2020 Roundup: 3 Tips From My Robinhood Portfolio
26 December. As 2020 draws to its fateful close, none of us will forget the year that wasn’t.
From an investment perspective, 2020 was nothing short of extraordinary. Despite large swathes of the economy still sidelined due to the pandemic, investors are determined to keep the markets marching upwards. The S&P 500 index has risen 70% since its March lowpoint of 2,193 to its current record price of 3,700, with many experts forecasting further gains in the new year.
If, like me, you were among the 1.4 million Robinhood users who opened an account during lockdown, you can count yourself part of a digital revolution that is disrupting the way normal investors buy, sell, and think about stocks. I don’t care what the headlines say, the Robinhood app is absolutely brilliant. This is fintech at its finest and I’ve been hooked since the day I downloaded the app. Robinhood’s video game-like interface allows me to scope the market on my smartphone and trade individual stocks, ETFs, cryptocurrencies and options.
Robinhood has disrupted the way people think about investing in the stock market
The cute green app has brought me closer to the markets in a way that 20+ years of disciplined investing hasn’t, which isn’t to say it’s always worked in my favor. I check Robinhood as regularly as my text messages, which isn’t always healthy for a long-term buy-and-hold investor.
Checking my stocks all day long has led me to sell solid shares at the first sign of a dip, buy red-hot biomedical companies I’ve never heard of because their share prices were taking off, and trade in and out of decent companies on the same day. None of these decisions were wise or profitable. On the other hand, I managed to book some stunning gains and learn a great deal about market movements.
On that note, here are my top three investing lessons from 2020 that I’ll definitely be taking with me into the year ahead:
Go large
When the market began climbing back in April, I learned a fundamental rule of successful investing: To make real profits I need to invest real money. Sadly I did the exact opposite. When my $100 investment in Apple (APPL) shot up 20% in one week, my $20 profit felt more like an insult than a windfall. Unless I added some zeros to my capital and began taking real positions in solid shares, I knew I’d be better off sticking my bits of cash in a market-tracking ETF.
Deciding how much to invest in a self-managed portfolio is a personal choice, but there are plenty of reasons why, generally speaking, stocks are an attractive home for your cash as we head into 2021. Record low bond yields, along with the Federal Reserve’s money printing mania, bode well for buoyant stock market conditions. All those new dollars will continue to juice the market, and with inflationary pressures on the rise now is not the time for your money to be sitting idly on the sidelines.
Can you run your own portfolio better than a pro? I‘d say there‘s no reason why not. Technology has changed the playing field for personal investors, and apps like Stash, Robinhood and Betterment are just some of the user-friendly options that are helping millions of regular people take control of their long-term financial health. Also, if you currently work with a financial advisor, don’t discount their tech offerings: Many firms have upped their games with cutting-edge online platforms for their clients. Getting stuck in may be as easy as logging into your existing account and talking to your advisor about how you can play a more active role in managing your investments.
Consider crypto
In October I accidentally tapped a pricing chart of Bitcoin. The cryptocurrency was increasing so rapidly that Robinhood’s graphing software couldn’t keep up. Armed with my earlier investing hindsight, I bought $2,000 of Bitcoin and have never looked back.
Bitcoin, or ‘BTC’ to Robinhood investors, is the star asset of 2020, gaining 275% over the last 12 months. In comparison, gold is up 28%, and the S&P500 is up 18%.
Once considered the rhealm of speculators and Nick Leeson-style day traders, the cryptocurrency market has come into its own in recent years, and Bitcoin is the undisputed leader. A full Bitcoin now costs over $27,000, but you can purchase fractional amounts through Robinhood and other cryptocurrency broker apps.
Cyber-based currencies still feel a bit Wild West-ish, but increasing institutional interest is helping Bitcoin solidify its rep as a veritable asset alternative and potential hedge against inflationary pressures on the US$. Questions about crypto’s future remain, but with rumors of China issuing its own state-backed crypto and Paypal now accepting Bitcoin for transactions, there’s little doubt the crypto market is here to stay.
As crypto’s dominant player, Bitcoin stands to benefit the most from the increasing interest in this exciting new market. But be warned: Crypto investing isn’t for everyone, and with daily swings of 10% or more, Bitcoin’s volatility can be difficult to stomach. If you’re keen to get in on the Bitcoin game, definitely spend a little time watching and learning about it before taking the plunge. With rumors that Bitcoin could reach as high as $500,000 over the next few years, you won’t regret diving in sooner rather than later.
Scour for undervalued REITs
When tech stocks began to cool back in August amidst rumors of a pricing bubble, I began searching for out-of-favor stocks with untapped value. I fell upon REITS.
REITS, or real estate investment trusts, were amongst the hardest-hit sectors during the pandemic. Investors dumped REITs on fears that tenants would default on leases and property values would decline. So far this hasn’t happened and many REITs now look cheap.
The REIT universe is vast and includes funds that specialize in just about every type of real estate, including residential, commercial, student housing, senior care homes and cell phone towers, to name a few.
REITs are required to distribute 90% of their operating profits as dividends to shareholders, making them attractive to investors seeking steady sources of reliable income.
REIT shares tend not to grow as quickly as other sectors, but the pandemic has created a unique opportunity for investors to snap up oversold REITs offering excellent dividend yields of 5-12% and capital appreciation.
New Residential Investment (NRZ) and Bluerock Residential Growth REIT (BRG) are two of the REITs I purchased whose prices have jumped 29% and 52%, respectively, over the last three months. What’s more, they both pay dividends above 5%.
REITs can cut their dividend payments so it’s important to do your research before jumping into a REIT based on its historical dividend yield. If the yield is high because the share price is tanking, there’s probably a good reason why investors are selling out.
On the other hand, a well-managed REIT will be actively managing its tenants and employing its capital reserves to protect its shareholders. Contrary to investor fears, many REITs have collected in excess of 90% of their rental payments throughout the pandemic and are well positioned for the future. Again, it’s important to do your research so you’re not caught holding dud companies.
REITs are just one sector of the market with the potential to shine in 2021. As the world emerges from the pandemic, investors are in for an unprecedented ride in the months ahead.