Cryptocurrency
More and more, cryptocurrencies are becoming a medium of exchange. But they’re not your average dollar.
Cryptocurrency—or digital currencies that are based on blockchain technology—is a thing of the present, and the future. With Bitcoin prices soaring and more cryptocurrencies coming online, this new, digital financial instrument is drumming up more interest than ever.
Investors these days are wondering if it’s too late to invest in Bitcoin. And, if so, what are the other options available to investors who want to buy cryptocurrency?
Big banks are also trying to figure out how to modernize and innovate for the purposes of meeting customer interest in cryptocurrency. This has some banks creating their own currency exchange networks. Silvergate Capital’s Silvergate Bank, for example, offers the Silvergate Exchange Network (SEN), a digital payments network that facilitates 24/7 transfers of cryptocurrency.
Others, like J.P. Morgan Chase, are launching their own digital coins. Still others are providing services to manage the new currency. In early 2021, the Bank of New York Mellon, the nation’s oldest bank, announced that it would begin financing bitcoin and other digital currencies. It is the first traditional bank to offer services for digital assets.
Since they were first introduced, cryptocurrencies have developed into an alternative high-risk asset for affluent investors. As a financial innovation, they appeal to customers because they allow for real-time value movement, improving transaction speed and removing limitations on business hours.
Here’s what investors should know about the Bitcoin Cash and how is it different from Bitcoin.
What Is Cryptocurrency?
In order to describe Bitcoin Cash, it’s important to understand its predecessor, Bitcoin.
Unlike paper bills (fiat), cryptocurrency is strictly digital. Instead of a centralized bank monitoring currency purchases and exchanges, cryptocurrency “uses encryption techniques to control the creation of monetary units and to verify the transfer of funds.” Each transaction is recorded on a global public ledger recorded via blockchain technology.
Bitcoin was first described by an anonymous person(s) who went by the name Satoshi Nakamoto in 2008. Bitcoin was later released publicly in 2009. Although blockchain was first thought of as far back as 1991, it was really only first implemented as a currency model in 2009, the birth of Bitcoin.
Bitcoin is fundamentally different from other commodities. These days, it is typically used as an investment and exchange platform. (While it can be used to complete certain types of online purchases, these tend to be more complicated than paying with dollars.)
Bitcoin also allows for anonymity, as no central entity verifies buyers and sellers. Rather, the blockchain allows the ledger to be peer-to-peer, with no one entity maintaining ownership or control over the ledger.
A signature feature of Bitcoin transactions is that they have low fees and lots of flexibility. Think no more waiting two business days for a transaction to clear.
And, in the case of Bitcoin, there is a fixed amount of 21 million available. That nulls the issue of inflation that other currencies are subject to.
But, that fixed number, an increase in demand, and a flux in transaction fees is in part is what led to Bitcoin Cash…
In the years following Bitcoin’s launch, the cryptocurrency evolved from a fringe boutiquey interest to a more mainstream purchase and investment. As Bitcoin began to capture more and more interest from the general public, the blockchain technology that was pivotal to the use of the currency faced major challenges, resulting in increasing fees and less reliable transactions.
Out of that problem, Bitcoin Cash was born. Created on August 1, 2017, Bitcoin Cash was designed to help solve these scalability issues. In the world of blockchain it is considered a “hard fork,” or basically a new coin.
There are only 21 million units of Bitcoin Cash available in total, similar to Bitcoin. A major difference, however, is that Bitcoin Cash has larger blocks (between 8 MB and 32 MB), which allows space for more transactions per block. These larger blocks also make the system faster and more reliable.
Why Invest in Cryptocurrency?
The cryptocurrency market has yet to mature, but when it does, you might be happy that you decided to stuff your digital wallet with Bitcoin Cash in the early days.
Even now, to do so, you’ll have to dish out big bucks. As of March 16, 2021, 1 unit of Bitcoin Cash had the cash equivalency of about $523.
But, that’s much more affordable than the original Bitcoin. As of late February 2021, one Bitcoin was selling for $47,032.52. As of January 30, 2021, there were only 2,385,193 bitcoins remaining available for mining.
Bitcoin Cash, on the other hand, entered the market at $900 and has since reached an all-time high of $3,785.82. While the price of Bitcoin Cash in late February 2021 was about $515.93, predictions put Bitcoin Cash at higher than that, reaching $738.03 by December 2021.
Bitcoin Cash is faster and cheaper, at about $0.20 per transaction. (Bitcoin transactions cost about $25 per transaction, but fees have reached as high as $60.)
While Bitcoin Cash isn’t valued nearly as high as Bitcoin, Bitcoin Cash is still one of the top ten cryptocurrencies in the world.
The cryptocurrency world is still relatively new, but in many ways, Bitcoin has set the standard for these currencies. It is anticipated that in the long-term, Bitcoin Cash has the ability to take on some of Bitcoin’s market share, eventually becoming the most dominant cryptocurrency.
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The information and data are as of the March 30, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Impact Investing
Lots of things didn’t play out so well in 2020, but impact investing— including environmental, social, and governance (ESG) and socially responsible investing (SRI)— wasn’t one of them.
According to Fidelity, in 2020 “stocks at the top of our environmental, social, and governance (ESG) rating scale (A and B)…outperformed those with weaker ratings (D and E) in every month from January to September, apart from April.” That’s a big deal all things considered.
Impact investing paid off for companies and investors alike in 2020. “Over a relatively short time frame…companies with high sustainability ratings performed better than their peers as markets fell. This bore out our initial hypothesis that companies with good sustainability characteristics have more prudent management and will demonstrate greater resilience in a crisis,” according to a white paper by Fidelity.
The bank’s findings don’t stand alone, rather they are the general consensus after a tumultuous 2020.
According to Blaine Townsend, director of sustainable investing at wealth management firm Bailard in an interview with CFO Dive, 2021 is the year of ESG capitulation. “A lot of that comes from basic points we’ve argued for 50 years: companies who treat their employees and the environment better and are more transparent with stakeholders might make for better long-term investments.”
He suggests that companies should be proactive about ESG now to position themselves for long-term success. He also underscores that regulatory formalization of ESG reporting from the Securities and Exchange Commission (SEC) is on the horizon.
Investors should take note, as well. Not only can ESG investing reduce portfolio risk, it can generate competitive returns, according to a report by Refinitiv that reflects consensus in the industry.
Here’s what investors should know about impact investing in 2021.
What Are the Top Impact Investing Trends in 2021?
“COVID, rather than dampening the interest in ESG-informed investing [has] actually…accelerated a number of these pre-existing themes,” according to AssetTV’s Jenna Dagenhart in an interview with Julie Moret, Head of ESG, Franklin Templeton Investments.
According to Moret, there are four basic drivers of the ESG investing: (1) the growing relevancy of sustainability challenges, (2) a demographic shift to “millennials [that] are much more sensitized to environmental and social considerations,” (3) increased regulation and policy related to sustainability issues, and (4) increased pressure on corporations for sustainability disclosures.
According to MSCI, the top five ESG trends to watch in 2021 include (1) climate, (2) social inequity, (3) biodiversity, (4) investment return factors, and (5) increased reporting. Here’s why.
Climate— The Biden administration rejoined the Paris agreement (which is designed to cut significant greenhouse gas emissions globally) immediately after his inauguration. As a result, corporations are busy setting emissions reduction goals in response to both investor demand and anticipated regulation.
Social Inequalities— The pandemic’s impact on the most vulnerable people paired with the high-profile nature of the Black Live Matter movement have made social causes visible and paramount. According to Moret, “We’ve seen dislocations in markets, and we’ve seen the real impact on the economy… particularly [in] certain segments of the economies where employees…have been left with very little protection, whether that’s leisure, entertainment, and travel. I think it’s an absolutely reasonable expectation that post-COVID from an investor’s perspective, there’s likely going to be downward pressure on free cash flows.”
Biodiversity— Environmental issues are no longer limited to carbon emissions and climate change. Biodiversity loss presents major economic risks. According to an estimate by the World Economic Forum and PwC, approximately $44 trillion of economic value generation is tied to nature. That amounts to more than half of the global GDP. The COVID-19 pandemic has no doubt highlighted the potential “impact of greater contact between wild animals and human populations triggered by habitat loss,” according to IMPAX Asset Management. Investors can expect biodiversity to gain prominence as a named environmental priority in impact investing.
ESG Investment Return Factors — According to the MSCI report: “In 2021, we see both hype and skepticism about ESG giving way to acceptance and a more nuanced understanding of when and how ESG has shown pecuniary benefits — and when it hasn’t.” There is a growing interest in correlations between ESG elements and performance, which are likely to be further analyzed and better understood in the year to come.
More Data and More Reporting— Companies are becoming increasingly focused on ESG in order to meet investor demands and attract investment. The government is also taking proactive steps to improve and regulate ESG disclosures, per a July 2020 report released by the U.S. Government Accountability Office (GAO) that evaluated the state of public company disclosures related to ESG issues. This means that investors and companies alike should expect more standardized ESG reporting requirements in the not-so-distant future.
The COVID-19 pandemic changed the world and led average citizens and companies alike to reprioritize. If anything is clear, it’s that impact investing (whether by the name of ESG or SRI) is the way of the future. Not only is that encouraging for environmental and social change initiatives, it has proven that it will pay off for both investors and companies.
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The information and data are as of the February 1, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Municipal Bonds
When you see the latest hospital, school, highway, or airport alongside the road, you might not immediately imagine that it was likely partially financed with municipal bonds. In fact, two out of three infrastructure projects in the U.S. are financed with municipal bonds, according to a report by New York Life Investments.
Municipal bonds have a long history; the first was established in 1812 in New York City to raise money to build a canal. These days, they are still a tool used to help fund large, high profile projects. In 2018, for example, “the Denver International Airport issued $2.5B in bonds to finance capital improvements, the largest airport revenue bond in municipal bond history.” In 2016, “the New York State Thruway Authority issued $850 million in bonds to finance a portion of the new NY Bridge Project.” So, while municipal bonds might sound boring, they are helping communities to accomplish big things.
Not only do municipal bonds (also called muni bonds) make many new infrastructure projects possible, they can generate passive, tax-free income for investors.
While municipal bonds were initially hit hard by the COVID-19 pandemic, they have since recovered with robust Federal Reserve support. According to BlackRock, because COVID-19 is likely to drive higher government spending and record deficits which is in turn likely to drive higher taxes for investors, tax-free income vehicles like municipal bonds are likely to be more attractive than ever in the years to come.
Here’s what investors should know.
What Are Municipal Bonds?
Municipal bonds are financial vehicles for communities to build schools, fix highways, improve water systems, maintain bridges and tunnels, upgrade hospitals, and more.
Municipal bonds are a means for investors to loan money that funds local infrastructure and public works programs. In short, when a municipality needs to raise money for an infrastructure project, they often issue bonds. These bonds fund a project over a designated period of time. During that scheduled period of time, investors are paid interest (typically semi-annually) until the bond matures, at which time they receive their initial principal back.
There are two types of municipal bonds, a general obligation (GO) bond and a revenue bond. A GO bond is usually backed by a municipality’s local government and carries an unconditional promise of repayment. GO bonds generally pay investors via a general fund or through a dedicated local tax. Revenue bonds fulfill debt obligations via raised money. For example, a bridge that collects a toll or a sporting facility that raises money via ticket sales.
Municipal bonds are unique from many other bonds in that they are mostly tax-exempt at the federal level, and in many cases, at the state level as well. They have enjoyed their tax-free status since 1913. According to the National Association of Counties (NACo), “the tax-exemption of municipal bond interest from federal income tax represents one of the best examples of the federal-state-local partnership.” The tax-exemption applies to earned interest. So, while corporate bonds might offer a higher earned interest rate, because corporate bonds are taxed, their take-home earnings might actually be less than their municipal counterparts.
Municipal bonds also tend to outperform other vehicles like CDs, although municipal bonds have a slightly higher associated risk. Nonetheless, municipal bonds still have a relatively low default rate (lower than the corporate bond default). Between 1970 to 2011, there were only 71 municipal defaults, compared to 1,784 corporate defaults during the same time period, according to Moody’s analysis.
One possible drawback is that municipal bonds tend to be less liquid than even their corporate counterparts, which investors should consider before investing.
Why Invest in Municipal Bonds?
Municipal bonds tend to help buffer portfolios as the stock market fluctuates. Municipal bonds are unique in that they offer both tax-exempt income and high credit quality. They have particular appeal for income-oriented investors in higher tax brackets who want to reduce federal and state income tax bills. The municipal bond tax exemption makes them attractive enough that investors often choose them over their corporate counterparts.
Regarded as a conservative investment, municipal bonds tend to fluctuate less than stocks. They typically pay a predictable amount twice per year. They also offer a low chance of default, especially considering that they are usually backed by taxes and fees generated by essential services.
Perhaps even more appealing, municipal bonds allow investors to invest their money locally. These bonds offer investors the opportunity to be a part of building their city’s newest football stadium or their community’s newest school facility, for example.
Not only that, municipal bonds help to keep infrastructure decision-making power with state and local leaders in partnership with their residents, according to NACo.
Investors should note that municipal bonds with a shorter duration often offer lower yields than longer duration bonds. Nonetheless, with either type, investors can anticipate getting their initial investment back and then some.
Municipal bonds are a tangible way for investors to support infrastructure. Not only do they offer a range of benefits for investors, they benefit the communities where projects that they help to fund are built. For those reasons, they should be on every investor’s radar.
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The information and data are as of the January 28, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Insurance Technology
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Insurance companies often face fierce competition with each other for many of the same customers. In the U.S., the car insurance market, for example, is dominated by a handful of major players. The 10 largest companies in the industry control approximately 72% of the market, according to Value Penguin by Lending Tree.
The winners and losers of each year are determined by which companies pick up more market share. In 2019, Progressive notably gained more than a percentage point of the market share in the auto insurance industry.
Insurance, however competitive, is an industry that seems entrenched in archaic processes.
This might not be the case for long, though – the insurance industry is expected to change dramatically in the next five to ten years, according to McKinsey. The firm expects the industry to shift as customer expectations and technology rapidly evolve.
Insurance technology i.e. insurtech, or the innovative use of technology in the insurance industry, seeks to bring greater value to customers and companies. And it’s not going unnoticed. According to PricewaterhouseCoopers, “insurtech has become a powerful driver of change in the insurance industry.”
In fact, the number one risk facing the global insurance industry is technology modernization, according to PwC. To remain competitive, companies need to keep their tech improving and their processes modernizing.
What Is Insurance Technology?
Insurtech “is a term used to refer to technology designed to enhance the operations of insurance firms and the insurance industry as a whole.” Insurance technologies include big data, artificial intelligence, consumer wearables, and smartphone apps, which are ushering out the old processes of insurance for new ones.
These new technologies are extremely valuable to insurance companies; insurtech companies offer pay-per-use and an emphasis on loss prevention and restorative services, according to PwC.
According to Duck Creek Technologies, there are 8 top technology trends in insurance.
Predictive analytics: Predictive analytics analyzes data to make predictions about the future. In insurance, technology is most used for: (1) pricing and product optimization; (2) claims prediction and timely resolution; (3) behavioral intelligence and analytics to predict new customer risk and fraud; (4) uncovering agent fraud and policy manipulation; (5) optimizing user experience through dynamic engagement, and (6) big data analysis.
Artificial Intelligence (AI): In the insurance industry, like in many industries, artificial intelligence is helping companies to personalize experiences and make business processes more accurate and expedited.
Machine learning: Machine learning is the ability of a program to learn through a variety of algorithms. Machine learning is helping to improve and even automate the claims process by utilizing pre-programmed analysis.
Internet of Things (IoT): Sharing data from smart devices can save customers money on policies. In 2019, 34.8 million homes in the U.S. were considered smart homes. Because smart home features increase safety and decrease energy usage, insurance companies can use them to better assess risk and reduce costs for consumers.
Data: In the insurance industry, social media is more than a tool for marketing. Not only can social media analytics be used to increase sales, it can also be used to improve loss ratios.
Telematics: Do you plug a device that monitors your car’s use and speed to get a better price? Telematics are like a “a wearable device for your car.” Telematics are thought to help both insurance companies and insurance customers by encouraging better driving habits, lowering claims costs for insurance, and making carrier to customer relationships more proactive than reactive.
Chatbots: Chatbots are a growing phenomenon. Insurance companies can use bots to help customers apply for insurance or file a claim, freeing up employees to help with more complicated needs. For example, Geico offers Kate, a virtual assistant that can quickly help customers with information like the current balance on an auto insurance policy, the date of a next payment, or by providing access to policy documents 24/7.
Drones: While it might be easier to imagine drones dropping off packages for customers than administering insurance, drones are gaining a role in insurance. For example, how does a virtual visit to assess risk or damage sound in the COVID-19 pandemic? That’s what programs like the Remote Visit application offered by FM Global are doing. Another example, Farmers’ Kespry drone program, was launched in 2017 to review roof damage following weather events, leading to faster assessment turnaround and increased safety for claims reviewers.
Why Invest in Insurance Technology?
The insurance industry is ripe for innovations of all kinds.
According to PwC, Global insurance technology investments in 2018 totaled $4.15 billion. 2020 expedited the adoption of technology in the insurance industry. This is no surprise considering that insurtech facilitates things like virtual sales, virtual claims interactions and expense reduction, according to Deloitte.
Despite the pandemic-induced economic uncertainty, “insurtech industry investments in the aggregate appear to be as robust as ever,” according to Deloitte. $2.2 billion in investments in insurtech were recorded in the first half of 2020 alone.
It’s not just disruptors to the industry to be on the lookout for. Legacy carriers that successfully adopt technology internally will also benefit in the long term.
According to Sam Friedman, insurance research leader at the Deloitte Center for Financial Services in an interview with Insurance Business America: “I don’t see a behemoth insurtech out there that’s going to essentially end the insurance business as we know it, and take over massive amounts of market share….Where insurtech is having a huge impact is in helping insurers become better at what they do.”
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The information and data are as of the January 4, 2021 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.
Precious Metals
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Nicknamed the “crisis commodity,” gold is an investment that people flock to when the world seems uncertain. And it’s no surprise— gold has been long associated with the gods, immortality, and wealth itself.
In the midst of geopolitical and macroeconomic uncertainty, gold also provides portfolio stability. On the more recent historical record, gold has performed well in the worst of times, including the 2008 financial crisis and during the market fluctuations in the 1970s. This is in part because of the fact that, as the value of the dollar drops, the demand for gold tends to increase.
Geopolitical and macroeconomic uncertainty seem to describe 2020 well enough. So, it’s no surprise that these days, the demand for gold and other precious metals is up.
But precious metals like gold are more than old forms of currency or components of jewelry. They are also used in car engines, dental work, our phones, as components of medical equipment and much more. Here’s why you should consider adding precious metals to your portfolio.
What are precious metals?
Metals like gold were historically a form of currency but they also have industrial applications in dentistry and electronics. For example, gold is used in computer memory chips, electronic components for cell phones and other devices, dental filling including crowns and bridges, surgical instruments, medical treatments, telecommunication satellites, and specialized glass.
It might be surprising to learn that while China, Australia and Russia are the world’s major producers of gold, the U.S. is the fourth-largest gold-producing nation. In 2019, the U.S. produced 6.1% of the world’s total gold production for the year coming from states including Nevada, Alaska, Colorado, California, and Arizona.
While gold is the best-known precious metal for investment, it isn’t the only one. Investors should also consider silver,platinum, and palladium.
Like gold, silver has historically functioned as currency. Unlike gold, however, silver tends to play a stronger role as an industrial metal. Whereas only about 10% of the demand for gold is driven by industrial use, about 60% of the annual demand for silver is driven by industrial use. That said, the gold market is larger than that of the silver market.
Silver today is used in batteries, solar panels, cell phones and other electronic devices, nuclear rods, antifreeze, ointments, mirrors, specialized glass, engine bearings, water filtration systems, dental fillings, as well as for silver inputs to industrial items including electrical appliances and medical products.
Platinum, another precious metal, is even more rare than gold, which often drives its prices higher than that of gold. An industrial metal, platinum is most notably used for automotive catalysts. Catalytic converters are exhaust emission control devices that minimize pollutants, and they are in growing demand. The automotive industry is the world’s largest consumer of platinum.
Palladium is an even lesser-known precious metal but it is found in Russia and South Africa, as well as in the U.S. and Canada. Palladium is approximately 30 times as rare as gold. In such high demand that exceeds supply, palladium, like platinum, has exceeded the price of gold in recent years.
Palladium is used for a variety of things, from catalytic converters (like platinum) to dentistry, medicine, chemical applications, jewelry, and groundwater treatment. Increasingly stricter environmental laws and pollution restrictions mean that manufacturers are required to increase the amount of palladium in catalytic converters.
Why invest in precious metals?
Precious metals offer investors much-needed diversification. Because precious metals aren’t very closely correlated with stocks, bonds, or real estate, they help buffer portfolios in times of uncertainty. For this reason, some advisors suggest putting 5 to even 10% of an investor’s portfolio with precious metals, depending on their circumstances and goals.
The performance of precious metals in today’s unpredictable market isn’t disappointing. In August 2020, the price of gold hit an all-time high, up more than 36% from the start of 2020. While it hasn’t held that all-time value, its jump demonstrates that gold is a relatively safe bet when the markets are in flux.
While buying bullion might seem like an obvious and safe bet (the investor owns physical gold or silver), it’s not for every investor. It requires a safe storage site, for example, with investors often choosing to keep their valuables at a bank, which can be costly. It also often entails the seller taking a cut on the sale.
Unlike the markets for gold and silver, the market for palladium is small, with only a handful of companies that offer exposure to palladium. And while treasure chests are great, precious metals (especially in the cases of platinum and palladium) have practical applications that drive their demand.
Investing in precious metals isn’t an end-all, be-all answer, but it is a path for diversification that many investors choose, especially with the world in flux.
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The information and data are as of the December 15, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.
Gold
As kids, we buried “secret treasure” in the backyard. We didn’t know then, let alone care, about the state of the economy or the worth of gold.
These days, we know very well what’s in our investment portfolios and we cringe or breath a sigh of relief as we watch it fluctuate from day-to-day and week to week. So, it’s no surprise these days of economic uncertainty, we might find ourselves dreaming of safely buried treasure once again.
If you are, you aren’t alone.
According to a survey by Magnify Money published in July 2020, one in six Americans bought gold or other precious metals in the last three months, and about one in four were seriously considering investing in them. After all, gold tends to hold its value, in part because it has a finite supply. In fact, “gold was one of the highest-performing investments in 2019,” according to a recent article in Forbes.
Interestingly, the COVID-19 pandemic has resulted in a less fluid supply of gold in the marketplace. Around the world, the pandemic has forced mine closures and slowdowns. According to an analyst from CRU Group, in April about 10-15% of gold mines globally were offline, including in South Africa, Peru, Mexico, and Canada.
So, is gold still a good investment? And if so, what’s the best approach? Not surprisingly, there are lots of gold investment options in the modern world, and the most practical ones don’t involve buying and burying it in the backyard.
Why Invest in Gold?
Gold is understood as a “stable store of value.” Although typically gold doesn’t offer a big return on investment, it tends to hold its value during uncertain times. As a result, gold tends to hold its value during times of financial volatility.
In today’s volatile market, that makes it particularly attractive.
The value of gold is influenced by inflation and supply. The dollar value of gold moves opposite of the dollar. This is because as the dollar gains, it requires fewer dollars to purchase the same ounce of gold.
How to invest in gold
There are many ways to invest in gold, including:
Physical Gold: Gold bullion is physical gold in the form of coins or bars. Typically, these are sold at a markup by the seller and come in sizes ranging from one gram (approximately 1/31 of an ounce) to 400 ounces. Bullion coins are typically recognizable based on imprints such as the American Eagle, Canadian Maple Leaf, and South African Krugerrand.
Typically, the value of non-bullion coins is based on their rarity, not the amount of gold in them. This is because in 1933, President Franklin D. Roosevelt signed Executive Order 6102, which required Americans to surrender much of their gold to the government for compensation. The collected gold was melted into bar form, making the remaining coins from that era particularly valuable.
Physical gold tends to be liquid for those needing cash, but often must be sold at a discount. Also, it can be difficult to store it safely. But again, while buying actual treasure is appealing and very possible, isn’t the only way to invest in gold.
Gold Exchange-Traded Notes (ETNs) and ETFs: ETNs are “debt instruments tied to an underlying investment” such as a commodity like gold. Gold ETNs enable investors to invest in gold without having to purchase it in physical form, which is much easier for many investors. Gold-backed ETFs are another option. First launched in 2003, these ETFs are securities designed to track the gold price.
Gold Mining Stocks: These are simply investments in companies that mine for gold. While these are not direct investments in gold, they are an investment in the industry.
In times of volatility, gold can be a popular hedge for investors looking to protect their portfolios from wild swings. For those investors interested in gold-backed ETFs and mutual funds, a search on Magnifi suggests that there are a number of available options.
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The information and data are as of the October 20, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Emerging Markets
With growing, increasingly affluent populations and innovative technologies, emerging markets offer opportunity for diversification, exposure to various stages of the economic cycle, and attractive valuations.
The top five emerging market economies— Brazil, Russia, India, China and South Africa—are commonly referred to as the BRICS. Formalized in 2010 when these companies represented just 11% of global GDP, these countries have experienced tremendous growth since then, a trend that is expected to continue for the foreseeable future. The International Monetary Fund anticipates that by 2030, the BRICS nations will make up over 50% of global GDP.
While the BRICS countries are enormously different in terms of economies, structures, and cultures, they all have large populations and promising futures. China and India, for example, have become major players in the technology sector. Brazil is the second largest food producer in the world, second only to the U.S. Russia and South Africa are home to rich natural resources. All are home to potential supply chains and new consumer markets.
Here’s what you should know about the world’s top emerging markets and how to invest in them.
What Are the BRICS?
As mentioned, the BRICS countries include Brazil, Russia, India, China and South Africa.
Brazil has a GDP of $1.868 trillion, making it the eighth-largest economy in the world. The country is also a member of Mercosur, a South American free trade area that includes Argentina, Brazil, Paraguay and Uruguay, which is home to three quarters of the total economic activity on the continent. Mercosur has an annual GDP of about US$5 trillion and is home to more than 250 million people.
Russia is rich in natural resources, has strong emerging industries, and a growing middle class. Russian GDP has experienced steady growth since 1998. In 2018, it increased by 1.8%, thanks to solid international growth and rising oil prices. As of 2019, its GDP is $1.64 trillion.
Russia is the dominant partner in the Eurasian Economic Union (EAEU), which includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. These countries together boast a GDP of $5 trillion and are home to a population of 183 million. There are talks about free trade agreements with other areas, and when reached, it will no doubt change the supply chain.
India’s GDP in 2019 was $3 trillion. Whereas politics play a role in the uncertainty of investing in some emerging economies, that’s not the case for India. Since gaining its political freedom from Britain in 1946, India established and has since successfully maintained strong parliamentary democracy. The country is the dominant partner in the South East Asian Free Trade Area (SAFTA), which includes Afghanistan, Bangladesh, Bhutan, India, The Maldives, Nepal, Pakistan, and Sri Lanka. The populations in these countries amount to a market of 1.6 billion people.
China has a particularly strong manufacturing sector, and not just for “Made in China” products exported around the world. According to the National Bureau of Statistics, three fourths of China’s 6.6% GDP growth in 2018 was credited to consumption. And, its growing consumer base, with its growing wealth, wants quality.
According to Forbes: “South Africa ranks high worldwide for investor protection and the extent of disclosure.” That fact has not been lost on foreign investors, with FDI into South Africa growing by 446% to 7.1 billion in 2018. China and Russia have both invested heavily in Africa.
In addition to being home to the most developed stock market in Africa, South Africa boasts natural resources including gold, iron, ore, coal, platinum, uranium, chromium, and manganese nickel.
Why Invest in Emerging Markets?
Emerging markets tend to carry a varying amount of political and economic risk, depending on the country. But, on the whole, the sector has lately outperformed more established markets in Europe and North America.
COVID-19 has made this divergence even clearer, with the asset class coming nearly all the way back to pre-pandemic levels as of October 2020. This performance was in part in lockstep with the rest of the world, but since emerging markets stocks tend to fall further in bad times, they have come roaring back even stronger than their first world peers.
Per Lazard: “Following a drawdown of nearly 35% in the first quarter and a sharp 18% recovery in the second quarter, the MSCI Emerging Markets Index rose 9.6% in the third quarter to climb nearly all the way back (96%) to its pre-COVID-19 peak.”
But, as such a large sector that’s spread across so many different countries, investing in the growth of emerging markets can’t be focused on just a few companies. Fortunately, a number of ETFs and mutual funds allow investors to access all of the asset class at one time. A search on Magnifi suggests a number of options for investors interested in the emerging markets.
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The information and data are as of the October 13, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Direct Listing
Once uncharted territory, pursuing a direct listing is becoming less and less an anomaly. “An IPO is no longer a one-size-fits-all path to public,” according to the New York Stock Exchange.
A series of recent high-profile IPO failures of companies valued sky-high in the public eye have proven that a successful IPO isn’t guaranteed. Companies like Uber, Lyft, Endeavor, and Peloton all had highly anticipated IPOs that ended in failure. For example, on its first day of trading, Peloton’s stock plunged 11%. Uber’s shares dropped more than 7% on opening day in May 2019, continuing to slide. (Since then, it has recovered to nearly its introductory value.) At the eleventh hour (the day before it was scheduled), Endeavor decided not to go forward with its IPO. What was once the “only way” to go public is proving more and more not to be a foolproof step forward.
This series of public, lackluster performance seems to be a cautionary tale. And, while a direct public offering sounds fret with opportunities for things to go wrong, high-profile companies like Spotify and Slack are proving otherwise.
Here’s what you should know.
What Is a Direct Listing?
A direct listing or DPO (direct public offering) is a less conventional way to go public. What makes a direct listing so unusual? First, it allows companies to go public without raising capital, making it much different than an initial public offering (IPO).
In an initial public offering (IPO), companies establish an initial public stock price. By offering public ownership, IPOs are able to raise capital from public investors. To do so, a company will offer a certain amount of new and/or existing shares to investors.
Typically, stocks are sold by one or more banks that act as underwriters. These banks also help to market the company, including to institutional investors on a “roadshow” to the tune of millions of dollars. Institutional investors then filter the shares to the larger market, such as the NYSE, for example. In this somewhat exclusive process, only then do the shares become truly available to the public.
Following the IPO big debut, early investors are typically barred from selling their shares for 90 to 180 days, also known as a “lock-up period.” This has the potential to limit how much money those investors can make on the sale of their stock, which is determined by how the price of the stock fares in the public market.
A DPO skips the step of working with an investment bank to underwrite the issue of stock. Rather, “existing stakeholders basically sell their shares to new investors.” In other words, the company doesn’t have to go through the hoops of marketing the company or selling stock to raise cash before the stock goes public. This makes it faster and less expensive than a traditional IPO. It also equalizes the playing field because the stock is openly listed on the market, therefore accessible to everyone.
It should be stated that once a company is listed, even by way of DPO, the company then becomes subject to the “reporting and governance requirements applicable to publicly traded companies” as mandated by the Security Exchange Commission.
Why Are More and More Companies Choosing DPOs?
By using the less conventional DPO, companies can save a lot of cash— by skipping the IPO process, there is no need to pay banks huge underwriting fees.
But, even though there are major cost savings, DPOs are not ideal for every company. What happens if the stock for your little-known company arrives on public markets and no one knows what your company is?
The likelihood is, no one will buy it.
And, without the IPO process, there’s no initial price established by underwriters. For this reason, companies that pursue a DPO generally have better luck if they have “a lot of money and brand recognition.
Another major perk of a DPO is that there is no lock-up period. For early investors, including employees who may have accepted shares in the early days of a company to offset for a lower startup salary, the opportunity to sell shares right away when the stock might hold the most value is a huge perk.
To this point, because no new shares are created in advance of trading, the dilution of existing stock value is prevented.
DPOs are not without risk, however. For one, price volatility, even in the best of circumstances, can be enough to scare companies off. In a DPO, a reference price is typically established by “buy and sell orders collected by the applicable exchange from various broker-dealers.” However, without the support of underwriters who set an initial price, the stock becomes dependent on market conditions and demand.
Moreover, because the number of shares available on the market in a DPO is determined by the number of shares that employees and investors choose to list, there can be less control overall.
Consider Spotify, which successfully pursued a DPO. The stock hit the market at $165.90 in April 2018. On its introductory day, Spotify was ready with a reference price of $132. Even though it had plenty of brand recognition, there was worry that shares flooding the market without a price established by underwriters could lead to a steep fall.
On its first day on the market, it closed at $149. A little more than two years later, the stock is currently trading at $260.44.
Spotify is not alone in its DPO success, though. Slack had similar success after its direct listing in June 2019.
If an IPO seemed like the bar for startup success before, that’s no longer the case. Earlier this spring, Asana filed to go public via direct listing. Other companies that have been rumored to pursue a direct listing include DoorDash, Airbnb and GitLab. Needless to say, looking forward, it is quite possible (if not probable) that the DPO approach becomes a well-traveled path for companies aspiring to go public.
Investing in Direct Listings
For investors, there is functionally little difference between buying shares in an IPO vs. a direct listing. The difference comes in the source of those shares and the way they are priced at the start.
By converting insider ownership shares into publicly-listed stock, pricing on a direct listing can be volatile and a difficult way to access new companies. For investors looking to get into the IPO and DPO market without taking this risk, a search on Magnifi suggests that there are a number of different options in ETFs and mutual funds.
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The information and data are as of the August 4, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Asia
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“Made in China” is a phrase we all know well, but American shopping aisles bursting with “Made in China” goods are becoming more and more a thing of the past, especially as the depth and breadth of Asia’s economies develop. The truth is, this is not just a China story anymore— it’s a story of a new Asia bursting with emerging economies, high-tech industry, and a growing middle class.
Consider that the United Nations estimates that as of July 2020, Asia as a whole has a population of more than 4 billion. That amounts to about 60 percent of the world’s current population.
Asia is growing and its enormous population is buying more and more of its own stuff than ever before. It is estimated that “Asian-Pacific (APAC) countries will have seen a growth in their middle-classes by over 500 percent in the 20 years up to 2030.” This increased buying power will be nothing short of transformative, especially compared with 2 percent growth in Europe and a decline of nearly 5 percent in America over the same period.
Asia’s global output is up 26% from the early 2000s and, according to McKinsey and Company, “Asia is on track to top 50% of global GDP by 2014 and drive 40 percent of world’s consumption.”
This growth isn’t just thanks to China, but small and medium-sized countries throughout the region, as well. Asian business hubs stretch from Singapore to Jakarta, Kuala Lumpur and Manila. In fact, according to an analysis by The Financial Times, Indonesia is on pace to overtake the world’s sixth-largest economy, Russia, by 2023.
Not to mention, Asian exports are not reliant on the United States. Moreover, China’s total exports amount to 40% of the world’s consumption. Although exports to the United States fell by more than 8%, they remained about the same from 2018 to 2019. In other words, China was able to compensate for the drop in exports to the US by exporting more to the rest of the world.
Yes, the region is seeing some political instability in 2020, with protests and crackdowns roiling Hong Kong and other parts of China. But, given the growth that’s happening alongside this, it will take more than that to slow down the Asian expansion.
What’s Changing in Asia’s Markets?
China is no longer simply making the cheap plastic toys that it may have once been known for. Rather, its products are increasingly high-tech and sophisticated.
That means two things: The first is that in China, wages are on the rise. The second is that there is a new space globally for low-cost manufacturing that once belonged solely to China.
Vietnam’s exports are up 96% since 2015, a surge led by the export of low-cost textiles. (It’s worth noting that Vietnam is also home to a global manufacturing base for Samsung.)
In India, Prime Minister Narendra Modi launched the “Make in India” initiative with the goal of developing India into a manufacturing hub that is recognizable on the global scene. And it seems to be working, with India’s exports up 22.5% since 2015.
All of that manufacturing would literally go absolutely nowhere without streamlined logistics, however. “The logistics industry accounts for 15-20% of GDP in Vietnam and is expected to grow up to 12 percent in Indonesia.” In large part, this growth is thanks to both increased investment and streamlined e-commerce.
Why Invest in Asia?
Asia might be set to overcome the West as a center of trade and commerce, but it’s not there yet. And it’s not without challenges. Many countries that are home to emerging markets have also become home to the challenges of emerging countries.
Take infrastructure, as an example.
Paired with challenging geography, poor roadways can devastate supply chains. But, supply chain challenges like those found in Asia can largely be overcome by technology solutions, such as Route Optimization, Predictive Alerts, AI-based forward and reverse logistics, and smart shipment sorting. Additionally, infrastructure spending is on the rise in Southeast Asia, through the formation of institutions such as the Asian Infrastructure Investment Bank and the Japan Infrastructure Fund.
Countries like Indonesia have shown that economic growth for smaller, emerging countries is sustainable. Not only is Indonesia rich with natural resources, it is committed to specialized manufacturing including that of machinery, electronics, automotive and auto-parts. The country has slashed its “poverty rate by more than half since 1999, to 9.4% in 2019.” It’s most recent economic plan implemented in 2005 was for 20 years, broken into 5 year increments.
In all, the Asian continent, with its emerging middle class, increased focus on high-tech manufacturing, and participation by lesser-known counties, has long-term growth potential. And, with this momentum already in full swing, the future looks bright for countries across the continent.
That’s what happens when emerging markets “emerge” all the way into fully developed economies.
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The information and data are as of the July 29, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
Bitcoin
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Globalization is driving the economies of the world toward greater and more profound integration. People across the globe are now connected through vast, complex supply chains that span oceans and continents.
From the comfort of your home in the U.S., you can log on to Etsy and order a beautiful, handmade blanket from Turkey that will arrive at your door in a few weeks. You do not need to travel to Turkey to purchase the blanket, and the Turkish vendor is happy that their products are available to a global market.
The growth of these kinds of international peer-to-peer transactions is hindered by the fact that most countries each have a distinct currency that is government-controlled and that generally cannot be spent elsewhere. The process of transferring money between people in different countries can be quite complex as the funds need to pass through intermediary banks along the way. This complexity takes time and adds a cost to the transfer in the form of fees.
A little over a decade ago, an ingenious new digital currency known as Bitcoin was launched that sought to address these and other global currency problems.
An unknown individual (or group of individuals) going by the name Satoshi Nakamoto invented Bitcoin (and the underlying blockchain technology) and shared the idea in a groundbreaking 2008 paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System. The introduction of this paper states that: “Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model.”
Bitcoin relies on what Nakamoto refers to as “cryptographic proof” (hence, cryptocurrency) instead of trust. This proof comes in the form of Bitcoin’s blockchain ledger, which unlike the ledger of a traditional bank, is open to and shared amongst users in the Bitcoin network.
As a complete reimagination of the traditional currency and banking system, the transformative potential of Bitcoin is enormous. A decentralized digital currency that is free from government control offers users an entirely new way to move and make money.
For those interested in the investment potential of this innovative new currency, there are a few important points to understand.
What Is Bitcoin?
Bitcoin is a decentralized digital currency. It is not backed a government or issued by a central bank, and its value relative to local currency moves with the forces of supply and demand.
As of early 2020, there are roughly 18 million Bitcoins in “circulation,” with another 3 million yet to be added. New Bitcoins enter circulation by a process known as “mining.” People using powerful computers (“miners”) compete with each other to solve complex mathematical problems in a race to verify a new set of Bitcoin transactions. The first miner to do this correctly is rewarded with a certain number of Bitcoins.
Mining is a costly, energy-intensive endeavor, but it is not the only way to acquire Bitcoins – most people simply buy them. The process is relatively straightforward. Start by downloading a digital wallet, which is a kind of program that stores your Bitcoins and payment information. Next, simply go to the Bitcoin website (or an exchange where Bitcoin are traded), link your digital wallet, and select how much Bitcoin you would like to purchase. Once your payment goes through and after the transaction is verified by miners, you will be the proud owner of some quantity of shiny new Bitcoin.
As a decentralized alternative to the traditional banking system, Bitcoin can be bought and sold anywhere in the world where there is an internet connection.
This is an important point because traditional banking does not adequately function in many places across the world. Take Venezuela, for instance, where hyperinflation over the past few years has led to a rampant devaluation of the nation’s currency, causing food to become extremely expensive and widespread hunger to run rampant. Venezuela’s leaders staunchly refused humanitarian aid from outside countries and slapped heavy fines on incoming money transfers.
Desperate citizens turned instead to Bitcoin for help. Bypassing the incompetent Venezuelan government entirely, people from around the world sent Bitcoins directly to Venezuelan families in need.
Why Invest in Bitcoin?
As an investment, Bitcoin is undeniably in the high-risk, high reward category. Bitcoin prices have fluctuated wildly over the past several years. A single Bitcoin cost about $1,000 at the beginning of 2017, and by December 17, 2017, Bitcoin hit a peak price of about $20,000. You may recall that there was something of a Bitcoin “frenzy” during this price runup. Alas, the party was not to last, and prices fell sharply throughout 2018 before rebounding moderately in 2019 to a respectable $7,200 by New Years Day 2020.
Volatility aside, it is hard to deny Bitcoin’s outstanding performance when looking at the entire price history. According to data compiled by Bloomberg, Bitcoin posted gains of more than 9,000,000% since July 2010. As a point of comparison, the S&P 500 and Dow Jones each roughly tripled during the same period.
Past performance is, of course, no guarantee of future results, and radical changes are underway in the cryptocurrency market that will create heavier competition for Bitcoin.
Facebook is planning to launch a digital currency called Libra, and countries such as China, Russia, and Iran are looking to create their own forms of cryptocurrency to circumvent U.S. sanctions.
Bitcoin is the original cryptocurrency and has been around long enough to work through many of the kinks that have arisen. Interest in Bitcoin is likely to remain high for the foreseeable future, and it will continue to be a potentially highly-lucrative, if risky, investment option for adventurous investors.
How to Invest in Bitcoin
There’s no arguing the investment potential of Bitcoin and its related technologies. But the fact remains, with that high upside comes the risk of big downsides as well, and Bitcoin prices have been on something of a roller coaster over the last two years.
However, investing in a mutual fund or ETF that offers exposure to the Bitcoin market and its underlying technologies can be a way to temper some of this volatility. Although there is still no pure cryptocurrency ETF available, a search on Magnifi suggests that there are a number of funds available today for those investors interested in investing in the technology without buying Bitcoin directly.
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The information and data are as of the January 17, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.