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How to Invest in Carbon Credits: A Beginner’s Guide

October 14, 2024October 10, 2024 by Adam

Fight climate change and earn profits by investing in carbon credits, the innovative market-based solution that rewards businesses for reducing their carbon footprint

In this article, we will talk about how to invest in carbon credits. Diversification and asset allocation, in general, are key components of portfolio theory if you want to become an investor.

Carbon credit investing is becoming increasingly popular.

In fact, J.P. Morganrecently invested $500 million in timberland (P.S. it wasn’t for the wood).

So, what actually are Carbon Credits?

Carbon credits are tradable permits that allow companies or individuals to offset their carbon emissions by investing in projects that reduce greenhouse gas (GHG) emissions.

Each carbon credit represents one tonne of CO2 or its equivalent GHG emissions that these projects have avoided or reduced.

Carbon credits aim to create a market-based mechanism that incentivizes GHG emissions reductions by allowing organizations or individuals to offset their greenhouse gas emissions while encouraging investment in carbon reduction projects.

From an investing standpoint, Carbon credits are an alternative investment like wine or real estate because of their illiquid nature and hard-to-value asset.

Many countries have adopted the use of carbon credits as a part of their climate policy framework.

What Is Carbon Credit Investing?

Carbon credit investing and trading involves buying and selling credits, stocks, mutual funds, or ETFs that represent a reduction in greenhouse gas emissions.

It can allow investors to support sustainability efforts and earn a profit. There are numerous advantages and risks of investing in carbon credits.

And while the carbon credit market is fairly nascent compared to traditional stock and bonds, it’s an industry that is worth taking a closer look at.

What Are The Advantages?

Investing in carbon credits can have several advantages, including:

Environmental Benefits

Carbon credits represent a reduction in greenhouse gas emissions, which can help mitigate the effects of climate change and global warming. By investing in carbon credits, you are contributing to a more sustainable future.

Potential for financial returns

Carbon credits can be bought and sold in various markets, and their value can fluctuate based on supply and demand. If you invest in carbon offsets or credits that increase in value, you can earn a financial return on your investment.

Portfolio Diversification

Carbon credits provide a unique opportunity to diversify your investment portfolio. Because they are not directly tied to traditional financial markets, they can provide a hedge against market volatility.

What Are The Risks?

While investing in carbon credits or companies that invest in the reduction of carbon credits can provide an opportunity for investors to support sustainability efforts and earn a profit, there are several risks associated with carbon credit investing, including:

Market Risk

The value of carbon credits can be volatile and influenced by various factors like regulatory, market demand, and economic conditions in carbon markets.

Regulatory Risk

The rules and regulations surrounding carbon credit markets can change quickly, making it difficult to predict the future value of credits.

Fraud Risk

The carbon credit market is vulnerable to fraud, including creating fake credits or selling credits that do not actually represent a reduction of Co2.

Reputational Risk

Investing in carbon credits can expose individual companies and investors to reputational risks if they become associated with companies or projects that fail to meet environmental or social standards.

Technology Risk

Carbon credit markets rely on accurate measurement and verification of emissions reductions, which can be challenging and subject to errors or manipulation.

Liquidity Risk

Carbon credit markets can be illiquid, meaning that it may be difficult to find buyers or sellers of credits when needed.

How To Start Investing in Carbon Credits

If you are interested in investing in carbon credits, there are numerous ways to get started.

Ways to invest in Carbon Credits include:

Carbon Capture Stocks
Carbon Credit Mutual Funds
Carbon Credit ETFs
Carbon Credit Futures
Carbon Credit Investment Funds

Carbon Capture Stocks

Carbon capture, utilization, and storage (CCUS) is a technology that captures carbon dioxide (CO2) emissions from industrial processes, power plants, and other sources and stores it in underground geological formations, among other uses.

A few companies are involved in carbon capture technologies, including some publicly traded stocks.

Here are a few examples:

Carbon Credit Mutual Funds

Carbon credit mutual funds are professionally managed investment vehicles that pool money from multiple investors to buy a portfolio of securities, including carbon credits.

The portfolio manager decides which carbon credit projects to invest in and manages the fund’s assets on behalf of the investors.

Carbon Credit ETFs

Another great way to invest in carbon credits is through Carbon credit ETFs (exchange-traded funds) are investment passively-managed products that expose investors to the carbon credit market. These funds invest in companies or projects that generate carbon credits through emission reduction initiatives, like renewable energy projects or energy efficiency programs.

ETFs are similar to mutual funds in that they invest in a basket of assets but are passively managed instead of actively managed like mutual funds.

Carbon Credit Futures

Carbon credit futures are a financial instrument that allows investors to speculate on the future price of carbon credits.

Futures contracts are agreements to buy or sell an underlying asset (in this case, carbon credits) at a specified price and date in the future.

Investing in carbon credit futures involves taking a position on the future price of carbon credits, with the goal of profiting from price fluctuations.

For example, an investor may buy a carbon credit futures contract if they believe that the price of carbon credits will increase in the future. If the price does, the investor can sell the futures contract higher than they paid, realizing a profit.

Investing in carbon credit futures requires specialized knowledge and experience in futures trading and is generally not for beginners.

Carbon Credit Investment Funds

Carbon credit investment funds are investment vehicles that enable investors to invest in a diversified portfolio of carbon credits generated by various emission reduction projects worldwide.

These funds can invest in various projects, like renewable energy, energy efficiency, and carbon capture and storage initiatives.

The primary objective of carbon credit investment funds is to generate a return on investment while supporting sustainable development and helping to reduce greenhouse gas emissions.

These funds typically invest in verified and certified carbon offset projects, which means that the carbon credits they generate are real and can be used to offset carbon emissions.

Carbon credit investment funds can take various forms, such as mutual funds, exchange-traded funds (ETFs), or private equity funds. The investment strategy and portfolio holdings can differ from fund to fund, depending on the fund’s objectives, investment style, and asset allocation strategy.

One advantage of investing in a carbon credit investment fund is that it exposes investors to the growing carbon market, without needing specialized knowledge or resources.

Carbon credit investment funds can also provide diversification benefits to a portfolio and help investors to align their investment goals with their environmental values.

The Bottom Line

Investing in carbon credits can be a way to support and promote carbon reduction efforts while potentially earning a financial return, but it is important to approach it like any other investment; with caution and thorough research.

Frequently Asked Questions

Do you need a lot of money to invest in carbon credits?

The amount of money required to invest in carbon credits can vary widely, depending on a range of factors, including market prices, minimum investment requirements, and the goals of the investor.

Currently, in global carbon markets, the price of carbon credits ranges from a few dollars to several hundred dollars per ton of carbon dioxide equivalent (CO2e).

Secondly, the minimum investment required to participate in carbon credit markets can vary depending on the platform or exchange used. Some platforms may require a minimum investment of several thousand dollars, while others may have no minimum investment requirement.

Finally, the level of investment will also depend on the goals of the investor. If an investor’s goalst the carbon emissions of a small business or personal activities, they may only need to purchase a relatively small number of carbon credits.

However, if an investor is looking to offset the carbon emissions of a large corporation or engage in more significant carbon trading activities, they may need to invest much more.

5 Best Stock Picking Services of 2024

October 30, 2024October 8, 2024 by Adam

I tried some of the most popular stock-picking services – here’s what I discovered.

5 Best Stock Picking Services

Best Overall: Alpha Picks by Seeking Alpha
Best for Buy and Hold: Motley Fool Stock Advisor
Best for Momentum Trading: CNBC Investing Club
Best for Swing Trading: Mindful Trader
Best for Short Term Trading: Action Alerts Plus

1. Best Overall: Alpha Picks by Seeking Alpha

Best For: Buy and Hold investors
Overview: Alpha Picks is Seeking Alpha’s in-house investing group. Alpha Picks subscribers get 2 monthly stock picks selected by their in-house investment team run by Steven Cress, a former Hedge Fund manager
Returns: Alpha Picks has returned 124%, vs. 38%, outperforming the S&P 500 three-fold since inception in 2022(returns as of February 2024).
Price: $41/mo ($499/year)
Current Promotions: None listed
Pros: Stock market outperformance, investing community engagement
Cons: Limited track record, requires familiarity with the Seeking Alpha Rating system, No skin in the game

Note: Alpha Picks is a stand-alone investing service from Seeking Alpha. You do not get a Seeking Alpha subscription with an Alpha Picks subscription – they are two different services.

TRY ALPHA PICKS

When I signed up for Alpha Picks, I was a bit skeptical, given its limited track record. However, the service has continued to outperform the market, so I can’t complain.

or read our complete Alpha Picks Review.

2. Best for Buy and Hold: Motley Fool Stock Advisor

Best For: Long-term investors
Overview: Stock Advisor offers monthly stock picks from the company’s co-founders, Tom and David Gardner, who each manage separate teams of analysts. The service recommends stocks from established companies with proven track records and strong growth potential. Stock Advisor also recommends when to sell, a feature differentiating it from many other stock-picking services.
Pros: 2 stock picks per month, High long-term returns, stock research reports
Cons: Constant upselling, limited portfolio analysis
Price: $99/year
Current Promotions: 50% Off Full Price ($199/year)

TRY MOTLEY FOOL

At $99/year, it’s hard to beat the pricing. I’ve used Motley Fool for a while, and while none of their recent investments have been home runs, it’s a good subscription to keep in your investing stack.

*$99 is an introductory price for new members only. 50% discount based on current list price of Stock
Advisor of $199/year. Membership will renew annually at the then-current list price.

or read our complete Motley Fool Review.

3. Best for Momentum-Oriented Investors: CNBC Investing Club with Jim Cramer

Best For: Active investors, momentum-oriented investors
Overview: The CNBC Investing Club is a subscription-based investing service that provides stock picks, portfolio analysis, and market news from Jim Cramer and his team. Jim created the Investing Club to help all investors build long-term wealth in the stock market, and the CNBC Investing Club is now the official home of Jim Cramer’s Charitable Trust. The investing club is the only place to view the charitable Trust’s stock picks. It’s not available on Mad Money or any other investing platform related to CNBC.
Returns: 17.06% over the past 5 years (Since 2019).
Price: $49.99/mo
Current Promotions: 20% off Yearly Subscription

The investing club’s performance is largely on par with the S&P500’s returns over the same period. While this isn’t necessarily bad, I wouldn’t expect to see any really unique picks.

or read our complete CNBC Investing Club Review.

4. Best for Swing Trading: Mindful Trader

Best For: Swing traders
Overview: Mindful Trader is a stock and option-picking alert service focusing on swing trading. Swing trading is a trading style that generates profits from small to medium price movement over a short period – typically a week or less. Mindful Trader was built on the premise that using rigorously back-tested statistical strategies can generate wealth through stocks, options, and futures trading. The platform was founded and built in 2020 by Eric Ferguson, who has over 20 years of stock trading experience. He spent over 4 years and $200,000 of his own money developing the statistical tools used by Mindful Trader. He has a degree in Economics from Stanford University – his pedigree is legit.
Returns: Varies depending on investment strategy
Price: $49.99/month, no long-term commitment

I used Mindful Trader for a very short time frame and found the constant trading somewhat difficult to follow and the website cumbersome. I’m more of a buy-and-hold investor, not a swing trader.

Read our complete Mindful Trader Review.

5. Best for Short Term Trading: Action Alerts Plus

Best For: Short-term traders
Overview: Action Alerts PLUS is a subscription-based stock-picking service offered by TheStreet.com. This service was founded by financial analyst and commentator Jim Cramer, known for his work on CNBC’s “Mad Money,” along with a team of research analysts.
Price: $12.50 – $29.99/mo

Read our complete Action Alerts Plus Review.

What are Stock Picking Services?

Stock picking services are platforms that offer recommendations on which stocks to buy and sell. They’re designed for investors who may not have the time or expertise to conduct thorough stock research on their own.

What to Look for in Stock Picking Services

When evaluating stock-picking services, it’s important to consider several key factors to ensure you choose a service that aligns with your investment goals and style.

Track Record: Check the service’s historical performance. A consistent record of successful stock picks is a good indicator of reliability.
Investment Philosophy: Ensure their approach matches your investment strategy, whether it’s long-term growth, value investing, or short-term trading.
Transparency: A reputable service should be transparent about their successes and failures, providing detailed analysis to support their picks.
Cost vs. Value: Assess the subscription cost relative to the value you receive. High fees do not always equate to high returns.
Quality of Analysis: Look for services that provide in-depth research and analysis rather than just stock tips. Understanding the ‘why’ behind a pick is crucial.
Diversity of Picks: A good service should offer a range of picks across various sectors and industries to help diversify your portfolio.
Educational Resources: Especially beneficial for new investors, educational content can enhance your understanding of the market.
Frequency of Picks: Ensure the frequency of stock recommendations aligns with your desired level of market activity.

Even the best stock picking services don’t guarantee profits, and investing always involves risk. It’s important to use these services as one of many tools in your investment strategy and not rely solely on them for decision-making.

Conducting your own research and due diligence is always crucial in investing.

Stock Picking Strategies

Value Investing: This strategy involves looking for undervalued stocks that are priced below their intrinsic value. Investors using this strategy believe the market will eventually recognize and correct the undervaluation.
Growth Investing: Growth investors seek companies with strong potential for future growth. These stocks may not pay dividends but are expected to grow at an above-average rate compared to other companies in the market.
Income Investing: Focused on generating steady income, this strategy involves buying stocks with high dividend yields. It’s popular among retirees and those seeking regular income.
Momentum Investing: Momentum investors look for stocks that are experiencing an upward price trend. They buy these stocks and hold them until the trend begins to reverse.
Index Investing: While not strictly stock picking, index investing involves buying index funds that track a market index, offering diversification and reflecting the market’s performance.
Technical Analysis: This strategy uses statistical trends gathered from trading activity, such as price movement and volume

Benefits of Stock Picking Services

Stock-picking services offer several benefits, particularly for individual investors who may not have the time or resources to conduct extensive market research.

Expert Analysis: Stockpicking services often have experienced analysts who provide expert insights, making it easier for investors to make informed decisions.
Time-Saving: Doing thorough stock research can be time-consuming. These services save time by providing ready-to-use investment suggestions.
Educational Resources: Many services offer educational content that can help investors learn more about the stock market, investment strategies, and financial analysis.
Diversification: Good stock picking services offer recommendations across various sectors and industries, helping investors diversify their portfolios.
Access to Specialized Knowledge: These services often have access to sophisticated tools and data that individual investors may not have, providing an edge in the market.
Risk Management: Some services provide guidance on managing risk, including how to diversify and when to exit positions.
Performance Tracking: Many stock picking services offer tools to track the performance of their recommendations, making it easier for investors to evaluate their investment choices.
Community and Support: Some services create a community of investors where ideas and strategies can be shared, offering support and a sense of belonging.

Our Review Methodology

Investing in the right financial products is crucial for achieving your financial goals. That’s why our review methodology is designed to give you a comprehensive understanding of various investing platforms and tools. Here’s a breakdown of what we focus on:

Tools and Features

We dig deep into the suite of tools that each platform offers. Whether it’s automated investment features, tax optimization, or specialized charting tools, we evaluate how these features contribute to smarter investing decisions. We ask questions like:

What is its main offering, and how does it compare to its peers?
How effective are the risk assessment tools?
Are there any value-added services like educational content?

Price and Value

Price matters, especially when it comes to investing, where every penny counts. We analyze:

Subscription fees
Hidden Charges
Price compared to the overall value received

We’ll let you know if the platform gives you the most bang for your buck.

Ease of Use

User experience can make or break an investment platform. We assess:

Interface Design – Is it intuitive and easy to use?
Mobile app availability and functionality
Customer Support – where applicable.

Nobody wants to navigate a clunky interface when dealing with their hard-earned money.

Stock Breakdown

Good investing is rooted in great research. We examine:

The quality of stock analysis tools
Returns on an absolute and comparative basis
Availability of real-time data
Depth of research

We check if the platform provides actionable insights to make informed decisions.

How We Do It

Hands-On Testing: I signed up for Mindful Trader to provide real insight. This is how I give my unique perspective. We’re unlike some other sites where they simply rehash marketing materials.
Customer Reviews: What are other users saying? We look at reviews and customer feedback to gauge public opinion.
Comparative Analysis: Finally, we compare each platform against competitors regarding features, pricing, and user experience.

UNest Review [2024]: A Comprehensive Solution for your Child’s Investment Planning

October 7, 2024 by Adam

In this UNest review, we’ll dive into the platform’s offerings, costs, and usability to help you determine if this investment service for your child’s financial future.

Quick Summary:

Unest is a user-friendly investing platform designed to make it easy for parents to save and invest for their child’s future. Using the app, parents can set up a Uniform Gift to Minors Act (UGMA) account and select from various curated portfolios based on their risk tolerance and investment horizon.

Overall Rating:

Investment Options:

Ease-of-Use:

Tools & Features:

Price:

PROS

Gifting feature
Flexible use of funds
Easy-to-use app

CONS

Limited tax benefits
Monthly Fees
May impact future financial aid

Navigating the realm of investing can be a complex endeavor, particularly when considering long-term goals such as funding your child’s future. That’s where Unest comes in.

What is UNest?

Unest is a user-friendly app designed to help parents invest in their children’s future.

The platform aims to simplify the often complicated world of finance and make saving for your child’s education or other future expenses an accessible and straightforward process. Unest does this by offering a tax-advantaged investment account for kids, known as a Uniform Gift to Minors Act (UGMA) account.

Try uNest Today

What Are UTMA Accounts?

UTMA funds refer to money saved or invested within an account established under the Uniform Transfers to Minors Act (UTMA). The UTMA is a law that allows minors to own property such as securities.

When you open a UTMA account, you’re essentially creating a trust fund for a minor where the assets will be managed by a custodian until the minor reaches the age of majority (usually 18 or 21, depending on the state). The assets in a UTMA account can include cash, stocks, bonds, mutual funds, and other types of property.

One of the key aspects of UTMA accounts is that the funds can be used for anything that benefits the child – not just educational expenses. This could be anything from college tuition to buying a car or funding a wedding.

However, once the child reaches the age of majority, they gain full control over the assets in the account. It’s also worth noting that while UTMA accounts do offer some tax benefits, they may not offer the same level of tax advantages as other types of accounts, such as 529 plans, which are specifically designed for education-related expenses.

How Does UNest Work?

UNest App — **UNest Mobile app is easy to use**

UNest makes it easy for parents to set up a saving and investment plan for their children. UNest saving and investment accounts are UTMA/UGMA (The Uniform Transfers to Minors Act) custodial accounts. These offer parents the flexibility to use the money they save and invest for all the life stages their child goes through including college savings.

The money saved and invested in a UNest account can be used for education and other important life stages. UNest also includes a simple gifting feature that makes it easy for family and friends to contribute to a child’s UNest account. Parents can also add valuable rewards to their child’s account when they shop with over 150 UNest brand partners.

Opening a UNest account is simple, secure, and takes less than five minutes. You can download the UNest app in the Apple and Google Play Store

Key Features

Unest provides several key features to simplify the process of investing for your child’s future. Here’s a closer look at these features:

UGMA Investment Account

Unest helps you set up a Uniform Gift to Minors Act (UGMA) account for your child. This type of account allows you to invest in a wide variety of assets on behalf of your child, providing more flexibility than other types of child-specific accounts, like 529 Plans which are specifically for education-related expenses.

Automated Tax Advantaged Investing

You can set up automatic monthly contributions to your child’s account. You have the flexibility to choose the amount and can change it at any time.

Gifting

Unest offers a gifting feature where friends and family can contribute to your child’s account. You can share a link with family and friends who want to gift money, which can be particularly useful during birthdays, holidays, or other celebrations.

Once a UNest gift link is received, it can be used anytime to send gift funds by credit/debit card or ACH. Gifts are sent directly into a child’s UNest account.

User-Friendly Mobile App

Unest provides a user-friendly mobile app that allows you to manage your child’s account, adjust contributions, and monitor investment growth from anywhere.

Cash Back Rewards

Unest partners with brands to offer cash rewards back into your child’s account when you shop.

Investment Options

UNest has multiple 8 investment options for all kinds of investors. Its investment options are based on Vanguard ETFs, and some of the portfolio options include a portion of FDIC-insured cash holdings. Through UNest you can change your asset allocation at any time, but be aware that there may be tax implications.

Conservative Portfolio

Invests in Fixed Income and bond ETFs.

Agressive Portfolio

Invest in 100% Equities through Vanguard Equity Index ETFs.

Aged-based Options

[Conservative, Moderate, Aggressive]

Each of these portfolios includes a mix of fixed income and equity investments which shift the investment mix (what’s called rebalancing) from more aggressive to more conservative investments as the child gets older. The goal is to maximize growth at a young age and gradually reduce risk of volatility in the account as they get closer to the time they gain access to the funds.

Socially Responsible Aged Based Options

[Conservative, Moderate, Aggressive]

Three socially responsible age-based options (conservative, moderate, aggressive). Each of these portfolios includes a mix of fixed income and equity investments which shift the investment mix (what’s called rebalancing) from more aggressive to more conservative investments as the child gets older.

The goal is to maximize growth at a young age and gradually reduce risk of volatility in the account as they get closer to the time they gain access to the funds.

UNest Cost

For its services, Unest charges a flat monthly fee of $4.99 per account, or $39.99/year with an annual subscription – a 33% discount.

plus any While there are no additional trading costs or penalties for withdrawals, keep in mind that the money in the UGMA account does need to be used for the benefit of the child, and any earnings may impact the child’s financial aid eligibility when it comes time for college applications.

Who Should use UNest?

UNest is Good For…

Parents Who Want to Start Early: Given the power of compounding, Unest is suitable for parents who want to start investing early for their child’s future.
Those Who Want to Involve Family and Friends: The gifting feature allows family and friends to contribute to the child’s account, which makes Unest a good option for people who want to involve their extended network in saving for the child’s future.

UNest is not Good For…

Those Seeking Specific Tax Advantages: While UGMA accounts do offer some tax benefits, they do not offer the same level of tax advantages that 529 plans or other tax-advantaged accounts do.
Parents Concerned About Financial Aid Impact: The funds in a UGMA account are considered the child’s assets, and this could affect the child’s eligibility for need-based financial aid when it’s time to apply for college.

PROs and CONs Explained

Unest, like any investment platform, has its strengths and areas that may not suit everyone. Here are some pros and cons to consider:

PROS

Simplicity: Unest provides a straightforward and user-friendly platform, making it easy for parents to start investing for their child’s future.
Gifting Feature: Unest allows friends and family to contribute to the child’s account, which can be particularly beneficial during birthdays or holidays.
Investment Options: The platform provides a range of diversified portfolios to choose from, accommodating different risk tolerances and investment horizons.
Flexible Use of Funds: Unlike 529 plans which are specifically for education-related expenses, funds from UGMA accounts can be used for any expenses benefiting the child.

CONS

Fees: Unest charges a flat monthly fee of $3 per account. For those investing smaller amounts, this fee might be proportionally higher than the percentage-based fees charged by some other investment platforms.
Limited Tax Benefits: While UGMA accounts do offer some tax advantages, they may not provide as many tax benefits as other options like 529 plans.
Impact on Financial Aid: The funds in a UGMA account are considered the child’s assets and can affect the child’s eligibility for financial aid when they apply for college.

Alternatives to UNest

If you’re looking for alternatives to Unest for saving and investing for your child’s future, you have several options.

Below are some popular alternatives:

EarlyBird

Overall Rating:

EarlyBird is a mobile app that allows parents, family, and friends to invest in a child’s future through a UGMA account, similar to Unest. The app also has a feature where gift-givers can record a video message for the child.

Account Type: UGMA
Minimum Investment: $5
Monthly Cost: $2.95/mo for one child
$4.95/mo for multiple children
Processing Fee: 2% per gift (charged to the giver)

Backer

Overall Rating:

Backer is a platform that allows you to create a 529 college savings plan, and then provide a unique link to family and friends where they can contribute easily.

Account Type: 529 College Savings Plan
Minimum Investment: $5
Monthly Cost: $5/mo,
Processing Fee: $1.99 (charged to the giver)

Is UNest Worth It?

The value of Unest largely depends on your specific needs and financial goals. If you’re looking for a simple, easy-to-understand platform that enables you to regularly set aside money for your child’s future, Unest offers a straightforward and user-friendly solution. The ability to involve friends and family through the gifting feature also adds a unique element that can help accelerate your savings goals.

However, it’s worth noting that Unest is not the only option for child-specific investment accounts. There are also 529 plans, which are specifically designed for education expenses and offer their own set of tax advantages. Additionally, while Unest’s flat fee structure is simple, it may be more expensive than percentage-based fees for those investing smaller amounts.

Try uNest Today

Frequently Asked Questions

What is the difference between a 529 and a UTMA?

529 plans and UTMA accounts both serve to invest for a child’s future, but they differ significantly. 529 plans are specifically for education expenses, remain under the control of the custodian even after the child reaches adulthood, and offer tax-free growth and withdrawals for education expenses.

On the other hand, UTMA accounts can be used for any expense benefiting the child, control transfers to the child at the age of majority, and while they offer some tax advantages, they don’t have the same tax-free benefits as 529 plans.

7 Reasons Why You Should and Should Not Max Out Your 401K

October 7, 2024 by Adam

*^{Only 3.5% of employees max out their retirement account}*

When you start your professional career, most employers give you the ability to opt-in to their employer-sponsored retirement plan, usually a 401K.

For most people, it’s a no-brainer. However, as you progress through your career, you are thinking about retirement goals and whether or not you should max out your 401k.

In this article, I’ll discuss reasons why you should and should not max out your 401k and other financial considerations to take into account.

A Brief History Of The 401K

The 401k was created in 1979 by benefits consultant Ted Benna. Benna designed the plan for a client who declined to use it because he feared it would be appealed once the government found out about the potential tax loss.

The first 401k was started in 1981. Fast forward 30 years, and there is approximately $6.9 trillion invested in 401(k)s and is the primary retirement vehicle for most Americans.

Ok. History lesson over. Let’s get to the good stuff.

Why You Should Max Out Your 401K

1. To Take Advantage Of Tax-Deferred Investment Growth

You can contribute up to $19,500 tax-deferred, or $26,000 if you are 50 or older. Many people view this as an advantage as they expect to be in a lower tax bracket when they retire and can enjoy years of tax-free growth.

2. To Recieve An Employer Match

You don’t necessarily need to max out your 401k to get your employer match. Still, you’ll likely need to contribute significantly depending on your employer.

Many employers match between 4% – 6% up to a certain amount, say $10,000. For example, if you made $125,000 and your employer matches up to 6% contribution, up to $10,000. In that case, you would need to contribute $10,000 to receive the full employer match. Otherwise, you’re leaving money on the table.

3. It’s Easy to Employ A Set It & Forget It Strategy

Employer-sponsored retirement plans make it incredibly easy to contribute to a 401K. The contributions are automatic, and your fund sponsor often helps you pick an asset allocation that is right for you. Automatic contributions eliminate the temptation to use the extra funds to go on vacation or clothes shopping.

Out of Sight, Out Mind works for many people.

I’m sure some personal finance snobs disagree, but this strategy works for most Americans.

Moving On…

Why You Should Not Max Out Your 401k

1. You Have High-Interest Consumer Debt

Suppose you have high-interest consumer debt such as credit cards or an expensive auto loan (5%+). In that case, you should dedicate any additional income towards reducing your debt burden.

With the average credit card interest rate around 16%, that’s a risk-free return that’s hard to beat in any investment account.

2. You Don’t Have Emergency Savings

I’m not a huge proponent of holding significant emergency savings, but if you don’t have between 1-2 months of cash on hand, it’s wise to start saving before you max out your 401k.

It’s not a question of IF there will be unexpected expenses; it’s more of a matter of WHEN—car repairs, medical bills, etc. You should have at least 3-6 months of cash on hand as mandatory home repairs can happen quickly and be quite expensive if you are a homeowner.

3. You Don’t Earn Enough Money

The reality is you need to be a high-earner to max out at your 401k. Controlling for major cities such as NYC and San Francisco, if you make around $130,000 or more, you should comfortably be able to max out your 401k.

On the other hand, if you earn $50,000, it would be nearly impossible to max out your 401k. It’s all relative to salary, my friends.

We hear about way too many people who achieved financial independence seemingly too easily. Unfortunately, most of those people already had very high-wage jobs to start with. So, maxing out any tax-advantaged accounts isn’t much of a challenge for them.

4. Existing Financial Obligations

Perhaps you have a mortgage, a family to care for, college tuition, or other childcare expenses. Sometimes you may need to sacrifice for today and reduce your 401k contributions.

It’s important to note, If you are consistently sacrificing retirement goals for living today, you may need to revisit your spending habits. Saving and investing for retirement should be a priority for all Americans.

Retirement Stats

The number of 401k millionaires soared 84% year over year, with the number of 401ks over $1million topping 412,000. Sure, it’s comparatively tiny to the millions of retirement accounts out there, impressive stat nonetheless.

Meanwhile, non-millionaires are also doing well. The same study also shows the average 401(k) held $129,300 at the end of the second quarter of 2021, up 24% from a year ago.

The most recent publicly available IRS data from 2018 shows that only 3.5% of wage-earning taxpayers contributed the maximum elective contribution amount.

And while nearly 40% of wage-earners made elective retirement contributions in 2018, which sounds good until you realize there are even more people who are not contributing.

Frequently Asked Questions

Can you Max Out A 401K and A Roth IRA?

After you max out your 401K, it is not uncommon for high-income earners to contribute to a Roth IRA using a backdoor strategy known as backdoor Roth IRA. Using some fancy administrative work, a backdoor Roth IRA involves contributing to a traditional IRA, completing simple paperwork, some taxes, and you’re done.

What Happens After You Max Out Your 401k?

Depending on what type of plan your employer offers, many companies automatically stop further contributions to your employer-sponsored plan. There are numerous options to consider after you max out your 401k. For example, a Roth-ira [back-door strategy], increasing your spouse’s retirement contributions, contributing to an HSA, if applicable, to name a few.

How Do I Max Out My 401K?

If you are paid bi-weekly, that means you have 26 pay paychecks. The maximum contribution amount is $19,500 so, each contribution will be $750. ($19,500/26).

Other Important Financial Goals To Consider

If you’re maxing out your 401k, you’re in an excellent position financially. As noted above, only 40% of Americans contribute to an elective contribution.

That said, it’s essential not to leave any blind spots in your financial planning. Additional financial considerations Include:

Life Insurance

Proper coverage is critical, especially if you have a family. Experts recommend 10X your salary in coverage and an additional $100,000 for each dependent. There are plenty of online companies that make life insurance applications seamless.

Disability Insurance

Most people are often underinsured or not insured at all when it comes to disability insurance. Many employers offer disability insurance, but it’s often inadequate, and private coverage is needed. I recommend coverage from a company called Breeze.

Having a Will & Trust

Should something happen, it’s essential to have a will, so your assets are not stuck in probate. Fabric offers life insurance and wills so that you can knock off two birds with one stone. Alternatively, Trust & Will also offers estate services entirely online.

Alpha Picks Review 2024: Over 100% Returns? I Tried It Out

November 2, 2024October 2, 2024 by Adam

This Alpha Picks Review explores if this investing group lives up to the hype by outperforming the S&P 500 by nearly 2.9x as of November 2nd, 2024.

Quick Summary:

Alpha Picks is an investing group by Seeking Alpha which is run by a former hedge fund manager who is now a portfolio manager analyst at Alpha Picks.

Every month, subscribers receive 2 new stock picks backed by the analysts’ research. Since its inception in 2022, Alpha Picks has returned 147.8%, vs. 51.3%, outperforming the S&P 500 by over 2.9X as of November 2nd 2024.

Overall Rating:

Stock Analysis:

Tools & Features:

Ease of Use:

Price:

Best For:

Buy and hold investors

Capital appreciation-oriented investors

PROS

Outperformed S&P 500 2.9X
Reasonably priced
Community engagement

CONS

Requires familiarity with the Alpha Rating system
Requires some investing knowledge

Price:

$449/ first year

Features:

2 new stock picks per month

Exclusive investing articles

Nearly real-time trade alerts

Mobile App?

Yes, through the Seeking Alpha App

Current Promotions:

Save $50 off your first year

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What is Alpha Picks?

Alpha Picks is Seeking Alpha’s in-house investing group.

Alpha Picks is a stand-alone investing group that is part of Seeking Alpha’s “Investing Groups.”

As I noted in my Seeking Alpha Review, Seeking Alpha hosts several contributor-based investing groups, but this investing group is run by an investment professional hired by Seeking Alpha.

Alpha Picks subscribers get 2 monthly stock picks selected by their in-house investment team run by Steven Cress, a former Hedge Fund Manager and senior trader at investment banking powerhouse Morgan Stanley.

So far, the portfolio’s performance has been stellar— since its inception December 2022, the portfolio has returned approximately 147.8% vs. 51.3% for the S&P 500 as of November 2nd, 2024. However, as we know, past performance does not indicate future performance.

In addition to monthly stock picks, the service offers monthly webinars where the investing team reviews the portfolio holdings and provides members with market insights.

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Alpha Picks Returns

Since its inception in 2022, Alpha Picks returned 147.8% vs. 51.3% for the S&P 500 over the same period (as of November 2nd, 2024). While Alpha Picks returns are good for the year, a 2.5-year time horizon barely scratches the surface for an investor.

Like most portfolios nowadays, it does hold some popular tech stocks like Meta, Google, and SalesForce, but honestly, I’ve never heard of most of the companies in the portfolio.

The portfolio consists of approximately 30 stocks, with individual stock weightings between 2-4% of the total holdings, with a few outliers.

Returns	Alpha Picks	S&P 500
YTD	43.06%	20.11%
1 Year	78.32%	35.08%

as of November 2nd, 2024.

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Every month, Steve and his team provide a webinar update to discuss portfolio holdings and market updates, such as macro themes like inflation and interest rates. I’ve watched the webinars – they are about 30 minutes long, and Steve robotically reads off a prompter.

Not all returns are created equal – let’s dig into the data:

Approximately 24% of the holdings are in the Industrial sector, followed by 19% in Energy, 17% in Information Technology, and 16% in Consumer Discretionary.

Most of the portfolio’s returns are driven by one stock, Super Micro Computer, Inc., which has returned over 234% since its purchase and constitutes nearly 9% of its holdings.

I checked my Morningstar account and saw that Super Micro Computer has a beta of 1.28, meaning the stock is 28% more sensitive than the overall stock market, so it’s logical that the stock has generated solid performance over the past year.

Portfolio Holdings At A Glance

Number of Holdings: 30
Weightings: Individual stocks between 2 – 4% of total holdings
Top 3 Holdings: Super Micro Computer Inc, M/I Homes, Modine Manufacturing
Top 3 Sectors: Industrial, Energy, Information Technology
Weighted Average Portfolio Beta: 1.06

Investment Process

Below I explore Alpha Pick’s buying and selling criteria and how they perform their investment analysis.

Buying Criteria

Alpha Picks uses a data-driven process to identify the most appropriate stock picks from Seeking Alpha Premium’s quant recommendations.

The team selects two ‘Strong Buy’ rated stocks per month. One pick is added on the first trading day of the month, and the other is added on the 15th of the month or the next trading day.

Each “Buy” must meet the following criteria:

‘Strong Buy’ quant rating for at least 75 consecutive days
A U.S. Common Stock (i.e. No ADRs)
Not a REIT
Has a 3-month average market capitalization greater than $500M
Stock price greater than $10
Has not been recommended in the past 1 year

In addition to the above criteria, the team seeks stocks that have a combination of:

Value: Stocks that are considered undervalued compared to their intrinsic worth. These stocks trade for less than their actual or estimated earnings, dividends, sales, etc. Value investors look for bargains, believing the market has undervalued these stocks.
Growth: Stocks with high potential for future revenue and earnings increases. These companies are expected to grow at an above-average rate compared to other stocks in the market. Growth investing involves more risk but also has the potential for higher returns.
Profitability: Profitable companies are generally considered more stable and less risky to invest in. Metrics like return on equity (ROE), net margin, and earnings per share (EPS) are commonly used to measure profitability.
Momentum: Refers to the tendency of a stock to continue moving in the direction of its current trend. Momentum investors capitalize on existing trends, buying stocks that are going up and selling those that are going down.
Revised Forward-Looking Earnings Estimates: This term is a mouthful but super important. It means analysts have updated their earnings predictions for a company’s future. If estimates are revised upward, it’s often a bullish sign, indicating expected growth. On the flip side, downward revisions could signal trouble ahead.

So what the above tells me is that the team applies a combination of quantitative and fundamental analysis to identify investment opportunities.

CHECKOUT ALPHA PICKS

Investment Thesis

Steve and his team then form an investment thesis for new recommendations using the above criteria.

As a subscriber, I could visit Alpha Pick’s homepage and find the investment thesis posted chronologically.

The investment thesis covers basics like an overview of the company, macro trends the company may benefit from, and an explanation of its business model.

Further down in the article, the team describes its buy thesis, explaining its rationale for the stock factor grades.

One cool differentiator I see is an analyst named Zackary replies to subscribers’ questions in the comment box, creating an engaging dialogue.

Selling Criteria

Subscribers are notified via email when the team closes out or reduces a position in the portfolio.

When a stock no longer scores well on fundamentals, valuation, and momentum relative to its sector, or if a stock is rated as ‘Hold’ for more than 180 days, it becomes a ‘Sell’ and is removed from the portfolio.

Alpha Picks sells the entire position in a stock if any of the following occur:

The rating falls to “Sell” or “Strong Sell.”
The company announces an M&A event in which it is the target, or it announces a merger of equals.
The rating falls to “Hold” and remains a “Hold” for 180 consecutive days (as long as the stock is not a ‘winner’ – see below).

Alpha Picks’s “quant research” shows that their portfolio performs better when they let their winners “run.”

A stock is a ‘winner’ when it doubles from the price at which it was purchased. For ‘winners’, if the rating on the stock falls to ‘Hold’ and remains there for 180 consecutive days, the team will only sell the initial investment in the stock. They will keep the remainder of the position in the portfolio.

They only eliminate ‘winners’ if:

Rating falls to “Sell” or “Strong Sell”
Company announces an M&A event in which it is the target
The company announces a merger of equals

Alpha Picks Team

The Alpha Picks team is small. It’s run by stock picker Steven Cress and a junior analyst, Zachary Marx.

Steven Cress

Steven Cress, a former hedge fund manager and senior quantitative trader at Morgan Stanley, makes stock picks.

According to his LinkedIn, it looks like Seeking Alpha purchased the company he founded, and that’s how he became associated with Seeking Alpha.

Best For

Alpha Pick’s buy and buy-and-hold approach to investing makes this stock-picking service ideal for long-term investors and those seeking long-term capital appreciation.

Buy and hold investors
Investors seeking capital appreciation

Given its broad market exposure, Alpha Picks is not ideal for income-oriented investors, day traders, or single-sector investors.

PROs and CONs Explained

Let’s explore the PROs and CONs of Alpha Picks a little more deeply.

PROs:

Investment Team with Legit Pedigree: Senior Portfolio analyst Steve Cress has serious experience. He founded his own hedge fund and spent many years as a Senior trader at Morgan Stanley.

Market Outperformance: The portfolio has outperformed the market 2.9X as of November 2nd 2024. I calculated a weighted average beta of just 1.06, making its performance even more intriguing.

CONs

Limited Track Record: Alpha Picks has only been around Since July 2022, so while their success is impressive, what really matters is providing investors with year-over-year returns.

Requires familiarity with Rating Factors: Alpha Picks assumes you know the company’s rating factors and methodology, so if you aren’t, you’ll need to do some research after signing up.

Price and Value

Alpha Picks is $449 for the first year ($50 savings) off the full price of $499.

For $449/year you get access to:

2 new stock picks per month/24 picks per year
Monthly Portfolio Review Videos
Complete Investment Thesis for Stock Picks

CHECKOUT ALPHA PICKS

Best Alternatives

If you don’t fancy Alpha Picks by Seeking Alpha, don’t fret. There are several excellent alternatives.

1. Motley Fool Stock Advisor

Why it Stands Out: The Motley Fool Stock Advisor shines with its specific stock recommendations, backed by detailed analysis and a strong track record of performance. This valuable feature aids investors of all levels to identify potential investment opportunities in the stock market. While Alpha Picks has had tremendous success, Motley Fool Stock Advisor has been around for many years, making spectacular bets on the largest tech stocks.
Returns: +825% since inception as of October 30th 2024.
Best For: Both novice and experienced investors who appreciate guidance on stock picks and investment strategies
Pros: Provides specific stock recommendations, offers in-depth reports, and a solid track record of performance.
Cons: Requires a subscription; not all recommended stocks may suit every investor.
Price: $99/year for new members

Check Out Motley Fool

or read our complete Motley Fool Review.

2. CNBC Investing Club

Why it Stands Out: The CNBC Investing Club is a subscription-based investing service that provides stock picks, portfolio analysis, and market analysis.
Jim Cramer created the Investing Club to help all investors build long-term wealth in the stock market. The CNBC Investing Club is now the official home of Jim Cramer’s Charitable Trust.
Returns: 21.9% between 2019 – 2023
Best For: Active traders, Momentum-oriented traders
Pros: real-time investment advice, monthly meetings with Jim Cramer, community engagement
Cons: Some duplicate content found on CNBC, Price
Price: Starts at $49.99/mo
Current Promotions: None listed

or read our complete CNBC Investing Club Review.

Is Alpha Picks Worth it?

Alpha Pick’s impressive performance over the past year certainly presents a tempting opportunity for many investors.

However, considering the group has only been in action for a little over a year, I would tread cautiously if you think you will strike it rich with this investing group.

I am more of an index fund type of guy, so I even felt a little strange when I signed up for Alpha Picks, but I thought it could help expand my view.

For $40 a month, you’re not breaking the bank for a subscription; at worst, you’ll hopefully learn something new about investing.

TRY ALPHA PICKS

Frequently Asked Questions

What’s the Difference Between Seeking Alpha Premium and Picks?

Alpha Picks is an investing group. If you sign up just for the investing group, you don’t have access to all other contributor-based articles. Meanwhile, if you have a Seeking Alpha Premium subscription, you have access to all articles and tools but not the investing group.

If you sign up for a Seeking Alpha Pro subscription, you have access to the Alpha Picks Investing Group and all the articles and tools Seeking Alpha has to offer.

Our Review Methodology

Tools and Features

What is its main offering, and how does it compare to its peers?
How effective are the risk assessment tools?
Are there any value-added services like educational content?

Price and Value

Price matters, especially when it comes to investing, where every penny counts. We analyze:

Subscription fees
Hidden Charges
Price compared to the overall value received

We’ll let you know if the platform gives you the most bang for your buck.

Ease of Use

User experience can make or break an investment platform. We assess:

Interface Design – Is it intuitive and easy to use?
Mobile app availability and functionality
Customer Support – where applicable.

Nobody wants to navigate a clunky interface when dealing with their hard-earned money.

Stock Breakdown

Good investing is rooted in great research. We examine:

The quality of stock analysis tools
Returns on an absolute and comparative basis
Availability of real-time data
Depth of research reports

We check if the platform provides actionable insights to make informed decisions.

How We Do It

Hands-On Testing: I signed up for Alpha Picks to actually provide real insight. This is how I give a unique perspective. We’re unlike some other sites where they simply rehash marketing materials.
Customer Reviews: What are other users saying? We look at reviews and customer feedback to gauge public opinion.
Comparative Analysis: Finally, we compare each platform against competitors in terms of features, pricing, and user experience.

We take a comprehensive approach so that you don’t have to.

By sticking to this methodology, we aim to guide you toward investment tools that align with your financial objectives. Happy investing!

Why You Should Trust Us

Our reviews are unbiased and data-driven. While we may receive a commission if you purchase a product through our link, it does not impact our editorial integrity. In addition, all articles are independently reviewed by individuals with extensive experience in investing and personal finance. Lastly, for further validation, we often refer to authoritative financial sources like Morningstar, The Wall Street Journal, and Kiplingers, to name a few.

How to Beat Stagflation in 2024: 5 Popular Stagflation Investments

September 30, 2024 by Adam

Stagflation, the unwelcome combination of high inflation and stagnant economic growth, can be a nightmare for investors.

Here are the 5 popular investments to beat Stagflation.

When the economy is experiencing Stagflation, traditional investment strategies may not be as effective, and navigating this treacherous financial landscape may feel like walking through a minefield.

In this blog post, we’ll explore the world of Stagflation and identify some of the best investments during these trying times.

Key Takeaways

Stagflation is a complex economic challenge, so countercyclical investments like commodities, defensive stocks, and real estate are the best assets to invest in.
Diversifying your portfolio with value & cyclical stocks can help reduce risk & maximize returns during Stagflation.
Avoid risky investments such as growth stocks and bonds during this period.
Best stagflation investments: Commodities and precious metals, defensive stocks, real estate, and REITs.

What is Stagflation?

So, what exactly is Stagflation?

Put simply, it’s a situation in which economic growth is low (stagnant) and inflation is high simultaneously.

This toxic combination of slow economic growth and rising prices can pose a significant challenge for investors.

Traditional investment strategies may not yield the intended results. Stocks tend to underperform due to slow economic growth, and bond returns are diminished because of high inflation and fluctuating interest rates.

There are several economic theories about what causes Stagflation, but that goes beyond the scope of this article.

The 1970s served as a prime example of the devastating impact of Stagflation on the global economy.

The World Bank indicates that families with low or fixed incomes and retirement savers are often hit the hardest during this period.

Best Assets to Invest in During Stagflation

In times of Stagflation, it is smart to prioritize assets like commodities, defensive stocks, and direct investments in real estate or REITs.

These assets can provide stability and potential growth, helping you maintain healthy investment portfolios despite economic uncertainty.

1. Commodities and Precious Metals

Commodities like gold, oil, precious metals, and agriculture tend to perform well during Stagflation, and there are several logical explanations why:

Hedge Against Inflation: Commodities like gold, oil, and agricultural products typically serve as a hedge against inflation. During stagflation, inflation rates are high, and commodities can provide a buffer against the eroding value of currency.
Supply Constraints: Stagflation occurs when economic growth is stagnant, but inflation rises. In such periods, the supply of goods often becomes constrained, which can drive up the prices of commodities.
Non-Correlation with Stocks: Commodities often have a low or negative correlation with stocks, making them a good diversification option. This is particularly useful during Stagflation when equities often perform poorly.
Global Demand: Commodities can also be influenced by demand on a global scale. Even if a specific economy faces stagflation, global demand can increase commodity prices.
Tangible Assets: Commodities are considered “real assets,” meaning they have a tangible physical form, e.g., gold coins. Real assets often perform well during inflation because their value is not just a financial abstraction.

Invesco DB Commodity Index Tracking (DBC) is an example of an exchange-traded fund that provides exposure to commodities such as energy, agriculture, and base metals. This ETF could be researched to see if it is a good Stagflation investment.

NOTE: Compared to equities, commodities were a boon for investors during the 1970s. The chart below shows real and nominal returns of commodities during this period, which was widely known as one of the most significant periods of stagflation.

According to Kiplingers, the S&P GSCI Index, a measure of commodities investment performance, returned 586% between 1970 and 1979.

2. Defensive Stocks

Defensive stocks, also known as non-cyclical stocks, are those in the consumer staples and healthcare sectors that can provide stability and potential growth during stagflationary periods.

From a quantitative perspective, defensive stocks have a beta of less than 1. This means that if the stock market falls, cyclical stocks will outperform the market, making them excellent stagflation investments.

There are several reasons defensive stocks are considered good investments during periods of stagflation:

Stable Demand: These stocks belong to industries with relatively inelastic demand, such as healthcare, utilities, and consumer staples. Even in tough economic conditions, people still need to eat, use electricity, and seek medical care, making their demand stable.
Dividend Yields: Defensive stocks often provide steady dividends. When capital gains from stocks are uncertain, these dividends offer a consistent income stream for investors making them popular during Stagflation.
Lower Volatility: These stocks are generally less volatile compared to the broader market, offering some level of protection against market downturns (why are they less volatile)
Cash Flow: Companies in defensive sectors often have strong and predictable cash flows. This enables them to weather economic downturns more easily compared to cyclical companies.
Price Insensitivity: Consumers are less sensitive to price changes for essential goods and services. This helps maintain revenues for companies in defensive sectors during inflationary periods.
Hedge Against Uncertainty: In times of economic instability or stagflation, investors often seek safer, less volatile investment options. Defensive stocks can serve as a hedge against economic uncertainty.
Portfolio Diversification: Including defensive stocks in a portfolio can help in diversification, reducing the overall risk during economic downturns, including stagflation.
Lower Debt Levels: Defensive companies often operate with lower levels of debt compared to cyclical companies, making them less sensitive to interest rate changes, a common occurrence in stagflation.

As indicated by a Schoreders study, utilities, and consumer staples are the best performing stocks during a stagflationary environment.

best performing sectors during stagflation.

Meanwhile, cyclical stocks such as IT and industrials are some of the worst performers during Stagflation.

Allocating funds to defensive stocks can safeguard your portfolio from the adverse impacts of Stagflation.

3. Real Estate and REITs

Real estate investments, including rental properties and publicly traded REITs, can serve as a hedge against inflation and provide reliable returns during Stagflation.

Historically, real estate has been one of the top-performing assets during Stagflation because it can offer tangible value and help protect your money from inflation.

3 Reasons why real estate and REITs make good Stagflation investments:

1. Tangible Asset: Real estate is a tangible asset, which makes it less susceptible to inflation’s erosive impact on purchasing power. The intrinsic value of property often remains stable or even increases during inflationary periods.

For example, The FTSE Nareit Index, which is a market capitalization-weighted index of U.S. equity REITs, gained 100% in total return between 1971, when data was first available, to the end of 1981.

2. Interest Rate Sensitivity: Although stagflation often leads to higher interest rates, real estate investments that were acquired with fixed-rate mortgages can benefit from having locked-in lower payments while rental income and property values are rising.

3. Consistent Rental Income: Real estate properties can generate a steady stream of income and landlords can increase rental prices during inflationary periods, making it an ideal investment during Stagflation when other investments may be underperforming.

In addition to directly investing in real estate, investing in Real Estate Investment Trusts (REITs) can also provide exposure to the real estate market and the potential for stable returns during Stagflation.

You can invest in physical real estate through popular real estate crowdfunding platforms like Fundrise and Groundfloor. Or, invest in popular publicly-traded REITs through your online brokerage account.

4. Treasury Inflation-Protected Securities:

Another popular Stagflation investment is Treasury Inflation-Protected Securities, known as TIPS. These securities are government treasury securities that provide a real return that is linked to the Consumer Price Index, which is the widely accepted benchmark for inflation.

During times of Stagflation, you can at least get returns that are on par with inflation, thus keeping your investment portfolio protected.

You can invest in TIPs directly through the TreasuryDirect website, or through an ETF like the iShares TIPS Bond ETF.

5. Short Selling Cylical Equities

A less common way to invest during inflation is to short-sell cyclical equities. Cyclical equities are stocks of companies that produce or sell items that are considered non-essential – like an iPhone. So in times difficult economic times, individuals will be less likely to buy non-essential items like a new car, or television.

Cyclical sectors have a market beta of greater than 1, meaning they generally underperform when the stock market falls, thus presenting a short-selling opportunity.

Short selling is an investment strategy where an investor borrows shares of a stock from a broker and sells them in the open market, with the intention of buying them back later at a lower price. The goal is to profit from the decline in the stock’s price.

Here’s how it works in simple terms:

Borrow Shares: The investor borrows shares of a stock they believe will decrease in value.
Sell Shares: The borrowed shares are then sold in the open market at the current price.
Buy Back Shares: If the stock price declines, the investor buys back the same number of shares at a lower price.
Return Shares: The investor returns the borrowed shares to the broker, keeping the difference between the selling price and the buying price as profit.
Risk: If the stock price increases instead of declining, the investor will incur a loss when buying back the shares at a higher price.

The strategy is considered high risk because the potential for loss is theoretically unlimited; a stock’s price can rise indefinitely, leading to mounting losses for the short seller.

Some popular cyclical stocks include Disney and Expedia.

Diversifying Your Portfolio for Stagflation

Diversification, a vital element in any successful investment strategy, is even more important during Stagflation.

Spreading your investments across various assets or asset classes can lower your portfolio’s overall risk and potentially amplify your returns.

A well-diversified portfolio that includes a mix of value and cyclical stocks can help protect your investments during Stagflation.

Value stocks, which trade at a lower price compared to their underlying fundamentals, can offer long-term growth potential during economic downturns.

Meanwhile, cyclical stocks, which follow economic cycles, can present opportunities to buy low and sell high as the economy rebounds from Stagflation.

Investing in both stock types can mitigate loss risks and boost your returns during these tough times, as stock prices may fluctuate.

Value Investing

Value investing is an investment strategy that focuses on undervalued stocks with strong fundamentals, offering long-term growth potential during economic downturns.

By identifying and investing in undervalued securities, you can take advantage of opportunities for greater returns than the general market and potentially reduce the risk associated with your investments.

Nonetheless, awareness of the risks accompanying value investing is crucial. The stock might not bounce back in value, or it could become overpriced, leading to potential losses.

Cyclical Stocks

Cyclical stocks are those that tend to follow economic cycles, with their prices impacted by changes in the economy.

These stocks usually perform well during periods of economic growth but may not do as well during recessions. However, during Stagflation, cyclical stocks can offer opportunities to buy low and sell high when the economy rebounds, potentially providing attractive returns for investors.

Allocating funds to cyclical stocks during Stagflation can be lucrative, but cognizance of the strategy’s associated risks is vital.

Investments to avoid during Stagflation

According to a recent article from the Economist, during years of high inflation, stocks and bonds performed poorly. The article highlighted that between 1900 and 2022, bond returns turned negative when inflation was above 4%.

Meanwhile, stocks also went negative when inflation rose above 7.5%. During times of stagflation, it’s paramount to steer clear of investments that could fall susceptible to stagflation.

3 investments to avoid during Stagflation:

Growth stocks: Often trade at high valuation multiples. so during times of Stagflation, investor sentiment often turns negative, making these high valuations difficult to sustain.
Bonds: Most bonds pay a fixed interest rate. During times of high inflation, interest rates tend to increase. As a result, the yield on the fixed-rate bond is not as appealing to investors, thus causing the price of the bond to fall, which makes them poor investments during stagflation.
Cash equivalents: They may also lose value over time due to inflation, making them less effective as a hedge against rising prices.

Instead, focus on assets that have historically performed well during Stagflation, such as commodities, defensive stocks, and real estate.

By concentrating on these types of investments, including stagflation stocks, you can minimize the risks associated with investing during Stagflation and potentially maximize your returns.

Preparing for Stagflation: Financial Planning Tips

Beyond managing your investment portfolio, other financial planning measures can be taken to brace for Stagflation.

Reducing your debt and improving your credit can help you weather the storm of Stagflation and emerge on the other side in a stronger financial position.

Maintaining a diversified portfolio, as discussed earlier, is also crucial for mitigating the risks associated with Stagflation and maximizing your returns.

By taking a proactive approach to financial planning and seeking professional investment advice, you can better prepare yourself for the challenges of Stagflation and ensure that your financial future remains secure.

Final Thoughts

Stagflation presents unique challenges for investors, but with the right strategies and a well-diversified portfolio, it’s possible to navigate these turbulent times and even come out ahead.

By focusing on assets that have historically performed well during Stagflation, such as commodities, defensive stocks, and real estate, you can protect your investments and potentially achieve attractive returns.

Diversifying your portfolio with a mix of value and cyclical stocks can further reduce risk and maximize your returns during these challenging economic conditions.

By avoiding risky investments, implementing strategies like short-selling, and seeking professional financial advice, you can prepare for Stagflation and ensure that your financial future remains secure.

Remember, the key to success in any economic environment is adaptability, so stay informed, stay agile, and keep your eyes on the prize.

Frequently Asked Questions

What shares do well in Stagflation?

Stocks such as ExxonMobil, Chevron, Pfizer, Cisco Systems, United Parcel Service, gold, energy stocks, agricultural stocks, and real estate tend to perform well during periods of Stagflation.

What is Stagflation?

Stagflation is a troubling economic situation in which economic growth is low and inflation is high, posing difficult challenges for investors.

How can I diversify my portfolio during Stagflation?

To diversify your portfolio in a stagflationary environment, invest in a mix of value and cyclical stocks to safeguard your investments and maximize returns.

What investments should I avoid during Stagflation?

In Stagflation, it’s best to avoid growth stocks, bonds, and cash equivalents. They have the potential to stay stagnant or even lose their value.

What are some strategies for navigating Stagflation?

Navigating Stagflation can be accomplished by short-selling, focusing on real assets, and investing in sectors that have shown strong performance historically.

Gannett Co Deepdive

July 21, 2024 by Adam Koprucki

Gannett (“GCI”) offers an exciting combination of deep value, business transformation and uncorrelated, event-driven upside:

Cheap valuation – 5.3x EV/EBITDA and 27% FCF yield on ‘25 numbers for a business transformation story with strong management and improving profitability. This indicates a strong GCI intrinsic value.
Digital transformation is well underway with proof of concept, including 1) growing digital subs, 2) growing ad revenues and affiliate deals and 3) internal systems investments paying off
Ongoing debt paydown from asset sales and internal FCF should unlock a global refinancing of the capital structure, as hinted by debt tranches trading near par
Litigation against Google for anti-competitive behavior has merit and potentially unlocks a windfall. Additionally, AI content-copyright issues could lead to litigation claims and forward-looking licensing deals.

We target 200 – 300% upside over the next 1-2 years upon reasonable multiple rerating without giving credit for shareholder friendly capital allocation (i.e. buybacks).

GCI offers a combination of deep value, business transformation and uncorrelated, event-driven upside

GCI screens cheap on traditional metrics with an emphasis on FCF generation

GCI trades at 5.3x EV/EBITDA on ’25 street consensus estimates
We estimate at least $149mm of FCF before asset sales in ’25 (27% FCF yield)
Management has guided for FCF to grow at a 40%+ CAGR from 2023 to 2026 ($57mm => $155mm). Therefore, analysts still believe the company is undervalued based on its DCF valuation

Digital transformation is well underway with proof of concept, yet flies under the radar

Gannett is successfully mitigating print declines by growing digital (both subscription and advertising revs)
Topline will be down YoY in 2024; but inflecting to organic growth on a run-rate basis by YE’24
Combined with excellent bottom-line execution from cost cuts – EBITDA growing consistently from 2022
GCI Wacc is 8.1%

Equity rerate amplified by upcoming balance sheet developments

GCI is levered 3.6x net, but the junior 1.7x turns are in the form of a convert (trading in the high 90s). GCI P/E ratio is also stable at 15x.
Company is targeting a global debt refi this year before a potential favorable Google litigation development
GCI stock should rerate substantially given 1) dilution overhang removed, and 2) maturities pushed out

Litigation Optionality

Google Ad Tech Abuse litigation offers potential windfall that could be worth the market cap
DOJ and 34 states filed lawsuits against Google for unlawful monopolization of online advertising
GCI is the largest news publisher in the US and has its own lawsuit against Google for $1.7bn of damages
GCI’s counsel (Kellogg Hansen) took the case on contingency – compelling signal & no cost to GCI
AI copyright disputes could provide additional upside in the form of litigation claims (damages) and/or licensing deals

We calculate 200-300% upside based on above catalysts, without assuming any accretion from shareholder friendly actions. That said, the FCF profile and potential litigation proceeds should allow for capital return in the not-too-distant future, which could significantly increase forward returns.

Undeservedly Low Valuation: GCI is an exception in an otherwise secularly declining industry

We all know that print media – in this case, newspaper businesses – trade at deservedly low multiples given rapid declines in legacy print subscriptions and advertising revenues. This is not a novel observation. The world is going digital, multi-medium, video, social, yadda yadda. We get it.

And yet. Folks who have been paying attention have noticed that the New York Times (“NYT”) trades at 17x ‘24E EBITDA. From a value investing perspective, this is a fantastic number to have. If you travel back in time, NYT was not always a market darling; to the contrary, the stock traded in the more typical 5-8x EBITDA band until its re-rating journey took hold in 2017 or so. Over time, NYT has become a case study for how a scaled player with broad brand awareness can successfully execute a transformation to digital. It’s not make-believe or impossible. The NYT story demonstrates that the bid for news, commentary, gossip, and sports has remained steady. What has changed is the required delivery, as the modern audience wants a combination of print with audio companions (podcasts, etc.) and video. With the right mousetrap, timely content generation still has a role to play.

Enter Gannett. GCI has a crown jewel, USA Today, regional trophy assets (e.g. Palm Beach Post), and all sorts of smaller publications around the country. GCI remains a show-me story, but evidence has been mounting that the transition is playing out. We have seen notable improvements in digital KPIs, moderation in overall topline revenue declines, and affiliate partnership deals getting signed. For investors, we believe this is a key moment to take a look given that the company has explicitly guided to inflecting consolidated revenue to positive year-over-year growth at the end of this year. Upon achieving run-rate organic growth by 4Q’24 and with actual prints in 2025, our expectation is that the market should rapidly re-rate the equity. Given respective scales, we expect GCI to trade well below NYT’s multiple – we don’t want to be unrealistic – but even a range of 7-9x leads to a multi-bagger outcome from current levels.

Organic Revenue Inflection: Digital revenue growth expected to more than offset print declines by 4Q’24

This is a classic story of crossing lines (a large-but-declining segment shrinks while a small-but-growing area grows until, eventually, the negative impact from the bad is more than offset by the positive impact of the good). For GCI, total revenue declines are moderating sequentially as the legacy print business becomes a smaller piece of the pie. Meanwhile, digital revenues have had solid sequential growth throughout 2023 and are expected to ramp in 2024. Digital subscription revenues are growing high teens / low 20s, supported by ARPU upside and growth in subs, while advertising and services revenues enjoy upside from affiliate partnerships growing rapidly off a small base.

On this last point, when it comes to affiliate and content partnerships, GCI rents out platform eyeballs for 3rd party advertisers to monetize. As you can imagine, this involves little to no cost for GCI (95%+ incremental margins). We expect $20mm revenue in 2024 with minimum guarantees and management hopes to scale this to a $150-200mm topline business within 5 years.

Refinancing Catalyst: Balance sheet repair and refinancing optionality ignored by the market

GCI, which is highly regarded by many of the best investing websites, is focused on refinancing the capital structure in the near term. There are several key benefits:

Push out maturities and create a longer runway to continue executing on the digital transition
Resolve the dilution overhang from the converts (convertible into ~97mm shares with a $5.00/sh. strike)
Potentially improve terms – including rate, covenants, and restricted payments capacity

We believe that the capital structure is easily refinanceable given debt paydown accelerated by ongoing asset sales, inflecting FCF generation (40% FCF CAGR guided by management over 2023 – 2026), an additional equity cushion from recent re-rating ($2.3 –> $3.8), and debt tranches all trading near par. As a result, CGI fair value has been declining recently. We think it makes sense to work on the capital stack before the potentially lucrative litigation developments that might start as soon as September. We especially believe the company would aim to work something out on the convert, which has a $5 strike.

Free call options (ad tech abuse & AI): Gannett’s litigation opportunities could be worth $1bn+

Google’s Alleged Ad Tech Abuse: Google has enjoyed a stranglehold on the digital advertising ecosystem ever since it acquired DoubleClick in 2007. On 1/23/23, the DOJ filed a civil antitrust suit against Google alleging monopolistic ad tech abuse. A few points are worth calling out. First, this is not the Google vs. DOJ search case. That is separate and unrelated. Second, the DOJ is not acting alone: 17 state AGs signed on while Texas brought its own case and has been joined by 16 additional states. In total, it is the DOJ + 34 states all going after Google. Third, the case is proceeding in the “Rocket Docket” of Eastern District of Virginia with trial scheduled to start 9/9/24. Litigation can drag forever, so we find this timing relevant. Even with this news, CGI is still in the Nancy Pelosi Stock Trade Tracker.

Gannett’s potential upside is not rooted directly in the DOJ/state case, though it is related. On 6/20/23, Gannett filed suit against Google alleging abusive behavior in digital advertising. Notably, the law firm of Kellogg, Hansen decided to take the case entirely on contingency, meaning GCI is not paying a cent while this proceeds (i.e., this is a truly “free” call option). Though estimating the value to GCI is difficult, we believe damages could be in the $1.7bn range and would be subject to automatic trebling ($5.1bn). That’s the reason it is crucial to have your website indexed instantly by Google. From Google’s perspective the money is trivial, given a current cash balance of more than $100bn and $29bn CFO in Q1’24. What is more impactful, for Google, is keeping its company together. Therefore, if they find a path forward with the government, we believe settlement talks with Gannett would occur in short order. Any reasonable figure – say, $500mm – would be material given GCI’s market cap.

AI Copyright Infringement. Artificial Intelligence (“AI”) algorithms require massive amounts of data for training/improvement. Moreover, original content is invaluable to this effort. Lucky for Gannett, creating reams of content is what it has been doing for decades.

Ever since the recent AI explosion, accusations of AI developers using content without permission have abounded. This yields two potentially lucrative angles for Gannett. With a backward-looking lens, GCI can seek damages. As one example, consider the NY Times lawsuit filed in December 2023 against OpenAI and Microsoft for copyright infringement. NYT noted “billions” in damages. Looking forward, GCI can aim to strike licensing deals to capitalize on this new source of content demand. As an example of what this might look like, consider the deal News Corp signed last month (May 2024) with OpenAI for 5 years and a total value of $250mm. Between damages and go-forward deals, GCI could unlock another $500mm+ of value over time from the AI gold rush. That’s why many of the best stock research websites recommend CGI as a strong hold

Putting it together, we see a few shots on goal that cost the company next-to-nothing and could be worth multiples the market cap. It is rare to have something be literally free and yet potentially lucrative.