The year 2021 is a wrap and so are the market numbers which again have been impressive. Based on the S&P Global Website, the numbers are looking great this year as well. S&P500 is up 26.89%, Dow Jones 18.73% while the Nasdaq Composite was up by 21.4%.
People whose wages have increased this year to match inflation are definitely fortunate but for those for whom things have not changed require new avenues to ensure they don't get into negative return zones keeping their money stagnant. Given the state of inflation, I am looking for other deals to not have my money sitting there in the bank. Last year, I took the opportunity to invest in Series I bonds which are offering a 7.12 percent rate of interest through April 2022. This was the safest of investment given these are backed by the US government. You can buy up to $10,000 worth of electronic bonds each calendar year which is awesome. I plan to keep an eye on the rate of interest and stay invested at least for an year after which i can cash them out. The worst case scenario is if lets say the inflation is zero from the high mark over the second six months, I will still earn an annualized rate of 3.56% which is still a lot more than the 0.5% being offered by FDIC insured online banks. So the rule applies, make your money work for you and not let it sit stagnant.
In 2021, I also started looking into real estate and had deep long thoughts whether I should invest in rental real estate. The thoughts were very exciting and I am motivated to invest in real estate, but the primary fear I have is rental property management. That's always been holding me off because of my lack of time with oversight and potential tenant issues that could arise. Hence I started looking at crowdsourcing options. Two options I strongly looked at were Fundrise and Crowdstreet. Both the options sound terrific but I went ahead with Fundrise due to less startup costs and they idea of diversity. When you invest the money, that gets invested into many rental properties and hence substantially reduces the risk. With Crowdstreet, there are great deals but they are individual deals and investments and hence I wanted to take it a little slow before I started with it. Fundrise has so far played out very well for me with its track record.
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| Source Fundrise.com |
I have also diversified more money towards Public REITs (Real Estate Investment Trusts) as another area of diversification given the stock markets surging numbers. REIT in general is a company that owns and operates income producing real-estate. Hence that company could be owning apartments, offices, retail spaces etc. In short, they are a good way to own real estate without the hassle of managing it by yourself. You essentially invest in the company which then manages the real estate charging a very small fee for it. I personally feel its more worth it in my situation, given the liquidity is easier and it less hassle from an oversight standpoint of having to deal with a tenant. They are also a good dividend source and hence steady income time over time.
Again, I believe in long term investments and holding in my investments perpetually unless the future of a certain investment looks weak in which case I need to re-balance. But otherwise, I just put the money and not worry about the ups and downs too much.
The Federal Reserve has made an announcement to hike interest rates this year and several hikes may be expected in 2022. This will impact the overall stock market as there would be other areas with larger rate of return like bonds, savings accounts etc but again if you are a long term investor this should not deter you. The way the Fed rate works out is the Federal Reserve by increasing the rate is trying to effectively shrink the money supply that is available so that the rate of inflation can come down. Hence it makes it expensive to borrow money for homes, car loans, credit cards etc.
The golden rule still applies, invest early and invest often. Cheers to the New Year and new beginnings!
(Disclosure: I am a user of Fundrise and Crowdstreet. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it from any of the companies mentioned above. Please review the Disclaimer section prior to any investments.)