refi, the donor get a bigger tax break, the recipient gets a high-publicity donation, even Peerstreet got a note with a great LTV%. Everyone except the person holding the bag at the end.
Okay, so time moves on. EF Hutton is quickly in financial trouble and being investigated by the SEC, somehow pivoting from stock trading to mobile phones to cryptocurrencies on its way to bankruptcy. Check out this Springfield News Sun article about their $12 million in debt. The anchor tenant is broke. There is no rent being paid. The nonprofit is owed money. Property insurance and property taxes are not being paid. The building is no longer being maintained. From a Peerstreet letter to noteholders:
As the foreclosure proceedings were ongoing, PeerStreet made repeated efforts to gain access to the property and assess its condition. After the court granted PeerStreet partial access to the property, we discovered water damage, deferred maintenance on the elevators and other maintenance issues caused by the borrower’s failure to maintain the property, which inspectors estimated would cost over $1M to remedy.
In addition to this, the borrower stopped making property insurance payments, which PeerStreet then advanced to protect investors’ interests in the collateral. The borrower also defaulted on property taxes in excess of $700,000.00.
COVID-19 crushes the local economy. Nobody is there to protect the building during civil unrest. There is no anchor tenant. $1m in property damage. $700,000 in property taxes. Even so, I don’t understand why Peerstreet didn’t just wait for the foreclosure auction. I’d personally feel more confident if there was an open auction. Could they have held out until after the pandemic passes? That’s what I would have done if I was the sole owner. However, Peerstreet might simply value a fast resolution over absolute final return.
Final numbers. As noted above, the final return (including interest paid to date) was 18% of the original investment. (As in, you put in $100 originally and get $18 back.)
My commentary. Both bad luck and bad incentives lined up for such a bad result. The appraisal was obviously too high in retrospect. Whenever someone donates something big, even though it is a charitable act, the donor still wants it to be valued as highly as possible while the nonprofit also benefits. The tax deduction here was worth millions. EF Hutton also wanted the highest valuation possible as it was a cash-out refi. COVID and economic factors only made it worse. Once it was clear that they had no more skin in the game (equity), EF Hutton let the property fall into ruin.
A cynic might wonder if EF Hutton knew this would happen and wanted to walk away with as much money in its pockets as possible? Where did all the money from their $12 million in debt go? Highly suspicious.
Getting back 18 cents on the dollar really hurts, and makes me wonder how this might happen on a more commonplace residential property (and how to avoid it). You would still need an inflated appraisal (avoid cash-out refis?). You would also need the owner to stop caring about the property and let it get totally trashed (maintain equity?). You would need a severe economic downturn and a forced sale (more skin in the game from Peerstreet to encourage more patience?).
Finally, this is another lesson in the importance of diversification. If this was a $1,000 loan amongst 50 different loans, your loss would be 1.6% of your total $50,000 portfolio.
Bottom line. Even though I’ve now invested and reinvesting $60,000+ into 63 loans at PeerStreet over 4+ years, I haven’t had one (knock on wood) completely “blow up”. I’ve had several spend several months in default, only to be paid back in full with interest. Thanks to a helpful reader, I was able to share this story and hopefully provide some educational value. Most importantly, this should teach you to diversify even if the loan looks solid, as even if you replaced any one of my $1,000 loans with this “worst-case scenario”, thanks to diversification my overall portfolio return would still be positive.
If you are interested, you can sign up and browse investments at PeerStreet for free before depositing any funds or making any investments. You must qualify as an accredited investor (either via income or net worth) to invest. If you already invest with them, they now sync with Mint.com.
If you have a workplace 401k/403b/457 retirement plan, there is probably a target-date fund (TDF) inside. TDFs provide a “set-and-forget” investment option that automatically adjusts the asset allocation over time as you move towards your target retirement age. A recent WSJ article The High Cost of Target-Date Funds (paywall?) and academic paper Off Target: On the Underperformance of Target-Date Funds reinforce many of the things that most “Bogleheads” and DIY index fund investors have known for a while:
The Fidelity Freedom 2030 fund was used as the example of an expensive, overly-complex fund. Vanguard ETFs are used as the example of low-cost index ETF building blocks. Here is their example of a possible real-world difference in returns:
To add concreteness to our analysis, consider a hypothetical married couple, Ross and Rachel, in March 2006. Ross and Rachel are in their early 40s and expect to retire in 2030. As such, they put their 401(k) savings of $1MM into the Fidelity Freedom 2030 Fund (the largest TDF that holds both index funds and actively managed mutual funds). In December 2017, Ross and Rachel’s savings would have grown to just over $1.95MM. However, had Ross and Rachel replicated the Fidelity Freedom 2030 Fund using our RF, their saving would have grown to nearly $2.22MM, an outperformance of over $271K or 14%!
Now, you could focus on the $270,000 difference between the $1.95 million and $2.22 million ending balances. But don’t forget that the “bad option” still nearly doubled the $1 million into $1.95 million in the span of 11 years, all as the result of doing absolutely nothing after the initial investment. We should still appreciate that such an option is available to individuals and not take for granted the availability of public stock markets, mutual funds, and target-date funds even at 0.70% in fees annually.
(At the same time, we should be thankful for Jack Bogle, Vanguard, index funds, and all the people willing to move their money over the lower-cost option each year, as those flows have resulted in lower fees for everyone. We need to keep pressuring companies for lower costs, especially when we see little value-added.)
Should we expect everyone to manage their own ETF portfolios? Sure, it doesn’t take much *time* to DIY and rebalance annually but it does take some knowledge, experience, risk tolerance, and most importantly the ability to take repeated *action*. It doesn’t take that much time to create a simple will and testament either, but most people put that off every year as well. The unfortunate story of former Zappos CEO Tony Hsieh also included the lack of a will.
The average job tenure is now only 4.3 years. Therefore, a good middle ground might be to stay in whatever TDF fund is available in your employer plan, but when you switch jobs, immediately roll it over to an IRA and then invest it into a low-cost TDF with automatic dividend reinvestment. Instead of an ongoing series of actions, it’s a one-time action. I have recommended the Vanguard IRA and the Vanguard Target Retirement series to my family. There is still some paperwork, but once it is completed, you are “set-and-forget” until retirement with a low-cost option that should keep up with the industry’s best practices.
I still build and maintain my own portfolio of low-cost index funds, and I enjoy the ability to know and control what I own. However, I also appreciate the value of TDFs a little bit more each year. One reason for this is the amount of effort that it took to get my parent’s to move over their retirement funds to Vanguard from a more expensive, complex option. They just kept putting it off. I can’t imagine them having to manage and rebalance even a few funds. There is an enormous difference between “good enough but done” for most and “optimal if you do XYZ”.
You can run the ticker symbol of your TDF through Morningstar to check its annual expenses and portfolio contents. The good news is that each year there are fewer bad ones, and most are at least mediocre these days. See also: Morningstar Target Date Retirement Fund Rankings 2020: Not All The Same
Hyatt Hotels is having a “Global Day of Gratitude” on December 9th, and as part of that is giving out 500 bonus Hyatt points if you listen to one of their Headspace exercises (again, must be done 12/9):
On December 9th:
• Open the World of Hyatt app. If you don’t have it already, download it here.
• Complete one of our custom Headspace exercises — Unwind, Reflect or Sleep.
• Enjoy 500 Bonus Points just for nurturing your wellbeing.
I have heard some positive experiences regarding Headspace, so there might be some benefit in addition to the free points. The 500 points may only be worth $5 to $10, but it should also extend your points expiration date by another 24 months from the date of posting. (Due to COVID, all points expiration has already been postponed until at least June 30, 2021.)
You can also get a 30-day trial subscription to Headspace, but know that it will automatically start charging you $12.99 a month at the end of the trial if you do not cancel by the end of the trial.
Updated February 2021. I started investing in PeerStreet real-estate backed loans in July 2016. I’ve long liked the idea of hard money loans, but I wanted more diversification as opposed to tying all my money up with one single property. Peerstreet requires you to be an accredited investor. (There are other real-estate sites like Fundrise that don’t require that status.) Here are my overall numbers after over four years, with details below:
Basic idea: Short-term loans backed by real estate. Real estate equity investors want to take out short-term loans (6 to 24 months) and don’t fit the profile of a traditional mortgage borrower. They are professional investors with multiple properties, need bridge financing, or they are on a tight timeline. As a real-estate-backed loan investor, you lend them money at 6% to 12% and usually backed by a first lien on the property. The borrower stands to lose the equity in their property, so they are incentivized to avoid default. In the worst case, you would foreclose and liquidate the property in order to get your money back. However, this is better than Prosper or LendingClub where it is an unsecured loan and your only recourse is to lower their credit score.
What are PeerStreet strengths? Here are the reasons that I decided to put more a higher amount of money into PeerStreet as compared to other worthwhile real estate marketplace sites:
Here’s a screenshot of the automated investing customizer tool:
What are PeerStreet drawbacks? A general drawback to real-estate backed loans is that your upside is limited to the full interest being paid back on time, while your downside is much larger if there is a prolonged housing crash. As long as housing prices are flat to strong, everything will probably work out fine because your collateral will cover everything. This is why it is important to have a cushion via the loan-to-value ratio.
In my opinion, one major drawback specific to Peerstreet is lower yields. This is just my limited understanding and I may be wrong, but PeerStreet has a network of lenders bringing in these deals and thus need to be paid some sort of “finders fee”, so the net yield to the investor feels lower than other sites. You could argue that this is also their secret sauce that brings in the high loan volume (and ideally the ability to be more selective), but at some point the rate is too low to justify the risks being taken.
In the current low-interest rate environment, it is also my opinion that too many real estate crowdfunding sites are chasing too few loans, which has been driving down the interest rates offered. I started out being able to find a lot of loans in the 8% to 9% range, but now the more conservative notes are in the 7%-7.5% range. In the current yield environment, my target is an 8% return while also maintaining a loan-to-value ratio of 70% or less.
How does PeerStreet make money? As with other real estate marketplace lenders, they charge a servicing fee. PeerStreet charges between 0.25% and 1%, taken out from the interest payments. This way, PeerStreet only gets paid when you get paid. When you invest, you see the fee and net interest rate that you’ll earn. In exchange, they help source the investments, set up all the required legal structures, service the loans, and coordinate the foreclosure process in case of default. In some cases, the originating lenders retains a partial interest in the loan (“skin in the game”). Here’s a partial screenshot:
What if PeerStreet goes bankrupt? This is the same question posed to LendingClub and Prosper, and their solution is also the same. The loans are held in a bankruptcy-remote entity and will continue to be serviced by a third-party even in a bankruptcy event. From their FAQ:
PeerStreet also holds loans in a bankruptcy-remote entity that is separate from our primary corporate entity. In the event PeerStreet no longer remains in business, a third-party “special member” will step in to manage loan investments and ensure that investors continue to receive interest and principal payments. Additionally, investor funds are held in an Investors Trust Account with City National Bank and FDIC insured up to $250,000.
Tax forms? In previous years, I received both a 1099-INT and a 1099-OID. Basically, both include your gains that will be taxed at ordinary income rates (like bank account interest). Here’s what PeerStreet says:
PeerStreet investors will be issued a consolidated Form 1099 for the income distributed from their investment positions. Investors may receive one or more of the following types of 1099 form:
1099-OID for notes with terms longer than one year (at the time of issue)
1099-INT for notes with terms less than one year (at the time of issue)
1099-MISC for incentives, late fees or other income, if more than $600.
My personal performance. I started with a $10,000 investment in 2016, added another $15,000 in 2017, and added another $10,000 in 2019. Altogether, I also made about $25,000 of withdrawals whenever a loan was paid back and the loan inventory was not attractive. (They pay no interest in idle cash, and I don’t like their short-term options.) Each of my loans was less than 5% of the total portfolio. In order to get first dibs on the good loans, I set up automatic reinvestment when possible.
Here is a screenshot from my account:
As of February 2021, my internal rate of return (IRR) is 6.92% annualized net of all fees and taking into account the periods where my cash was idle. I verified this using my own spreadsheet and it matches the reporting by Peerstreet. Right now, 3 loans are in some phase of the foreclosure process. These loans are all less than 70% LTV, but I don’t know what the final recovery amount will be. In the past, I have had several late loans and all were resolved with no loss of principal (but that is no guarantee of the future). I expect my final IRR to be in the 6% to 7% range.
If you are thinking about this investment, the things I would want you to know are:
Case studies. Here are detailed examples from my own investing experience that help illustrate my points:
Other sites that are offering new asset classes are Fundrise (direct ownership of real estate equity), FarmTogether (farmland), Masterworks (art), and Yieldstreet (various). I’ve also invested in LendingClub and Prosper (consumer loans).
Bottom line. PeerStreet offers higher-yield, short-term loans backed by physical real estate. As compared to traditional “hard money lending” on single local properties, Peerstreet allows investors to diversify easily with a $1,000 minimum investment per property, automated reinvestment, and nationwide exposure. In exchange, PeerStreet charges a servicing fee between 0.25% and 1%, taken out of the interest charged to the borrower. The returns you see in the listing are net of their fees. This is a unique asset class and it is important to understand the patience required due to limited liquidity.
If you are interested, you can sign up and browse investments at PeerStreet for free before depositing any funds or making any investments. You must qualify as an accredited investor (either via income or net worth) to invest. If you already invest with them, they now sync with Mint.com.
Tesla’s stock value is up a whopping 600% in 2020 alone, with a current market cap of over $550 billion dollars and a P/E ratio of over 1,000. At this moment, it is worth more than Disney, Walmart, or Berkshire Hathaway. Even better, the S&P 500 index managers decided not to allow Tesla in until they were pretty much forced to, as Tesla was now in the top 10 of all US companies. Tesla went up 40% after that announcement because they know that after 12/21 every single S&P 500 index fund and ETF will have to sell a little bit of hundreds of companies and put over 1% of their total assets into Tesla stock (an estimated flurry of $100 billion in mandated trades).
Meanwhile, the Vanguard Total Stock Market fund (VTI) will have to do… nothing. VTI and VTSAX already owned Tesla way back when it closer to $5 a share instead of waiting until it was $600. VTI aims to own the entire US stock market according to market cap. Large-cap, mid-cap, small-cap. Growth and value. Low-vol and high-vol. 3,555 companies, all the way down to Patriot National Bancorp (PNBK) worth only $31 million. Here’s a screenshot of the holdings as of the end of last quarter, October 31st, 2020.
Owning an S&P 500 fund is still a fine idea and this Tesla matter will be noise in the long run, but it is another example of why I prefer the simplicity and quiet elegance of a total market cap fund. You own the entire haystack without lifting a finger, not having to worry about when a company goes from #501 to #490, and vice-versa. The S&P 500 owns most of the haystack, but humans have to vet all the new additions and subtractions (and publicly announce them beforehand).
50 years from now, the haystack will look very different. Here are the top 10 companies as of 2008 (source):
Here are the top 10 companies in the US as of late 2020 (source):
Maybe Tesla will end up justifying their current valuation, or maybe it will be “get crushed like a soufflé under a sledgehammer“. I root for Tesla because I like the advancements in autonomous driving and not having to endure the pain of traffic. (Also, one day I’ll be old and would love full mobility instead of the Handi-Van.) Either way, if you own either the S&P 500 or Total US market fund, you’ll earn the winners. The total market fund will be a little bit quieter, and cost a bit less because you don’t need to pay S&P any licensing fees.
Sometimes I feel like I should write more about stock investing, but I intentionally avoid the short-term noise. I can’t control the outcome, and I can’t predict the outcome, so I detach. This means that I end writing more about my profitable hobbies of earning thousands of dollars in extra income per year by maximizing the interest earn on my bond/cash holdings (same safety, higher return) and credit card rewards. All of this supports my ultimate goal – to get outside and try out this new slackline kit with my daughters that just arrived.
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