Dealing With Student Loans

Dealing With Student Loans

We hear it over and over that student loans are at all-time highs. Student loans prohibit Millennials from getting ahead financially and prevent many from buying a house, saving for retirement, or even having emergency funds for life’s unexpected expenses. With this said, let’s take a look at some statistics to understand how concerning the problem is.

As of December 31, 2019, the average federal student loan debt was $35,397, and the total student loan debt has reached $1.64 trillion. Not only that, but it is not uncommon to have student loans upwards of $100,000 from prestigious universities or due to advanced degrees. With this in mind, let’s talk about student loans and how you can keep them at manageable levels, so it does not negatively affect your future.

Mindful Spending

If you are currently in college or are considering going back to school for an advanced degree, here are a few ideas on how to lower your costs of tuition:

  • Consider starting your first two years at a community college. These schools are often inexpensive compared to more prominent universities. Community college can be an excellent way to save money until you are ready to transfer to the university of your choice.
  • Utilize scholarships and grants. Once you are accepted, consider applying to as many scholarships and grants for which you qualify. These financial aid options can be a great way to make college more affordable.
  • Search for books and supplies using alternatives to your school’s bookstore. Consider searching for textbooks online or find a textbook rental option near your school. Often, you can find them used and much cheaper than what the university charges.
  • Only take out what you need in student loans to avoid more debt than is necessary.
  • Consider making payments towards the loans to save interest while you are still in school. Whether through a job or an internship, paying as much as possible towards your student loans can make a significant impact.

Create a Payment Plan

Creating a payment plan is a great way to get started on the journey of paying off student loans as fast as possible. Here are a few ideas to create an effective payment plan:

  • The first thing to do is evaluate all of your loans and review your payment options. Learn about and understand your interest rate, minimum monthly payment, and payment plan.
  • Next, write down your goals on when you would like to have your loans fully paid off. Consider using SMART goals, which are: Specific, Measurable, Attainable, Relevant, and Time-Bound. By utilizing these parameters, paying off student loans can be worked into your budget easily. Then, write out your monthly budget and work your payments into it.
  • There are also options you can use to discount your student loan interest, such as setting up automatic payments through your debit account. Find out which options are available to you.
  • Once you set your goals and budget, the next step is to stick to it and reevaluate it every month. Reviewing where your money went will allow you to see where things went well and which areas need work.
  • Apply additional income towards your student loans to pay them off even faster. You could achieve this by getting a raise at work or a part-time job.

Utilizing these methods will ensure that you are mindful while you are in college and stick to a payment plan and budget once you graduate. Student loans do not need to be a massive burden on your life, and by being proactive, it can make a big difference in the long run.

Budgeting Tools That Millennials Love

Use an app such as Mint, Simplifi, or Dave Ramsey’s Every Dollar. These apps can consolidate your accounts and break down your expenses into categories, making things easier to view. They can also send you alerts when your balance is low, or you have upcoming bills. We have found www.studentloanplanner.com to be an excellent resource for managing student debt.

Eliminating student debts allows for more freedom to save and invest for retirement. If you are looking for information on self-directed IRAs, www.midlandtrust.com is an excellent resource to start. Or, call us at (239) 333-1032. We would be happy to discuss our services with you and how you could incorporate self-directed IRAs into your investment portfolio.

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or authorized representative must direct all investment transactions and choose the account’s investment(s). Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

Credit Card Debt Management Tips

Credit Card Debt Management Tips

Many of us did not learn how to budget in college or from our parents. This vital life lesson is a rude awakening, and some Millennials may never fully be able to do it without professional help. It involves discipline and, for some, the retraining of your brain, a proper attitude towards money, and good habits. We are shaped by our upbringing. Our parents most likely play the most prominent role in how we treat money throughout our lives. These lessons can be learned directly by parents helping to manage money, or indirectly by seeing how your parents handle money firsthand while growing up. To change, you need to recognize and acknowledge where you currently stand and where you want to be. Take a moment to truly reflect on this before continuing. Once you’re ready, read on to learn about credit card debt management tips.

LEARNING ABOUT CREDIT CARDS AS A YOUNG ADULT

I owned a credit card in high school. The credit card was strictly for gas and food, and my dad watched the card like a hawk. If I ever purchased outside of those two approved needs, I had to pay using my cash savings. I earned my cash savings from mowing lawns, shoveling snow, and birthdays. My father always paid the credit card on time, leading to me building a credit score for myself. At the time, I did not care or realize the significance of a credit score.

On the flip side, I have an uncle who racked up credit card debt. It was always mind-boggling to me knowing he had credit card debt, yet he never seemed eager to pay it off on time. My uncle’s flawed approach lasted for years and continues today. He doesn’t seem to mind or care as he always wants the newest and best technology, splurging on gifts for himself or others. My parents would talk about his reckless habits with me, and I am glad they did. I was able to learn and understand the importance of managing debt.

Seeing how my parents and uncle treated credit cards, I concluded that I never wanted to be in credit card debt. Having the latest and greatest gadget and spending money I could not afford was not the route I wanted to take. The amount of interest being paid on my uncle’s credit and his continuous use of the card kept him in credit card debt. By being in debt, you pay someone else hundreds to thousands of dollars over time to buy something you cannot afford. This money you pay in interest is money you could spend on yourself or savings/retirement. This strategy could shed years off how long you have to work to retire comfortably. Whether he likes it or not, the best thing for my uncle is to shred the credit card and create a monthly budget around eliminating the credit card debt.

USING CREDIT CARDS TODAY

In college, I had income from a summer job. My father passed the responsibility of making credit card payments to me, but still had full access to view my spending habits. You would think I would use the credit card for everything, but this was in 2008 before digital payments took off. I only used the credit card for paying for gas at the pump because it was convenient. Otherwise, cash was king for me. When I ran out of funds at the end of my freshman year, I said goodbye to splurging on entertainment and snacks.

Fast forward nearly a decade later, and smartphones, online banking, and digital payments are the new way of life. People can now make credit card payments using Venmo, PayPal, and Apple Pay. When I was young, my father only used his credit card for gas and occasionally to pay for meals at restaurants. My father now uses his credit card for nearly everything! However, unlike my uncle, he never spends more than he can afford.

Credit cards also offer great perks with money-back incentives for use on every purchase. Using my credit card for everyday purchases, I gather hundreds of dollars in cash back rewards each year. Like my father, I use my credit card as if it were a debit card. I pay the balance off nearly every day from my banking application. Making daily payments allows me to view my cash balance, which is my budget for the month.

PROS & CONS OF USING A CREDIT CARD

Pros of Using a Credit Card

  • Cashback rewards
  • No need to carry cash (stolen cash is easier for a thief to get away with opposed to a credit card or smartphone, which may not even be accessible)
  • Temporary emergency-use for essentials, if needed
  • Can help you build your credit score if used properly

Cons of Using a Credit Card

  • Very high-interest payments if not paid on time
  • If not disciplined with money, it can easily lead to you spending money you do not have, leading to credit card debt
  • Need to be on high alert for credit card fraud
  • Can ruin your credit score if not appropriately treated and payments are not made on time

4 Tips For Handling Your Credit Card

I am by no means an expert on credit cards, but I can assure you that I have never taken on credit card debt, nor do I plan to. The interest charged is astronomical, and I never want to put myself in that position. Here are some tips for managing your credit card:

1. TREAT YOUR CREDIT CARD AS A DEBIT/CHECKING ACCOUNT

Only spend what you have in your bank account, and no more. This approach also means setting and knowing your budget.

2. KNOW YOUR ESSENTIAL COSTS

Know your essential costs for the month and put this into a separate account. As earnings come into your bank account, know what your essential costs are. Essential costs can include loans, insurance, rent, or mortgage. These costs can also include transportation, utilities, real estate tax (if you own a home), and more. Calculate what these costs come out to monthly. Set this amount aside each month into a separate account. Do not use this set-aside money.

3. PAY OFF YOUR CREDIT CARD REGULARLY

I log onto my bank account every morning and pay off my credit card balance every day. Doing this allows me to see my bank account’s cash balance and gives me an idea of how much money I have remaining. I use the remaining funds for food, fun, and entertainment. With daily credit checks, I am constantly aware of my cash balance and dramatically lower my risk of fraud. I would potentially catch any sign of fraud instantly and begin working with my bank to freeze the card or issue a new one.

4. FOR EMERGENCIES, DEVELOP A PAYMENT PLAN OR “MONEY-CRUNCH”

If you need a credit card for an emergency, try to either work on a payment plan or go into a “money-crunch” mode. If there is an outstanding balance on your credit card that will take a while to pay off, you should also go into a “money-crunch” mode. Stop eating out, find free entertainment options, or temporarily reduce your 401(k) contribution. Try to crunch your budget until you’re back in the black or green. Reduce and avoid credit card debt at all costs. I view any interest paid on my credit card as money thrown away or burned.

6 Tips For Managing Your Credit Card Debt

Being free of credit card debt means the freedom to do more with your hard-earned money. Credit cards are not for everyone, and that is okay. If you find yourself unable to get your head above water with credit card debt, you may need to stop using your credit card altogether. Adding to existing credit card debt with an astronomical interest rate will make it more challenging to get out of that debt. Credit cards charge a very high interest when not paid off on time, between 15% to 29%! Here are some tips for managing your credit card debt:

1. SHRED THE CREDIT CARD

Click here to learn about the safe way to cancel a credit card.

2. PAY MORE THAN THE MINIMUM

Option 1: Snowball Effect

Pay the minimum balance on all credit cards/debts and eliminate the smallest credit card balance first. Psychologically, this reduces the number of credit cards you have to worry about and allows for progress to be easily seen!

Option 2: Avalanche Effect

The other option is to pay the minimum balance on all credit cards. Find out which credit cards have the highest interest rates and pay those off first. While you will not receive the satisfaction of eliminating one of the credit cards in its entirety quickly, it will save you the most money in the end.

3. CREATE A BUDGET

Begin creating a monthly budget and list your credit card payments (more than the minimum) as one of the essentials you need to pay off every month.

4. USE CASH

Using cash in your wallet will keep you more honest with your budget. If you don’t have cash for the purchase, it is time to go into starvation mode and either cut costs or find a side hustle.

5. LIVE BELOW YOUR MEANS

Live below your means until the credit card debt is eliminated. This means no eating out and no unnecessary purchases. Reduce credit card debt at all costs. I cannot stress this enough. Money paid in interest on a credit card is money burned, thrown away, and gone forever.

6. FIND A PARTNER TO KEEP YOU ON TRACK

In the early days, my father kept me on track. Have someone assist as a coach or mentor. A coach or mentor can provide many benefits. You may not want to let them down. They can also be someone you celebrate with when you reach a set goal or milestone in eliminating your credit card debt.

Credit cards can provide great perks and rewards; however, they need to be used very carefully! Credit cards are not for everyone and, at most, should be a last resort. Learning to manage money better and setting a budget for yourself is one of the best things you can teach yourself. No excuses. You are never too old to learn and try something new. Motivate yourself to take action now and secure your financial well-being.

If you have any questions regarding your investment options in regards to saving and building wealth for your future, please contact Midland Trust at (239) 333-1032 or visit www.midlandtrust.com. We would be happy to discuss our services with you and how you could incorporate self-directed IRAs into your investment portfolio.

Author: Andy Anger, Client Services Senior Associate at Midland IRA, Inc.

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or authorized representative must direct all investment transactions and choose the account’s investment(s). Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

SEC Announces New Accredited Investor Status

SEC Announces New Accredited Investor Status

In August 2020, the Securities and Exchange Commission (SEC) adjusted its definition of an “accredited investor” for the first time in decades. This ruling affects regular investors and self-directed IRA investors. Before this ruling, if you were an investor that did not meet income or net worth criteria, you may not have been allowed to invest in private, alternative assets regardless of your financial knowledge. These new amendments improve the definition of identifying individual investors with the knowledge and expertise to participate in those markets.

Accredited Investor Requirements

  • Annual income exceeding $200,000 (or $300,000 joint income) for the previous two years and the expectation to earn an equal or higher income in the current year
  • Net worth exceeding $1M (individually or jointly)
  • General partner, executive officer, or director for the company issuing unregistered securities
  • An entity qualifies if it is a private business development company or organization with $5M in assets or more
  • An entity qualifies if its owners are accredited investors – however, an organization cannot be formed with purchasing specific securities as its sole purpose

The amendments revise Rule 501(a), Rule 215, and Rule 144A of the Securities Act.

Accredited Investor Requirement Amendments

  • Natural individuals with professional certifications, designations, or credentials designated by the SEC Commission and issued by an accredited educational institution (professional certifications include individuals in good standing of the Series 7, Series 65, and Series 82 licenses)
  • Spousal equivalents, opening the option to pool assets to qualify as accredited investors
  • Natural persons who are knowledgeable employees of a private fund
  • Entities with at least $5M in assets with SEC and state-registered investment advisors, exempt reporting advisers, and rural business investment companies (RBICs)
  • Entities that own investments as defined in Rule 2a51-1(b) under the Investment Company Act with $5M or more in assets not formed for the sole purpose of investing in securities offered
  • Family offices that have at least $5M in assets under management and family clients (each term is defined under the Investment Advisers Act)

This rule directly applies to self-directed IRA investors. Many self-directed IRAs invest in private equity or private placements; the underlying IRA owner must qualify as an accredited investor. The new definition allows more investor’s eligibility to invest in these types of assets.

The modernization of the rules is a welcome improvement. This ruling will become effective on October 25, 2020.

Click here to read the official SEC Announcement.

For more information about the accredited investor requirements, or to open a self-directed IRA account, contact Midland at (239) 333-1032 or visit www.midlandtrust.com.

Tips to Avoid A Millennial Saving Crisis

Tips to Avoid a Millennial Saving Crisis

Student loan debt is at an all-time high of around 1.4 trillion dollars. The cost of going to college has dramatically outpaced the rise in wages. That figure is a combination of debt from getting a degree ranging from bachelor’s to doctorate. While higher education is vital in a competitive job market, the financial impact can be a burden when saving for a house or retirement. In this article, we cover five tips for saving money to avoid a Millennial saving crisis.

The Federal Reserve’s publications on student loans highlight the following key takeaways:

  1. Those with a bachelor’s degree tend to do better than those without a bachelor’s degree.
  2. The school you choose for higher education can play a huge role in how much debt you acquire. Private for-profit schools seem to carry the most considerable financial burden.
  3. The younger people are, the less confident they feel about having enough for retirement at this time.

With that said, let’s look at how we can take retirement savings to the next level. We’ll focus on positioning a Millennial to feel confident about retirement. Here are some suggestions to tackle student debt fast, while simultaneously saving for retirement to avoid a Millennial Saving Crisis later in life.

5 Tips to Avoid A Millennial Saving Crisis

1. Calculate a Budget for Yourself

You need to know how much you make after taxes, health insurance, and 401(k) contributions are taken out of your paycheck. Once you know how much you make per month, you will need to note essential payments. These essentials can include rent/mortgage, student loans, insurance, transportation, internet, utilities, and car payments. This calculation leaves you with your budget for food, fun, entertainment, and rainy day savings. Budgeting is the absolute first thing everyone should do to properly manage debt, savings, and retirement at the same time. You need to know the cost of your essentials to calculate how much you can save. Then, give yourself a budget on which to live. Stick to your budget! For more information on budgeting, view our article “Budgeting Made Simple for Millennials.”

2. Become (and Remain) Credit Card Debt-Free

If you have any credit card debt, make sure this is your top priority to pay off ASAP! After calculating your budget, pay more than the minimum payments, if possible. Cut costs where you can and eliminate credit card debt ASAP. Credit card debt has high-interest rates compared to other debts. Credit card interest rates range from 15-29%. This rate is in comparison to 5% or less on a student, home, and auto loan. Credit cards are not for everyone. Being in credit card debt means you are paying someone else hundreds or thousands of extra dollars for the luxury of buying something you cannot afford at the time. Pay off your credit card debt rapidly to begin paying off other debts, save, or invest more.

3. Live Within or Below Your Means

If you have ever read the book Rich Dad Poor Dad by Robert Kiyosaki, you would have learned wealthy people live below their means. We are not talking about the ultra-rich with money to burn. We are talking about those who start with little to nothing and amass wealth over time. Every little bit adds up. You don’t need to buy a brand new car and take on debt when your current car with 100K miles is still working fine. If you take on debt to buy a new car, you are losing money. You lose money by paying interest to the bank each year without a return as your car’s value decreases.

You don’t need to put 20% down on a $400K house, instead, try and find one for $250K. This type of person will think twice about splurging on the latest Jordan shoes, eating out multiple times a week, and getting expensive coffees daily. Kevin O’Leary from Shark Tank said it best, “Anytime I pick up something I’m going to buy, I say to myself, ‘Do I really need this?’ Because if I don’t buy it, the money is going to be invested and make money every year for me while I’m sleeping.” You can still live a great happy life without having the luxuries of a new car, dream home, and the latest fashion.

In the famous book, The Great Gatsby, all the world’s money could not buy Mr. Gatsby happiness. Despite having all the money needed, he was still unhappy. Happiness is what you make of it and is a whole conversation and article in itself. Stay tuned for the next article in our Millennial Financial Series.

4. Reduce or Eliminate Your Housing Costs

There are two ways to easily do this.

The first way is to live with your parents. Live with your parents. There is nothing wrong with living with your parents for a few years to eliminate your debt and save money. Doing this could be a huge deciding factor in paying off student loans in three years vs. ten years. Reducing or eliminating your housing costs could mean the difference of several thousand dollars. This saved money can be used as a down payment on a house of your own.

Second, get a roommate. If you rent or own and have room to spare, consider getting a roommate. A roommate will provide extra income to help lower the cost of rent and utilities each month. Use these savings to pay off your student loans or build up a safety net for emergencies.

5. Begin Saving for Retirement Now or Pay off Student Debt

If your student loan interest rate is 5%, then paying off more than the minimum is similar to getting a 5% return in the stock market. It is 5% less than you have to pay in interest on your loan. You can use the money saved by paying off student debt to invest.

On the flip side, you may receive a 401(k) match at work. If your employer matches 4%, congratulations, you just gained 4% in addition to your salary. Put the 401(k) contributions into investments, and you are well above the 5% return you would make per year by paying off student loan debts. At a minimum, especially while trying to eliminate student debt, you should be contributing to your 401(k) up to your employer match. The reason being is this is free money you would otherwise not receive from your regular paycheck. Can you say “no” to free money? And the compounding gains year over year will far outweigh the cost of paying off your student loans quicker.

What If My Employer Does Not Match 401(K)?

If your employer does not offer a 401(k), this may change your thinking. You may want to consider opening an IRA account to save money for retirement. While you will not get a match from your employer, IRAs offer tax-deferred growth on gains in the account. Traditional IRAs are tax-deductible up to a certain income level, which can mean money in your pocket via a tax refund. On the other hand, Roth IRAs offer no tax deductions but can be a great emergency fund as gains grow tax-deferred. With Roth IRAs, you can always take distributions tax and penalty-free. After five years of owning a Roth IRA, you can take out gains. You will only have to pay a 10% early-withdrawal penalty on the portion of the gains if you are under 59 ½.

Start Saving as Early as Possible

The key is to start as young as you can and be consistent. The later you start, the more you’ll have to contribute in the future to get to a comfortable retirement fund. Alternatively, you may have to work longer. It will be best if you arrange to have money automatically come out of your paycheck to your 401(k) or an IRA. Saving is much easier when it is automatically taken out of your paycheck. You will grow accustomed to the smaller paycheck much quicker, and it will make budgeting much less complicated.

How Much Should I Save for Retirement?

Inflation runs about 2% per year. $50K today will likely be worth $25K in 30 years. So again, the important things are to start as early as possible and be consistent. To be fully prepared to retire at 65, here are the recommended guidelines for retirement savings by age:

30: Have the equivalent of your annual salary saved. So, if you earn $50,000 a year, aim to have $50,000 in savings when you reach 30.

35: Twice your annual salary saved.

40: Three times your annual salary saved.

45: Four times your annual salary saved.

50: Five times your annual salary saved.

55: Six times your annual salary saved.

60: Seven times your annual salary saved.

65: Eight times your annual salary saved.

Remember, everyone’s situation is different. Please do not compare yourself to others; we all have to start somewhere. The key to avoiding a Millennial savings crisis is to live within or below your means while simultaneously paying off your debt and saving at the same time. It can be done, but will require discipline in setting a budget and sticking to it! If you are serious about your budgeting, you will likely feel some financial pain now but reap the rewards and come out ahead in the long run. This plan is not a get out of debt/get rich quick scheme and will take years before you see/feel the rewards.

Budgeting Tools That Millennials Love

Are you struggling with budgeting? Use an app such as Mint, Simplifi, or Dave Ramsey’s Every Dollar. These apps can consolidate your accounts and break down your expenses into categories, making things easier to view. They can also send you alerts when your balance is low, or you have upcoming bills.

If you have any questions regarding your investment options or additional tips to avoid a Millennial saving crisis, please contact Midland Trust at (239) 333-1032 or visit www.midlandtrust.com. We would be happy to discuss our services with you and how you could incorporate self-directed IRAs into your investment portfolio.

Read the other articles within our Millennial Finance Series: “Budgeting Made Simple for Millennials,” and “Budgeting with the Goal to Save and Invest for Millennials” for additional tips.

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or authorized representative must direct all investment transactions and choose the account’s investment(s). Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

Budgeting With the Goal to Save and Invest for Millennials

Budgeting With the Goal to Save and Invest for Millennials

Budgeting can be an essential tool for financial success. Many personal finance experts suggest creating a budget as the most important component for a successful financial plan. A budget gives you a roadmap of where you are in the moment and for planning for the future. Without a budget, it is much easier to get off track. Let’s take a look at some strategic ways to lower expenses, which allows for budgeting to save and invest.

Cut Back on Large Monthly Expenses

Addressing the largest expenses in your budget first can be an effective strategy to save money over time. Rent or mortgage payments, auto payments, and food tend to be the largest budget items. Below are a few ways to cut down on some of these large expenses:

Rent or Mortgage Expenses

Start by analyzing what you currently pay in rent or mortgage each month. Take that number and divide it by your gross monthly income. If that number exceeds 25% to 33% of your gross monthly income, the consensus is that you could be spending too much on housing. Here are some tips to lower your costs:

  • Rent spare bedrooms for extra income on sites such as Airbnb.
  • Refinance: You may be able to lower your mortgage if you are currently paying a high-interest rate. Speak with a lender and find out what your options are.
  • Consider moving to a smaller place or a more affordable area. Moving may take time if you are in a lease or must sell your house, but is a long-term option to lower your housing expense.

Auto Expenses

Auto expenses tend to be one of the costliest expenses in a budget. The average car payment in America is $550 for new, $393 for used, and $452 for leased vehicles. This payment does not include gas, insurance, or maintenance that the vehicle will need over its lifetime. Lowering this expense can lead to additional money for saving and investing. Below are a few ideas to lower transportation costs:

  • Sell your expensive new car for a more affordable, reliable used car.
  • Consider having only one vehicle if your situation permits.
  • Walk or bike to work, if possible, to save on gas and vehicle maintenance. Public transportation is also an option.
  • Buy a fuel-efficient or electric vehicle to save on the additional costs of operating a car.
  • Drive with Uber or Lyft to offset your vehicle’s cost or utilize apps such as Turo to rent out your car when you are not using it. These options are great for Millennials looking to earn additional income.

Food Costs

Food is a necessity. However, it is possible to lower your food costs by taking a few steps. Even if you have a family and the food costs add up quickly, here are a few tips to ensure you do not overspend at the grocery store:

  • Make a list and stick to it. Do not buy something that is not on your list just because it is on sale.
  • Buy in bulk for items that do not perish quickly or used frequently.
  • Shop lower-priced food stores.
  • Shop products that are in season, especially produce.
  • Utilize local farmer’s markets.
  • Make a fancy dinner at home instead of going out to an expensive restaurant.

Evaluate Your Insurance Options

Insurance is an essential component of a successful financial plan. If you have a family or are planning on starting a family in the future, this is especially true. Medical expenses can add up quickly, which is why insurance needs to be a key consideration for any age. Here are a few tips to make sure that you are getting the best value with your insurance:

  • Utilize a Health Savings Account (HSA) for healthcare costs. These plans can be a viable option for medical-related costs. HSAs offer a triple tax advantage. HSA advantages include tax-free contributions, tax-free growth, and tax-free withdrawals. It is important to note that a high deductible health insurance plan is needed to contribute to an HSA.
  • Shop around for insurance and get quotes from multiple insurance companies.
  • Consider bundling for more savings. Bundling home, auto, and life insurance could save quite a bit of money instead of getting individual policies with different companies.

Cut Back on Discretionary Spending

Discretionary spending can be characterized as extra expenses after meeting your basic needs. For example, this could include going out to the movies or a nice restaurant on the weekend. Whatever the case, cutting back on some of these expenses means more money to save and invest over time. Below are a few tips to cutting back on those discretionary expenses:

  • Instead of going to Starbucks or your favorite coffee shop, make coffee at home.
  • Make a nice meal at home instead of going to restaurants.
  • Find free events in your local area. Millennials have utilized social media platforms as an excellent way to connect with others and find events in their areas.
  • Wait 24 hours before purchasing something unnecessary. Then, if you decide that you want it, be sure that the purchase falls within your budget.

It is important to enjoy your free time and hobbies. However, cutting back on unnecessary costs can lead to more saving and investing over time. Budgeting allows you to spend money on the things that mean the most to you while ensuring your necessary expenses are covered.

BUDGETING TOOLS THAT MILLENNIALS LOVE

Are you struggling with budgeting? Use an app such as Mint, Simplifi, or Dave Ramsey’s Every Dollar. These apps can consolidate your accounts and break down your expenses into categories, making things easier to view. They can also send you alerts when your balance is low, or you have upcoming bills.

If you have any questions regarding your investment options, please contact Midland Trust at (239) 333-1032 or visit www.midlandtrust.com. We would be happy to discuss our services with you and how you could incorporate self-directed IRAs into your investment portfolio.

Read our other budgeting article “Budgeting Made Simple for Millennials” for additional tips.

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or authorized representative must direct all investment transactions and choose the account’s investment(s). Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

Lend Money From an IRA or Other Retirement Account

Lend Money From Your Retirement Account

How to Lend Money from Your IRA

Yes, you can lend money from your retirement account. It’s called hard money lending, and it is trending. As someone who has done a few deals like this, I want to share what I have learned.

The Basics of Lending Money in Your IRA

Let me give you some of the basics. One of the reasons hard money or private lending is so popular is that it allows you, the lender, to set all the terms. That’s right; you set the amount to lend, the interest rate, the loan term, and almost anything you want. One of the other notable features is that these notes can be either secured or unsecured. Secured Notes are typically backed by collateral that will help avoid the loss of any principle. Secured Notes are always the preferred method when lending money. Unsecured Notes, while riskier, do appeal to a subset of investors with particular parameters and are allowed within your IRA.

What Do You Need to Know Before You Start Lending Money?

The first thing you need to know is that you will need to have a self-directed retirement account specializing in holding private notes. A self-directed IRA account is unique because it allows the IRA owner to hold private assets. Most brokerage houses do not allow this. Midland specializes in alternative investments, and notes are one of the most popular assets held.

Let me give you a typical example. Assume I have a traditional retirement account, and I have $100,000 in it. Now let’s say that I have found someone who would like to borrow $90,000 to purchase an investment property. The lendee puts $20,000 down, and I lend the difference. As I said above, I set the terms. I am going to charge them 10% for two years with two points. The property secures the note as collateral. All the interest payments go back to the IRA and are tax-free. These tax savings are a significant advantage of investing with a self-directed retirement account. (Please note your interest must not exceed state usury laws: do not be greedy!)

Let me change the deal a bit to benefit you, the lender. Instead of a flat interest rate, you could ask for a percentage of the profits when the deal closes. Instead of charging an interest rate of 10%, I would like 20% of the profits when you sell the property. This structure is relatively common. The other nice part of this deal is that the property is still put up as collateral to secure the money that you lent from your IRA.

There are multiple personal loan calculator tools. Here is a personal loan calculator tool that I find helpful.

What are the Benefits of Private Lending in your IRA?

As discussed above, one of the most significant benefits of private lending is that you set all of the terms. Included in these terms are the choice of the closing agent, surveyor, appraiser, and any other unique details about this investment. You are in complete control as the lender. Structures of these deals happen in different ways. It gives the investor flexibility based on the asset they are lending and the person they are lending to. The control given to the “lender” is a good reason that these deals are so popular.

So how do we wrap up this deal? Let’s assume that I loan the investor money to fix the property up, flip it, and sell it for $145,000. That would mean a $35,000 gain for them. When they sell the property, my note pays off with interest. All the money returns to my self-directed IRA at Midland. On to my next deal.

These deals require a lot of due diligence. However, because of the control you have as the lender, they can work smoothly as long as you clearly set the terms.

How to Find the Deals in Note Investing

The million-dollar question is, “how do I find the right deals, and whom do I lend to?” We are all looking for a great deal, and make profitable investments upfront by finding the right deal. It takes hard work. So while there is no one answer, I can offer you some sources which have worked for people who have done these types of deals.

4 Sources for Private Notes That I Have Found Over the Years

  1. Your fellow investors: Your investment circle is critical. Ask the people you work with or your neighbors if they know of any deals. They may also know about any properties that are being bought or sold.
  2. Mortgage Brokers: One of the best sources for finding private notes is talking to mortgage bankers or brokers. These professionals talk to individuals looking to borrow money all the time. And unfortunately, they cannot make every deal, so they know of individuals who either don’t qualify or don’t fit into the right pot to make a loan from their companies. These individuals can be great private lending clients. Typically they only need short-term money, and they are willing to pay a little extra in rate over the short term. Don’t be afraid to ask your favorite mortgage banker if he has turned anyone down recently.
  3. Builders: Builders are an excellent source for private lending deals. Typically small builders are looking to buy lots and build homes, and they need capital. They know that they can build a house in 6 to 12 months. These borrowers will pay a little extra in interest rates to borrow that money. Look at all the builders you know and start asking. Their needs might surprise you. Along these same lines, consider asking realtors. Realtors work with builders all the time, and sometimes they like putting a deal together because they ultimately get to sell the new house built.
  4. Investor Groups: There are many investor groups out there, and quite a few that only specialize in note investing. Search the internet, and I am sure you will find a note group not far from where you live. Just one of many places online to look is Meetup.com; they have hundreds of investing groups. The other great source is a local REIA group. These REIA groups consist of like-minded investors who have an ear to the ground and know about the deals.

What About Unsecured Loans?

One type of loan not discussed yet, Unsecured Loans. You can do Unsecured Loans with a self-directed IRA, and they are widespread. I want to put a word of caution out. When you loan unsecured money, there is no collateral. If the borrower decides not to repay the loan, there’s typically not much that you can do. I would make sure if you’re going to make an Unsecured Note that you have contacted your attorney and have the best documents that you can have to protect your investment.

Unsecured Notes are not uncommon. They are typically smaller loans than the secured deals I discussed above, and they are usually shorter-term loans.

If you would like additional information on how to set up a Midland account to begin private money lending within your retirement account, please feel free to call us anytime. We handle the administration of the private note, including receiving the payments. Private money lending can be extremely profitable if you know what you are doing and practice patience when looking for the right deal.

Before You Get Started

Before starting any investment deal, please talk to your tax or financial advisor to understand the impact of an investment on your financial situation. Midland is not a fiduciary and does not give specific investment advice. Please feel free to contact Midland Trust at 239-333-1032. Thank you and happy investing.

Author: Dave Owens, CPA, CES, is the President of Midland IRA and has been investing in real estate for over 20 years. His comments act as guidance to help investors understand how an investment deal works in the real world.

Changes to Inherited IRAs in 2020

Changes to Inherited IRAs in 2020

When the time comes for a beneficiary to take over the assets of their loved one’s IRA, one of the options is to open an Inherited IRA or Beneficiary IRA. This plan allows the beneficiary to continue the tax-sheltered status of the assets and cash they’ve just inherited.

A FEW KEY ITEMS TO CONSIDER:

  1. Contributions cannot be made to the Inherited IRA
  2. IRA Transfers may only be from Inherited to Inherited
  3. Inherited accounts require distributions, even Roth (however, while taxes may be owed, the early distribution penalty does not apply to any inherited account)
  4. Following the SECURE Act, most beneficiaries will be required to cash out the account within ten years
  5. Spouse beneficiaries can rollover to their account
  6. A beneficiary has nine months from the date of death to disclaim the IRA

IRA contributions, in general, can only be made to an IRA if the account holder has earned income, regardless of age (thanks to the SECURE Act). Contribution limits vary based on income and account type. In an Inherited account, contributions are not permitted, and the account must be fully distributed within ten years of the original account holder’s death. Only a few exceptions apply to the new ten-year rule; the SECURE Act effectively eliminated the “Stretch IRA,” which once allowed beneficiaries to take distributions based on his or her life expectancy. Click here to learn more about how the SECURE Act tax law affects retirement plans.

Inherited accounts open after December 31, 2019, no longer require the need for annual distributions to be calculated, however, it is in the best interest of the beneficiary to work with a financial professional to make a plan for distributing within the ten-year period and paying taxes on distributions from an inherited Traditional IRA. The CARES Act has waived all 2020 required distributions, which applies to Inherited accounts opened before December 31, 2019. Click here to learn about the top 7 RMD changes that have occurred with the CARES Act.

Spouses are allowed to inherit an account directly and treat the IRA as their own, which may be especially beneficial if the spouse inherits a Traditional IRA and is not yet RMD (required minimum distribution) age. A spouse beneficiary may still decide to treat the account as an Inherited Account. It is recommended that the spouse speaks with a CPA before making a decision.

If a beneficiary decides they do not want the account they have inherited, they are allowed to disclaim their interest within nine months from the date of death. The beneficiary cannot re-designate the inheritance; the account will likely fall under probate law.

For questions or more information regarding Inherited IRAs, contact Midland by visiting www.midlandtrust.com or by calling 239.333.1032.

Budgeting Made Simple for Millennials

Budgeting Made Simple for Millennials

Adulting is a term Millennials like to use when life hits you hard, wishing you could relive the days of being a kid with few worries. Being an adult means no longer having someone making decisions for you or holding your hand through the process. Adulting means taking control of your budget, your health, your retirement, and your life. One of the areas of adulting most Millennials struggle with is budgeting. Between student loans, rent/mortgages, car payments, transportation expenses, food, fun, entertainment, and potential credit card debt, there is a lot to consider. If there is anything left, does it go towards saving for retirement or a rainy day fund? Where does one begin? For Millennials, budgeting is the most important step in saving for retirement while simultaneously paying off debt.

4 STEPS TO MAKE MILLENNIAL BUDGETING SIMPLE

1. Calculate Your Earnings Each Month

You need to know how much you make after taxes, health insurance, and 401(k) deductions. If possible, contribute to your 401(k) up to the maximum amount of what your employer matches. Saving for retirement is crucial, and the reason you want to contribute to your 401(k) is that your employer is essentially giving you free money. You would otherwise not receive this free money in your regular paycheck. Can you say “no” to free money? With compounding gains year over year, the earlier you begin saving for retirement, the better. Even a few years will make a considerable difference in thousands to tens of thousands of dollars in the long run.

Through our budgeting example, we are going to assume you are single with no credit card debt, earn $50,000, and set aside roughly 24% for federal taxes, FICA taxes, and medical insurance. We will also assume you set aside 4% for 401(k) contributions. These assumed costs leave roughly $36,000 in cash for the year or $3,000 per month. You can use this calculator tool for assistance. You can use this calculator tool for assistance.

*Please note: your salary, state taxes, and living expenses will vary greatly based on your geographical location and occupation.

2. Calculate the Essentials and Subtract Them From Your Earnings

You need to know how much money you have to spend on food, fun, entertainment, and savings. Before we can do this, we need to know the essentials that need to be paid each month. Take your monthly payment amount and subtract rent/home payment, real estate tax (if applicable), home/auto insurance, car payments, utility bills, phone bill, internet bill, subscription services, etc.

Earnings: $3,000 monthly

Deductions:

– $1,500 (includes rent/home insurance, property taxes, utilities, and HOA fees if applicable)

– $125 auto insurance

– $150 for electric bill

– $100 transportation cost

– $50 for utility bills (water, trash, recycling)

– $100 for cell phone bill

– $50 for internet bill

– $50 for subscription services (Netflix, Hulu, Amazon Prime, etc.)

– $400 a month for car

Total Deductions = $2,525

Calculation: $3,000 monthly budget – $2,525 = $475 per month

*Please note: these are estimates and will vary greatly by location, living situation and personal preferences.

3. Put Money Into an Emergency Fund for Savings

Doing this will make budgeting simple in the future if you have an emergency fund established to fall back on. Your car may break down, or you may lose your job one day. Life is full of surprises, and you need to prepare for them. Let’s set aside another $100 per month for savings/emergencies.

Putting savings into a bank account is fine, but banks provide little interest in savings accounts or CDs. This low interest will likely lose you money over time if it is less than the annual inflation rate (cost increase of goods per year). Instead, consider putting money into a Roth IRA to allow gains to grow tax-deferred. You can contribute up to $6,000 to a Roth IRA if you are under 50. Roth IRAs can be a powerful emergency fund, saving fund, and retirement fund. You can take Roth IRA distributions tax-free at any time. If you hold your Roth IRA for five years or more and are under 59 ½, you can withdraw your gains on investments and only pay a 10% early withdrawal penalty. Stocks are relatively easy to liquidate, and you should be able to receive Roth IRA distributions for emergencies within a week or two.

Yes, there is a risk of loss on investments. However, statistics show that if you invest for the long term in well-known stocks, the typical return is 8-10%. Would you rather work for money, or have your money work for you? By investing more, you are having your money work for you, and over time this can be the difference of thousands to tens or even hundreds of thousands of dollars in additional funds.

4. Stay Within Your Budget

Discipline is essential. Okay, so this step is not that simple, but it is needed if you want to manage your budget successfully. You can make budgeting much more complicated, but it can be simple if you stay within your budget. If you know you overspend with credit cards, consider shredding the card(s). Or, lock the card in a lock-box and give the key to a trusted friend or family member. Withdraw your budgeted “fun” money in cash each month. This way, you are only able to spend what is available to you in cash. Physically seeing your available cash in your wallet allows you to see how much you are spending and hopefully leads to you saving more. You may find yourself naturally looking to cut expenses, clip coupons, find cheaper alternatives, or find ways to generate additional income through a side hustle. Stay tuned to Midland Trust for our next article to learn about reducing your monthly budget. We will also discuss investments as a way to increase your “fun and entertainment” budget.

AVAILABLE BUDGETING TOOLS THAT MILLENNIALS LOVE

Are you struggling to set a budget? Consider using an app such as Mint, Simplifi, or Dave Ramsey’s Every Dollar. These apps can consolidate your accounts (credit card, bank, investing accounts, etc.) into one and break down your expenses into categories, making things easier to view. They can also send you alerts when your balance is low, or you have upcoming bills.

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or authorized representative must direct all investment transactions and choose the account’s investment(s). Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

Health Savings Account: a Triple Tax Advantage

Health Savings Account (HSA)

Health Savings Accounts

A Health Savings account (HSA) is a tax-exempt account that will allow you to pay for a diversified list of allowable medical expenses. In addition to saving money, you can spend these funds for medical expenses in retirement. This makes having an HSA a huge advantage now and in the future.

What makes an HSA so desirable? How about a triple tax advantage! IRA account money gets taxed at some point, either going in (Roth) or coming out (Traditional/SEP/Simple). However, if appropriately used, HSAs never get taxed. HSAs come with three significant tax benefits. The first benefit is that you can contribute on a pretax basis. Second, your savings grow tax-free over time, and third, you can make tax-free withdrawals to cover eligible medical expenses.

With that said, there are firm IRS rules for contributing and spending HSA funds.

Some of the key facts are as follows:

  • To qualify for an HSA, you must have a high deductible health plan (HDHP).
  • There is no income limit to qualify for an HSA.
  • There are annual contribution limits for these accounts.
    • For 2020, you can contribute as much as $3,550 as an individual or up to $7,100 if you have a family HDHP. If you are 55 or older at the end of the tax year, you can increase these limits by $1,000.
  • Any HSA distributions that are spent on non-qualified expenses are subject to a hefty 20% tax penalty unless you are 65 or older.
  • Contributions to your HSA can come from you, your employer, or someone else such as your spouse and are deductible on your tax return, yes, even if you don’t itemize deductions.

What is a High Deductible Health Plan?

A high deductible health plan (HDHP) typically has a higher annual deductible than a standard health plan, but usually comes with lower premiums. The IRS defines a HDHP as a plan with a minimum annual deductible of $1,400 for an individual or $2,800 for a family. You must be covered under this type of health plan to make contributions to an HSA. Medicare does not qualify. Beginning the first month that you enroll in Medicare coverage you can no longer make contributions.

What if I become uninsured or unemployed?

Another important factor with HSAs is that the account remains yours even when you become unemployed or uninsured. However, keep in mind that these circumstances could affect your ability to make contributions. If you need to stop contributing for any reason, you’re still able to use the money in your HSA on qualified healthcare expenses.

As mentioned, distributions from an HSA for qualified medical expenses are tax-free. Tax-free distributions include any interest earnings or capital gains if you choose to invest the funds held in your HSA. In retirement, once you reach age 65, you can take distributions for medical or non-medical purposes without a penalty; however, you will still need to claim those distributions as income in the case of non-medical distributions.

What Can I use an HSA for?

Let’s talk about allowable expenses. There is an abundant list of IRS-qualified medical expenses in which you can use an HSA. Common expenses include things such as doctor’s office visits and co-pays, laboratory fees, vaccines, and dental cleanings, among many others. Some otherwise uncommon expenses would include acupuncture, chiropractor services, and even medical equipment such as hearing aids or a wheelchair.

In addition to all the established eligible medical expenses, the new CARES Act has further expanded the list to include over-the-counter medications for which you do not need a prescription.

For more information or questions regarding HSAs, please contact Midland Trust at (239) 333-1032 or visit www.midlandtrust.com.

Did you know you can invest in alternative assets with your HSA? Click here for more information on investing in alternative assets with an HSA.

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or his/her authorized representative must direct all investment transactions and choose the investment(s) for the account. Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

Bitcoin Investing Options, Including IRAs

Bitcoin Investing Options, Including IRAs

What Is Bitcoin?

By now, everyone should have heard of Bitcoin at some point in the last few years. If you can recall, it was a hot topic of conversation among friends and families during its parabolic rise from Thanksgiving to Christmas during 2017 when it hit its all-time high of $20,000 before taking a beating. Since then, it has been a volatile up-down wave from $3K to $12K, back to $5K, and currently sits around $11K-12K. Several things should be taken into consideration when investing in Bitcoin and cryptocurrencies. This article discusses those considerations and provides options for investing in Bitcoin and cryptocurrencies.

If you are unaware of what Bitcoin is or forgot as it has been a while since Bitcoin has been in the news, Bitcoin is simply a digital currency. The idea of a digital currency shouldn’t be all that foreign to you. With Apple Pay, credit cards, and the rise in e-commerce, money in its physical form is becoming something of the past. When you buy something with Apple Pay or a credit card, you are purchasing in US Dollars, or a foreign currency if international. As with all money and exchanging of goods and services, you need to have someone willing to accept the payment. While Bitcoin is popular on the dark web as it can be challenging to trace Bitcoin transactions, Bitcoin is still in the infancy stage of gaining traction as a widely accepted form of currency, and there are a few reasons why.

Why Bitcoin Is Risky:

  1. The price is too volatile. Most currencies such as the US Dollar, Euro or Japanese Yen move maybe .2% on a typical day to 1%+ on an abnormal day or day with fiscal policy updates. Bitcoin, on the other hand, can move several percent in a day for no reason at all, and as we saw, the first weekend in August it moved 10% down in a matter of 30 minutes. Imagine buying a product with Bitcoin for $100 and realizing you could’ve bought it for 10% cheaper if you had just waited another day. Welcome to the world of purchasing goods and services with a volatile digital currency!
  2. Bitcoin is not accepted by many places you usually do business with daily. You more than likely cannot go to your local grocery store and purchase food using Bitcoin.
  3. Purchasing Bitcoin is not simple for some people. Your employer does not pay you in Bitcoin, and it is not as simple as going to the bank or exchanging cash with your friend for Bitcoin. You need to have a digital wallet and one that can accept and send Bitcoin as payments. There is a learning curve, and people are still discovering how Bitcoin can be a form of payment. Early adopters are testing the waters, and Bitcoin is far from being widely accepted and easily used.
  4. Bitcoins have disappeared. There needs to be a lot of protection in place on a website or your computer holding your digital Bitcoin wallet. A hack could wipe away Bitcoin, as we have seen in the news several times over the last couple of years. Unlike credit cards and bank accounts, recovery of Bitcoin is much more difficult and nearly impossible. If the exchange you are in gets hacked or your computer gets hacked, and someone moves money out of your Bitcoin wallet, you may never get your Bitcoin back. There is even the story of someone having Bitcoin from the early days stored on his hard drive, which he accidentally threw in the garbage. The Bitcoin from the hard drive tossed in the trash is now worth millions today but is lost in a landfill.
  5. It is unknown how governments will respond to Bitcoin and digital currencies in general. A government could technically ban Bitcoin as a form of payment and/or shutdown Bitcoin websites. There could always be a workaround to access the sites, but how will businesses respond to government regulations? If a Venezuela-type inflation period occurred, how will the people react to Bitcoin and government regulations? There are a lot of uncertainties and scenarios here.

Undoubtedly, Bitcoin is a high risk, high reward investment. However, as with all new eras and companies, there could be a tremendous upside.

Why Is Bitcoin an Attractive Investment?

  1. Bitcoin has come a long way over the years. Bitcoin was unknown by the mass public in 2010. Fast forward to today, and just about everyone has heard of Bitcoin. Several well-known companies are now accepting Bitcoin payments (the below list may surprise you). If security and popularity around Bitcoin wallets grow, more and more companies may be willing to take it:
    • AT&T
    • Overstock
    • Playboy
    • Expedia
    • Badoo
    • Subway
    • Paypal
    • Newegg
    • Shopify
    • Microsoft
    • Wikipedia
    • Twitch
    • Virgin Galactic
    • Norwegian Air
    • CheapAir
    • Zynga
    • Rakuten
    • BurgerKing (In Venezuela and Germany)
    • KFC (test in Canada for a limited time for the “Bitcoin Bucket”)
    • Miami Dolphins (when purchasing tickets for teams 50/50 raffle)
    • Dallas Mavericks (Mark Cuban’s organization accepts Bitcoin for both game and merchandise sales through the team’s website)These companies were found at www.99bitcoins.com, www.buybitcoinworldwide.com, and www.wrcbtv.com.
  2. Bitcoin has grown into wallets that are much more easily accessible. When Bitcoin first launched, there was no Robinhood, Coinbase, Kraken, or Gemini exchange. You mined Bitcoin, and it went into a digital wallet. None of your friends had a Bitcoin wallet, and the concept of a Bitcoin wallet without an exchange still boggles my mind. Thankfully, things are much easier now for the general public. Few people still do not know where to begin with mining Bitcoin; however, it is relatively easy to purchase Bitcoin on Robinhood, Coinbase, or Kraken in the US. You can also use Coinbase to send and receive Bitcoin payments from other people and for goods and services. There is still a tremendous area for improvement for point of sales goods and services in a physical brick and mortar store and even e-commerce. There are companies out there with credit cards tied to cryptocurrencies. Until banks or the more well-known credit card companies such as Visa, Mastercard, AMEX, or Discover begin taking Bitcoin payments, progress will remain slow. If Bitcoin becomes more widely accepted and banks and credit cards start accepting Bitcoin payments, this will undoubtedly be great news and drive Bitcoin’s price up.
  3. Thirdly, let’s look into some Technical Analysis of prices when it comes to stocks and cryptocurrencies. Technical Analysis is the study of price movements, the psychology behind past movements, and the prediction of future movements of a stock or cryptocurrency. Looking at the history of Bitcoin’s price action, we have some clearly defined tops (where buyers became exhausted) and bottoms (where buyers come in or sellers became exhausted).

    Starting from the beginning, we see a gradual build-up in popularity (mostly due to its use on the dark web and funding sports betting/poker accounts) and then following more public awareness and the beginning of bigger, well-known companies adopting Bitcoin in 2017. The price eventually dramatically rose from sub $1K to $5K and eventually led to a parabolic run during the holidays of 2017 to $20K as FOMO (fear of missing out) kicked in.$20K was the top and where buyers became exhausted. As Bitcoin dropped, there were no buyers to support the number of sellers as people began taking profits from investing earlier. The price of Bitcoin snowballed downward as Bitcoin purchasers were now selling to break even or suffer a loss. This fall continued until Bitcoin found a temporary bottom (some people willing to support the price and buy back in or sellers becoming exhausted) as Bitcoin hovered around $6K from July of 2018 until November of 2018. Sellers eventually came out in force, driving it back down to $3K, where it found a new bottom for a while. Bitcoin rallied back to $12K in June 2019, followed by a drop to $7K, then the COVID-19 pandemic happened. Bitcoin initially dropped along with the mass sell-off in stocks and metals. It has since rebounded to the point where it is now, near the highs of June of 2019.That was a lot to take in, what’s next? Where do we stand now? Let’s look at the psychological side going forward. Most of the people who bought during the parabolic run likely exited during the mass sell-off in 2018. Those that kept their Bitcoin may have gotten out in the 2019 run-up. Some people accumulated Bitcoin when it was at $6K or on the drop to $3K, and in the volatile movement since. The question is, are they looking to get out now, or are they holding on for the ride? We may see a big rush of buyers once Bitcoin passes the highs of 2019 as people will be talking about Bitcoin rising to new heights. You’ll begin hearing Bitcoin more often in the news at this point, and FOMO could set in again.
  4. The FED stated in June of 2020 that they were looking to keep interest rates near 0% until at least 2022. These interest rates, along with the continuation of unemployment benefits and rounds of stimulus checks, means the FED is printing a lot of money! Depending on how the FED handles interest rates going forward, Bitcoin could potentially be a way to combat inflation.
  5. Unlike the USD, which the FED can print an unlimited amount of, Bitcoin is capped at 21,000,000 units (even less considering some Bitcoins are lost forever in tossed hard drives). There will never be more than 21,000,000 created. To date, there are around 18,500,000 Bitcoins in circulation. Over time, the amount of Bitcoin released daily declines due to “halving.” This decline means supply-wise and demand-wise, if there is more demand than supply, then, in theory, Bitcoin value should go up over time. Investopedia explains halving best: Bitcoin was halved on May 11, 2020, at around 4 pm EST.
    • A Bitcoin halving event is when the reward for mining Bitcoin transactions is cut in half.
    • This event also cuts Bitcoin’s inflation rate and the rate at which new Bitcoins enter circulation in half.
    • Previous halvings have correlated with intense boom and bust cycles that have ended at higher prices than before the event.
  6. Bitcoin has the potential to be viewed as an alternative to hedging against inflation. While gold is currently the standard to hedge against inflation rates, Bitcoin is starting to be viewed as an alternative option. We just saw the publicly-traded company MicroStrategy Inc. (MTSR) buy 25,000 Bitcoins worth nearly $250 million as a hedge against inflation. If more companies begin buying Bitcoin as a means to hedge against inflation, Bitcoin could surge in value given its limited supply. In a way, it makes sense. In a country such as Venezuela with hyperinflation, what good would gold do? Gold will hold its value as the currency’s value decreases, but it is unfeasible to exchange gold for goods as you can’t shave off grams or calculate ounces before that purchase. You would need to sell the gold for physical currency before purchasing goods or services. Bitcoin, on the other hand, is much easier to exchange, or has the potential to be. It can all be done from your phone, online, or potentially with credit cards one day. If hyperinflation were to occur, the theory with Bitcoin is that you would not have to worry about the value of your currency decreasing. It would be tied directly to the value of Bitcoin, which should remain the same or increase in value. If you were in Venezuela, would you rather own gold or Bitcoin? Again, the vendor at which you are buying the goods and services needs to accept Bitcoin for this to work.
  7. Lastly, at Midland, we saw a massive surge in interest in 2017 with people investing in Bitcoin and cryptocurrencies in their IRA accounts. After the bubble burst, Bitcoin and cryptocurrencies became nearly dead as an investment topic with clients from spring 2018 until early 2020. In the last couple of months, interest in cryptocurrencies and Bitcoin has been on the rise again. That investment interest has not reached the level of the run-up in 2018, but that could be because we have not reached the FOMO stage yet.

You can track the interest in Bitcoin via google searches yourself by using Google Trends. Again, FOMO has not kicked in yet, but if you check weekly, you may be able to see a gradual increase in people searching Bitcoin on Google.

Is Bitcoin Making A Comeback?

No one truly knows if Bitcoin is making a comeback. As with the tulip mania and penny stock pumps, you don’t have to be the first person to invest in something; you just don’t want to be one of the last.

Bitcoin may be the biggest Ponzi scheme the world has ever seen. It may be more heavily regulated by governments and disallowed. It could be worth one million dollars in ten to twenty years and the first worldwide currency. There is no way to be sure. No one knew when Steve Jobs was working at Apple that the company would grow into the most valuable company in the world, valued at nearly two trillion dollars. The growth of Apple evolved slowly over time, not overnight. Likewise, no one was able to predict Enron going bankrupt due to the uncovering of it being a massive accounting fraud years in the making.

Simply put, there is a huge risk/reward for investing in Bitcoin. Based on what you know right now, I’m going to conclude by asking you, is investing in Bitcoin worth it?

Bitcoin Investing Options:

If you think Bitcoin’s making a comeback, here are some ways you can get involved. As discussed above, Bitcoin can be very risky, especially if you own Bitcoin outright. Here are some ways you can invest in Bitcoin:

Futures Contracts

Bitcoin can be traded on the futures exchange with most futures companies. Futures trading is a contractual agreement between a buyer and seller on a specific price for a commodity such as Bitcoin at a specified future date. The buyer of a futures contract is taking on the obligation to buy and receive the underlying asset when the futures contract expires. For this reason, futures trading, especially in IRAs, is often speculative, and the contract is sold before expiration. Still, futures trading can also be used for hedging against the market or industry. Most futures traders have no intention of taking delivery (personal ownership) of an underlying commodity and are simply in the market to take advantage of price swings. Trading Bitcoin via futures is more for short to medium-term investment horizons.

Crypto Exchange

You can set up a cryptocurrency account with several exchanges. Some of the more popular exchanges to buy Bitcoin in the US are Robinhood, Coinbase, Kraken, and Gemini. The cryptocurrency exchanges will allow you to invest in many cryptocurrencies, not just Bitcoin. Here you can buy cryptocurrencies for the short or long term and sit on them for years.

Bitcoin Stocks

There are very few Bitcoin stocks in existence. Some of these stocks are directly correlated to Bitcoin, others are involved with mining Bitcoin, and one looks to have a Bitcoin/cryptocurrency exchange. GBTC is a trust that trades nearly identical to Bitcoin, whereas stocks such as RIOT and MARA are more speculative penny stock investments. Other companies not directly involved in owning or mining Bitcoin include, OSTK (with their digital securities platform tZero and its cryptocurrency app) and companies such as AMD and NVDA that produce computer chips used to power Bitcoin mining. With any stock, you can buy for the short or long term and sit on them for years.

Private Placements or Hedge Funds

There are a few Bitcoin and cryptocurrency hedge funds in existence. Rather than worry about trading, you could have someone else do it for you and pool your money with other investors’. This type of investment is only available to accredited investors and is for mid to long-term investing as liquidation is not as easy. You cannot sell when you want, and you are restricted to pulling funds out during specific windows. Timing will vary by investment but is usually quarterly.

Be sure to consult with your financial advisors to determine if cryptocurrency is right for your investment portfolio.

Midland specializes in alternative assets such as real estate, LLCs, hedge funds, crowdfunding, private lending, and more. If you are interested in investing in Bitcoin with your retirement funds, please contact us at (239) 333-1032 or visit www.midlandtrust.com. We are here to help!

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or his/her authorized representative must direct all investment transactions and choose the investment(s) for the account. Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.