How to Invest In Your 401(k) or IRA
If you already have a 401(k), IRA or other retirement account, congratulations! You’ve taken a huge step to securing tomorrow for “future you.” And,...
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By: WEOKIE Federal Credit Union on Aug 30, 2023
Are you an investor? Chances are you’ve invested for retirement, in the form of a 401(k) or an IRA, or perhaps you own real estate or have a stock portfolio. Today, there are countless options for investing for your future, including some alternatives that while occasionally providing a greater return are also a lot more volatile such as art and collectibles, cryptocurrency and non-fungible tokens, known as NFTs.
Despite the risks and likely because of the potential for higher returns, more people are moving money into alternative investments, according to data from Cerulli Associates. The Boston-based research and consulting firm polled more than 100 investment advisors who reported having some 14.5% of investments in alternatives in 2022. The same survey, from July 2022, found those advisors expected to increase alternative holdings to 17.5% by 2024.
As the popularity of alternative investments grows, it’s important to understand more about them and their risks before plunking down your hard-earned money. Here’s a primer:
Cryptocurrency & Bitcoin
Cryptocurrency is electronic money that exists only in the digital world and operates independently of a financial institution such as a credit union or bank as well as outside of most government oversight. (For now. The Securities and Exchange Commission (SEC) has just made inroads to regulate crypto exchanges.) Cryptocurrency utilizes a system called “cryptography,” which is essentially high-tech, math-intensive computer code.
Bitcoin is a form of cryptocurrency, a digitally encrypted form of payment that also operates without much regulation at this point. Commonly referred to as a “decentralized” currency, Bitcoin and other cryptocurrencies are verified through blockchain technology.
Data collected from the Pew Research Center in March 2023 shows that while most people (88%) know something about cryptocurrencies, far fewer have used them: Some 17% of U.S. adults reported investing in, using, or trading cryptocurrency. Three-quarters of those polled reported not being confident that current methods for investing in, trading or using cryptocurrencies are safe, according to the PRC survey.
How do You Invest?
In order to buy cryptocurrency, you’ll need an account with a brokerage firm or crypto exchange that sells it. Although there are some that specialize in crypto — like Coinbase — many traditional brokerages now sell it as well. (Note: Coinbase is currently facing a lawsuit for being an unregistered exchange. While you can still safely invest there, it is something you’ll want to keep an eye on.) The smartest investing will always be boring investing, says Michael Katchen, co-founder and CEO at Wealthsimple, an automated investing platform. Contributing to a safe portfolio and sticking to that plan is how you’re going to be successful over the long haul — but that doesn’t mean you can’t have a little fun.
If you want to invest in cryptocurrencies, do it with a small portion of your money — just 1 to 2% of your total investing budget. But before you pull the trigger, take a moment and pretend that you just lost it all. “Accept the loss of that money in advance, and ask how it makes you feel,” Katchen says. “If you can’t accept that, then you should probably dial it back.”
Investing in Art
Most people already have a good idea what art is. You may even have some experience buying art yourself, because you appreciate the beauty of it. But buying it as an investment, and hoping it will grow in value? That’s easier said than done.
How to Get Started
At the outset, you’ll need to familiarize yourself with the art market, figure out what kind of piece you want, and research artists you’re interested in. It may be your first inclination to gravitate to the well-known such as Jackson Pollock or Georgia O'Keeffe. But when you’re getting started, you’ll probably need to look at lesser known artists who are both affordable and have potential. Ideally, you’ll invest in art not just for the money-making potential, but because you love a particular artist.
The good news is you can start with as little as $50 to begin investing in art. How much you need hinges entirely on the kind of work you want to buy. If you’re not interested in having a piece of art in your home, and you’re interested in investing in the asset class of art to see a return on your investment, consider fractional art investing, where a group of people buy a portion or fraction of an art work. Popular platforms for investing fractionally include WithVincent, and Masterworks, where you can purchase shares of physical artwork.
If you do buy a physical piece, make sure you keep detailed records. This includes all invoices and receipts showing where you bought the work of art and how much you paid, as well as records on the piece of art itself. When you’re dealing with an auction house they will often provide you a “provenance” that establishes any previous ownership of the artwork, plus the relevant details on the life of the work. All of these records ensure you’ll have a smooth sale of your artwork in future, and buyers will trust that your piece is the authentic work of art that you say it is.
What Are NFTs?
If art and cryptocurrency had a baby, it might be an NFT. NFTs exploded onto the art market in 2021 during the pandemic and served as a way for artists to be able to make and sell original work digitally. Today, there are NFTs outside of the art world as well, including music and written works. “A non-fungible token (NFT) is a certificate of authenticity and an indication of individuality,” says Asher Rubinstein, an asset protection, tax law and trusts & estates attorney at Gallet Dreyer & Berkey, who advises clients on the purchase of NFTs. “It’s like buying a work of art with an attachment that states that the work of art is “one of one,” the only item of its kind.”
NFTs, like other forms of artwork, are still meant to be seen as an original work produced by an artist. As a result of their one-of-a-kind quality, much like a painting or a sculpture, investors are willing to pay top dollar for them. “It’s akin to buying an original Rothko or Lichtenstein with an assurance that the work is the original, the “one of one”, rather than a copy,” Rubinstein says. NFTs are a unique form of investing because they function as a kind of token (think crypto) that can represent ownership of objects both physically and digitally.
How to Invest in NFTs
Before buying NFTs, you should learn more about the artist and project. You can start your research on the internet. Twitter and Discord can be good platforms that will allow you to get a feel for the artists you’re interested in, and gauge their popularity. If you move down the road to an NFT purchase, you’ll want to explore the OpenSea platform, the largest NFT marketplace on the Internet. In order to make a purchase, you must have a digital wallet to use OpenSea, which you can secure on reputable crypto trading platforms like Coinbase, MetaMask, or WalletConnect. U.S. currency is not accepted on the platform. Other online spots to purchase NFTs include Rarible, Binance and NBA Top Shot. Before you purchase an NFT, note that NFT trading volumes have fallen since the pandemic, which is important to understand if your plan is to buy an NFT and sell it quickly to a slough of eager bidders. Of course this could change at any moment, and it’s still anybody’s guess if NFTs will hold their value over the long haul.
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