Question: Is the Forex market a great way to start getting money?
Answer: Thanks for this question. First, let’s clarify that Forex trading (meaning, currency trading) is an ACTIVE job. It’s not investing, so you’ll want to be sure you ENJOY doing it and want to do it on a regular basis.
Second, many (if not most) Forex trades are short-term trades held less than one year.
This means gains you produce will get taxed as regular income, according to your U.S. income tax brackets — so your taxes on Forex trades could go as high as 37% Federally plus your State tax rate (yikes).
Compared to long-term capital gains tax rates that max out at 20%, this is really high.
Having said that, the Forex market can be an interesting and enjoyable way to make money if you enjoy trend and chart analysis. If that’s what you’re looking for, feel free to explore it!
Question: How do you feel about ROTH IRAs?
I dislike them, actually.
They keep people small because they don’t pay cash flow (my single biggest issue). They tie up your money until 59. They pay relatively low rates of return because you’re investing into whitewashed investments. They limit you to paper (not real) assets. They severely restrict the asset classes you can invest into.
What’s worse is that they require you to give your money over to other people (folks you’ve never met) to manage it. In exchange, you get the privilege of paying annual fees for their help, which they never clearly disclose. These fees can fall into three categories, including:
- Investment Fees
- Administrative Fees
- Individual service fees
The upsides are that they are simple, completely passive and have some tax advantages over time. But, but those advantages aren’t enough in my option. Nonetheless, nearly every middle class person falls into the trap of trying to grow their wealth with them.
In short, they share most of the same problems as 401Ks, which you can read about here.
Question: With the economy going the way it is with COVID, would you recommend investing in an IRA or CD?
Answer, no I wouldn’t recommend either of those moves. The reasons are:
1) An IRA doesn’t pay CASH FLOW, which is my #1 criteria for an investment.
2) An IRA won’t change your life until you’re at least 59.5 (the earliest withdrawal age).
3) IRA withdrawals are taxed as earned income at high tax rates that can go as high as 37%, instead of as long-term capital gains (which get taxed at the very low tax rate of only 0-20%).
4) IRA investment options are limited, which makes it hard to invest in lucrative asset classes that pay high returns.
5) IRAs also make it difficult to buy real (physical) assets, so they tend to limit you to paper assets.
Unfortunately, for the CD (Certificate of Deposit) you asked about, they also don’t pay cash flow and have a terribly low return. A 1 year CD would pay way less than 1% and inflation averages at 3.22% year, so you’d actually lose money on an inflation-adjusted basis.
Question: I have a goal to buy 1 acre with 2 tiny homes for living in and AirBnBing. They’re in Delaware 30 minutes from the beach. Thoughts?
The only things to mention (insights not problems) are:
1) AirBnB properties are hospitality businesses, so they take much more active work than you think (compared to long-term rentals).
2) People often want to start with tiny homes because they perceive them to be cheaper, but it is often harder (or impossible) to get a mortgage on them, which can make them more expensive than a starter home with 3-5% down.
3) You may find it hard to “unplug” (relax) if you are located within an acre of your AirBnB and find yourself tempted to do the constant work of assisting guests, cleaning, topping up supplies, yard work, etc. You’ll eventually want to hire others to do these activities.
4) Tiny homes don’t tend to go up value (appreciate) as much as full-sized homes, so the long term financial gains probably won’t be as good.
Having said that, real estate is a phenomenal asset class that can produce strong returns, protect your capital and provide tax advantages, so this could be an decent place to start. Good luck!
Question: How did you start your path? I work full-time but want to diversity my money.
Awesome question! The easiest way to get started is to buy a primary residence (the place you will live) and rent out a bedroom to learn the rental process.
You don’t need as much money down to buy a primary residence, which will help you afford your first place. Importantly, renting out a room will teach you about leases, move in and move out inspections, payment collection, etc.
Then, move out (either rent elsewhere or buy a second place) and rent out the whole house to tenants.
The reason to rent elsewhere if you have to (while you save up for a second place) is that you can’t deduct many expenses related to your primary house on your taxes, but you can deduct nearly everything on an investment property!
This is how I got started and should get you off and rolling. Good luck!