Would you buy an NFT? ⛓
Newsletter Topic: Real Estate
With initial unemployment claims hitting its lowest point since November, and an economic relief package officially signed by President Biden, it’s starting to look like the longest winter ever is finally coming to an end.
And as if that wasn’t enough good news already, this also happened:
In this newsletter:
- 5 headlines that sum up the week
- Recent IPO/DPO activity
- What real estate investing looks like today
- Our rec of the week
Five headlines that sum up the week 🚀 📈
1. The stock market rallied all week – but decided to chill out this morning
Remember that one time 2 weeks ago when treasury yields shot up and everyone panicked? This week, yields went down to a stable 1.51% and the new positive outlook for the economy rekindled the undying love investors have for tech stocks. A stark contrast for most of last week, Thursday ended with some strong performances – the S&P 500 gained 1% while the Nasdaq jumped more than 2.5%. As of this morning, however, treasury yields shot back up as tech stocks slid.Read More
2. Disneyland is reopening next month
It’s happening. Disney CEO Bob Chapek announced this week that Disneyland will reopen in April. Disney has truly experienced a real-life Cinderella story this past year. After closing its parks worldwide, many assumed Disney stock would topple. Instead, the company shifted its focus to streaming, hit a 100 million subscriber milestone 3 years early and more than doubled its stock value in the last 12 months.
3. Google is taking on its fiercest competitor yet: College
Google is now offering a series of certificate programs designed to enhance skills required for technology jobs. It doesn’t require a college degree and in fact could be used in lieu of one. This comes at a time of crisis for the labor market – and a widening skills gap in the tech industry. Google stock is currently down but its YTD is just under 20%.
4. An NFT of a .JPG file sold for $69 million
Beeple’s “Everydays — The First 5000 Days”
A digital artist named Beeple has sold a digital piece of art for more than the going rate of artwork from legendary artists like Seurat and Goya. At the start of the two-week auction that was facilitated by Christie’s (of course), the .JPG file was priced at $100. For those who aren’t familiar with NFT’s, a non-fungible token is a type of blockchain technology that represents something unique – like music (Kings of Leon) and digital artwork. It’s essentially a digital collectible item that is made attractive by scarcity. There could be multiple copies of a single token or, like in the case of this $69 million .JPG, there is only one. While its value can fluctuate like a stock, NFT’s can’t be traded outright for other NFT’s (hence, non-fungible).
5. HSBC will end all funding for the coal industry by 2040
ESG 👏 investing 👏 works 👏. After HSBC released a “statement of ambition” to try its best to lower carbon emissions, the nonprofit organization ShareAction called out the organization and basically told them to do better. Thanks to pressure from climate-conscious shareholders, HSBC – Europe’s second largest finance provider for the fossil fuel industry – has finally put its money where its mouth is.
ICYMI: Roblox and Coupang joined the NYSE this week
If you didn’t hear about Roblox before the company went public (via direct listing), it’s probably because you aren’t:
- a kid
- a gamer
- someone who knows a kid gamer
- all of the above
According to Polygon, over half of kids played Roblox, a gaming platform for playing and building video games, in 2020. Its library of over 20 million games are entirely curated by its users – and serves as a healthy income stream anyone, including kids, can benefit from.
Roblox’s monetization model
Roblox went public on Wednesday and ended the day with 54.5% gains a market capitalization of over $45 billion. Epic Games, which is still a private company, is worth around $17.3 billion.
Coupang, a South Korean e-commerce upstart that has been dubbed “the Amazon of Korea” is another company that went public this week. Having debuted on Thursday, it also saw a very successful first-day performance, ending the day over 40% higher than its $35 IPO price. Currently its fully diluted IPO valuation exceeds $60 billion.
There are several high-profile IPOs that are slated for 2021. Compass, Instacart and Robinhood are just a few to come.
You could invest in real estate without actually buying property
The advent of modern assets has made it possible for anyone to invest with REITs, real estate mutual funds and ETFs, and other options. Still, investing in real estate can cost more than investing in stocks and carries its own set of risks such as decreased liquidity and lower returns in poor markets. On the flipside, it does provide tangible benefits such as hedging against inflation.
In the last few decades, real estate has become increasingly popular. As modern technology advanced, the investing landscape changed, too, introducing us to real estate-based ETFs, mutual funds, and REITs. Now, there are myriad ways to get involved with this lucrative asset – without breaking the bank.
Modern Real Estate Diversification
Modern markets have presented new options to circumvent the binary juxtaposition of investing in the stock market or real estate: real estate securities and trusts.
- REITs: With a real estate investment trust, a corporation or trust uses investor funds to buy, rent, and sell properties. 90% of the profits go to shareholders as dividends, while the remaining 10% pays operating costs. REITs often invest in malls, office buildings, and even mortgages.
- Real estate mutual funds: These funds typically invest in REITs and other operating companies. Unlike a single trust or fund, they provide broader market diversification and increased liquidity – similar to how traditional mutual funds provide broader diversification than buying 10 shares of Microsoft.
- Real estate ETFs: Exchange-traded funds also provide investors with broad market exposure in a single unit. Real estate ETFs provide the same benefits as traditional ETFs, but they focus on REITs and real estate stock.
- REIGs: Real estate investment groups are similar to mutual funds. Investors buy individual units of living space through a company that owns apartment buildings and housing units. The company takes a percentage of the rent to manage all maintenance and advertising, while the investors collect passive income.
- RELPs: Real estate limited partnerships are similar to REIGs, but they only exist until the properties under ownership are sold.
You can more easily examine the average returns of nontraditional assets. In particular, a quick peek at modern real estate ETFs can shed some insight into past and current housing market returns. Examples included below:
Vanguard Real Estate ETF 5-Year Returns: Largest real estate ETF with $33.72 billion AUM
Image Credit: Screenshot from Marketwatch.com
Schwab US REIT ETF: Top 3 real estate ETF with $4.87 billion AUM
Image Credit: Screenshot from Marketwatch.com
Fees and Taxes of Real Estate ETFs, Mutual Funds, etc
When it comes to nontraditional real estate assets, taxes and fees follow the guidelines for those assets. For instance, if you invest in an ETF or mutual fund that pays dividends, you may be responsible for paying both dividend taxes and capital gains taxes. For investments such as REITs, REIGs, and RELPs, you typically pay capital gains taxes, but it’s essential to do your due diligence before you take the leap.
Benefits of Investing in Real Estate Compared to Stocks
Stocks are typically fairly affordable, and long-term market performance often produces gains. But they also come with other benefits, such as:
- Dividend payments and ownership rights
- Increased liquidity in case of emergency or sudden market uptick
- Diversification potential across verticals, niches, and international borders
However, real estate produces tangible benefits in a literal sense
- Investing in property grants you the rights of a landlord
- Unlike stock, you can leverage real estate against loans, debts, and future investments
- Provides investors with opportunities to expand their portfolios without draining their savings accounts
- Owning property hedges against inflation in a way that securities can’t
Risks of Investing in Real Estate Compared to Stocks
Stocks carry an inherent risk of volatility. Market unpredictability can be caused by any number of factors and fr those investors who don’t diversify, these risks are even greater.
On the other hand, real estate is a much stodgier investment. We mentioned liquidity as a benefit of investing in stocks – with real estate, it’s the opposite. In a hot market, it’s possible to flip or rent property on a dime. But in times of economic turmoil, like during a global pandemic, it’s possible to see your assets sit empty for months or even years.
This lack of liquidity makes real estate investing trickier for those who may need a quick out. And at the end of the day, there’s still no guarantee you’ll get what you paid for your investment.
The bottom line
With the options available today, there are lower barriers of entry which makes real estate much more accessible to investors. Whether you decide to pursue the traditional or modern approaches available, investing in real estate is a great way to diversify your portfolio and hedge against inflation. But be wary of the specific risks that come with real estate investing (that tends to be the key to success when you look at investing as a whole).
Visit our Learning Center for the full “Investing Explained” resource
Still confused about NFT’s? You’re not alone. This guy created a 2-minute video explainer that breaks down the basics of this new digital currency. You won’t be a go-to expert, but you’ll certainly sound cool at dinner if your friends bring it up.