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  • Banking

    Crypto: From Hedge Against Uncertainty to Get-Rich-Quick Scheme?

    Hey my financial builders! Not too long ago Crypto currency was all the buzz. If you found yourself on the sideline wondering if you should get in or not, this guest post from Andrei Polgar is a must read. When you’re done, be sure to check out his book “The Age of Anomaly” (on Amazon, iTunes, Kobo, or Barnes and Noble) and subscribe to his channel on Youtube (One Minute Economics) where he breaks down many economic and financial topics in easy to understand one minute videos.

    Back in 2009 when bitcoin appeared, things seemed a lot more
    straightforward than today when it comes to what crypto is supposed to
    help you do. Simply put, bitcoin was designed to be a way for people to
    protect themselves against all sorts of financial uncertainty,
    especially uncertainty related to money and banks. In other words, those
    who lost confidence in governments and central banks after the Great
    Recession of 2007-2008 now had a brand new asset class at their
    disposal. And indeed, as time passed, it became abundantly clear that
    there is a clear correlation between the price of bitcoin and the level
    of financial fear in society, especially banking-related fears, as was
    the case back in 2013, when crypto performed remarkably well during the
    Cyprus banking crisis.

    All in all, a decent case can be made that crypto was designed as a
    hedge against financial uncertainty and in a lot of cases, it actually
    acted as such.

    But as the price of bitcoin and other cryptocurrencies started going up,
    a new type of crypto enthusiasm emerged. People started buying crypto
    not because they wanted to protect themselves against monetary or
    banking uncertainty but because they saw prices going up and wanted a
    piece of the action.

    As more and more alternatives to bitcoin (altcoins) appeared, this
    casino mentality became even more obvious. While there are indeed
    certain altcoins that put something meaningful in terms of technology on
    the table, most of them, the overwhelming majority in fact, are nothing
    more than glorified pump and dump schemes. In other words, coins which
    have been simply launched without there being anything special about
    them and with the sole intention of insiders initially generating buzz
    around them and then selling to naïve investors who are left holding the
    bag.

    This state of affairs makes a lot of people confused.

    What exactly does crypto represent at this point?

    I believe the key to figuring this out is understanding that we can no
    longer just say crypto in a way that encompasses absolutely everything.
    In my opinion, there are two dimensions when it comes to the crypto
    world right now:

    1. The “meaningful asset” dimension, and I’m referring to bitcoin and a
      handful of altcoins that have genuine staying power and in which you can
      indeed invest for meaningful reasons related to protecting your wealth
    2. The casino dimension, which I feel perfectly describes everything
      else. If rampant speculation and pretty much gambling is your thing then
      sure, it’s your prerogative to invest in whatever it is you decide has
      potential. Just understand the nature of the asset you’re investing in

     

    So, should the average person invest in crypto?

    When it comes to the casino dimension, I believe it would be wise for
    most people to stay away. There is just too much manipulation and
    misinformation out there for this approach to make sense for the average
    individual. When it comes to the first dimension however, genuinely
    meaningful cryptocurrencies such as bitcoin and a select few altcoins, I
    truly do believe that there is a place for them in almost every
    portfolio.

    Now, of course, I wouldn’t necessarily recommend this asset class to
    someone who is let’s say 65 years old and can barely use a computer. I
    respect the fact that there are simply people for whom these assets are
    not a good fit. However, the more tech savvy you are, the more I believe
    it makes sense to allocate capital in this direction. If you’re a young
    person and at least “kinda-sorta” know about the crypto phenomenon, you
    owe it to yourself to at least learn a bit more about it and what
    options you have at your disposal.

    Finally, do keep in mind that even if you invest in the very best
    cryptocurrencies, there will still be a lot of volatility involved. Just
    like with any other asset class, pick a strategy which revolves around
    you understanding the asset you are investing in. If a price drop of 5%
    is enough to spook you, then this asset class is probably not for you.
    If however you are open-minded and risk tolerant enough to give it a
    shot, you might do very, very well.

    This isn’t an asset class you should pour 50% of your net worth into, of
    course not. At least not if you’re serious about preserving your sanity.
    Instead, think of crypto as an asymmetrical investment opportunity. If
    you make the right choices, then even if you do not allocate a very high
    percentage of your net net worth in this direction, you can still
    generate life-altering returns. Then again, the likelihood of losing
    money is also higher than with other asset classes. When it comes to
    crypto more so then when it comes to other assets, the adage of not
    investing more than you can afford to lose is remarkably accurate.

     

    All in all:

    Is crypto a highly speculative asset class? Yes, even if you play it
    safe and only invest in the best of the best in terms of crypto, we’re
    still talking about ultra speculative and highly volatile assets.

    So, should crypto investments be treated as an insurance policy or if
    you will, as the hedge against uncertainty they were designed to
    represent? Sure!

    Should cryptocurrencies be treated as assets that have the potential of
    making you very wealthy? Once again, sure.

    My answers to the previous two questions may seem contradictory but…
    well, they’re actually not. Simply put, crypto should be considered an
    asset class that can represent a hedge against financial uncertainty *as
    well as* something that can make you wealthy. A very attractive package
    and an excellent fit for people who are curious/brave enough to see the
    potential and the wise enough to take calculated risks in this
    fascinating but dangerous field.

    In The Age of Anomaly, my new book through which I teach people how to
    protect themselves against financial calamities and become more
    financially resilient in general, I explain in detail that exotic assets
    like cryptocurrencies play an important part in the grand equation. The
    same way however, old-school assets such as stocks or even precious
    metals can complement them nicely.

    For example, if you have to leave the country, cryptocurrencies are much
    easier to “transport” than even gold or silver. All you have to do is
    remember so few words and bam, you’re good to go. In an environment
    without Internet access however, tangible wealth such as that
    represented by precious metals would be a much better choice. Again, the
    name of the game is putting together a balanced portfolio which consists
    of assets that complement one another nicely.

    As I keep telling people in my book and YouTube videos, protecting
    yourself against what’s coming in no way revolves around rocket science.
    Anyone can do it and everyone should do it. I hope you found this guest
    post useful and as far as my new book is concerned, you can find it by
    searching for “The Age of Anomaly” on Amazon, Barnes & Noble, iBooks and
    Kobo. To give as many people as possible access to my work, I’ve lowered
    the price all the way down to $0.99 until Sunday (8/12/18).

  • Banking, Debt, Home Ownership

    The Road to Home Ownership: FHA vs. Conventional Mortgage

    For many people, home ownership is the pinnacle of adulthood. Finally, you’re able to afford a house for yourself and your family! You have your dream home in mind, and you’re ready to take the plunge. First, however, you have to decide on the type of mortgage that’s right for you. Deciding  between a conventional mortgage and an FHA loan can be a headache, but understanding the two can help you make the best choice for your family.

    FHA Loans

    An FHA loan is a loan backed by the Federal Housing Administration. Under an FHA loan, you will receive:

    • Less stringent qualifications, since the mortgage lender will experience less significant losses if you’re unable to pay the amount of the loan
    • Lower down payment requirements
    • Better interest rates over the course of the loan

    This type of loan is intended to help first-time home buyers and others who have less than stellar credit acquire the homes they need. It provides security to both lender and borrower–but at a cost. Individuals who have FHA loans must take out mortgage insurance, including both an up-front premium and monthly payments throughout the lifetime of the loan.

    Conventional Mortgages

    Conventional mortgages are the standard mortgage typically acquired by home buyers. They have:

    • Fairly stringent requirements regarding credit scores
    • Increased down payment requirements
    • Reasonable and expected interest rates throughout the life of a loan

    Conventional mortgages are the option chosen by most home buyers with reasonable credit and the expectation that they’ll be able to pay their loan fairly easily. Most people, when setting out to purchase a home, choose a conventional mortgage without looking back.

    FHA vs. Conventional Mortgage: A Cost Comparison

    An FHA loan looks great up front. Lower interest rates? Where do you sign? Unfortunately, those interest rates don’t always add up to cost savings over the life of the loan. Assume that you’re purchasing a home valued at approximately $150,000. You have 10%–$15,000–to put down on the purchase price of the home. Over the thirty-year lifetime of a standard mortgage, paying approximately $725 per month, you’ll end up paying $261,000 for your home by the time it’s paid for. With a conventional loan, using the same 10% down payment, you’ll pay approximately $625 per month for thirty years–a total of $225,000. That’s a substantial savings over the life of your loan! Manage to scrape up a 20% down payment before you take out a conventional mortgage, and you’ll lower your monthly payment to $555, making the total cost of your loan just $200,000.

     open house sign

    The Loan That’s Right for You

    For most families, a conventional mortgage is the way to go. If you’re able to save up a substantial down payment–around 20% is generally recommended, though you may be able to get a conventional mortgage with a down payment of as little as 5%–and haven’t filed for bankruptcy within the last seven years, as long as you have a reasonable credit score, a conventional mortgage is likely the right choice. On the other hand, if your credit is poor or you’ve had to file for bankruptcy between three and seven years ago, an FHA loan is a great way to purchase the home you’ve dreamed.

    Choosing between a conventional loan and an FHA loan isn’t always easy. If you need additional advice, working with a qualified financial planner is a great way to ensure that you’re prepared for all of the financial challenges that come along with home ownership. By preparing appropriately and doing the calculations to ensure that you’re prepared for both the payments you’ll have to make each month and the final cost of your home by the time the loan is paid, you’ll avoid any unpleasant surprises down the road and make it easier for you to choose the home ownership solution that’s right for you.

     

    Need to know how much home you can afford?  Use this mortgage calculator to see how much your monthly payment will be. (Click Here For Calculator)