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🦥 Lazy portfolio

June 22, 2021 Sign up
TOGETHER WITH Finny

It’s Tuesday, so here we are again. The financial topics we cover today are: 

  • Blockchain explained
  • How much life insurance do you really need?
  • Why the lazy portfolio actually works

CRYPTOCURRENCY

Blockchain, explained

Do any of us actually understand the blockchain that’s so often referenced in discussions about cryptocurrency? If you’re like a lot of investors, you may have googled this buzzword on multiple occasions to try and get a grasp on the subject, only to leave feeling a bit defeated by the seeming complexity of it.

We’re going to survey this topic in a very simplistic manner that’s understandable and useful to the average investor, and there will undoubtedly be some intricacies omitted from the jargon along the way. So blockchain experts, close your eyes and hold your fire.

What is a blockchain?

A blockchain is a database that allows companies and everyday people alike to store and securely transfer information and currency instantly. Each block has a storage capacity for the amount of data it can contain, and once that limit is satisfied, another block is added chronologically to the chain.

A blockchain differs from a classical database in that information is presented and stored in blocks and not tables. In the case of Bitcoin, for example, the blockchain is a database used for storing and recording every Bitcoin transaction ever made on it.

Blockchains and decentraliziation

Bitcoin is considered "decentralized" because its blockchain is administered through thousands of nodes across the world (though the degree to which is debated). Each node or computer contains the entire record of the chain’s transaction history, and because every transaction is cross-referenced against every other node’s records, any attempt to alter the record is rendered worthless. Simply put, decentralization gets rid of the middleman, making transactions really hard to manipulate.

At present, blockchains are mostly used for cryptocurrencies as a means of transfer of value between parties, and there are many use cases across industries from healthcare, financial services and retail to governments and even tourism. For example, a health care company might offer a product that aims to provide decentralized blockchain patient records, or in the case of OpenBazaar (a non-profit), they're working to build a decentralized market where goods and services can be traded without middlemen and securely, instantly and globally.

Blockchain and Bitcoin

A brief summary and a few more concepts to get familiar with for now...

  • Summary of the chain: A blockchain relies on a distributed network of storing data that retains a high level of integrity, often decentralized. A decentralized blockchain works to make sure that information that's stored and recorded within its database is basically irreversible.
  • The creation of new Bitcoin.  In the case of Bitcoin, since there can only ever be 21 million total Bitcoins, the only way to release new Bitcoins into circulation is through a process called "mining" that requires solving a really complicated mathematical computation. And mining is necessary to maintain the ledger of transactions upon which Bitcoin is based.
  • The process. When a block is verified by solving this computational puzzle, new Bitcoins are created and the miner is subsequently rewarded with Bitcoin. The reward currently sits at 6.25 Bitcoin, and that amount gets cut in half every 4 years or so (every 210,000 blocks) meaning that this process will continue until about 2140 when the 21 million cap is reached.

LIFE INSURANCE

How much life insurance do you really need?

FYI, life insurance is exactly what it sounds like: insurance on your life. It’s an insurance plan with a monthly premium promising to pay out a certain amount of money, oftentimes in a lump sum, to your surviving dependents and/or beneficiaries if you were to die. It’s a safety net for your loved ones who depend on your income.

It’s one of those things you used to overhear your parents debilitating over in the kitchen at 9 PM, but never quite understood what the heck they were talking about until you got older. Maybe not until much older, because only 54% of Americans are covered, and that number likely decreases drastically if we refine for Americans under 30. 

It’s a topic of awkwardness for some and a bit uncomfortable to confront despite its increasing importance as we age. Nevertheless, the age-old question to address when settling on your policy details is this: how much do you really need?

What to consider...

  • Firstly, you may not need any yet. If no one depends on your income, i.e. no children, relatives, or significant others, then there’s not much reason for you to be spending monthly on a plan. Life insurance isn’t for you, it’s for others. 
  • Some advisors will recommend a policy that accounts for 10-15x your average annual income. For example, if you make $50,000 per year, you should probably be aiming for a policy with a death benefit ranging from $500,000 to $750,000. The higher the number, the higher the premium. 
  • Costs increase as you age. The older you are, the more at risk you are of dying. Shocking, right? 40% of Americans wish they had purchased their policies at a younger age, not before it was needed, but at a younger age nevertheless. 
  • And how much you actually need depends on your unique situation. If your only dependent is your spouse and you’re both in your 60s, you may not need the full 10-15x benefit. If you’re a 29-year-old with 3 children and a spouse, you might qualify as needing more than the 15x range.

Parting pro tips:

  • First, double-check to see if your work offers a group life insurance benefit already at no cost to you.  
  • If you're not sure where to start but think you might need some coverage, check out a few providers to compare quotes and features. Haven Life* could be a good option for those who are looking for a more affordable term life insurance to purchase online, and an insurance agency with a strong reputation.
  • Learn or refresh on life insurance basics on Finny:

SPONSORED BY SHELTON CAPITAL MANAGEMENT

Investing in the green economy

The Shelton Green Alpha Fund (NEXTX) topped the list of U.S. Equity ESG Funds for 2020 according to Morningstar’s Best Performing ESG Stock Funds Report.

Thanks to its investments in disruptive technologies, this Shelton Capital Management green fund invests in companies that:

  • Identify as green economy with above-average growth potential
  • Work to improve human well-being and increase economic efficiencies, while significantly reducing environmental risks
  • Provide products and services that help economies adapt to, solve or mitigate the effects of key environmental and economic systemic risks

INVESTING

Why the lazy portfolio actually works

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Almost all investing over the long-term has proven to be a viable option, and far less risky than not investing at all. That is, unless you YOLO it on a random $113 million dollar deli trading on the OTC. 

The reality for most though is that if you did nothing but invest in a few simple index funds and forgot about it, you’d be doing great a few decades later. There’s actually a formal strategy for this, dubbed the three-fund portfolio. In theory, investors just hold a total US stock market fund, an international stock markets fund, and a total bond market fund, and be done with it.

Whether you want to adopt this lazy portfolio method as your entire portfolio because you hate researching individual stocks or not, it’s a viable investment strategy to consider. It’s a great way for new investors to prudently get their feet wet and a well-utilized method of investing for seasoned traders as well.

A few things to note

  • Customization is a-okay. The 3 fund portfolio is just one example of lazy investing that can work for you. You can create your own portfolio with an index and asset makeup of whatever you please and still have your own viable lazy portfolio that pays dividends over time.
  • Allocation will play a big role in your returns. Whether you decide that one total market fund or three funds suit you best, how you allocate your funds across those 1 or 3 makes a big difference in your returns. Make your allocations based on your risk tolerance, time horizon, and future financial goals you want to achieve. 
  • You don’t have to abandon other investments. If you enjoy scouting out businesses' balance sheets like they’re NFL draft prospects’ highlight reels, then, by all means, keep doing that. Be aware of the risks you're taking with any concentrated bets, and consider adding a complementary lazy portfolio strategy if you aren't already. 
  • And last but not least, the results of a three-fund portfolio have continued to shine compared to professionally managed endowment portfolios. Below we show the results of a 3-fund portfolio of Vanguard ETFs ("The Bogle Model" attributed to the Founder of Vanguard, Jack Bogle) compared to 800 college endowments. Over a 10-year period, The Bogle Method outperforms even the top-performing endowments. 

ASHU'S CORPORATE COLOR

Today's Movers & Shakers

  • Bitcoin falls below $30k (actually close to $28k); $COIN (-3%) and MicroStrategy (-8%)
  • GameStop (+7%) after stating that it has completed the sale of 5 million shares; White Square Capital, a London-based HF that bet against $GME is shutting its doors because of losses from it
  • $AMC (-1.5%) and Contextlogic down a shade
  • Torchlight Energy Resources (+5%) is the latest stock to become a meme stock; gained 58% yesterday
  • MicroVision (-11%), a laser tech company, is down after it said it will sell $140 million in stock to raise capital for "corporate purposes"
  • Sanderson Farms (+11%), a poultry producer, is exploring the option to sell itself
  • EU has opened a formal antitrust investigation into Google’s activities
  • Plug Power (+1.4%), an alt energy provider has reported a wider than expected loss because of hydrogen shortage and the Texas freeze; investors didn't care
  • CrowdStrike (+3%), a cybersecurity firm after Stifel Financials upgraded the stock to buy from hold

This commentary is as of 9:25 am EDT.

✨ TRENDING ON FINNY & BEYOND

  • 35 real-world examples of how blockchain is changing our world (Bernard Marr)
  • Some of you have asked for more lessons outside of this newsletter. Well, that's easy! Finny exists to offer financial education and a personalized learning path for you. We have hundreds of quiz-based lessons ranging from budgeting, credit scores, buying a home/car, to investing, estate planning and insurance. And as you learn, you can earn rewards! Getting financially fit with a lesson a day (Finny Learn)
  • "Great resignation" wave coming for companies (Axios)
  • Finny lesson of the day. Since we cover the lazy portfolio today, let's go back to the basics of what ETFs actually are: 

Finny is a personal finance education start-up offering free, game-based personalized financial education, a supportive discussion forum, and simple stock and fund tools (aka Finnyvest).  Our mission is to make learning about all things money fun and easy! 

The Gist is Finny's newsletter to our community members who are looking to make and save more money, protect their finances and be their own bosses! Finny does not offer investment or stock advice. The Gist is sent twice a week (Tues & Thurs). The editorial team: Austin Payne and Chihee Kim. Thanks to Ashu Singh for Today's Movers & Shakers.

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