Earlier this month, Bloomberg ETF analyst Eric Balchunas tweeted that, based on his reporting, he believed the agency would approve Ethereum ETFs for trading on July 2. Several of Balchunas’s predictions on this topic have already come true.
Balchunas correctly predicted the approval of Bitcoin ETFs back in January, as well as several events leading up to an ETH ETF approval, giving his tweets credibility
.
What is a spot Ethereum ETF?
Ethereum has many features that distinguish it from Bitcoin. Its blockchain doesn’t just host Ether coins; it’s also home to decentralized apps and non-fungible tokens that run on the Ethereum protocol. Ethereum also now uses a proof-of-stake system to create new coins — a more energy-efficient system than the proof-of-work process behind Bitcoin mining. (Ethereum also used a proof-of-work system until it switched to proof-of-stake in 2022.)
There are already Ethereum strategy ETFs on the market, which indirectly track the price of Ether using futures contracts. However, these may not track the cryptocurrency’s price quite as accurately as a spot Ethereum ETF would, and they may charge higher fees. If spot Ethereum ETFs are approved on July 2, they’d be the first of their kind.
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How many Ethereum ETFs could be approved?
To date, eight different ETF issuers have filed registration statements with the SEC for Ethereum ETFs.
They are listed below, along with the expected name and ticker symbol of each ETF, each ETF’s fee and any promotional fee waivers, if that information is available. (Some issuers are filing registration statements with blank spaces where the ETF’s fee should be listed).
Fund name & symbol
Franklin Ethereum Trust (EZET)
Fee waived for first six months of trading or first $10 billion in fund assets, whichever comes first.
VanEck Ethereum Trust (ETHV)
Fee waived for first $1.5 billion in fund assets.
Grayscale Ethereum Mini Trust (ETH)
Fidelity Ethereum Fund (FETH)
21Shares Core Ethereum ETF (CETH)
Bitwise Ethereum ETF (ETHW)
Invesco Galaxy Ethereum ETF (QETH)
iShares Ethereum Trust (ETHA)
Source: SEC EDGAR system. Data is current as of June 24, 2024 and for informational purposes only.
In the days leading up to the first Bitcoin ETF approvals in Jan. 2024, Bitcoin ETF issuers engaged in a race to the bottom in terms of fees. Many issuers filed multiple amended registration statements lowering their fees to try to undercut their competitors, some of whom responded hours later by filing their own amended registration statements with even lower fees.
Others announced last-minute promos — such as reducing their fee to zero for the first six months of trading — in an effort to distinguish themselves as the cheapest Bitcoin ETF. This fast-paced exchange of fee cuts and promos continued into the hours just before the SEC’s approval announcement.
Investors may witness a similar rapidfire price war between prospective Ethereum ETF issuers in the days ahead. With that in mind, it’s worth double-checking any information you find online about Ethereum ETF fees and promos. Any numbers you see online could be outdated by the time you read them.
Ethereum strategy ETFs
We define an Ethereum strategy ETF as any ETF that invests at least 50% of its assets in Ethereum futures. There are seven such funds on the market today, and they’re listed below from lowest to highest fee.
Fund name & symbol
VanEck Ethereum Strategy ETF (EFUT)
Invested in Ether futures.
ARK 21Shares Active Ethereum Futures Strategy ETF (ARKZ)
Invested in Ether futures.
Bitwise Bitcoin and Ether Equal Weight Strategy ETF (BTOP)
Invested in Bitcoin and Ether futures. Fee reduced to 0.85% until Oct. 2, 2025.
Bitwise Ethereum Strategy ETF (AETH)
Invested in Ether futures. Fee reduced to 0.85% until October 2, 2025.
Valkyrie Bitcoin and Ether Strategy ETF (BTF)
Invested in Bitcoin and Ether futures.
ProShares Ether Strategy ETF (EETH)
Invested in Ether futures. Fee reduced to 0.95% until Oct. 31, 2024.
Invested in Bitcoin and Ether futures. Fee reduced to 0.95% until Oct. 31, 2024.
Sources: Fund websites. Data is current as of June 25, 2024 and for informational purposes only.
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What would ETF approvals mean for Ethereum?
The price of Ethereum is up about 44% this year at the time of writing. Would ETF approvals add to that momentum? That remains to be seen.
Ethereum ETFs would give 401(k) and IRA investors a new way to invest in crypto. Americans collectively hold nearly $40 trillion in retirement accounts, and many of those retirement accounts do not allow trading of cryptocurrencies themselves.
In the three months after Bitcoin ETFs were approved, the price of Bitcoin did rise — by more than 50%, in fact. But it’s hard to say whether this was entirely due to ETF-related buying.
There’s another potential explanation for Bitcoin’s rally in early 2024: the hype leading up to the Bitcoin halving in April. And whatever the biggest cause of that rally was, it didn’t last long. Bitcoin is down more than 10% over the last three months.
Ethereum ETFs vs. Ethereum itself
Spot Ethereum ETFs could have some advantages over other ways of investing in Ethereum. As we’ve discussed, they could offer investors who cannot buy Ethereum directly (such as retirement account investors) a cheaper and more reliable way to invest in Ethereum than the existing slate of Ethereum strategy ETFs.
However, it’s important to note that Ethereum ETFs do have some disadvantages compared to owning the cryptocurrency itself. Ethereum ETF investors would not receive staking rewards (a sort of interest payment or dividend for Ether holders).
If you want that feature of Ethereum, you’ll need to invest in the cryptocurrency itself.
Investing in art can add diversification to a portfolio if you’re ready to move beyond traditional stocks and bonds. Alternative investments like art can offer above-average returns and offset some of the impacts of market volatility.
Art investment has traditionally had a higher barrier to entry, as individual works of art may carry five and six-figure prices (or more). In addition, there are a number of risk factors when investing in art, including lack of liquidity and lack of transparency around pricing.
However, new ways to invest in art have emerged that make it a more accessible asset class to a broader range of investors.
What Is Art Investing?
Art investing refers to the purchase of works of art to sell them at a profit at a later date. Apart from owning individual artworks (which can be expensive and difficult to maintain), there are a range of new ways to invest in art, including:
• Fractional share investing through online art platforms
• Art funds
• Art stocks
• Non-fungible tokens (NFTs)
Buying art as an investment doesn’t require you to have an advanced art degree or professional background in the art world. You will, however, need to be willing to spend some time learning about this alternative investment to understand how the market works.1
How Art Investing Works
Investing in art requires a certain mindset, and doing your due diligence to size up what constitutes the best opportunities for you, depending on your goals.
Art, like other alternative investments, may require a much longer holding period for you to realize returns, which contributes to the lack of liquidity in this space. It may be challenging to find a buyer if the artwork or the artist is not in demand.
It’s also important to understand traditional art ownership, along with some of the newer investment vehicles.
Individual Works
Similar to investing in a traditional asset class like stocks, investing in individual works requires knowing some fundamentals: a history of the artist, their status (e.g., are they in demand?), the relevance of a given work, and a sense of whether it’s overvalued or undervalued.
The risks of choosing individual works include the possibility of fraud, the cost of maintaining the work (e.g., storage and insurance), and hidden charges, similar to investment fees (e.g., commissions and other costs). Given the fragility of most art, there is also the risk of physical damage or total loss.
Fractional Shares of Art
Owing to the high cost of owning blue-chip works of art (as well as other highly valued works) it’s now possible to buy fractional shares of art, similar to investing in fractional shares of stock.
There are a number of new platforms that sell fractional art shares, and each may have its own system and process (more below).
The risk of buying fractional shares of art is that, as with any investment, there are no guarantees of a return.
Art Funds
Similar to traditional mutual funds and ETFs, an art fund is a type of pooled investment fund. But unlike conventional equity funds, say, that hold many different stocks, art funds often hold only a handful of works. Investors who buy shares of the fund are buying into the collective, potential value of those works.
Art funds are generally structured as closed-end funds, but with a twist: investors typically contribute their capital over a period of three to five years, often with no returns for another specified time period (terms vary).
These funds are highly illiquid, and (in addition to the unpredictability of the art market itself) there are substantial risks to locking up your capital for what could be years, for an unspecified return upon redemption.
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Types of Artists
There are generally three types of artists you may invest in:
• Blue-chip artists: Blue-chip artists are individuals everyone has most likely heard of. Names like Van Gogh, Picasso, and Banksy are familiar to people both within and outside the art world.
Works from these artists typically carry the least risk because there’s always someone willing to buy them. The downside is that the average investor may not have sufficient capital to purchase individual blue-chip artworks since they can cost hundreds of thousands, if not millions, of dollars.
• Established artists: Established artists are known artists whose works typically command higher prices, but have not yet reached blue-chip status. Investing in art from established artists can offer solid return potential with a moderate degree of risk.
• Emerging artists: Emerging artists present the greatest risk since they’re still up and coming. However, you might be able to generate a sizable profit from investing in their art if their career takes off.3
Risks and Returns of Investing in Art
Investing in alternatives such as art carries risks that are similar to other alternative investments, like commodities, real estate, collectibles, and other assets. Investors who are willing to accept a higher degree of risk, however, may enjoy a substantial upside.
Here’s a side-by-side look at the pros and cons of investing in art.
Rewards
Risks
Art investment offers the potential for higher returns.
Art can add diversification to a portfolio, allowing you to better manage market volatility and the impacts of inflation.
Investing in art can help you grow wealth while allowing you to support your favorite artists and contribute something to the art community.
A significant amount of capital is not necessarily required to begin investing in art.
Interest in art has persisted for hundreds of years, making it a reliable investment option for the longer term.
An investment in art is not guaranteed to be profitable.
Certain types of art investments offer limited liquidity, which could make it difficult to exit quickly.
Valuing artworks is often highly subjective, which could make it difficult for a beginning investor to determine what a piece is truly worth.
Owning individual artworks may entail paying maintenance and storage fees, as well as insurance.
Forgeries and fakes are a real part of the art world investors must contend with.
If you’re trying to decide whether to invest in art, consider your personal risk tolerance and investment horizon.
Dive deeper: Why Invest in Alternative Investments?
5 Ways to Start Investing in Art
When deciding how to invest in art, it’s important to remember that you’re not locked into any single path. You might choose multiple investment strategies to build out your art portfolio.
With that in mind, here are some of the best ways for beginners to start investing.
1. Fractional Art Shares
Fractional art share investing is a relatively new phenomenon. It works like this:
• You join an art investment marketplace.
• The marketplace vets works of art and lists them for investment.
• You buy fractional shares of individual works of art.
• When the artwork sells you get a piece of the profits.
Typically, you invest a minimum amount to buy a certain number of shares of a work you believe will appreciate. So you might hold 30 shares of a Basquiat piece and 20 shares of a Warhol.
The platform purchases and maintains the art; you don’t actually see or handle it. If it appreciates within a set period of time, the piece will be sold and profits will be distributed proportionately to each investor’s ownership amount.
The downside is that you might need $10,000 or more to get started on a fractional share marketplace. Additionally, you don’t get to choose when the artwork sells — that’s determined by the platform.
While trading fractional shares isn’t available on public exchanges yet, some fractional art platforms operate a secondary market whereby shareholders can execute trades.
2. Art Funds
Art investment funds are typically privately managed funds that offer investors exposure to multiple works. In that sense, they’re similar to traditional mutual funds.
Some art funds are index funds, meaning they seek to replicate the returns of an art market index, similar to a traditional index like the S&P 500. Other art funds are equity funds that try to beat the market.
If you’re considering art funds, check the minimum investment to get started. Certain funds may be limited to accredited investors, or require you to have $20,000 or more to purchase shares.
Also, consider the fund’s expense ratio, which determines your cost of owning it yearly.
3. Art Stocks
Art stocks offer a slightly different way to invest in art. Rather than funding individual artworks, you might invest in publicly traded companies that:
• Manufacture art supplies
• Handle art restoration
• Sell art insurance
• Produce art prints
• Create digital art software programs or applications
• Create software or apps used by museums
This type of art investment is more tangential, but may be worth a look if you’re interested in the art world in its entirety, not just individual paintings or sculptures.
Similar to investing in art funds, consider the minimum investment required to buy shares. And study the stock’s past performance and risks to fully understand what you’re buying.
4. Non-Fungible Tokens (NFTs)
Non-fungible tokens or NFTs are digitized versions of various works, including art. NFTs and their owners are recorded on the blockchain so they can’t be duplicated or reproduced.
If you’re weighing NFTs, carefully consider the risks as well as the amount you plan to invest. A good rule of thumb for this type of investment may be to limit yourself only to what you can afford to lose.
5. Individual Works of Art
You might invest in art by purchasing individual pieces. Again, you may choose from blue-chip, established, or emerging artists.
The advantage is that you can decide when to sell and you’re not necessarily locked in for decades. Art flipping, a controversial practice in art circles, involves buying works of art and selling them quickly for a profit. It’s similar to house flipping, another type of alternative investment.
If you’re interested in buying individual pieces, you might buy them from:
• Galleries
• Private dealers
• Art auctions
Purchasing directly from the artist may also be an option, though this may require some negotiation to decide on a price.
Before buying a piece of art, consider the ongoing costs of ownership. For example, you may need to pay to have it professionally stored to avoid damage to the work. And depending on its value you may need to buy insurance for your investment.
The Takeaway
Art and other alternative investments can help you create a well-rounded portfolio. The important thing to remember is that art is an alternative investment, with specific risks and potential advantages. While you could make a profit with art investments, you could also lose money, so it’s wise to assess the risks before wading in.
Ready to expand your portfolio’s growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi’s easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it’s important to consider your portfolio goals and risk tolerance to determine if they’re right for you.
Invest in alts to take your portfolio beyond stocks and bonds.
FAQ
Is art a good investment?
Art can be a good investment for people who have sufficient means to invest and are comfortable with the various risks. It’s possible to realize higher returns from art investments compared to stocks or bonds, but it typically requires a longer holding period. Reduced liquidity can make art a less attractive investment for people who are looking for near-term gains.
How do you start investing in art?
You can start investing in art by deciding which strategy you’d like to pursue. Do you like the idea of owning fractional shares, or share in an art fund? Would you prefer to buy stock in art-related companies? Or do you feel confident in your taste, and budget, as a collector to purchase individual works? Be sure to vet your all-in costs, how long your money might be locked up, and whether there are risks with one choice versus another.
Why do millionaires invest in art?
Millionaires may invest in art for different reasons, ranging from a desire for higher returns to a passion for art as a collectible. As alternative investments go, art can be profitable, though it does take some knowledge of the market to assess which pieces are most likely to see the greatest appreciation.
Photo credit: iStock/Antonio_Diaz
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Investing in art can be a good idea, but there are a number of options and factors to take into account, such as: the type of art investment you might choose (i.e. art funds vs. individual works of art), the art market climate, your familiarity with artists and trends in the art world, and more.
Generally speaking, art is considered an alternative investment. The art market does not move in sync with traditional stock and bond markets, and therefore owning art in some capacity can provide portfolio diversification. But like any alternative asset, investing in art also comes with risks.
The art market is highly illiquid, art itself is not well regulated, collectors’ tastes are fickle — and thus what determines the value of certain works of art can be harder to predict than, say, shares of stock. So while investing in art could be a smart move, it requires careful research and a deep understanding of this asset class.
How Big Is the Art Market?
Most people are familiar with the high-priced sales of some pieces of art. Works by well-known and historically revered artists can sell for millions — as can contemporary works by artists who are increasingly popular. But despite a few big headliners, the art market is fairly small.
According to a 2023 industry report, global art sales increased by a modest 3%, to $67.8 billion in 2022. Sales were more robust in the United States in 2022, with 8% growth to $30.2 billion year over year. The U.S. is the world’s largest art market, with the U.K. and China being second and third largest.
💡 Quick Tip: Because alternative investments tend to perform differently than conventional ones, even under the same market conditions, alts may help diversity your portfolio, mitigate volatility, and provide a hedge against inflation.
Is Art a Good Investment?
Whether art is a good investment to a large degree depends partly on the work of art. For example, just as there are blue-chip stocks, there are blue-chip artworks that typically command higher prices and offer the potential for steady appreciation (although given the volatility of the art market, there are no guarantees).
But investing wisely in art also depends on the investor, and the vehicles they choose. For example, investing in individual art — similar to investing in individual stocks — requires a deep familiarity with that product and its market, as well as understanding the risks involved.
While you can invest in individual works of art, the value of any piece of art depends on its rarity, whether the artist is in demand, the historical and cultural significance of the work, as well as trends and market conditions.
However, these days investors can also choose to invest in art through art-related funds (similar to mutual funds), and fractional shares of art, which is analogous to investing in fractional shares of stock.
It’s also important for would-be investors to understand the role of collectors.
Art Collectors vs. Art Investors
The difference between art collectors and art investors is important to grasp. Most types of asset classes attract investors alone (with some exceptions, e.g. collectibles). Typically you don’t hear about people collecting stocks or mutual funds, for example.
In the case of the art market, however, collectors can play a role in art market trends as well as valuations. While investors, particularly high net-worth investors, may also influence sales, many collectors are long-time participants in the art market with years of familiarity with the ins and outs of many sectors, artists, dealers, galleries, domestic and international art fairs, and more.
Collectors may be steeped in a certain era or style (e.g. medieval religious statuary or Impressionist paintings), and committed to owning works long-term — for decades, or even generations.
By contrast, art investors may aim to acquire works that will gain value in a relatively short period (i.e. within a few years). This is where different types of art investment vehicles can come into play.
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What Makes a Good Art Investment?
Investing in art requires a certain mindset, and doing your due diligence to size up what constitutes the best opportunities for you, depending on your goals. It’s also important to understand some of the newer investment vehicles.
Individual Works
Investing in individual works requires knowledge of the artist, their current status (e.g. are they in demand or have they fallen out of favor?), the relevance or importance of a given work, and a sense of whether it’s overvalued or undervalued.
The risks of choosing individual works include the possibility of buying a fraudulent piece, the cost of owning and maintaining the work (including storage and insurance), and the uncertainty of knowing whether any given work will hold its value.
Buying individual works can also come with added charges, similar to investment fees (e.g. commissions and other costs). And given the fragility of most art, there is also the risk of physical damage or total loss.
Fractional Shares of Art
Owing to the high cost of purchasing and owning blue-chip works of art, it’s possible to buy fractional shares of art. This option is relatively new, but fractional shares of art are available on a growing number of platforms.
There are various systems for buying fractional art shares. One common way it can work: Investors purchase fractional shares of a work by a specific artist. The platform handles the maintenance and storage of the art, which is held for a period of time and then sold, ideally for a profit. If the sale is profitable, investors get a percentage of the gain, net of fees, commensurate with the percentage of the work they own.
The risk of buying fractional shares of art is that, as with any investment, there are no guarantees of a return. In addition, this is a financial strategy — fractional owners never have the pleasure of actually possessing the work.
Art Funds
Similar to traditional mutual funds and ETFs, an art fund is a type of pooled investment fund. But unlike conventional funds, art funds tend to be a long-term proposition. Art funds are structured typically as closed-end funds, but with a twist: investors typically contribute their capital over a period of three to five years, often with no returns for another specified time period (terms vary).
These funds are highly illiquid, and (in addition to the unpredictability of the art market itself) there are substantial risks to locking up your capital for what could be years, for an unspecified return upon redemption.
💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.
Risk Tolerance
Individual investors interested in exploring this type of alternative investment need to consider many factors, especially their stomach for risk. While all investments come with some degree of risk, the spectrum is wide when it comes to art, and there are many unknowns.
Perhaps the biggest factor is the capriciousness of the art world as a whole. For a couple of years, digital art, especially non-fungible tokens (NFTs), spiked in popularity and many people sold digital art at a profit — only to see demand plunge, taking prices along with it.
It’s a cautionary tale. Yet there is always the potential for a rebound, if digital art regains its appeal, or “antique” NFTs become a thing.
Investing in art also includes risk factors specific to owning fragile physical items, as well as the risk of total loss of capital if the investment you choose falls out of favor, or turns out to be a fake — or if a given fund manager makes a bad call.
Recommended: What Every Investor Should Know About Risk
Pros and Cons of Investing in Art
Taking all of the above into consideration, it’s important to weigh the advantages and disadvantages of investing in art.
Advantages
Art offers the potential for substantial returns.
There are many new opportunities for investing in art; would-be investors can consider art funds, fractional shares of art, and more.
Investing in art may offer portfolio diversification.
Some countries may offer tax breaks on art sales.
If you enjoy art and the art world, this type of investing can offer the potential for fun, travel, and aesthetic gratification.
Disadvantages
The art world is volatile and there is no way to know for sure what a given artist or work may be worth now or in years to come.
It’s difficult to authenticate works of art, and the risk of forgery is high.
Investing in art-related funds, stocks, or fractional shares are still relatively new types of instruments, and terms (fees, redemptions, illiquidity) may not be favorable.
Many types of physical artworks can be damaged or destroyed.
The current tax treatment of art gains in the United States is higher than long-term capital gains rates.
Pros
Cons
Potential for gains
Risk of losing money owing to art market volatility
New ways to invest in art; i.e. art funds, fractional shares
Like some alternative investments, art is not heavily regulated by the SEC
May provide portfolio diversification
Highly illiquid and opaque
Some countries offer tax breaks on art sales
Art gains subject to higher taxes than long-term capital gains
Owning art is aesthetically gratifying
Risk of damage and loss
Returns on Art Investments Over Time
Just as the art world is expanding to offer new options to investors, it’s also adopting certain investment world conventions, such as art indices. Now investors can consider the data provided by an index such as the Sotheby Mei Moses Index, which was modeled on the Case-Shiller Index for home prices.
That said, individual artworks are not securities — they are non-fungible and highly illiquid — and as such evaluating the “performance” of specific works or even certain sectors over time is difficult. Even taking into account the evolution of fractional art shares and art funds as investment vehicles, the lack of transparency around pricing (as well as regulation) can make it difficult for investors to make a satisfactory risk-reward assessment.
Unfortunately, this lack of transparency is part of the risk when investing in alternative assets.
The Takeaway
Investing in art offers some advantages, not least of which is the enjoyment of researching and purchasing individual works that fulfill a personal taste or passion. In addition, art is an alternative investment, meaning that it doesn’t move in tandem with traditional markets. As such, it can offer portfolio diversification.
But like many alternative assets, art can be highly volatile and illiquid. As a whole, although art investment opportunities have expanded into art funds and owning fractional shares of artworks, art as an investment is not transparent or well regulated. That said, for the right investor, this asset class may provide unique opportunities.
Ready to expand your portfolio’s growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi’s easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it’s important to consider your portfolio goals and risk tolerance to determine if they’re right for you.
Invest in alts to take your portfolio beyond stocks and bonds.
FAQ
What is the best art to invest in?
The best art to invest in is art you know well and has a value you feel confident in. That might be an individual piece by a certain artist, or it might be fractional shares in well-known or even famous works. Whatever route you choose, treat it like any other investment: do the necessary research, and understand the potential risks and rewards.
Will the art you choose increase in value?
As with any type of investment there are no guarantees. Some works of art appreciate steadily over time, some enjoy a sudden rise in value if market trends are favorable, while other art you might invest in could rapidly lose value. This is why it’s essential for any investor interested in art to fully understand how these alternative assets might fit into your portfolio, or not.
Photo credit: iStock/South_agency
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing. Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor’s risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds. Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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A security is any financial instrument with a fungible value (meaning a value that’s essentially equal) that investors can trade. Common securities include stocks, bonds, and index and mutual funds, as well as options and other derivatives that derive their value from other assets. Most securities trade on financial exchanges, and all play a role in aiming to build wealth for individuals, companies, and other investors.
What are securities in finance and how do they work? Here’s a glimpse inside the world of securities in trading.
What is a Security?
A security is a tradable investment vehicle that traders can buy and sell on financial exchanges or other platforms. In general, investors earn money by buying securities at a low price and selling them at a higher one.
Securities in finance have some monetary value; buyers and sellers determine their value when trading them. Securities vary in nature – stocks, for example, represent ownership in a company, while bonds are essentially loan vehicles where borrowers pay lenders interest for their loan money.
Here are some common security categories.
Equity Securities
This type of securities in finance includes stocks and stock funds. Typically traded on exchanges, the price of equity securities rise or fall depending on the economy, the performance of the underlying company that offers the stock (or companies in the fund), and the sector that company or fund operates. Individual stocks may also pay dividends to investors who own them. 💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
Debt Securities
This group includes bonds and other fixed-income vehicles where lenders borrow money from investors and pay an interest rate (i.e., the price for borrowing) on the investment principal. Bond issuers may include states, local and municipal governments, companies, and banks and other financial institutions. Typically, debt securities pay investors a specific interest rate paid usually twice per year until a maturity date, when the bond expires.
Some common debt securities include:
• Treasury bills. Issued by the U.S. government, T-Bills are considered among the safest securities.
• Corporate bonds. These are bonds issued by companies to raise money without going to the equity markets.
• Bond funds. These allow investors to get exposure to the bond market without buying individual bonds.
Derivatives
This group of securities includes higher-risk investments like options trading and futures which offer investors a higher rate of return but at a higher level of risk.
Derivatives are based on underlying assets, and it’s the performance of those assets that drive derivative security investment returns. For example, an investor can buy a call option based on 100 shares of ABC stock, at a specific price and at a specific time before the option contract expires. If ABC stock declines during that contract period, the call option buyer has the right to buy the stock at a reduced rate, thus locking in gains when the stock price rises again.
Derivatives allow investors to place higher-risk bets on stocks, bonds, and commodities like oil or gold, and currencies. Typically, institutional investors, such as pension funds or hedge funds, are more active in the derivative market than individual investors.
Hybrid Securities
A hybrid security combines two or more distinct investment securities into one security. For example, a convertible bond is a debt security, due to its fixed income component, but also has characteristics of a stock, since it’s convertible.
Hybrid securities sometimes act like debt securities, as when they provide investors with a floating or fixed rate of return, as bonds normally do. Hybrid securities, however, may also pay dividends like stocks and offer unique tax advantages of both stocks and bonds. 💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
How Security Trading Works
Securities often trade in open financial exchanges where investors can buy or sell securities with the goal of making a financial profit.
Stocks, for example, are listed on global stock exchanges and investors can purchase them during market trading hours. Exchanges are highly regulated and expected to comply with strict fair-trading mandates. For example, U.S.-based stock exchanges like the New York Stock Exchange or Nasdaq must adhere to the rules and regulations laid out by Congress and enforced by the U.S. Securities and Exchange Commission (SEC).
Each country has their own rules and regulations for fair and compliant securities trading, including oversight of stocks, bonds, derivatives, and other investment vehicles. Debt instruments, like bonds, usually trade on secondary markets while stocks and derivatives are traded on stock exchanges.
There are many ways for investors to engage in security trading. A few of the most common ones include:
Brokerage Accounts
Once an investor opens a brokerage account with a credentialed investment firm, they can start trading securities.
All a stock or bond investor has to do is fill out the required forms and deposit money to fund their investments. Investors looking to invest in higher-risk derivatives like options, futures, or currencies may have to fill out additional documentation proving their credentials as educated, experienced investors. They may also have to make larger cash deposits, as trading in derivatives is more complex and has more potential for risk.
Some investors with brokerage accounts can engage in margin trading, meaning that they trade securities using money borrowed from the broker.
Retirement Accounts
By opening a retirement account, through work or a bank or brokerage account, investors can invest in a range of securities, including stocks, mutual and index funds, bonds and bond funds, and annuities.
The type of securities you have access to will depend on the type of retirement account that you have. Workplace plans such as 401(k)s typically have fewer investment choices (but higher limits for tax-advantaged contributions) than Individual Retirement Accounts.
The Takeaway
There are many different types of securities that investors may purchase as part of their portfolio. Choosing which securities to invest in will depend on several factors, including your financial goals, current financial picture, and risk tolerance.
A great way to start building a portfolio of securities is by opening a brokerage account on the SoFi Invest® investment platform. Securities on the platform include stocks and exchange-traded funds.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Invest with as little as $5 with a SoFi Active Investing account.
FAQ
What are the four types of securities?
The four types of securities are: equity securities (such as stocks), debt securities (such as bonds), derivatives (such as higher-risk investments like options trading), and hybrid securities (such as convertible bonds).
What is a securities investment?
A securities investment is an investment in a security such as stocks, bonds, or derivatives. A security is a tradable type of investment that traders can buy and sell.
What’s the difference between securities and shares?
Stocks, also known as equity shares, are a type of security. The term “securities” refers to a range of different investments, one of which is stocks, or shares.
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SoFi Invest® SoFi Invest refers to the two investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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Rohit Chopra, director of the Consumer Financial Protection Bureau, defended the agency’s proposal to prevent credit bureaus from considering medical debt in consumer credit scores will have little impact on creditors because medical debt has “little predictive value in credit decisions.”
Bloomberg News
A proposal by the Consumer Financial Protection Bureau to ban medical debt from credit reports is drawing the ire of the financial services industry, which claims not enough has been done to study the root cause of the problematic medical billing: The fractured health care system.
Advocates have been pushing for years for the CFPB to take medical debt off credit reports, claiming millions of consumers are pursued for debts they don’t owe or that are inaccurate. In September, the CFPB released an outline of a sweeping proposal to amend the Fair Credit Reporting Act. The plan was announced by Vice President Kamala Harris from the White House, with CFPB Director Rohit Chopra saying that medical debt has “little predictive value in credit decisions.”
In comments that closed last week about the proposal, financial firms and trade groups said that if enacted, the plan would restrict lending, increase costs and result in more denials of credit to low- and moderate-income consumers. Experts claim the CFPB’s proposal would make credit reports less accurate, increasing risks for lenders.
“Conceptually, the CFPB is getting into a dangerous place, because they’re saying medical debt doesn’t have predictive value — and that’s not their job,” said Kim Phan, a partner at the law firm Troutman Pepper, who focused on privacy and data security. “The industry has the right to decide what has value and what doesn’t.”
The CFPB said it expects to publish a report in December summarizing the feedback it received on its proposal from small businesses that will include written comments from stakeholders. Next year, the bureau plans to issue a notice of proposed rulemaking that will give the public an opportunity to comment on the plan before it is finalized.
Phan said that unless the CFPB scales back the proposal or makes changes, she expects the bureau will be sued by a trade group or credit bureau once a final rule has been issued. Taking medical debt off credit reports impacts a consumer’s credit capacity, which is one of the seven factors of credit used in underwriting decisions, Phan said.
“If a consumer earns $30,000 a year and just took on $100,000 of medical debt, their capacity to take on new credit is much more restricted,” Phan said.
The CFPB estimates that roughly 100 million people struggle with unpaid medical bills. The scope of the problem is so large that roughly 50 consumer groups banded together to urge the CFPB to take action.
Chi Chi Wu, senior attorney at the National Consumer Law Center, said consumers get stuck with unpaid medical bills for many reasons, though the majority are due to an insurance company denying a claim, paying only part of a claim or a health care provider demanding payment.
“Medical bills are complicated and bizarre and bureaucratic because, unlike a credit card, where the consumer has bought something, a third party is involved in the payment process,” said Wu, who is the lead author of the legal manual Fair Credit Reporting. “Everybody knows the health care system in this country is a mess. Consumers are asking why they got a bill when the insurance company was supposed to cover it.”
Still, collectors say that taking medical debt off credit reports does not tackle the underlying problems with medical billing disputes. Consumers will still owe the debt and the CFPB will be taking away a traditional tool that creditors use to spur debtors to pay: The threat of nonpayment that impacts a consumer’s credit score.
“Just because the debt is not on a credit report doesn’t mean the consumer doesn’t have to pay it,” said Jennifer Whipple, president of Collection Bureau Services, a family-owned debt collection agency in Missoula, Mont. “The proposal is not addressing the issue the CFPB is trying to fix in terms of people having insurance billing or denial issues or unsupportable health care.”
Earlier this year, the three credit bureaus, Equifax, Experian and TransUnion, agreed to remove medical debts of $500 or less from credit reports, which represented roughly 70% of all medical debts. Debt collectors want the CFPB to study the impact of that change, with a focus on health care providers not being paid, before removing the remaining 30% of medical debts still on credit reports.
“It’s too important an issue not to study and not to use data-driven analysis,” said Scott Purcell, CEO of ACA International, the trade group for collectors and creditors.
Whipple, who is the treasurer of ACA, said the CFPB’s message to consumers is that they do not have to pay their medical bills because there will be no impact to their credit. That kind of message, she said, could result in some consumers thinking they don’t need to pay for health care coverage at all.
“If the message is that medical bills won’t be on a credit report, then consumers may think they don’t need to pay a high premium every month or maybe even carry health insurance,” Whipple said. “Folks on Medicare or Medicaid will think they don’t owe the debt and so they may not take the time to fill out the forms to continue to get coverage.”
Banning medical debt from credit reports is just one piece of the CFPB’s proposal, which would subject a wide range of companies to the Fair Credit Reporting Act’s requirements. The plan also has been criticized for restricting the sale of so-called credit header data by the three main credit bureaus, which some experts say could potentially cut off critical information to law enforcement agencies.
The FCRA requires that information on credit reports to be accurate, and was intended to provide a way for consumers to dispute erroneous information on credit reports and give creditors an unbiased and fungible metric of a borrower’s ability to repay. In its proposal, the CFPB said that consumer complaints about medical debt underscore how ineffective, time-consuming and costly the dispute process has become. Legal experts say the CFPB’s proposed changes will reverberate throughout the financial ecosystem with unknown consequences.
“Medical debt is an insurance problem, and to say you can’t collect it or report it doesn’t solve the insurance issues and it also doesn’t help poor people,” said Joann Needleman, a practice leader and member of the law firm Clark Hill.
Wu, at the National Consumer Law Center, said consumers often find out about a medical debt when they try to buy a car or refinance their mortgage and are told that they can’t get approved for a loan.
“Consumers will pay the debt because they don’t have time to go back and dispute it,” she said.
Andrew Nigrinis, an economist at Legal Economics LLC and a former CFPB economist, said the CFPB did not provide a valid economic analysis of the impact of the proposal. He also said the CFPB’s research that found removing medical debt would increase credit scores was hardly a surprise.
“It’s the same logic that if you took away mortgage delinquencies from credit reports, then obviously credit scores would go up,” he said. “It’s not a profound result.”
Medical debt is a major problem for states that failed to implement the expansion of Medicaid under the Affordable Care Act and have a high percentage of uninsured residents. In a study he conducted for the collections industry, Nigrinis found that the loss of predictive information on credit reports would result in more lending to unqualified borrowers, higher litigation costs to collect debts, and lost income for medical providers due to nonpayment of services.
“The debt collection industry is very competitive and they pass costs on to consumers,” he said. “Presumably, debt collection rates would go up and so would costs of financing and denials of financing.”
Needleman added that the CFPB “is deciding which debts that a consumer should pay — and that’s not their role.”
The views and opinions expressed in this article are those of the author only and are not endorsed by Credit.com.
By now, almost everyone has heard of the term cryptocurrency. You may have even considered investing in it. Moreover, a common term you’ve probably heard several times in the past few months is blockchain technology.
What is blockchain technology? Don’t worry; you’re not alone. Even though blockchain technology has been around for more than a decade, people have only recently noticed it because of its potential uses in various industries.
You want to be fully educated on the different terms and technology before investing thousands of dollars into anything. Today, we will explain blockchain technology and discuss some of its applications. Time to blockchain!
what is blockchain technology
What Is Blockchain Technology, and What Does It Do?
At its most basic level, a blockchain is a type of shared database that differs from a typical database. It stores information; blockchains store data in blocks linked together via cryptography. As new data comes in, it goes into a new block. Once the block fills up with data, it gets chained onto the previous block, which makes the data chained together in chronological order.
You can store different types of information on a blockchain, but the most common use has been as a ledger for transactions. For example, when you purchase using Bitcoin, the transaction is recorded on the Bitcoin blockchain.
Other users on the network then verify a transaction like this, and once it is confirmed, it cannot be altered or deleted. This feature makes blockchain-based transactions much more secure and transparent than traditional transactions processed by banks or other financial institutions.
So, what are some potential applications of blockchain technology? Of course, the most obvious application of blockchain technology is in the financial sector. Many banks and financial institutions are already experimenting with blockchain-based transactions and exploring ways to use this technology to make their services more efficient and secure.
How Did Blockchain Technology Come About, and Who Created It?
The first blockchain was created in 2009 by an anonymous person or group known as Satoshi Nakamoto. The original purpose of the blockchain was to facilitate digital transactions using Bitcoin, but the potential uses of blockchain technology quickly became apparent to developers and entrepreneurs in other industries. Looking back in the past ten years, a silent revolution called “Blockchain technology” hit us, which resulted in significant innovations such as:
Bitcoin
Bitcoin is the first and most well-known blockchain innovation. It was a proof-of-concept digital currency that launched in 2009. Although its price has fluctuated widely, bitcoin’s market capitalization now hovers between $10 billion and $20 billion. With the help of Acorns and other micro-investing alternatives, millions of people use blockchain technology for transactions, including remittances.
Smart Contracts
Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller directly written into lines of code. The code and the agreements contained therein exist across a decentralized blockchain network, eliminating the need for a middleman.
Ethereum, one of the most popular blockchain platforms, is built specifically for smart contracts and ICOs. One of the most significant applications of smart contracts is in the area of Initial Coin Offerings or ICOs.
Proof of Stake
Proof of stake (PoS) is an algorithm that rewards users based on how many coins they hold. For example, if a user has 100 coins, they will be able to mine or validate block transactions in proportion to their stake.
This algorithm provides an alternative to the energy-intensive proof-of-work (PoW) algorithm, which Bitcoin and other major cryptocurrencies use. While proof of stake was first proposed in 2011, it is only now that we are seeing it implemented on a large scale with projects such as Ethereum, Cardano, and EOS.
Blockchain Scaling
One of the challenges facing blockchain technology is scalability. Currently, the Bitcoin network can process only 4.6 transactions per second, and the Ethereum network can manage around 15. In comparison, Visa can handle 65,000 transactions per second.
One way to address the scalability issue is through off-chain or sidechain solutions such as the Lightning Network or Plasma. These solutions allow for transactions to be processed off the main blockchain, which frees up space on the blockchain and allows for faster transaction times.
This field’s innovation landscape is just more than ten years old, and a team of computer scientists, cryptographers, and mathematicians built it. Of course, it’s hard to predict the future of such a young technology, but one thing is for sure – the potential uses of blockchain technology are far-reaching, and the possibilities are endless.
What Are Some of the Most Popular Applications for Blockchain Technology Today?
We all know that blockchain technology is a game-changer and has helped people make money online, but what are some of today’s most popular applications? The most popular application for blockchain technology is in the financial sector. People can use blockchain to streamline transactions and reduce costs.
Other popular applications of blockchain technology include:
Non-fungible tokens or NFTs
Logistic and supply chain network
Data Storage
Casino and gambling industry
Money transfers
Digital royalties
The possibilities are endless! So far, we’ve only scratched the surface of what blockchain can do. As more people begin to understand the potential of this technology, we will likely see even more innovative applications for it.
How Secure Is Blockchain Technology, and Why Is That So Important?
Experts praise blockchain technology for its security. The fact that blockchain technology is decentralized is what makes it so secure. Because there is no central point of control, there is no single point of failure. Hackers would need to attack every node in the network to tamper with the data successfully.
Another reason why blockchain technology is so secure is because of the way the data is stored. In a traditional database, the information is stored in a single location. This limitation makes it easy for hackers to target and manipulate. However, the data is spread across the network with blockchain technology, making it more protected from tampering.
Unless you have more powerful computers than the rest of the nodes combined, any attempts to alter or manipulate it will conflict with prior ones and be automatically dismissed. This reason is what makes the blockchain unchangeable or impervious to tampering.
What Are Some of the Disadvantages of Blockchain Technology?
The main disadvantage of blockchain technology is that it is still in its infancy. This truth means that there are a lot of unknowns and a lot of risks. For businesses, this can be a significant barrier to adoption.
In terms of cost, blockchain technology is still costly. The hardware and software required to run a blockchain network can be pretty expensive, and there is also the cost of hiring people with the necessary skills to maintain and operate the network. As a result, organizations that do not have the resources or budget to implement blockchain may need to wait even longer before joining the movement.
Another disadvantage is that blockchain technology is not very scalable (by default). Each node in the network needs to process and verify each transaction, making it difficult to handle large volumes of transactions. In other words, the more people or nodes join the network, the greater the risk of slowing down.
Finally, blockchain technology is not very energy-efficient. The miners must solve complex problems whenever the ledger gets updated with a new transaction, which requires a significant amount of energy. In addition, each node in the network needs to be constantly running and can use up a lot of energy.
To sum it up, here are the main disadvantages of blockchain technology:
Still in infancy
Scalability issue
High cost
It’s not particularly energy-efficient
Despite these disadvantages, blockchain technology has a lot of potential. As technology matures, we are likely to see more businesses adopt it. With time, the disadvantages of blockchain technology may become less and less significant.
How Will Blockchain Technology Change the Way We Do Business and Interact with Each Other Online?
This question is what many people are asking as blockchain technology begins to enter the mainstream. While the full potential of blockchain technology is still unknown, it has the potential to revolutionize many industries and change the way we interact with each other online.
One of the most promising aspects of blockchain technology is its ability to create a trustless system. In a trustless system, two parties can interact without the need for a third party to mediate or verify the transaction. This system could potentially reduce the cost of doing business and make it easier to conduct transactions online.
Another potential use for blockchain technology is in the area of data security. For example, people can use blockchain technology to create a secure decentralized database from hacks and data breaches.
Blockchain is decentralized, encrypted, and cross-checked, ensuring highly secure data. Furthermore, it is virtually impossible to hack all of the nodes since blockchain is jam-packed with nodes, and trying to hack most of them at the same time would be fruitless. This feature could potentially revolutionize the way we store and protect our data.
Some experts predict that blockchain will overhaul how the internet works and how individuals interact with one another online. For example, web3, which they dub the new internet, is starting to take form and traction with the help of blockchain, which merits a separate discussion and will be the topic of my future blog post.
Final Thoughts
The potential implications of blockchain technology are vast and could revolutionize the way we interact with the digital world. So far, people most commonly use blockchain as a ledger for transactions, but there are many other potential applications for this innovative technology.
We’re still in the early days of blockchain development, so it will be exciting to see how this technology continues to evolve and change the way we do business. Have you tried out any blockchain-based applications yet? If not, now is a great time to start!
This article originally appeared onWealth of Geeks and has been republished here with permission.
NFTs or non-fungible tokens have gained a lot of momentum in the last few months. Whether it’s because of the digital art, the technology behind them, the money-making potential, or a simple case of FOMO, people can’t get enough of them.
Each day, we wake up to stories of artists and celebrities buying and selling NFTs for insane amounts. Case and point? Eminem recently shelled out 123.45 Ethereum (currently worth over $400K) for a Bored Ape NFT — and that’s not even the most expensive one in the market.
Eminape NFT; Source: The Guardian
As someone who’s crawling herself out of student debt and on a budget, paying six figures for a digital asset is simply out of the question.
But are all NFTs that expensive? Or is there a way to start small?
I talked to NFT trader investor, consultant, advisor, and founder Ish Verduzco to find out, and, to my surprise, his answers were very promising.
What’s Ahead:
Do you have to be rich to invest in NFTs?
Last March, digital artist Mike Winkelmann, better known as “Beeple,” made headlines when an NFT of his work was sold for a record-breaking $69 million.
Then, we saw Snoop Dogg and Grimes buying and selling NFTs for six and seven figures, while Paris Hilton joined forces with Bill Ackman to back a $300 million NFT Foundation.
With figures like that, it’s easy to think that NFTs are some sort of exclusive investment that only the rich can afford. However, that couldn’t be further from the truth — at least that’s what both Verduzco and the data say. Verduzco says:
“Yes, there is some level of barrier to entry at the moment. But I wouldn’t say that they’re for the ultra-rich either…I think there’s an opportunity to get in.”
What makes NFTs more expensive than your average investment is that most of them are minted through smart contracts that live in the Ethereum blockchain, which Verduzco says is one of the most expensive ones, partly due to the gas fees.
Gas fees are basically the transaction fees of the Ethereum network. These fees are non-refundable, and must be charged to cover the costs of the energy used by the computers when validating and recording each NFT transaction. Verduzco says:
“To give you a very quick overview, it can cost like $50 to a few $100 just to transact, plus the cost of the NFT itself.”
So, how much money do you need to start investing in NFTs?
A recent study by Canadian concept artist Kimberly Parker, which analyzed public API data from sales on popular NFT marketplaces, like OpenSea, Nifty Gateway, Rarible, SuperRare, and MakersPlace, found that most NFTs are actually sold for under $200.
That’s right, you don’t need six figures — not even four figures, to own an NFT.
Verduzco says that a good amount to get started would be $500, which isn’t outrageous. After all, popular investment firms, like Wealthfront and E*TRADE, require minimum deposits of that same amount for you to start investing in their automated portfolios.
Read more: What Is An NFT? – How Nyan Cat Was Sold For $600,000
Why now may be a good time to get into NFTs
Many crypto and NFT experts — Verduzco included, think that the blockchain and smart contract technology behind NFTs will spread like wildfire across multiple industries, changing the world as we know it.
“It’s going to be integrated into almost everything we do,” Verduzco says.
“It’s not just going to be just art, it’s going to go into music, it’s going to go into film, it’s going to go into transacting things like deeds to houses, and anything that has to do with verification of ownership.”
Here’s a quick example of how this could work:
When you’re buying a house, the bank needs to make sure that the title is free and clear before closing on the loan. This process alone can take two weeks, and you’ll have to pay additional fees to the third-party company conducting the search.
But if the house was registered and sold as an NFT, for example, each transaction pertaining to that property would’ve been accounted for and recorded in the blockchain. So, clearing the title would only take a couple of hours instead of weeks, and you’d be able to get rid of the middleman and unnecessary fees.
Although the concept of NFTs is still in its early stages, Verduzco says that “it’s better to be ahead,” and — if possible — invest in it, so you learn the inner workings firsthand.
This will allow you “to spot more opportunities to make money, or find other people that are in this space who compliment your strengths and weaknesses in order to build projects based on needs.”
How to start investing in NFTs when you’re on a budget
As part of my convo with Verduzco, we bounced off some ideas on how you can get into the NFT game without breaking the bank. These are a few of them.
Read more: How To Create And Sell NFTs – The New Way To Sell Your Art
Explore NFT projects that use cheaper cryptocurrencies
If you visit OpenSea, which is currently the world’s largest NFT market, you’ll see that the vast majority of NFTs listed there use the Ethereum network (aka the most expensive NFT blockchain).
But just because most NFTs use this blockchain, that doesn’t mean that there aren’t other options.
Blockchains like Solana and Polygon (which was created as an efficient solution to the Ethereum network and is compatible with it) use cryptocurrencies that are much cheaper than ether, which is Ethereum’s currency.
Here’s an example:
At the moment this article was written, one SOL, which is Solana’s cryptocurrency, was worth $0.26, while one MATIC, which is Polygon’s cryptocurrency, was worth $2.13. But, if you wanted to purchase one ether, which is Ethereum’s cryptocurrency, you’d need $3,121.93 to do so.
So, yeah, there’s a huge difference there.
These alternative blockchains are also rising in popularity. JPMorgan recently released a report in which it states that the Ethereum blockchain is losing a chunk of its market share to Solana, as the blockchain is less congested (aka faster) and cheaper to invest in than Ethereum.
If you’re interested in buying NFT projects that use the Solana network, you can check out marketplaces like Solsea and Solanart, to find them.
When it comes to projects that use Polygon, you can find them just by visiting OpenSea. To see all the NFTs you can place bids on or buy using this network, simply click on the “Chains” option on the left panel, and select “Polygon.”
Mint a project
When you mint a project, you’re basically investing in it before it actually goes live. So, you could think of it as the Kickstarter of an NFT project. Verduzco says:
“The initial mint is usually like 0.05 Ethereum, which is a relatively small amount. If you happen to make it in that initial mint, then you pay only 0.05 Ethereum, versus if the project goes up in value, and then it costs 0.7, or much higher.”
One good example of an NFT project that is currently in its minting phase, and that I happen to like a lot is the Lucky Goat. You can currently mint this project for 0.0777 Ethereum ($243.43).
Source: luckygoat.org
What has me rooting for the Lucky Goat (besides the art, of course) is that they donate some of their profits to Heifer International, which is a nonprofit whose mission is to help eradicate hunger and poverty.
So, how do you find projects to mint?
Twitter. If you enter “#mint” or “#NFT” on Twitter’s search bar, you’ll find countless threads of founders and artists sharing their upcoming NFT projects.
Discord. In case you don’t know what Discord is, it is a group-chatting app, where users join servers (aka private groups) to chat about a specific topic. Many NFT founders use this app to talk about their upcoming NFT projects, to get both support and feedback from users.
rarity.tools.Although this website is mostly used by NFT traders to vet projects and find rankings based on their rarity or unique traits, it also has an Upcoming NFT Sales section, where you can check projects to mint.
OpenSea’s homepage. They often share new mints, and you can easily browse through their huge NFT market.
But be careful…
Before minting a project, Verduzo says it’s super important to ensure its legitimacy, so you don’t get rugged (NFT lingo for “scammed”). Sadly, just like in any space, there are always bad players that are just there to do a quick cash grab and disappear.
To avoid this, make sure you research the project thoroughly by finding out all you can about its community, founders, and mission, as well as how long they’ve been around in this space.
Why?
If the project disappears into the mist, your NFT most likely will lose all its value, unless someone else decides to take over the project.
Time your purchase
Unlike the stock market, which is open for transactions Monday through Friday, from 9:30 a.m. to 4:00 p.m. ET, the NFT market is a global market that is open 24/7.
“So, it’s not just you and everybody else in the United States that you’re transacting with, it’s everybody in the entire world who has access to the Internet,” Verduzco says.
And, the more people that are trying to conduct transactions on the Ethereum network, the more congested it will be, which automatically translates to higher gas fees. This will hopefully be improved once Ethereum 2.0 (also known as the consensus layer) is fully rolled out.
One way to spend less money when buying NFTs is to ensure you conduct your transactions during the time of the day when the network is less congested.
Verduzco says that 11:00 a.m. to 1:00 p.m. PST is probably the worst time of the day to buy NFTs because that’s when most people around the world are awake. He suggests timing your transactions to random hours when most people are sleeping, like 2:00 a.m. or 5:00 a.m. PST. Though not always practical, it can help save a good amount of money.
You can also track gas prices by visiting the ETH Gas Station.
Become an NFT expert
Since NFTs are still an emerging concept, Verduzco says that one way you can make money in this space, without being an investor, is by learning all you can about them.
“It doesn’t always have to be investing in an NFT collection, in order to get a return,” Verduzco says.
“Understanding everything about the NFT space and becoming very good on one specific skill set, whether it’s social media marketing, community management, creating Discords, branding, or content creation, is going to provide value because, all of a sudden, you open yourself up to many job opportunities.”
In other words, you’ll be able to profit from your NFT knowledge as this technology becomes more widespread, and companies start searching for people who know their way around this space.
Before investing in NFTs…
Make sure your finances are in order
Investing in NFTs represents a higher risk than investing in traditional stocks or bonds, as their value is determined by speculation, so it fluctuates more than with your average investment.
Besides that, once you purchase an NFT, the transaction is final, and flipping them or reselling them could take a while. That’s why it’s so important you only invest money you have to spare, and not money you’re going to need short-term, as this could result in a financial disaster.
Learn as much as you can
“I would suggest investing your time and energy on learning before putting your money up,” Verduzco says.
“Find really cool projects that you like, and then join the Discords, listen to conversations, ask questions, watch a bunch of videos, read a bunch of blogs before you even think about putting Ethereum in your wallet to spend.”
Learning as much as you can about NFTs will give you a realistic idea of what to expect, plus determine whether you’re ready to take the plunge, or if you should wait a little longer before investing in this space.
If you’re curious about learning, you can check out podcasts, like a16z, which has extensive information on this topic, as well as reading books, like The NFT Handbook: How to Create, Sell and Buy Non-Fungible Token, to get started.
Additionally, Verduzco’s Twitter account is like a gold mine of NFT info, as he frequently shares projects, articles, and tips to help people learn more about this space.
Summary
You don’t have to be a millionaire to invest in NFTs, however, there’s a learning curve to be successful in this space.
The most important thing is to learn as much as you can about it, vet projects carefully, understand the risks associated with investing in such a volatile space, and make sure you don’t use money you’re gonna need. This will allow you to make the most out of your experience.
In Best Low-Risk Investments for 2023, I provided a comprehensive list of low-risk investments with predictable returns. But it’s precisely because those returns are low-risk that they also provide relatively low returns.
In this article, we’re going to look at high-yield investments, many of which involve a higher degree of risk but are also likely to provide higher returns.
True enough, low-risk investments are the right investment solution for anyone who’s looking to preserve capital and still earn some income.
But if you’re more interested in the income side of an investment, accepting a bit of risk can produce significantly higher returns. And at the same time, these investments will generally be less risky than growth stocks and other high-risk/high-reward investments.
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Determine How Much Risk You’re Willing to Take On
The risk we’re talking about with these high-yield investments is the potential for you to lose money. As is true when investing in any asset, you need to begin by determining how much you’re willing to risk in the pursuit of higher returns.
Chasing “high-yield returns” will make you broke if you don’t have clear financial goals you’re working towards.
I’m going to present a large number of high-yield investments, each with its own degree of risk. The purpose is to help you evaluate the risk/reward potential of these investments when selecting the ones that will be right for you.
If you’re looking for investments that are completely safe, you should favor one or more of the highly liquid, low-yield vehicles covered in Best Low-Risk Investments for 2023. In this article, we’re going to be going for something a little bit different. As such, please note that this is not in any way a blanket recommendation of any particular investment.
Best High-Yield Investments for 2023
Table of Contents
Below is my list of the 18 best high-yield investments for 2023. They’re not ranked or listed in order of importance. That’s because each is a unique investment class that you will need to carefully evaluate for suitability within your own portfolio.
Be sure that any investment you do choose will be likely to provide the return you expect at an acceptable risk level for your own personal risk tolerance.
1. Treasury Inflation-Protected Securities (TIPS)
Let’s start with this one, if only because it’s on just about every list of high-yield investments, especially in the current environment of rising inflation. It may not actually be the best high-yield investment, but it does have its virtues and shouldn’t be overlooked.
Basically, TIPS are securities issued by the U.S. Treasury that are designed to accommodate inflation. They do pay regular interest, though it’s typically lower than the rate paid on ordinary Treasury securities of similar terms. The bonds are available with a minimum investment of $100, in terms of five, 10, and 30 years. And since they’re fully backed by the U.S. government, you are assured of receiving the full principal value if you hold a security until maturity.
But the real benefit—and the primary advantage—of these securities is the inflation principal additions. Each year, the Treasury will add an amount to the bond principal that’s commensurate with changes in the Consumer Price Index (CPI).
Fortunately, while the principal will be added when the CPI rises (as it nearly always does), none will be deducted if the index goes negative.
You can purchase TIPS through the U.S. Treasury’s investment portal, Treasury Direct. You can also hold the securities as well as redeem them on the same platform. There are no commissions or fees when buying securities.
On the downside, TIPS are purely a play on inflation since the base rates are fairly low. And while the principal additions will keep you even with inflation, you should know that they are taxable in the year received.
Still, TIPS are an excellent low-risk, high-yield investment during times of rising inflation—like now.
2. I Bonds
If you’re looking for a true low-risk, high-yield investment, look no further than Series I bonds. With the current surge in inflation, these bonds have become incredibly popular, though they are limited.
I bonds are currently paying 6.89%. They can be purchased electronically in denominations as little as $25. However, you are limited to purchasing no more than $10,000 in I bonds per calendar year. Since they are issued by the U.S. Treasury, they’re fully protected by the U.S. government. You can purchase them through the Treasury Department’s investment portal, TreasuryDirect.gov.
“The cash in my savings account is on fire,” groans Scott Lieberman, Founder of Touchdown Money. “Inflation has my money in flames, each month incinerating more and more. To defend against this, I purchased an I bond. When I decide to get my money back, the I bond will have been protected against inflation by being worth more than what I bought it for. I highly recommend getting yourself a super safe Series I bond with money you can stash away for at least one year.”
You may not be able to put your entire bond portfolio into Series I bonds. But just a small investment, at nearly 10%, can increase the overall return on your bond allocation.
3. Corporate Bonds
The average rate of return on a bank savings account is 0.33%. The average rate on a money market account is 0.09%, and 0.25% on a 12-month CD.
Now, there are some banks paying higher rates, but generally only in the 1%-plus range.
If you want higher returns on your fixed income portfolio, and you’re willing to accept a moderate level of risk, you can invest in corporate bonds. Not only do they pay higher rates than banks, but you can lock in those higher rates for many years.
For example, the average current yield on a AAA-rated corporate bond is 4.55%. Now that’s the rate for AAA bonds, which are the highest-rated securities. You can get even higher rates on bonds with lower ratings, which we will cover in the next section.
Corporate bonds sell in face amounts of $1,000, though the price may be higher or lower depending on where interest rates are. If you choose to buy individual corporate bonds, expect to buy them in lots of ten. That means you’ll likely need to invest $10,000 in a single issue. Brokers will typically charge a small per-bond fee on purchase and sale.
An alternative may be to take advantage of corporate bond funds. That will give you an opportunity to invest in a portfolio of bonds for as little as the price of one share of an ETF. And because they are ETFs, they can usually be bought and sold commission free.
You can typically purchase corporate bonds and bond funds through popular stock brokers, like Zacks Trade, TD Ameritrade.
Corporate Bond Risk
Be aware that the value of corporate bonds, particularly those with maturities greater than 10 years, can fall if interest rates rise. Conversely, the value of the bonds can rise if interest rates fall.
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4. High-Yield Bonds
In the previous section we talked about how interest rates on corporate bonds vary based on each bond issue’s rating. A AAA bond, being the safest, has the lowest yield. But a riskier bond, such as one rated BBB, will provide a higher rate of return.
If you’re looking to earn higher interest than you can with investment-grade corporate bonds, you can get those returns with so-called high-yield bonds. Because they have a lower rating, they pay higher interest, sometimes much higher.
The average yield on high-yield bonds is 8.29%. But that’s just an average. The yield on a bond rated B will be higher than one rated BB.
You should also be aware that, in addition to potential market value declines due to rising interest rates, high-yield bonds are more likely to default than investment-grade bonds. That’s why they pay higher interest rates. (They used to call these bonds “junk bonds,” but that kind of description is a marketing disaster.) Because of those twin risks, junk bonds should occupy only a small corner of your fixed-income portfolio.
High Yield Bond Risk
In a rapidly rising interest rate environment, high-yield bonds are more likely to default.
High-yield bonds can be purchased under similar terms and in the same places where you can trade corporate bonds. There are also ETFs that specialize in high-yield bonds and will be a better choice for most investors, since they will include diversification across many different bond issues.
5. Municipal Bonds
Just as corporations and the U.S. Treasury issue bonds, so do state and local governments. These are referred to as municipal bonds. They work much like other bond types, particularly corporates. They can be purchased in similar denominations through online brokers.
The main advantage enjoyed by municipal bonds is their tax-exempt status for federal income tax purposes. And if you purchase a municipal bond issued by your home state, or a municipality within that state, the interest will also be tax-exempt for state income tax purposes.
That makes municipal bonds an excellent source of tax-exempt income in a nonretirement account. (Because retirement accounts are tax-sheltered, it makes little sense to include municipal bonds in those accounts.)
Municipal bond rates are currently hovering just above 3% for AAA-rated bonds. And while that’s an impressive return by itself, it masks an even higher yield.
Because of their tax-exempt status, the effective yield on municipal bonds will be higher than the note rate. For example, if your combined federal and state marginal income tax rates are 25%, the effective yield on a municipal bond paying 3% will be 4%. That gives an effective rate comparable with AAA-rated corporate bonds.
Municipal bonds, like other bonds, are subject to market value fluctuations due to interest rate changes. And while it’s rare, there have been occasional defaults on these bonds.
Like corporate bonds, municipal bonds carry ratings that affect the interest rates they pay. You can investigate bond ratings through sources like Standard & Poor’s, Moody’s, and Fitch.
Fund
Symbol
Type
Current Yield
5 Average Annual Return
Vanguard Inflation-Protected Securities Fund
VIPSX
TIPS
0.06%
3.02%
SPDR® Portfolio Interm Term Corp Bond ETF
SPIB
Corporate
4.38%
1.44%
iShares Interest Rate Hedged High Yield Bond ETF
HYGH
High-Yield
5.19%
2.02%
Invesco VRDO Tax-Free ETF (PVI)
PVI
Municipal
0.53%
0.56%
6. Longer Term Certificates of Deposit (CDs)
This is another investment that falls under the low risk/relatively high return classification. As interest rates have risen in recent months, rates have crept up on certificates of deposit. Unlike just one year ago, CDs now merit consideration.
But the key is to invest in certificates with longer terms.
“Another lower-risk option is to consider a Certificate of Deposit (CD),” advises Lance C. Steiner, CFP at Buckingham Advisors. “Banks, credit unions, and many other financial institutions offer CDs with maturities ranging from 6 months to 60 months. Currently, a 6-month CD may pay between 0.75% and 1.25% where a 24-month CD may pay between 2.20% and 3.00%. We suggest considering a short-term ladder since interest rates are expected to continue rising.” (Stated interest rates for the high-yield savings and CDs were obtained at bankrate.com.)
Most banks offer certificates of deposit with terms as long as five years. Those typically have the highest yields.
But the longer term does involve at least a moderate level of risk. If you invest in a CD for five years that’s currently paying 3%, the risk is that interest rates will continue rising. If they do, you’ll miss out on the higher returns available on newer certificates. But the risk is still low overall since the bank guarantees to repay 100% of your principle upon certificate maturity.
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7. Peer-to-Peer (P2P) Lending
Do you know how banks borrow from you—at 1% interest—then loan the same money to your neighbor at rates sometimes as high as 20%? It’s quite a racket, and a profitable one at that.
But do you also know that you have the same opportunity as a bank? It’s an investing process known as peer-to-peer lending, or P2P for short.
P2P lending essentially eliminates the bank. As an investor, you’ll provide the funds for borrowers on a P2P platform. Most of these loans will be in the form of personal loans for a variety of purposes. But some can also be business loans, medical loans, and for other more specific purposes.
As an investor/lender, you get to keep more of the interest rate return on those loans. You can invest easily through online P2P platforms.
One popular example is Prosper. They offer primarily personal loans in amounts ranging between $2,000 and $40,000. You can invest in small slivers of these loans, referred to as “notes.” Notes can be purchased for as little as $25.
That small denomination will make it possible to diversify your investment across many different loans. You can even choose the loans you will invest in based on borrower credit scores, income, loan terms, and purposes.
Prosper, which has managed $20 billion in P2P loans since 2005, claims a historical average return of 5.7%. That’s a high rate of return on what is essentially a fixed-income investment. But that’s because there exists the possibility of loss due to borrower default.
However, you can minimize the likelihood of default by carefully choosing borrower loan quality. That means focusing on borrowers with higher credit scores, incomes, and more conservative loan purposes (like debt consolidation).
8. Real Estate Investment Trusts (REITs)
REITs are an excellent way to participate in real estate investment, and the return it provides, without large amounts of capital or the need to manage properties. They’re publicly traded, closed-end investment funds that can be bought and sold on major stock exchanges. They invest primarily in commercial real estate, like office buildings, retail space, and large apartment complexes.
If you’re planning to invest in a REIT, you should be aware that there are three different types.
“Equity REITs purchase commercial, industrial, or residential real estate properties,” reports Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance, Heider College of Business, Creighton University and co-author of several books, including The Tools and Techniques Of Investment Planning, Strategic Value Investing and Investment Banking for Dummies. “Income is derived primarily from the rental on the properties, as well as from the sale of properties that have increased in value. Mortgage REITs invest in property mortgages. The income is primarily from the interest they earn on the mortgage loans. Hybrid REITs invest both directly in property and in mortgages on properties.”
Johnson also cautions:
“Investors should understand that equity REITs are more like stocks and mortgage REITs are more like bonds. Hybrid REITs are like a mix of stocks and bonds.”
Mortgage REITs, in particular, are an excellent way to earn steady dividend income without being closely tied to the stock market.
Examples of specific REITs are listed in the table below (source: Kiplinger):
REIT
Equity or Mortgage
Property Type
Dividend Yield
12 Month Return
Rexford Industrial Realty
REXR
Industrial warehouse space
2.02%
2.21%
Sun Communities
SUI
Manufactured housing, RVs, resorts, marinas
2.19%
-14.71%
American Tower
AMT
Multi-tenant cell towers
2.13%
-9.00%
Prologis
PLD
Industrial real estate
2.49%
-0.77%
Camden Property Trust
CPT
Apartment complexes
2.77%
-7.74%
Alexandria Real Estate Equities
ARE
Research Properties
3.14%
-23.72%
Digital Realty Trust
DLR
Data centers
3.83%
-17.72%
9. Real Estate Crowdfunding
If you prefer direct investment in a property of your choice, rather than a portfolio, you can invest in real estate crowdfunding. You invest your money, but management of the property will be handled by professionals. With real estate crowdfunding, you can pick out individual properties, or invest in nonpublic REITs that invest in very specific portfolios.
One of the best examples of real estate crowdfunding is Fundrise. That’s because you can invest with as little as $500 or create a customized portfolio with no more than $1,000. Not only does Fundrise charge low fees, but they also have multiple investment options. You can start small in managed investments, and eventually trade up to investing in individual deals.
One thing to be aware of with real estate crowdfunding is that many require accredited investor status. That means being high income, high net worth, or both. If you are an accredited investor, you’ll have many more choices in the real estate crowdfunding space.
If you are not an accredited investor, that doesn’t mean you’ll be prevented from investing in this asset class. Part of the reason why Fundrise is so popular is that they don’t require accredited investor status. There are other real estate crowdfunding platforms that do the same.
Just be careful if you want to invest in real estate through real estate crowdfunding platforms. You will be expected to tie your money up for several years, and early redemption is often not possible. And like most investments, there is the possibility of losing some or all your investment principal.
Low minimum investment – $10
Diversified real estate portfolio
Portfolio Transparency
10. Physical Real Estate
We’ve talked about investing in real estate through REITs and real estate crowdfunding. But you can also invest directly in physical property, including residential property or even commercial.
Owning real estate outright means you have complete control over the investment. And since real estate is a large-dollar investment, the potential returns are also large.
For starters, average annual returns on real estate are impressive. They’re even comparable to stocks. Residential real estate has generated average returns of 10.6%, while commercial property has returned an average of 9.5%.
Next, real estate has the potential to generate income from two directions, from rental income and capital gains. But because of high property values in many markets around the country, it will be difficult to purchase real estate that will produce a positive cash flow, at least in the first few years.
Generally speaking, capital gains are where the richest returns come from. Property purchased today could double or even triple in 20 years, creating a huge windfall. And this will be a long-term capital gain, to get the benefit of a lower tax bite.
Finally, there’s the leverage factor. You can typically purchase an investment property with a 20% down payment. That means you can purchase a $500,000 property with $100,000 out-of-pocket.
By calculating your capital gains on your upfront investment, the returns are truly staggering. If the $500,000 property doubles to $1 million in 20 years, the $500,000 profit generated will produce a 500% gain on your $100,000 investment.
On the negative side, real estate is certainly a very long-term investment. It also comes with high transaction fees, often as high as 10% of the sale price. And not only will it require a large down payment up front, but also substantial investment of time managing the property.
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11. High Dividend Stocks
“The best high-yield investment is dividend stocks,” declares Harry Turner, Founder at The Sovereign Investor. “While there is no guaranteed return with stocks, over the long term stocks have outperformed other investments such as bonds and real estate. Among stocks, dividend-paying stocks have outperformed non-dividend paying stocks by more than 2 percentage points per year on average over the last century. In addition, dividend stocks tend to be less volatile than non-dividend paying stocks, meaning they are less likely to lose value in downturns.”
You can certainly invest in individual stocks that pay high dividends. But a less risky way to do it, and one that will avoid individual stock selection, is to invest through a fund.
One of the most popular is the ProShares S&P 500 Dividend Aristocrat ETF (NOBL). It has provided a return of 1.67% in the 12 months ending May 31, and an average of 12.33% per year since the fund began in October 2013. The fund currently has a 1.92% dividend yield.
The so-called Dividend Aristocrats are popular because they represent 60+ S&P 500 companies, with a history of increasing their dividends for at least the past 25 years.
“Dividend Stocks are an excellent way to earn some quality yield on your investments while simultaneously keeping inflation at bay,” advises Lyle Solomon, Principal Attorney at Oak View Law Group, one of the largest law firms in America. “Dividends are usually paid out by well-established and successful companies that no longer need to reinvest all of the profits back into the business.”
It gets better. “These companies and their stocks are safer to invest in owing to their stature, large customer base, and hold over the markets,” adds Solomon. “The best part about dividend stocks is that many of these companies increase dividends year on year.”
The table below shows some popular dividend-paying stocks. Each is a so-called “Dividend Aristocrat”, which means it’s part of the S&P 500 and has increased its dividend in each of at least the past 25 years.
Company
Symbol
Dividend
Dividend Yield
AbbVie
ABBV
$5.64
3.80%
Armcor PLC
AMCR
$0.48
3.81%
Chevron
CVX
$5.68
3.94%
ExxonMobil
XOM
$3.52
4.04%
IBM
IBM
$6.60
5.15%
Realty Income Corp
O
$2.97
4.16%
Walgreen Boots Alliance
WBA
$1.92
4.97%
12. Preferred Stocks
Preferred stocks are a very specific type of dividend stock. Just like common stock, preferred stock represents an interest in a publicly traded company. They’re often thought of as something of a hybrid between stocks and bonds because they contain elements of both.
Though common stocks can pay dividends, they don’t always. Preferred stocks on the other hand, always pay dividends. Those dividends can be either a fixed amount or based on a variable dividend formula. For example, a company can base the dividend payout on a recognized index, like the LIBOR (London Inter-Bank Offered Rate). The percentage of dividend payout will then change as the index rate does.
Preferred stocks have two major advantages over common stock. First, as “preferred” securities, they have a priority on dividend payments. A company is required to pay their preferred shareholders dividends ahead of common stockholders. Second, preferred stocks have higher dividend yields than common stocks in the same company.
You can purchase preferred stock through online brokers, some of which are listed under “Growth Stocks” below.
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Preferred Stock Caveats
The disadvantage of preferred stocks is that they don’t entitle the holder to vote in corporate elections. But some preferred stocks offer a conversion option. You can exchange your preferred shares for a specific number of common stock shares in the company. Since the conversion will likely be exercised when the price of the common shares takes a big jump, there’s the potential for large capital gains—in addition to the higher dividend.
Be aware that preferred stocks can also be callable. That means the company can authorize the repurchase of the stock at its discretion. Most will likely do that at a time when interest rates are falling, and they no longer want to pay a higher dividend on the preferred stock.
Preferred stock may also have a maturity date, which is typically 30–40 years after its original issuance. The company will typically redeem the shares at the original issue price, eliminating the possibility of capital gains.
Not all companies issue preferred stock. If you choose this investment, be sure it’s with a company that’s well-established and has strong financials. You should also pay close attention to the details of the issuance, including and especially any callability provisions, dividend formulas, and maturity dates.
13. Growth Stocks
This sector is likely the highest risk investment on this list. But it also may be the one with the highest yield, at least over the long term. That’s why we’re including it on this list.
Based on the S&P 500 index, stocks have returned an average of 10% per year for the past 50 years. But it is important to realize that’s only an average. The market may rise 40% one year, then fall 20% the next. To be successful with this investment, you must be committed for the long haul, up to and including several decades.
And because of the potential wide swings, growth stocks are not recommended for funds that will be needed within the next few years. In general, growth stocks work best for retirement plans. That’s where they’ll have the necessary decades to build and compound.
Since most of the return on growth stocks is from capital gains, you’ll get the benefit of lower long-term capital gains tax rates, at least with securities held in a taxable account. (The better news is capital gains on investments held in retirement accounts are tax-deferred until retirement.)
You can choose to invest in individual stocks, but that’s a fairly high-maintenance undertaking. A better way may be to simply invest in ETFs tied to popular indexes. For example, ETFs based on the S&P 500 are very popular among investors.
You can purchase growth stocks and growth stock ETFs commission free with brokers like M1 Finance, Zacks Trade, Wealthsimple.
14. Annuities
Annuities are something like creating your own private pension. It’s an investment contract you take with an insurance company, in which you invest a certain amount of money in exchange for a specific income stream. They can be an excellent source of high yields because the return is locked in by the contract.
Annuities come in many different varieties. Two major classifications are immediate and deferred annuities. As the name implies, immediate annuities begin paying an income stream shortly after the contract begins.
Deferred annuities work something like retirement plans. You may deposit a fixed amount of money with the insurance company upfront or make regular installments. In either case, income payments will begin at a specified point in the future.
With deferred annuities, the income earned within the plan is tax-deferred and paid upon withdrawal. But unlike retirement accounts, annuity contributions are not tax-deductible. Investment returns can either be fixed-rate or variable-rate, depending on the specific annuity setup.
While annuities are an excellent idea and concept, the wide variety of plans as well as the many insurance companies and agents offering them, make them a potential minefield. For example, many annuities are riddled with high fees and are subject to limited withdrawal options.
Because they contain so many moving parts, any annuity contracts you plan to enter into should be carefully reviewed. Pay close attention to all the details, including the small ones. It is, after all, a contract, and therefore legally binding. For that reason, you may want to have a potential annuity reviewed by an attorney before finalizing the deal.
15. Alternative Investments
Alternative investments cover a lot of territory. Examples include precious metals, commodities, private equity, art and collectibles, and digital assets. These fall more in the category of high risk/potential high reward, and you should proceed very carefully and with only the smallest slice of your portfolio.
To simplify the process of selecting alternative assets, you can invest through platforms such as Yieldstreet. With a single cash investment, you can invest in multiple alternatives.
“Investors can purchase real estate directly on Yieldstreet, through fractionalized investments in single deals,” offers Milind Mehere, Founder & Chief Executive Officer at Yieldstreet. “Investors can access private equity and private credit at high minimums by investing in a private market fund (think Blackstone or KKR, for instance). On Yieldstreet, they can have access to third-party funds at a fraction of the previously required minimums. Yieldstreet also offers venture capital (fractionalized) exposure directly. Buying a piece of blue-chip art can be expensive, and prohibitive for most investors, which is why Yieldstreet offers fractionalized assets to diversified art portfolios.”
Yieldstreet also provides access to digital asset investments, with the benefit of allocating to established professional funds, such as Pantera or Osprey Fund. The platform does not currently offer commodities but plans to do so in the future.
Access to wide array of alternative asset classes
Access to ultra-wealthy investments
Can invest for income or growth
Learn More Now
Alternative investments largely require thinking out-of-the-box. Some of the best investment opportunities are also the most unusual.
“The price of meat continues to rise, while agriculture remains a recession-proof investment as consumer demand for food is largely inelastic,” reports Chris Rawley, CEO of Harvest Returns, a platform for investing in private agriculture companies. “Consequently, investors are seeing solid returns from high-yield, grass-fed cattle notes.”
16. Interest Bearing Crypto Accounts
Though the primary appeal of investing in cryptocurrency has been the meteoric rises in price, now that the trend seems to be in reverse, the better play may be in interest-bearing crypto accounts. A select group of crypto exchanges pays high interest on your crypto balance.
One example is Gemini. Not only do they provide an opportunity to buy, sell, and store more than 100 cryptocurrencies—plus non-fungible tokens (NFTs)—but they are currently paying 8.05% APY on your crypto balance through Gemini Earn.
In another variation of being able to earn money on crypto, Crypto.com pays rewards of up to 14.5% on crypto held on the platform. That’s the maximum rate, as rewards vary by crypto. For example, rewards on Bitcoin and Ethereum are paid at 6%, while stablecoins can earn 8.5%.
It’s important to be aware that when investing in cryptocurrency, you will not enjoy the benefit of FDIC insurance. That means you can lose money on your investment. But that’s why crypto exchanges pay such high rates of return, whether it’s in the form of interest or rewards.
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17. Crypto Staking
Another way to play cryptocurrency is a process known as crypto staking. This is where the crypto exchange pays you a certain percentage as compensation or rewards for monitoring a specific cryptocurrency. This is not like crypto mining, which brings crypto into existence. Instead, you’ll participate in writing that particular blockchain and monitoring its security.
“Crypto staking is a concept wherein you can buy and lock a cryptocurrency in a protocol, and you will earn rewards for the amount and time you have locked the cryptocurrency,” reports Oak View Law Group’s Lyle Solomon.
“The big downside to staking crypto is the value of cryptocurrencies, in general, is extremely volatile, and the value of your staked crypto may reduce drastically,” Solomon continues, “However, you can stake stable currencies like USDC, which have their value pegged to the U.S. dollar, and would imply you earn staked rewards without a massive decrease in the value of your investment.”
Much like earning interest and rewards on crypto, staking takes place on crypto exchanges. Two exchanges that feature staking include Coinbase and Kraken. These are two of the largest crypto exchanges in the industry, and they provide a wide range of crypto opportunities, in addition to staking.
Invest in Startup Businesses and Companies
Have you ever heard the term “angel investor”? That’s a private investor, usually, a high net worth individual, who provides capital to small businesses, often startups. That capital is in the form of equity. The angel investor invests money in a small business, becomes a part owner of the company, and is entitled to a share of the company’s earnings.
In most cases, the angel investor acts as a silent partner. That means he or she receives dividend distributions on the equity invested but doesn’t actually get involved in the management of the company.
It’s a potentially lucrative investment opportunity because small businesses have a way of becoming big businesses. As they grow, both your equity and your income from the business also grow. And if the business ever goes public, you could be looking at a life-changing windfall!
Easy Ways to Invest in Startup Businesses
Mainvest is a simple, easy way to invest in small businesses. It’s an online investment platform where you can get access to returns as high as 25%, with an investment of just $100. Mainvest offers vetted businesses (the acceptance rate is just 5% of business that apply) for you to invest in.
It collects revenue, which will be paid to you quarterly. And because the minimum required investment is so small, you can invest in several small businesses at the same time. One of the big advantages with Mainvest is that you are not required to be an accredited investor.
Still another opportunity is through Fundrise Innovation Fund. I’ve already covered how Fundrise is an excellent real estate crowdfunding platform. But through their recently launched Innovaton Fund, you’ll have opportunity to invest in high-growth private technology companies. As a fund, you’ll invest in a portfolio of late-stage tech companies, as well as some public equities.
The purpose of the fund is to provide high growth, and the fund is currently offering shares with a net asset value of $10. These are long-term investments, so you should expect to remain invested for at least five years. But you may receive dividends in the meantime.
Like Mainvest, the Fundrise Innovation Fund does not require you to be an accredited investor.
Low minimum investment – $10
Diversified real estate portfolio
Portfolio Transparency
Final Thoughts on High Yield Investing
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Notice that I’ve included a mix of investments based on a combination of risk and return. The greater the risk associated with the investment, the higher the stated or expected return will be.
It’s important when choosing any of these investments that you thoroughly assess the risk involved with each, and not focus primarily on return. These are not 100% safe investments, like short-term CDs, short-term Treasury securities, savings accounts, or bank money market accounts.
Because there is risk associated with each, most are not suitable as short-term investments. They make most sense for long-term investment accounts, particularly retirement accounts.
For example, growth stocks—and most stocks, for that matter—should generally be in a retirement account. While there will be years when you will suffer losses in your position, you’ll have enough years to offset those losses between now and retirement.
Also, if you don’t understand any of the above investments, it will be best to avoid making them. And for more complicated investments, like annuities, you should consult with a professional to evaluate the suitability and all the provisions it contains.
FAQ’s on High Yield Investment Options
What investment has the highest yield?
The investment with the highest yield will vary depending on a number of factors, including current market conditions and the amount of risk an investor is willing to take on. Generally speaking, investments with the potential for high yields also come with a higher level of risk, so it’s important for investors to carefully consider their options and choose investments that align with their financial goals and risk tolerance.
Some examples of high-yield investments include:
1. Stocks: Some stocks may offer high dividend yields, which is the annual dividend payment a company makes to its shareholders, expressed as a percentage of the stock’s current market price.
2. Real estate: Investing in real estate, either directly by purchasing property or indirectly through a real estate investment trust (REIT), can potentially generate high returns in the form of rental income and appreciation of the property value.
3. High-yield bonds: High-yield bonds, also known as junk bonds, are bonds that are issued by companies with lower credit ratings and thus offer higher yields to compensate for the added risk.
4. Private lending: Investing in private loans, such as through peer-to-peer lending platforms, can potentially offer high yields, but it also carries a higher level of risk.
5. Commodities: Investing in commodities, such as precious metals or oil, can potentially generate high returns if the prices of those commodities rise. However, the prices of commodities can also be volatile and subject to market fluctuations.
It’s important to note that these are just examples and not recommendations. As with any investment, it’s crucial to carefully research and consider all the potential risks and rewards before making a decision.
Where can I invest my money to get high returns?
There are a number of places you can invest your money to get high returns. One option is to invest in stocks, which typically offer higher returns than other investment options. Another option is to invest in bonds, which are considered a relatively safe investment option.
You could also invest in real estate, which has the potential to provide high returns if done correctly. Finally, you could also invest in commodities, such as gold or silver, which can be a risky investment but can also offer high returns.
What investments can I make a 10% return?
It’s difficult to predict exactly what investments will generate a 10% return, as investment returns can vary depending on a number of factors, including market conditions and the performance of the specific investment. Some investments, such as stocks and real estate, have the potential to generate returns in excess of 10%, but they also come with a higher level of risk. It’s important to remember that past performance is not necessarily indicative of future results, and that all investments carry some degree of risk
Money is entirely fungible. Despite my earlier misconceptions, this idea has nothing to do with fungus.
Instead, fungibility is a synonym for replaceability, or the capability being used in place of another. While a crispy, fresh $100 bill might feel better than an old, wrinkly $100 bill, they can be used precisely the same. They are fungible with one another.
Many money mistakes occur when people don’t understand monetary fungibility. Let’s fix that today.
A Penny Saved…Is Less Cool Than A Penny Earned
Much more ink gets spilled on earning and investing than on simple saving and budgeting.
I’m guilty of that here on The Best Interest. I love writing about investing. But budgeting? Eh. I have a few articles, but it takes a back seat to investing.
Yet Ben Franklin understood fungibility when he wrote, “A penny saved is a penny earned.” If you can save $100 per month via a budget, that’s equivalent to a 10% annual return on $12000. It’s not as cool as investing, but the fungibility of money doesn’t care about coolness.
A dollar is a dollar. The invested dollar might feel cooler, but it has the same buying power as the uncool saved dollar.
Gift Cards – Not Ideal
This next lesson is going to sound crass: giving a gift card is the same as saying, “here’s a cash gift, except I’m actively taking away your fungibility.”
Again, I’m guilty of this. I’ve given gift cards. I completely understand the sentiment. “I know you like [insert hobby, store, restaurant, etc. here], but I don’t know precisely what you’d buy from there. So here’s a gift card.”
But gift cards steal choice. They steal the fungibility of money. A cash gift can be used to buy anything in the world. A GolfWorld gift card cannot.
My two cents: just buy your loved ones an actual item, and include a gift receipt.
Dividend Bros
I’ve taken down dividend bros before on The Best Interest. Their arguments are varied. One of the dumber pro-dividend arguments is that dividends provide a level of liquidity that non-dividend-paying stocks cannot provide.
This argument is, in short, made in ignorance of fungibility. Dividends are fungible with stock ownership (exclusive of taxes). The same income provided by dividends could be created by selling a portion of the stock itself. Stocks are fungible, cash is fungible, and thanks to the efficiency of the market, stocks and cash are fungible with one another.
(In fact, once taxes are considered, dividend payments are almost always worse than simply selling stock.)
“Buy Yourself Something Nice”
When Grandma gives you $20 to “buy yourself something nice,” she’s missing a lesson in fungibility.
In reality, Grandma’s $20 gets comingled with all the other available dollars to you, and any future $20 purchase is drawn from those comingled dollars. Grandma’s contribution only paid a small role in that purchase. Sorry, Ethel!
All the other purchases you make in the future – good, bad, or ugly – will use Grandma’s contribution too.
The same idea applies in other arenas:
Charities use a percentage of donations for their own administration. Every charitable dollar is comingled and then drawn against. Nobody’s contribution goes 100% to the charitable cause.
Many citizens use government assistance to purchase necessities (e.g. buying food with food stamps) and then use cash to purchase other items. That food stamp money is partially fungible. Food dollars can be replaced by food stamps, though food stamps cannot be sold for real dollars. If someone receives $200 in food stamp aid, they can spend $200 real dollars elsewhere. In short, a percentage of every real dollar spent is subsidized by the food stamp dollars.
When you find a $100 bill sitting in the parking lot and decide to test your luck with Lottery tickets. Hey, it wasn’t your money in the first place, right? Again, money is fungible and this line of thinking misses an important lesson.
Splurging
A sudden windfall gives you an unexpected $50,000. What do you do with the money?
A common idea is to splurge on something nice – say, with 10-20% of the windfall – then save the rest. I’m on board with this idea from a psychological perspective. But this splurge does not jive with the concept of fungibility.
Because if you wouldn’t spend your own hard-earned dollars on a $5,000 – $10,000 splurge, you shouldn’t spend windfall money in that way either. These dollars are all fungible. Windfall money should be treated exactly the same as the other money in your life.
Now, perhaps you were already slowly saving for such a splurge. You were already setting aside hard-earned dollars for the splurge. The windfall simply accelerates your timeline. That makes sense.
What doesn’t make sense is for someone to say,
“I would never spend my own money this way, but I’m fine spending a windfall this way…”
Money is fungible. It is spent fungibly. It should be thought of fungibly.
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-Jesse
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