Tag: financial independence

Categories
Stock Market Investing

Real estate investment trusts or REITs

Real estate investment trusts or REITs are companies that own, operate, and finance income-producing real estate. They offer investors the opportunity to own a diversified portfolio of real estate assets, such as office buildings, shopping centers, apartments, and hotels, without having to directly purchase and manage individual properties.

Real estate investment trusts or REITs

How do REITs generate income?

REITs generate income by leasing their properties to tenants and collecting rent payments. The income generated by the REIT’s properties is distributed to shareholders in the form of dividends. REITs are required by law to distribute at least 90% of their taxable income to shareholders in order to qualify for special tax treatment. As a result, REITs can be an attractive investment for income-seeking investors.

Types of REITs

There are several different types of REITs, including:

  • Equity REITs: These REITs own and operate income-producing real estate properties and generate income from the rent paid by tenants.
  • Mortgage REITs: These REITs invest in mortgage-backed securities, rather than owning and operating real estate properties. They generate income from the interest payments on the mortgages they hold.
  • Hybrid REITs: These REITs combine elements of both equity REITs and mortgage REITs. They may own and operate real estate properties, as well as invest in mortgage-backed securities.

Advantages of investing in REITs

  • Diversification: REITs offer investors the opportunity to own a diversified portfolio of real estate assets, which can help to reduce the overall risk of their investment portfolio.
  • Professional management: REITs are managed by professionals who are responsible for acquiring and managing the REIT’s real estate assets. This takes the burden off of individual investors to directly purchase and manage properties.
  • Liquidity: REITs are publicly traded on major stock exchanges, which makes them more liquid than owning individual real estate properties.

Risks of investing in REITs

  • Market risk: Like any other investment, REITs carry some level of market risk. The value of REITs can be affected by changes in the real estate market, as well as economic conditions and interest rates.
  • Management risk: The performance of a REIT can be affected by the quality of its management and the decisions they make.
  • Leverage risk: Some REITs use leverage, or borrowing, to finance their operations and acquire additional properties. This can increase the REIT’s risk profile and make it more sensitive to changes in interest rates.

Before investing in REITs, it’s important to carefully consider the risks and potential benefits, as well as your investment goals and risk tolerance. You can also consult with a financial advisor for guidance.

Overall, REITs can be a useful addition to an investment portfolio, offering investors the opportunity to own a diversified portfolio of real estate assets and potentially generate income through dividends. However, like any other investment, REITs carry some level of risk and it’s important to do your own research and consult with a financial advisor before making a decision.

How to buy and sell REITs?

Real estate investment trusts (REITs) can be bought and sold just like stocks, through a brokerage account. Here are the steps to follow to buy or sell REITs:

  1. Open a brokerage account: In order to buy or sell REITs, you’ll need to open a brokerage account with a financial institution or online broker. This will allow you to trade stocks and other securities online.
  2. Choose a REIT: Once you’ve opened a brokerage account, you’ll need to choose the REIT that you want to buy or sell. You can use online tools or consult with a financial advisor to help you find the right REIT for your investment portfolio.
  3. Place an order: To buy or sell REITs, you’ll need to place an order through your brokerage account. You can choose to place a market order, which will be executed at the current market price, or a limit order, which allows you to set the maximum price you’re willing to pay (for a buy order) or the minimum price you’re willing to accept (for a sell order).
  4. Monitor your investment: After you’ve placed your order, you’ll need to monitor your investment and make any necessary adjustments as needed. This may involve rebalancing your portfolio, selling off underperforming REITs, or buying additional REITs to diversify your portfolio.

It’s important to note that investing in REITs, like any other investment, carries some level of risk.

There are many real estate investment trusts (REITs) that are publicly traded on major stock exchanges. Here are a few examples of popular REITs and their ticker symbols:

  • Equity REITs:
    • Simon Property Group (SPG)
    • Prologis (PLD)
    • Public Storage (PSA)
  • Mortgage REITs:
    • Annaly Capital Management (NLY)
    • New Residential Investment Corp. (NRZ)
    • AGNC Investment Corp. (AGNC)
  • Hybrid REITs:
    • Hannon Armstrong Sustainable Infrastructure Capital (HASI)
    • Ladder Capital Corp. (LADR)
    • EPR Properties (EPR)

This is just a small sample of the many REITs that are available. It’s important to do your own research and consider your investment goals and risk tolerance before choosing a REIT. You can also consult with a financial advisor for guidance.

REITs ETFs

You can also invest in REITs through exchange-traded funds (ETFs). There are several benefits to investing in REITs through ETFs:

  1. Diversification: REITs ETFs allow investors to own a diverse portfolio of real estate assets without having to individually research and purchase individual REIT.
  2. Professional management: REITs ETFs are managed by professional fund managers who research and select the underlying real estate holdings in the fund.
  3. Liquidity: REITs ETFs can be bought and sold on a stock exchange, making them more liquid than owning physical real estate assets.
  4. Lower cost: REITs ETFs typically have lower fees than actively managed real estate mutual funds.

It is important for investors to thoroughly research and carefully consider any investment before making a decision. That being said, some of the most popular REITs ETFs, based on assets under management, include:

  1. Vanguard Real Estate ETF (ticker: VNQ)
  2. iShares Core U.S. REIT ETF (ticker: USRT)
  3. Schwab U.S. REIT ETF (ticker: SCHH)
  4. Invesco S&P 500 Equal Weight Real Estate ETF (ticker: RWRE)
  5. iShares Global REIT ETF (ticker: REET)
Categories
Stock Market Investing

Index Funds Investing

Investing in index funds is a simple and cost-effective way to diversify your investment portfolio and potentially earn long-term returns.

Warren Buffet, one of the most successful investors of all time, is a strong advocate for index fund investing. In a 2013 interview with CNBC, Buffet stated that “for the great majority of investors, therefore, a low-cost S&P 500 index fund will prove the better choice” over actively managed mutual funds. Buffet has also said that he believes index fund investing is a “terrific” way for most people to save for retirement.

Buffet’s endorsement of index fund investing is based on the idea that it’s difficult for individual investors or even professional fund managers to consistently outperform the broader market over the long term. By investing in a low-cost index fund that tracks the performance of a broad market index, investors can potentially earn returns that are similar to the overall market, without having to try to pick individual stocks or actively manage a portfolio.

Charlie Munger, the business partner of Warren Buffet, has also expressed his support for index fund investing. In a 2017 interview with CNBC, Munger stated that “I think if you’re intelligent, you’ll buy a very low-cost index fund.” Like Buffet, Munger believes that it’s difficult for individual investors or even professional fund managers to consistently outperform the broader market over the long term. By investing in a low-cost index fund that tracks the performance of a broad market index, investors can potentially earn returns that are similar to the overall market, without having to try to pick individual stocks or actively manage a portfolio.

Munger has also said that he believes index fund investing is a “no-brainer” for most people and that “if you’re not an expert, you’re going to do very well” with index fund investing. However, it’s important to note that Munger’s endorsement of index fund investing is not a guarantee of future performance and that investing in index funds carries some level of risk, like any other investment. Nonetheless, Munger’s endorsement highlights the potential benefits of index fund investing as a simple and cost-effective way to diversify your portfolio and potentially earn long-term returns.

It’s important to note that Buffet’s endorsement of index fund investing is not a guarantee of future performance and that investing in index funds carries some level of risk, like any other investment. However, Buffet’s endorsement highlights the potential benefits of index fund investing as a simple and cost-effective way to diversify your portfolio and potentially earn long-term returns.

Here’s how to get started:

  1. Determine your investment goals: Before you start investing in index funds, it’s important to have a clear understanding of your financial goals. Do you want to save for retirement, buy a house, or simply grow your wealth over time? Knowing your goals will help you determine the right mix of investments for your portfolio.
  2. Understand the basics of index funds: Index funds are investment vehicles that track the performance of a specific market index, such as the S&P 500 or the Dow Jones Industrial Average. Rather than trying to pick individual stocks or actively manage a portfolio, index funds simply follow the index and offer investors a low-cost way to diversify their investments.
  3. Choose an index fund: There are many different index funds to choose from, each with its own specific focus. For example, you can invest in an index fund that tracks the S&P 500, which is made up of 500 of the largest publicly traded companies in the United States, or you can invest in an index fund that tracks a specific sector of the market, such as technology or healthcare.
  4. Decide on your allocation: Once you’ve chosen an index fund, you’ll need to decide on your allocation, or the percentage of your investment portfolio that you want to allocate to the index fund. This will depend on your investment goals, risk tolerance, and overall financial situation.
  5. Open a brokerage account: In order to invest in index funds, you’ll need to open a brokerage account with a financial institution or online broker. This will allow you to buy and sell investments, including index funds, online.
  6. Begin investing: Once you’ve opened a brokerage account and chosen your index fund, you can begin investing by purchasing shares of the fund. You can choose to make one-time purchases or set up automatic investments on a regular basis.

It’s important to note that investing in index funds, like any other investment, carries some level of risk. It’s always a good idea to do your research and consult with a financial advisor before making any investment decisions. With a little bit of planning and due diligence, however, index funds can be a smart and straightforward way to diversify your portfolio and achieve your long-term financial goals.

What are the benefits of index funds?

  • Diversification: One of the biggest benefits of index funds is that they offer investors instant diversification. Because index funds track a specific market index, they give investors exposure to a wide range of companies and industries. This can help to reduce the overall risk of your investment portfolio.
  • Low costs: Index funds typically have lower fees than actively managed mutual funds. This is because they don’t require a team of fund managers to constantly research and select individual stocks. As a result, index fund investors can keep more of their returns.
  • Professional management: Index funds are managed by professionals who are responsible for tracking the performance of the underlying market index and making sure the fund stays aligned with it. This takes the burden off of individual investors to constantly monitor and adjust their portfolios.

How do I choose an index fund?

When choosing an index fund, it’s important to consider your investment goals and risk tolerance. Some factors to consider include:

  • Market focus: What market or sector does the index fund track? For example, if you’re interested in tech companies, you might consider an index fund that tracks the NASDAQ.
  • Expense ratio: The expense ratio is the annual fee that the fund charges for its management and operation. A lower expense ratio means that you’ll pay less in fees, which can help to boost your returns.
  • Minimum investment: Some index funds have minimum investment requirements, which can be a barrier for some investors. Make sure to check the minimum investment amount before choosing a fund.
  • Past performance: It’s always a good idea to review the past performance of an index fund before investing. While past performance is not necessarily indicative of future results, it can give you an idea of how the fund has performed in different market conditions.

Once you’ve considered these factors, you can use online tools or consult with a financial advisor to help you choose the right index fund for your investment portfolio.

Here are a few examples of popular index funds and their ticker symbols:

  • S&P 500 index fund: This index fund tracks the S&P 500, which is made up of 500 of the largest publicly traded companies in the United States. Some popular S&P 500 index funds include:
  • Vanguard 500 Index Fund (VFIAX)
  • Schwab S&P 500 Index Fund (SWPPX)
  • Fidelity 500 Index Fund (FXAIX)
  • Total stock market index fund: This type of index fund tracks the performance of the entire U.S. stock market, rather than just the S&P 500. Some popular total stock market index funds include:
  • Vanguard Total Stock Market Index Fund (VTSAX)
  • Schwab Total Stock Market Index Fund (SWTSX)
  • Fidelity Total Market Index Fund (FSTMX)
  • International index fund: This type of index fund tracks the performance of stocks in foreign markets. Some popular international index funds include:
  • Vanguard FTSE Developed Markets Index Fund (VEA)
  • Schwab International Index Fund (SWISX)
  • Fidelity International Index Fund (FSIIX)

These are just a few examples of the many index funds that are available. It’s important to do your own research and consider your investment goals and risk tolerance before choosing an index fund. You can also consult with a financial advisor for guidance.

Exchange-traded funds (ETFs) and index funds are similar in that they both track a specific market index or sector and offer investors a low-cost way to diversify their investments. However, there are a few key differences between the two:

  • Structure: ETFs are structured as a collection of securities that trade on an exchange, similar to stocks. Index funds, on the other hand, are structured as mutual funds and are bought and sold directly through the fund company or a broker.
  • Trading: ETFs can be bought and sold throughout the day on an exchange, just like stocks. Index funds, on the other hand, are only bought and sold at the end of the trading day, based on the fund’s net asset value (NAV).
  • Minimum investment: Some ETFs have minimum investment requirements, while others do not. Index funds may also have minimum investment requirements, depending on the fund.
  • Fees: Both ETFs and index funds typically have low fees, but ETFs may have slightly lower expense ratios on average. However, it’s important to compare the fees of individual funds before making a decision.

Ultimately, the choice between an ETF and an index fund will depend on your investment goals, risk tolerance, and financial situation. Both types of investments can be effective tools for diversifying a portfolio, but it’s always a good idea to do your own research and consult with a financial advisor before making a decision.

Here are a few examples of popular ETFs:

  • S&P 500 ETF: Some popular ETFs that track the S&P 500 include:
  • SPDR S&P 500 ETF (SPY)
  • iShares Core S&P 500 ETF (IVV)
  • Vanguard S&P 500 ETF (VOO)
  • Total stock market ETF: Some popular ETFs that track the total stock market include:
  • Vanguard Total Stock Market ETF (VTI)
  • iShares Core S&P Total U.S. Stock Market ETF (ITOT)
  • Schwab U.S. Broad Market ETF (SCHB)
  • International ETF: Some popular ETFs that track foreign markets include:
  • Vanguard FTSE Developed Markets ETF (VEA)
  • iShares MSCI EAFE ETF (EFA)
  • Schwab International Equity ETF (SCHF)

Again, these are just a few examples of the many ETFs that are available. It’s important to do your own research and consider your investment goals and risk tolerance before choosing an ETF. You can also consult with a financial advisor for guidance.

I hope this helps! If you have any additional questions, don’t hesitate to ask.

Categories
Reduce Spending

Save On Food

Food is in the top 5 of household expenses, so it is important to keep an eye on the food budget.

We could go very deep into how you can save on food, how to use coupons, what grocery stores can offer the best deals, but we’ll try to keep this one very simple as we feel that there are very quickly diminishing returns in trying to reduce food expenses.

The main factor driving up food cost is eating out. So keep eating out to a minimum. And that’s it! With that simple advice you’ll save the bulk of your money on food.

Then, if you’re on a stretch you can add:

  • No premade food, cook your own!
  • drink more water, remove soda and alcohol from your diet
  • if you eat meat, buy chicken, turkey or pork (if you can) rather than beef

And no, you do not need to eat ramen all year long. Rice, pasta, beans, lentils can serve as a good base. But you’d be surprised to realize that veggies are not always extremely expensive and the variety of meals you can easily cook can allow you to have a healthy diet without breaking the bank on food.

Categories
Reduce Spending

Save On Transportation Expenses

This one does not have a catchy coined term and I don’t feel like gifted enough to make one. Nevertheless, for most people transportation expenses is often the second biggest expense and it’s therefore well worth taking a hard look at ways to reduce this bill. Buying the newest car possible is usually what drives the cost up.

Save On Transportation Expenses

Alternative Transportation

Trying to figure out if you can do without a car can really help. A car is expensive: first you need to buy it, then you need to pay for insurance, maintenance and gas or electricity for electric vehicles.

If you live in a city with a decent public transportation system, this can be good way to save and forego that brand new car.

If you live close enough to work walking or using a bicycle rather than a car can also be a good way to save money.

But let’s face it, in most places in the US, it’s extremely hard to live without at least a car for the household.

Buy A Used Car

While buying a brand new car can be tempting, because this car won’t have any issue for a long time and it’s nicer, right? Wrong. A commuter car is a depreciating item, it is you guessed it, a liability. See asset vs liability. The game is then to limit expenses as much as possible, so instead buy a reliable, cheap and used car. In the US, there are a few Japanese cars that most car mechanics will be able to repair due to the abundance of repair parts. They are usually cheap to maintain and are among the most reliable models, not to mentioned the mileage is very good compared to most other cars. Toyota Corolla, Toyota Camry, Honda Civic, Honda Accord are vehicles that come to mind, circa 2010-2020.

The most cost efficient car we ever bought was a 1997 Toyota Corolla, we bought in 2010. The car had 116k miles. The maintenance was done, the timing belt had been changed at 80k miles. We had proof of the maintenance. We bought it for $2,950. It lasted until 2016 when the shocks broke down and the cost of replacement was not worth it. So we sold the car for $850 which could be re-sold for parts. Overall that’s just $2,100 for 6 years!!!

Our filter to find a decent car is:

  • Models: Toyota Corolla, Toyota Camry, Honda Civic, Honda Accord
  • Less than 15 years old
  • Less than 120k miles
  • Less than $4,000.
  • Proof of maintenance: that’s the tricky part. Very few owners keep the paperwork of the maintenance. But the very few who do are usually responsible people who take care of their car. For the models mentioned above, the timing belt should be changed at around 60-80k miles. That’s usually an ~$800 bill, so it better had been done.
  • Visual inspection: the engine should not be too clean. That’s counter intuitive, but you want a car that you know runs. If the engine has just been rebuilt, it may look clean, but you may not know if it will run. So you want a car that has not been heavily used, but nonetheless a car that is running regularly. Tires should have some life remaining: look at the thread on the tires, look for cracks (you do not want to see any).
  • Drive test: no weird noise. Starts properly. A bit of stop and go and a little bit of highway.

Buying from individuals off Craigslist or other similar websites is preferred than buying from a car dealership who will need to take their cut.

Yes, you will not find a lot of those. It took me a good 7 weeks looking at Craigslist daily. I only found a handful of cars worth looking at. And bought the first one that matched these criteria.

Also keep the record of all the maintenance you did, it may help you get a few more bucks when trying to sell the car.

Shop for insurance

Once you have the car, you want to shop for insurance to see what insurance company has a good deal at a given time. That can save you a few hundred dollars a year.

 

Overall you can save thousands of dollars per year, that’s more income to redirect towards investing to bring you closer to financial independence.

Sources

[1] https://www.valuepenguin.com/average-household-budget

Categories
Reduce Spending

House Hacking: The Best Way to Save Money For Financial Independence

For most people housing is the biggest expense and it’s therefore extremely important to limit spending on housing so you can save money. If you’re on a path towards financial independence, remember you need to invest money and to invest money, you need, well, money. So you need to spend it wisely and save wherever possible. So back to housing and what exactly is house hacking and how can this help you?

House hacking is a term that has been famously coined by Brandon Turner, former podcast host at BiggerPockets and seasoned real estate investor. It essentially describes several creative ways to reduce your housing expenses.

Let’s go through the different ways you can save money on housing. Depending upon your personal situation, some may be easier or more convenient to implement than others but let’s go through them anyway.

House Hacking: The Best Way to Save Money For Financial Independence

Understanding House Hacking

House hacking is a real estate investment strategy that allows you to live in your property while generating rental income from other units or portions of the property. By doing so, you can significantly reduce or even eliminate your housing expenses, creating a path towards financial independence.

The Benefits of House Hacking

Reduced Housing Expenses

House hacking provides a unique opportunity to minimize your housing costs by leveraging the income generated from renting out a portion of your property. This can free up a substantial amount of money to be invested elsewhere, ultimately accelerating your journey towards financial freedom.

Increased Cash Flow

With the rental income from house hacking, you can generate positive cash flow. This means that not only are you living in your property for free or at a significantly reduced cost, but you’re also earning extra income that can be used for savings, investments, or even paying down debts.

Building Equity

As you make mortgage payments, the value of your property appreciates over time, allowing you to build equity. House hacking enables you to expedite this process by utilizing rental income to contribute towards mortgage payments. This can help you build wealth and create a solid financial foundation for the future.

Learning Real Estate Investing

House hacking serves as a stepping stone into the world of real estate investing. It allows you to gain hands-on experience in property management, tenant relations, and the overall dynamics of the real estate market. This knowledge can be invaluable as you progress towards expanding your investment portfolio.

Consider living with roommates

Rather than renting a studio, you may want to consider renting a house with roommates and split the cost. It’s often more cost effective. I lived several years with roommates at a time where a studio was renting for around $1,500/month in my area, while the rent split among roommates was around $1,000/month, saving $500/month or $6,000 per year. While it looks like a nice saving, it’s nothing compared to what comes next.

Buy a small multi-family

Probably the most popular house hack and considered as the traditional house hack, it consists in taking an FHA loan (if you live in the US) to buy a small multi-family building, for example a duplex or a triplex or quadruplex, live in one unit and rent the other unit(s). If the price is right, meaning that you do not overpay for the property, and the interest on the loan is low enough, it is possible to have the rent cover the loan and some of the expenses and you can pretty much live for free. This strategy works best when buying a home is more advantageous than renting and it usually tends to be in cheaper housing markets. In more expensive markets, the rent will usually not cover the expenses, so while it can still reduce your expenses you’d need to verify how much would pay, should you rent in your area to see if it financially makes sense.

Why an FHA loan you may ask? It allows you to buy a property with just a 3.5% down payment. So if you look at  a $100,000 property, that’s just $3,500 you need to put as a down payment.

When done properly that’s how you can get rid of your biggest expense. The earlier you can do it, the more money you can save and invest.

Rent out rooms

This is somewhat a combination from the traditional multi-family house hack and the renting a place with roommates. Essentially you can buy a home, live in the living room or if the house has a basement, turn it into a livable space. Then you can rent out he remaining rooms. By renting individual rooms it may be possible to cover the cost of the house: loan, taxes, insurance, completely covering your housing cost.

Live-in flip

A live-in flip consists in finding a home below market value that needs to be renovated. You would live in house while renovating it. Live in it for at least 2 years to reduce the amount of capital gain taxes you’ll need to pay when you sell it, if you live in the US, as this relates to the US tax code. Then you finally sell it. The amount of money you make when you sell can cover your housing cost for the past couple years.

Overall there are various ways to reduce or completely eliminate your hosing cost and it’s extremely important to take a hard look at these options as reducing the biggest household expense can go a long way to boost your savings and your investment power.

Sources

[1] https://www.biggerpockets.com/blog/6-house-hacking-strategies-you

[2] https://www.valuepenguin.com/average-household-budget

[3] https://www.forbes.com/sites/davidgreene/2018/12/04/house-hacking-how-financially-savvy-people-live-in-expensive-markets-while-saving-money/?sh=4cd1fc0470f0