Below are financial questions that Cade has answered on Instagram Stories. Want to get these bite-sized lessons in real-time? Connect with Cade on IG.
Question: Should you buy residential real estate right now?
Answer: The odds are no. First, residential home are in a shortage right now (under-supplied), which is driving up price. Second, residential home prices are artificially inflated because home prices move inversely to mortgage interest rates. Because interest rates were suppressed by the Federal Reserve to support COVID economic recovery, when interest rates rise (which they will in the next couple years), home prices will fall.
Winter usually is a good time to buy and you can find good deals in every market. However, as mentioned, intentionally suppressed interest rates have spiked home prices in recent months.
So, unless you’re an extremely experienced buyer and savvy negotiator, I’d be very careful about buying residential (single family) homes right now.
Question: How can I get started as a beginner in the stock market? (Asked January 2021)
Answer: First, start learning about stock market investing by downloading and exploring beginner investment apps. However, be cautious about starting to invest at this time. I say this because the stock market has also been artificially inflated by approximately $3.5 trillion in stimulus money within the U.S. and over $7 trillion globally. A trillion has 12 zeros!
This dwarfs the response to the 2008 financial crisis. For sake of reference, all student loan debt in the US is only $1.5 trillion. Also, one out of every 21 U.S. dollars now in circulation were printed last year in 2020. That’s absolutely crazy.
The stock market (as tracked by the S&P 500) is now substantially higher than it was prior to the “COVID crash” in March 2020, even though we still have unusually high levels of unemployment, as well as reduced personal income and low consumer spending metrics.
What is this called? It’s called a stock market “bubble”. Thus, you likely don’t want to start your stock market investing when prices are artificially inflated.
Secondarily, once you do start investing, don’t buy individual stocks. Very few people, even professionals, have ever out-performed the market by picking individual stocks.
Instead, buy low fee exchange-traded funds (ETFs) or Index Funds that track the U.S. and global stock markets at large. If you’re unfamiliar with the terms ETF and Index Fund, these are just “baskets” of stocks that track the stock market performance as a whole.
An example of this for the U.S. stock market would be Vanguard’s S&P 500 ETF (VOO), which has an expense ratio (the fee charged for managing it) of only 0.03%. While there are other options too, this one is a good example and Warren Buffet has even recommended it by name.
If you need a beginner investment app, Robinhood is a simple place to start because it’s commission-free, let’s you buy fractional shares so you can get started with a small amount of money, and facilitates crypto investing. Good luck!
Question: Is the Forex market a great way to start getting money?
Cade’s 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?
Cade’s Answer: 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?
Cade’s 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?
Cade’s Answer: 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.
Cade’s Answer: 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!
Question: What is the S&P 500?
Cade’s Answer: The S&P 500 stands for Standard & Poor’s 500 Index. It is a index of 500 very large, stable American companies across all major industries.
It is “capitalization weighted,” which means each stocked is weighted according to the total value of its shares.
Its purpose is track the performance of the U.S. economy by using these 500 companies as a “measuring stick.”
Question: What is market cap?
Cade’s Answer: Market capitalization (also called “market cap”) is just a fancy way of saying the total value of a company’s shares of stock.
This is calculated by taking a company’s price per share and multiplying it by the total number of shares.
Market Cap = [Stock price] x [# of Shares]
Question: What is a small cap stock?
Cade’s Answer: It’s a “smaller” company—defined as one with a market capitalization under about a billion dollars.
The U.S. small cap segment contains only about 2,000 stocks.
Globally, there are approximately 4,200 stocks across 48 countries that qualify as “small cap” stocks.
Question: What is a PE ratio?
PE stands for “price-to-earnings” ratio.
It is a measure of the price (what it costs to buy one share of stock) relative to the company’s earnings (the annual profit made per share of stock).
A higher PE ratio means a stock is “more expensive” compared to one with lower PE ratio.
This is because you are paying more to control less income.
Question: Why does money seem like it’s in scarce supply when I see it everywhere?
Answer: This is an incredible question, and I’m glad you’re paying attention to what you’re seeing around you that seems to contradict what you’re being told.
You are correct that millions of people on this planet seem to have the false idea that there’s a money shortage or that other people making more money means they will get less.
That’s a competitive, scarcity mindset, and it’s completely false.
The truth of the matter is, there’s more than enough money to go around. Did you know that there’s enough money circulating on this planet for every human being to have a net worth of $1 billion? One billion dollars! Whoa, right?
$1 billion is 1,000,000,000. That could be in your bank account without it affecting one other person.
If you want to further reinforce the reality of abundance, first read this article, and second, start noticing the incredible value of everything around you—including all of the world’s cars, houses, buildings, businesses, airplanes, machinery, the entire stock market, the entire cryptocurrency market, every piece of real estate on the planet, all mortgages, all money in circulation across 180 different currencies, loans, bonds, precious metals, and the list goes on and one and on.
There is so much abundance in this world. Please don’t ever let sometime tell you that we live in a world of scarcity. The math (and physical world around you) don’t lie.
Question: I heard you talk about IRR on Instagram. What does that term mean?
Excellent question and thanks for clarifying this important financial term.
Internal rate of return (IRR) is a method of calculating an investment’s rate of return. It takes into account an investment’s overall returns. In the case of a real estate deal, for example, this can include cash flow, distributions, and proceeds from capital events, such as refinancing the property or selling it.
Put simply, IRR measures the actual achieved return that is produced by an investment. This makes it an great indicator for the profitability of an investment. For a full definition of IRR, read this article.