Unless you've been living under a rock, you've probably heard of Bitcoin. You may have noticed that the real estate market keeps getting hotter. And you’ve seen how COVID-19 had a huge impact on sectors like biotech, pharmaceuticals, travel, and work-from-home.
It can be tempting to jump on emerging investment trends - especially when they're producing big gains with no signs of slowing. But are they actually what's best for your retirement savings portfolio? Let's look at the pros and cons of some of the recent trends in investing, and see whether they're a good fit for your personal retirement plan.
Popular Investment Trends
Bitcoin isn’t new - it debuted in 2008 - but cryptocurrency investing has only reached the mainstream in the past few years. Investors love the potential for massive gains, and its decentralized structure makes it less susceptible to fraud. However, they’re extremely volatile, often making wild price moves. The drastic ups and downs can be dangerous when you depend on that money to live. And as governments begin regulating cryptocurrency, questions remain about how crypto gains could impact your taxes.
As technology for clean energy advances, so does its popularity as an investment. The price of producing solar, wind, and other clean energies continues to fall. And as the world shifts towards sustainable solutions, this market will continue to grow. The sector has its downsides, though. There’s still a good deal of uncertainty in what government policies about clean energy will be in the future, and breaking the world’s reliance on fossil fuels is an ongoing process.
Medical Marijuana & Cannabis
Cannabis stocks have become increasingly popular as more and more states have legalized medical and/or recreational marijuana. The market for marijuana has always been massive, encompassing research and development and production facilities, as well as distribution and sales. While early investors saw enormous growth, recent performance has been more volatile.
Like any new-ish industry, marijuana-related investments come with risks. One factor is marijuana is still illegal on a federal level. This has complicated financing for many cannabis companies, as banks are leery of the risk involved. Additionally, interstate operations are difficult, limiting bigger companies’ ability to take advantage of economies of scale.
Real estate has almost always been a solid investment, and real estate investment trusts (REITs) allow investors to participate without actually buying or selling property. REITs require a lower investment than traditional real estate, and they offer high-yield dividends that are often much higher than other stocks. If you decide to invest some of your retirement savings into REIT’s, most financial advisors recommend allocating up to 5% of your portfolio. But there are a few factors to consider:
- Dividends from REITs are frequently taxed at a much higher rate, so it’s important to be aware of the tax consequences
- REITs are sensitive to interest rates, thus they’re also sensitive to economic conditions
COVID-19 has affected every aspect of our lives, and the economy is no exception. The pandemic introduced new challenges and uncertainty, but it also created opportunities. Companies that focused on services for remote work, like Zoom, flourished. Amazon and e-commerce grew while brick-and-mortar retail operations were devastated. Biotech and pharmaceutical companies looked like attractive investments as they explored the potential for vaccines and treatments.
While many of these stocks rose and fell, they were largely short-term moves - blips on the proverbial radar. Rather than focusing on the investment darlings of the pandemic, it makes more sense to focus on the companies and sectors poised for long-term growth and stability.
Cutting Out the Noise - Stick to Your Long-Term Plan for Retirement
Before jumping into any financial investment, ask yourself - does this fit into my long-term wealth management plans? Judging a potential investment opportunity based only on the chances of a profitable return is great when it works, but it often doesn’t. Instead, it’s important to remember the keys to a strong retirement plan:
- Diversification is key, as it allows you to weather ups and downs
- Maintain a portfolio balanced for risk based on your age and financial situation
- Make sure your investments align with your personal values and vision for retirement
- Always keep some cash in an emergency fund for unforeseen events
- Use the tax triangle to maximize your retirement funds
If you’re considering changing up your investment portfolio, it’s always a good idea to consult with a fiduciary financial advisor. The right advisor will help you weigh your options and create a plan for long-term success. And since fiduciaries must act in their clients’ best interest, you can always trust that they’ll help guide you to a secure and comfortable retirement.Want to make sure you’re financially set for the next stage in life? Download our 2021 Essential Retirement Guide and begin building your perfect retirement plan.