Betterment Review 2018: Best Robo Advisor?

Investing Simple is affiliated with Betterment. This relationship does not influence our opinion of this platform.

As the internet grows and evolves, new industries emerge and challenge the traditional status quo. Not many industries have been as impacted by technology as the brokerage industry. A perfect example of this disruption is the new innovative service being offered by Betterment and other robo advisors. Betterment is a new investment platform that offers many unique advantages to investors that we will be discussing in this review.

What is Betterment?

Betterment is an online robo advisor geared towards everyday investors who want automation of their investments paired with personalized financial advice. Through the use of technology, Betterment is able to offer management fees that are extremely competitive. Refined investing strategies such as tax loss harvesting and smart rebalancing are some of the many features offered by Betterment.

investing simple betterment review.png
Betterment Home Page

Betterment also offers ongoing financial guidance. Depending on the plan, investors can have unlimited access to professional financial advice from CFP® professionals. Since Betterment and its professionals are fiduciary advisors, they must act in the clients best interest at all times. Betterment advisors have no incentive to sell products or funds hoping to make a commission off your purchase. A fiduciary duty is the legal obligation to act in the clients best interest at all times and is the highest level of customer care in the investment advisor community.

What is a Robo Advisor?

A robo advisor is a new technology based financial advisor that advises clients and manages accounts with minimal human interaction. This is capable through the use of algorithms and technology. Financial advice is provided based on mathematical rules and programs. This results in a lower management fee and a significant cost savings for the investor.

How does Betterment work?

Each Betterment account is tailored to the needs of the individual investor. When you open an account with Betterment, you will be guided through a questionnaire where Betterment will learn more about your goals and objectives.

Here is the process for every new investor using Betterment:

  1. Learn about the investor. Using a series of questions, Betterment determines your current financial landscape. By understanding your goals, time horizon, and personality Betterment gets an overall picture of where you currently stand and what you are trying to accomplish financially.

  2. Make recommendations. Once Betterment has an understanding of your overall financial picture, they will guide you through a path customized to your specific situation. Betterment will suggest portfolios geared towards your risk tolerance, time horizon, and investment objectives.

  3. Invest using cutting edge technology. Using personalized portfolios of stock and bond ETFs, investing is streamlined so you don’t need to worry about management of your investments. Betterment’s portfolios are focused around minimization of both investment fees and taxes.

Screen Shot 2018-09-20 at 10.35.53 AM.png
Betterment Questionnaire

What are the Betterment investments?

Betterment uses exchange traded funds (ETFs) to build the portfolios. ETFs are investment vehicles similar to mutual funds, but they trade on a major exchange like a stock. ETFs have grown tremendously in popularity over the last 20 years in the investment community due to the low fees and high liquidity. ETFs provide diverse positions where one fund could be trading at $50 per share yet it can have hundreds of underlying holdings. ETFs allow you to invest in many different asset classes such as stocks, bonds, real estate, and commodities. By using ETFs, Betterment can construct cost effective and diversified portfolios with ease.

Here is a full list of the ETFs Betterment uses. 

Betterment’s portfolio strategy is to use ETFs to construct portfolios based on modern portfolio theory and global asset allocation. Modern portfolio theory is a hypothesis that investors can construct diversified portfolios along an “efficient frontier” that maximize their return for a given level of risk. Created in the 1950’s, modern portfolio theory is generally accepted throughout the investing community today. Betterment also uses Nobel Prize winning research by Fama and French as the basis for their investing strategy and asset allocation. In their research, Fama and French found that equity returns are heavily correlated to the market, value, and size of the company. Betterment uses their own modeling to determine the tilt of their portfolios which is specifically towards value companies and small cap stocks aiming for higher expected returns.

Most of the ETFs in Betterment’s professionally built portfolios are from the Vanguard fund company. Vanguard is one of the most well known mutual fund and ETF companies. Known for very low fees and the invention of the index fund, Vanguard has dominated the fund industry with over $5 trillion in assets throughout its funds. Betterment uses Vanguard funds mostly because of their low expense ratios and excellent reputation.

Vanguard
Vanguard Logo

Here are some of the Vanguard funds included throughout Betterment’s portfolios:

  • VTI – US Total Stock Market
  • VTV – US Large Cap Value
  • VOE – US Mid Cap Value
  • VBR – US Small Cap Value
  • VEA – Developed International
  • VWO – Emerging Market Stocks

Betterment also includes a number of bond funds offered by Vanguard. Each Betterment portfolio will consist of a collection of stocks and bonds.

What are the Betterment fees?

Betterment has a strong focus on minimizing fees and expenses to investors. Betterment specifically chooses ETFs that have some of the lowest expense ratios. Betterment has no trading fees and no mark ups on prices. The only fees Betterment charges is a management fee of 0.25% to 0.40% depending on the investment plan. This fee structure is extremely low compared to traditional advisors and stock brokers.

 Betterment PremiumBetterment Digital
Management Fee0.40% 0.25%
Minimim Balance$100,000$0
Automated RebalancingYesYes
Tax Loss HarvestingYesYes
Unlimited Access CFP ProfessionalsYesNo
Account TypesTaxable, Traditional IRA, Roth IRA, TrustTaxable, Traditional IRA, Roth IRA, Trust

Betterment has recently made changes to its pricing structure. All account balances greater than $2M will be given a 0.10% marginal discount for the portion of their balance above $2M. Previously accounts with balances over $2 million had their fee cap out at $2 million , so any assets above that amount would not be charged a fee. Betterment will continue to honor the $2 million fee cap for all existing Betterment customers, even if their current balance is less than $2 million.

  • For Betterment Digital, customers will pay 0.15% for the portion of the balance above $2,000,000.
  • For Betterment Premium, customers will pay 0.30% for the portion of the balance above $2,000,000.

Here’s a visual breakdown of Betterment’s new pricing structure:

Pricing as of 9/18/2018Balances up to $2,000,000Balances over $2,000,000
Digital0.25%0.15%
Premium0.40%0.30%

What are the features of Betterment?

Financial Planning: Betterment Premium offers unlimited access to financial professionals. These professionals will assist you by making recommendations on how much to invest and provide guidance on asset allocation within your portfolio. The premium plan also includes detailed advice on investments held outside of Betterment. Betterment Digital offers algorithm based financial planning with no human involvement. All Betterment plans offer some level of portfolio guidance.

investing simple betterment review 2.PNG
Betterment Financial Professionals

Smart Rebalancing: Betterment offers smart rebalancing of your portfolio. This is offered to both premium and digital investors. Rebalancing of a portfolio should happen when your target weights of assets gets skewed. For example, if you have a portfolio of 60% stocks and 40% bonds and the stocks increase in value. Now, you may be weighted at 70% stocks and 30% bonds. To tone down risk and return to your target allocation, you should rebalance and sell stocks and buy bonds to return to your 60/40 stock bond allocation. Betterment’s version of smart rebalancing makes sure your positions are in their right allocation at all times.

Tax Loss Harvesting: Betterment offers a feature called tax loss harvesting which aims to minimize your taxes on capital gains. Betterment does this by selling securities that have underperformed in your portfolio and realizing a capital loss. This loss can be used to offset capital gains or ordinary income up to $3,000 per year. Once the loss is realized, Betterment then purchases a similar security to replace the one you just sold in your portfolio. This way you avoid any wash sales which occur when you realize a loss on a security and purchase it back within 30 days. The government identifies wash sales in order to prevent tax loss harvesting. This tax loss harvesting is something that separates these automated platforms like Betterment from the traditional investment options.

Betterment also has the functionality of implementing tax loss harvesting across your accounts as well as your spouses accounts. Spousal tax loss harvesting will allow you to optimize your tax minimization strategies on one tax return.

betterment investing simple review tlh.PNG
Betterment Tax Loss Harvesting

Tax Coordinated Portfolio: Betterment uses a method of asset location to construct tax coordinated portfolios. This is accomplished by putting your highest taxed assets in your IRA first (where you have a tax shelter) then putting your lower taxed assets in your taxable brokerage account. Betterment claims this strategy could boost your return by 0.48% each year. You can set up a tax coordinated portfolio at any time on Betterment for no additional fee outside of the asset management fee.

Smart Saver: As interest rates remain extremely low in the current economic environment, interest rates on savings accounts are virtually non existent. Betterment offers a solution to this issue by offering an alternative to a savings account. The Betterment smart saver account yields 1.83% annually. This is significantly higher than most savings accounts. Betterment offers this feature while still providing liquidity. According to Betterment, you will have access to your funds in 4 to 5 business days.

investing simple betterment review smart saver.PNG
Betterment Smart Saver

Smart Deposit: Betterment offers a feature called smart deposit that will allow you to set a minimum amount of cash you would like in your bank account. Once your minimum is set, any amount above your minimum will be sent to Betterment and invested. Say you set your bank account minimum at $5,000. Once your bank account balance is over $5,000 smart deposit will transfer any funds over this threshold to Betterment. Smart deposit in Betterment will allow you to maximize your invested capital while retaining a safety net in your bank account.

Retire Guide: This is a retirement planning tool offered by Betterment. You will input your current savings, projected budget, and retirement date to get a picture of where you stand in reaching your retirement goal. Retire Guide will show you how to save, what accounts to utilize, and recommend any changes you need to make to reach your goal. This allows you to have an understanding of your projected financial position and budget when you retire.

The Retire Guide is completely free! Click here to try it out.

Fractional Investing: Betterment also offers a unique feature called fractional investing. Fractional investing allows an investor to buy fractional shares of an ETF. For example, if you want to buy VTI which is trading at $150 per share and you only have $100 you could buy .67% of a share using Betterment’s fractional share investing. The advantage of using fractional shares allows an investor to be fully invested at all times. Fractional shares also provide for greater diversification as you will have more precise allocations across your portfolio at all times.

Is Betterment safe?

Betterment is a member of the Securities Investor Protection Corporation (SIPC). SIPC insures all Betterment accounts up to $500,000 in securities or $250,000 in cash (per account) in the case of a catastrophic financial failure. This is different insurance compared to FDIC insurance on bank accounts. Traditional banks will take the majority of your bank account balance and lend out your money in order to make a profit. This is much more risky than holding securities. In the case of Betterment, all your assets are held in the account at all times. Betterment is not lending out your account balance. For SIPC insurance to be triggered your securities must have to go unaccounted for during a broker dealer going out of business. Betterment does not hold custody of your assets along with broker dealer assets, which limits the chance that your assets go unaccounted for in the case they go out of business.

What are the Pros of Betterment?

  1. Passive investing. Betterment is a set it and forget it investing platform. You do not need to worry about account maintenance. Betterment takes care of everything.
  2. Automation. The entire investment process can be automated. You can automate contributions to your account that will automatically rebalance your portfolio upon contribution. Your investments are on autopilot!
  3. See the big picture. Betterment allows you to link up all of your investment accounts and get an idea of what all of your investments are doing in one place.
  4. Fiduciary responsibility. Betterment advisors are held under the fiduciary duty standard. This is the highest standard in the investment advisor community. This means the advisor is legally required to act in the client’s best interest at all times. Remember, this in person advisement is only offered through Betterment Premium.
  5. Low fees. Betterment focuses on minimizing fees for investors. They do this by selecting low cost ETFs that have low expense ratios and leveraging technology.
  6. No minimum. You can open a Betterment Digital account with any amount of money. Betterment Premium requires a balance of $100,000 or more.

What are the Cons of Betterment?

  1. No direct indexing. Some other investment accounts offer direct indexing or stock level tax loss harvesting. This is typically reserved for accounts with $500,000 invested or more. This allows direct ownership of individual stocks, not funds, which allows for more tax loss harvesting opportunities. Betterment does not offer this feature.
  2. Too passive for some. If you are interested in being active in your selection of stocks or ETFs, Betterment is not for you. Betterment is for passive investors.
  3. Limited to stocks and bonds. Your asset allocation is limited to stocks and bonds. You cannot invest in other assets like real estate or commodities through Betterment. It is important to note however that Betterment has stated that these assets added no value to portfolios that they tested.

The Verdict

Betterment has revolutionized the brokerage industry through the use of technology. This has significantly lowered the barriers to entry to receiving high quality financial advisement. Traditionally, you would need thousands if not tens of thousands of dollars to invest with an in person financial advisor. Now, you can get started with a robo advisor like Betterment with any amount that you have. Betterment is a long term investing platform for passive investors. If you are interested in short term trading, individual stock ownership or DIY investing Betterment is not for you.

Click here to get started with Betterment!

What To Do Before, During And After A Stock Market Crash

Before we go any further with this, we need to set some ground rules when it comes to discussing a stock market crash.

First of all, nobody knows when the next stock market crash will occur. While many will try to convince you otherwise, predicting the next crash is impossible. Warren Buffett explained this best when he said that market forecasters are out there to make fortune tellers look good.

Crystal_ball.jpg
Crystal Ball Fortune Teller, Wikimedia

Second of all, timing the market is impossible. A lot of people come up with this idea that they will be able to exit and reenter the market at the perfect time. While this idea looks good on paper, it probably won’t turn out like this. The reason behind this is because of what we already mentioned. You have no idea when the market has reached a top or a bottom.

Third and finally, no action is necessary on your part. If you want to take steps to prepare for a market crash, you can. However, this is not required. When it comes to investing, activity is often times the enemy. Emotions get involved when stocks are making drastic price moves, up or down and this often results in poor decision making. When it comes to the stock market, one of the best things you can do is often to do nothing at all.

What Is A Stock Market Crash?

The words crash, correction and bear market are often used interchangeably. It is important to understand the difference between these. While there is no official definition, here is what most people agree on.

A correction is a very frequent occurrence. This is a drop of around 10%. Stocks will correct all the time, and occasionally a broad market correction will take place as well. Recently, we saw this take place with the S&P 500. In 2017, the stock market virtually went up in a straight line. This trend continued into 2018 until a correction took place at the end of January. The S&P 500 corrected from close to $2,900 to $2,580 in February. This was a correction of 11%, which indicated that the market was blowing off steam after an unsustainable run.

Screen Shot 2018-09-11 at 4.32.09 PM.png
Stock Market Correction, S&P 500

A bear market is a less frequent occurrence. Over the last 100 years, we have seen a bear market on average every 3.5 years. A bear market is a drop of around 20%, and a full recovery typically takes place within 15 months. The last bear market we saw was from October 2007 to March of 2009, but this was actually what I and most would call a stock market crash.

A stock market crash is a very infrequent occurrence, happening about every 10 years. This is a massive correction taking place that far exceeds the 20% that marks a bear market. A crash is a drop of 40% or more. For example, the bear market of 2007 to 2009 resulted in a 54% drop in the Dow Jones Industrial Average. Before that, the last stock market crash took place in the early 2000s during the dot com bubble. A stock market crash is the result of unusual circumstances when a bubble has formed.

What Is A Bubble?

A bubble forms when herds of people begin to invest in a particular asset. As more people invest, the market value, or what people are willing to pay, drifts further and further away from the intrinsic value, or the actual underlying value of the asset. Eventually, the price gets so out of control that people are no longer wiling to pay it, and the buying pressure tapers off. As the price tapers off, people begin to sell and the price starts falling. This is far more common with individual assets, but entire markets can become a bubble. For example, the dot com bubble in the early 2000’s and the housing bubble a few years later.

stages_bubble.png
Stages Of A Bubble, Forbes

The most recent example of this is the cryptocurrency bubble that formed in 2017. Bitcoin, the most popular cryptocurrency, went mainstream. In January of 2017, each Bitcoin was worth around $1,000. As the year continued, the price climbed higher and higher. At the end of this Bitcoin mania, each digital coin was trading for just over $19,000 in December of 2017. This massive run up indicated a speculative bubble had formed, as this level of appreciation is not common with any assets. People were excited over this new currency, but this excitement led to hysteria. The bubble burst at the end of 2017, and by February of 2018 each Bitcoin was worth just under $7,000. This was a drop of over 60%, which indicates that this was a crash. A market crash occurs as a result of unusual circumstances. In this case, it was millions of people herding into a digital currency.

Screen Shot 2018-09-11 at 4.29.02 PM
Bitcoin Bubble 2017, coindesk

From this point forward, we will be referring to both a crash and a bear market as a crash, but do remember the difference. As we have discussed, corrections and bear markets are regular occurrences resulting from normal circumstances. Crashes on the other hand, are irregular occurrences resulting from irregular circumstances or the formation of bubbles.

What To Do Before A Crash

If you believe that a market is becoming overvalued and you want to take some precautionary steps, here are a few that you could follow:

  1. Simplify your portfolio. If you are holding individual stocks, consider what stocks you are investing in. Are you holding durable consumer staples stocks? Or volatile biotechnology stocks? If there is ever a time to invest in these high risk stocks, it is not when markets are at or nearing all time highs.
  2. Increase your cash reserve. One of the best things you can do before a crash is to increase your cash on the sidelines. Stock market crashes result in one in a lifetime opportunities, and those with cash are able to jump on them. If you are fully invested in the market, you are completely immobilized in the event of a crash. Your only option is to ride it out.
  3. Write down why you own what you own. You will want to have a clear idea of what you have in your portfolio and why you have it there. During a crash, emotions get involved and people will often make compulsive decisions. You should hold on to this written reminder in case you are tempted to take some kind of action.
  4. Diversify. One of the best ways you can minimize risk is through adequate diversification. A good rule of thumb to follow is to never have more than 20% of your money in any one thing. If you do, you are probably too heavily invested in that asset.
  5. Allocate more money into bonds or precious metals. During times of uncertainty, many investors will flee to other investments like bonds and precious metals. Gold has proven to be a suitable investment for outpacing inflation. On top of that, gold tends to hold up well in the event of a stock market crash as more money is being directed toward this asset.
  6. Go for a walk. Seriously! It is easy to drive yourself crazy worrying about your money and your investment portfolio. You want to make sure that you are keeping your emotions under control as to not make an impulsive decision. You can take steps to prepare for a crash, but beyond that you cannot control it. If you cannot control it, there is no reason to worry about it!

What To Do During A Crash

If you believe you are currently invested in a market that is experiencing a crash, here are a few things you could consider doing:

  1. Nothing. As mentioned already, one of the best things you can do during a market crash is to do nothing. Others around you will be generating a flurry of activity, and many will be making the fatal mistake of selling. Remember, it is not a loss until you recognize it! If you took steps to prepare for the crash and you are diversified across different assets, there is nothing for you to do.
  2. Be patient. If you are planning on taking advantage of the sale and scooping up stocks, do not rush! During a bear market, there are often a number of false bottoms that will continue to be breached as the market falls. At this point, the market is a falling knife! Wait for clear signs of a bottom or follow some of the bear market investing strategies we will discuss shortly.
  3. Write out a plan. Do not just randomly start buying stocks left and right. If you are planning on buying, consider what stocks you are looking to buy. Are you going to look for battered blue chips? Small cap stocks? You need to write out a clear action plan outlining what stocks you are looking to buy and at what price you are willing to pay. Failing to plan is planning to fail!
  4. Educate yourself. This can be a perfect opportunity to educate yourself on the stock market and what is going on around you. Before you make any decision, do your due diligence. You might want to consider having a discussion with a financial expert before taking any action in a bear market.
  5. Study the charts. While it is impossible to time the markets and identify the bottom, you can make an educated guess. By studying candlestick charts and learning about support and resistance areas, you can identify when a stock is testing a support. If it breaks down below the support, you know the stock is likely still in free fall.

What To Do After A Crash

If you believe the stock market has crashed and you are ready to take advantage of the opportunities, here are a few steps you could follow:

  1. Dollar cost average. This is one of the best ways to enter the stock market, especially in a bear market. As we mentioned earlier, a number of false bottoms often appear during a bear market. If you drop all of your money in at one, and the bottom is yanked out from under you, you are in a free fall. By dollar cost averaging, you are accumulating shares over time and paying the market average for these shares. In a bear market, this is likely going to be averaging down or lowering your average cost basis. Let’s say you wanted to invest $10,000 in a S&P 500 index fund at the bottom of the market. Instead of dumping $10,000 in at once, you could invest $1,000 per month over 10 months to dollar cost average.
  2. Blue chip and AAA rated. Another strategy you could follow is to only invest in durable companies with an excellent debt rating. Companies often raise capital by issuing debt obligations known as corporate bonds. These bonds are rated by agencies like Moody’s and Standard & Poor’s for credit worthiness. The highest rating a company can receive is a AAA rating. This company has a high degree of credit worthiness and the lowest risk of defaulting on these obligations. The problem is, increased corporate borrowing has significantly reduced the number of companies with this prestigious AAA rating. In fact, there are only two. First, Johnson & Johnson. Second, Microsoft. You might need to lower your standards to a AA+ or AA for a broader selection. Another option is to invest in what is referred to as blue chip stocks. These are durable companies that have stood the test of time. While there is no official list of blue chip stocks, most people refer to the Dow Jones Industrial Average.
  3. Hunt for dividends. During a bear market, it is not uncommon to find a great company paying out a 10% dividend yield. It is important to understand that you should not simply look for stocks with high dividends! A dividend is never guaranteed, and a company could cut or cancel a dividend at any time. What you want to look at instead is the dividend growth streak. This is an indication of how long this company has been increasing the dividend payment. If a company has a 20+ year growth streak, they will do anything they can to continue paying that dividend. One of my favorite resources for researching dividends is Simply Safe Dividends. In this article, over 20 high dividend stocks are analyzed. For example, consider AT&T. This company has a dividend growth streak of over 30 years! It is possible that they could cut the dividend, but based on the growth streak and consistent operating history it is highly unlikely.

While you may be tempted to simply invest in the companies that have been hit the hardest, this might not be the best strategy. During each bear market, massive companies that were once considered institutions have gone bankrupt. This includes:

  • Lehman Brothers in 2008
  • Washington Mutual in 2008
  • General Motors in 2009
  • Pacific Gas & Electric 2001
  • Texaco 1987

These were massive companies that appeared to be safe, but this was not the case. If a company ends up going bankrupt, you are one of the last people to get paid as a shareholder. You will likely see nothing. Keep in mind, one of the best things you can do during a stock market crash is to do nothing at all. While you can take some precautionary steps to plan for a correction, you can never know for sure when it will take place.

 

 

What is a Fundrise eFund? (Fundrise eREIT VS eFund)

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

LOGO 2
Fundrise Logo

Fundrise is a new investing platform that allows everyday investors to invest in private commercial and residential real estate projects. By combining technology and the release of new regulations, Fundrise has been able to establish a platform that differs in many ways compared to traditional real estate investments.

Check out our full review of the Fundrise platform here.

Through Fundrise, you can invest in two different investments known as eREITs and eFunds. To learn more about eREITs read our article here.

Fundrise eREITs are designed to provide income to the investor, while eFunds are designed for growth. More details on that later!

What Is The Fundrise eFund?

Fundrise eFunds consist of investments with the objective of providing a growth opportunity to the investor. This is possible by buying existing real estate, renovating and later selling the property for a higher price and recognizing a capital gain.

Fundrise currently offers 3 types of eFunds based on their geographic location: Los Angeles eFund, Washington DC eFund, and the National eFund. The focus is primarily on single family homes along with townhomes and condominiums located in growing and developing metropolitan areas.

fundrise efund investing simple review.PNG
Fundrise eFund Explained

Fundrise eFund VS eREIT

Fundrise builds the eFunds using a slightly different structure compared to eREITs. In an eFund there is no minimum requirement for return of earnings to shareholders every year in the form of dividends. A REIT is required to pay out 90% of the taxable earnings to the investors in the form of dividends. It is important to understand the goal of the Fundrise eFund is to recognize capital gains over time, so this traditional REIT model does not make sense for this application. Fundrise is not investing in properties with the goal of cash flow through the eFunds. If you are interested in that, check out the Fundrise eREITs.

Since eFunds are designed for growth rather than income, they are set up as partnerships which are slightly more flexible to manage than REITs. In a partnership, your share of the net income that is generated by the eFund will be reported to you on a K-1. At the end of the year, you will report earnings from the K-1 on your tax return.

Partnership earnings are generally taxed as ordinary income to the taxpayer. Any capital gains in the partnership will be taxed at capital gain tax rates to individuals. Consult your tax advisor for questions about your specific tax situation.

Fundrise eFunds offer diversified investments in residential real estate. These investments are difficult for individuals to construct on their own and would require millions of dollars of start up capital. By setting up partnerships, Fundrise can leverage investor capital and participate in growing real estate markets throughout the US.

One of the main goals of Fundrise eFund investments is to participate in growing real estate markets. They do this by identifying specific areas that are showing a high demand for affordable housing. Most of the cities Fundrise focuses on are metro areas with high affordability gaps. This is the gap between rental housing costs and the average monthly income of residents. Fundrise sets the goal to provide more housing options in these high demand areas.

fundrise efund investing simple 1.PNG
Areas with the Largest Affordability Gap

Fundrise eFund Investment Strategy

Fundrise has a strategic investment approach to their eFunds. They aim to buy residential real estate or land in areas of high growth; specifically areas with high likelihood of first time home buyers and growth in younger demographics. They then renovate or develop entirely new projects to increase the value of their land or real estate acquisition. Once they have completed redevelopment of the area, Fundrise will sell the property realizing any profits or losses. Investors earn a return through asset appreciation, not rental income or cash flow.

fundrise efund investing simple review 1.PNG
Fundrise eFund Investment Strategy

Currently, Fundrise offers 3 different eFunds:

  1. National eFund
  2. Washington DC eFund
  3. Los Angeles eFund

National eFund

The National eFund plans to invest in residential housing in major metropolitan areas throughout the US. This fund strategizes in targeting first time home buyers and areas with high potential for development. The National eFund plans for construction of single family homes, townhomes, and condos. This eFund plans to acquire land and other real estate in areas of the US that are not being sponsored by another eFund. In LA for example, this eFund aims for single family renovations and rentals where the LA eFund targets new housing development.

Washington DC eFund

The Washington DC eFund looks to purchase land for development in the metropolitan areas of Washington DC. Like the other eFunds, this fund aims to develop single family homes, townhomes, and condominiums in high growth areas. This fund has a main focus on first time home buyers and areas of DC with high affordability gaps.

Los Angeles eFund

The Los Angeles eFund aims to purchase land in the metropolitan areas of LA for the development of residential housing. The main focus is on the construction of single family homes, townhomes, and condominiums in high growth neighborhoods. The LA eFUND targets areas with high potential for first time home buyers and younger demographics.

Click here to get started with Fundrise!

What Is A Fundrise eREIT? (Fundrise VS Traditional REIT)

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

LOGO 2
Fundrise Logo

Fundrise is a new investing platform that allows everyday investors to invest in private commercial and residential real estate projects. People have been investing in traditional publicly traded and private REITs since their invention in the 1960’s. Today, over 70 million people in the US alone invest in REITs. Fundrise has taken a new approach to the traditional REIT structure with the introduction of the eREIT. In this article, we will be outlining the differences between the Fundrise eREITs and the traditional public and non traded REITs.

Read our full review of Fundrise here.

What Is A REIT?

A Real Estate Investment Trust (REIT) is a company that purchases real estate assets and then issues thousands or millions of shares of the company to investors. This gives retail investors the ability to invest in real estate investments they may not have been able to before often due to high costs or exclusivity of the investment. REITs can give you exposure to real estate that you would not typically be able to buy directly. For example, consider American Tower Corporation. This is a REIT that owns cell towers. Your average investor would not be able to go out and buy a cell tower, but it is possible through a REIT.

REITs are attractive investments because of the relatively high dividend yields along with the ability to provide passive exposure to real estate. In order to be classified as a REIT, at least 90% of the taxable income needs to be passed along to shareholders in the form of dividends. REITs allow investors to gain diversified exposure to thousands of real estate assets throughout the world. Before the invention of the REIT, investors would have to purchase real estate themselves or in syndicates, which were limited to wealthy and accredited investors. REITs have opened up real estate markets to common everyday investors, providing more liquidity and an explosion of investment into real estate.

There are two core types of real estate investment trusts, publicly traded REITs and non traded REITs. Most of us are familiar with publicly traded REITs, these are investments that trade on public security exchanges and offered to everyday investors.

Non traded REITs are investments that are bought and sold privately. This means you must have a buyer or seller willing to conduct a transaction to provide liquidity as there is no secondary market.

Non traded REITs are less common because of their exclusivity, liquidity, and often high front end load fees. Front end load fees are commissions paid to brokers on the purchase of your investment. Non traded REITs have an advantage of gaining exposure to private real estate and offering higher distributions, on average, than publicly traded REITs. Another advantage is that non traded REITs are less correlated to the overall stock market, as they are not traded on an exchange. Publicly traded REITs also hold liquidity premiums, making them more expensive compared to non traded REITs.

What Is A Fundrise eREIT?

Fundrise has created a new investment called the eREIT, which is a non traded REIT offered on the platform. eREITs are unique to Fundrise and offer a number of benefits that are not typically offered by a traditional non traded REIT or publicly traded REIT.

Fundrise released many of its eREITs over the last few years under a new provision of Regulation A. This new provision in the Securities Act allows unaccredited investors to purchase up to $5 million worth of a security over a 12 month period. This new provision has allowed platforms like Fundrise to emerge, creating more investment opportunities and a new concept to the non traded REIT structure.

In the United States, to be an accredited investor you need to have a net worth of $1,000,000 or more excluding your primary residence or an income of at least $200,000 for the last two years. In the past, these accredited investors were the only ones that had the ability to invest in these private real estate investments.

fundrise ereit investing simple.PNG
Fundrise eREIT

Fundrise eREIT VS Publicly Traded REIT

Publicly traded REITs trade on a major exchange like the NYSE or the NASDAQ. These investments change hands just like stocks, and as a result the performance of the asset is heavily correlated with the overall stock market. Publicly traded REITs are very similar to a dividend stock.

If you have done your research, you have come across the Vanguard Real Estate Index Fund. This is a low fee publicly traded REIT that gives you exposure to a diversified collection of real estate. This REIT has an expense ratio of 0.26% compared to the 1% fee associated with Fundrise. Is this Vanguard REIT a better investment? Let’s take a look at the performance of these investments over the last four years.

32
Fundrise Historical Performance
Screen Shot 2018-09-06 at 2.28.29 PM
Vanguard Real Estate Index Fund Historical Performance

In 2014, the Vanguard REIT significantly outperformed Fundrise. However, each year thereafter Fundrise has had significantly better performance than the Vanguard REIT.

One con with investing with Fundrise mentioned in our full review is the limited operating history. We only have four years of returns to go off of, and that is not a large sample size. It is certainly possible that Fundrise will continue to outperform the Vanguard REIT, but returns are never guaranteed.

It is important to understand the difference between Fundrise and other publicly traded real estate investments like this Vanguard REIT. Fundrise is a unique real estate investment, where most traditional REITs contain real estate that has already been purchased. Fundrise takes a venture capital approach where they are constantly purchasing and selling real estate assets and debt. This unique approach could give Fundrise an edge.

Fundrise eREIT VS Traditional Non Traded REIT

Fundrise eREITs offer a variety of features not typically seen in traditional non traded REITs. These features are:

  1. Quarterly Liquidity – Though Fundrise does not guarantee liquidity, they offer quarterly redemption periods following a 60 day notice for withdrawing funds. This is not typically offered by traditional non traded REITs. If you are looking for a highly liquid investment, this would be a publicly traded REIT.
  2. Direct Distribution – Fundrise offers eREITs directly to investors, without going through an investment bank or middle man. This saves a considerable amount of money for the investor as you are not paying any fees or mark ups.
  3. Low Investment Minimums – The starter portfolio has a minimum investment of $500 and the advanced plans have a minimum investment of $1,000. This is significantly lower than most other non traded REITs which often have minimum investment requirements of $10,000 or more.
  4. Low Fee Structure – One of the greatest strengths of the eREITs offered on the Fundrise platform is the low fee structure. Fundrise charges a 1% annual fee to manage your investment. This is considerably lower than most traditional REITs.

Click here to get started with Fundrise!

What Are The Different Fundrise eREITs?

East Coast eREIT – This eREIT focuses on purchasing commercial real estate equity and debt along the East Coast of the US. This is primarily in Massachusetts, New York, New Jersey, North Carolina, South Carolina, Georgia, Florida, as well as Washington D.C. and Philadelphia, PA. Investments in this eREIT focus on fixed rates of return and assets that have a high potential for value creation. This includes assets that have high potential for redevelopment, brand new ground up projects, and income producing debt.

east coast ereit.PNG
Growth of a $10,000 investment in the East Coast eREIT

Heartland eREIT – This eREIT focuses on acquisition of real estate in the Midwest of the US. Specifically, Houston, Dallas, Chicago, and Denver metro areas. This eREIT invests primarily in real estate debt and equity investments, that will provide fixed rates of return as well as aiming for long term value creation.

heartland ereit
Growth of a $10,000 investment in the Heartland eREIT

West Coast eREIT – This eREIT focuses on debt and equity commercial real estate investments in the West Coast region of the US with a focus on certain cities and metro areas. Specific cities include Los Angeles, San Francisco, San Diego, Seattle, and Portland. This strategy focuses on renovation and value adding opportunities for redevelopment, as well as investing in completely new development projects.

west coast ereit.PNG
Growth of a $10,000 investment in the West Coast eREIT

Income eREIT – The primary objective of this eREIT is cash flow generation from purchasing real estate debt on commercial properties. This eREIT focuses on real estate in urban areas where there is limited supply and high demand. The income eREIT follows the strategy of acquiring smaller assets that fall out of the scope of larger investment banks.

income ereit.PNG
Growth of a $10,000 investment in the Income eREIT

Income eREIT II – The objective of this eREIT is cash flow generation. Most of the investments in this eREIT are commercial real estate assets along with commercial real estate debt. This eREIT purchases senior to mezzanine level debt, which can be converted into equity in the asset or company at a later date.

Growth eREIT – This eREIT focuses on acquisition of commercial real estate assets with a goal of value appreciation over time. The growth eREIT looks for opportunities in affordable housing complexes. This eREIT also aims to buy properties below their replacement cost. The growth eREIT is also taking advantage of historic low interest rates by financing it’s acquisitions using long term fixed rate loans.

growth ereit.PNG
Growth of a $10,000 investment in the Growth eREIT

Growth eREIT II – This eREIT is geared toward asset appreciation and long term growth. Primarily investing in commercial real estate properties, this growth eREIT attempts to purchase assets that fall outside the scope of larger institutional investors. Growth eREITs look for long term asset growth over time.

With so many different eREIT options offered by Fundrise, investors can gain diversified exposure to different types and locations of real estate. By leveraging technology, Fundrise has taken a new approach to the non traded REIT. Fundrise gives people an opportunity to participate in private real estate at a fraction of the historic cost along with providing investment portfolios that fit the specific time horizon and investment objectives of the investor.

Click here to get started with Fundrise!

How Does Fundrise Work? (Crowdfunded Real Estate Investing!)

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

LOGO 2
Fundrise Logo

Recently, a number of crowdfunded real estate investing platforms have emerged. One of the most well known and established examples is Fundrise. This is a new investing platform that allows everyday investors to invest in private real estate projects traditionally limited to high net worth individuals or accredited investors. The reason this is possible is because people from all over are pooling money together to invest in these real estate projects.

Crowdfunding allows projects to be funded by collecting small amounts of money from a large number of people. The internet has made this incredibly easy! Traditionally, to invest in real estate you would need thousands if not tens of thousands of dollars for a down payment on a piece of real estate. With Fundrise, you are able to chip in towards these real estate projects with an investment of $500 or more. This has significantly lowered the barriers for real estate investment!

fundrise review investing simple.PNG
Fundrise Real Estate Projects

How Does Fundrise Work

Fundrise works like many other crowdfunding platforms out there. First, investors pool money together by investing via the online platform. Then, Fundrise will invest that money in real estate projects. This could be new construction or a renovation project. Fundrise makes money for investors through income producing properties and flipping real estate in hot markets. As a Fundrise investor, you can choose whether you want to be in a growth oriented portfolio or income oriented portfolio. Income from rental payments and proceeds from flips are passed along to Fundrise investors in the form of dividend payments or distributions. In exchange for facilitating this, Fundrise collects an annual fee of 1% from investors.

It is important to understand that Fundrise is a private real estate investment. The Fundrise eREITs and eFunds can only be bought and sold through this platform. They are not publicly traded on a stock exchange like a publicly traded REIT.

Fundrise allows you to choose from four professionally built real estate portfolios based on your risk and investment preferences. Some portfolios are geared towards cash flow and others focused around growth of the underlying assets. If you invest the minimum of $500, you will be placed in the starter portfolio. The other three advanced plans require a minimum investment of $1,000.

Fundrise Investment Portfolios

Starter Portfolio: This portfolio is designed for new investors who would like to give Fundrise a shot. The minimum account requirement is only $500 to begin investing. This portfolio consists of 50% growth and 50% income oriented holdings. If you want to upgrade to an advanced plan down the road, it is completely free!

Screen Shot 2018-09-10 at 11.22.52 AM.png
Fundrise Starter Portfolio

Supplemental Income: This portfolio is geared towards income producing real estate. Investors will earn returns primarily through dividends from cash flow producing real estate. Dividends are generated through rental and interest payments in proportion to your share of of the fund.

Screen Shot 2018-09-10 at 11.23.08 AM.png
Fundrise Supplemental Income Portfolio

Balanced Investing: This portfolio offers a blend of 50% growth and 50% income oriented investments. The balanced investing portfolio invests in a blend of eREITs and eFunds offered by Fundrise. The goal for this portfolio is for a balance of income generating real estate and real estate that is appreciating in value.

Screen Shot 2018-09-10 at 11.23.20 AM.png
Fundrise Balanced Investing Portfolio

Long Term Growth: The goal of this portfolio is to generate returns primarily from asset appreciation. This portfolio aims to purchase high growth potential real estate and generate returns mostly from the sale of the underlying properties. This includes buying property and performing renovations in order to sell the asset for a gain later.

Screen Shot 2018-09-10 at 11.23.32 AM.png
Fundrise Long Term Growth Portfolio

Fundrise eREIT and eFund

Each portfolio consists of eREITs and eFunds designed by Fundrise. These investments are set up as real estate investment trusts or partnerships and they are managed by Fundrise.

eREITs will produce income for your portfolio in the form of dividends. Here is how you earn dividends with Fundrise:

  1. Rent payments from underlying apartment and commercial leases owned within the eREIT.

  2. Interest payments from underlying real estate debt investments owned by Fundrise.

An eFund is a partnership created by Fundrise to be treated differently for tax reasons. Partnerships avoid the double taxation of normal C-Corps. eFunds are designed in a similar way to eREITs where there is a pool of real estate investments split into shares and sold to investors. Where eREITs are designed to generate income, eFunds are geared towards growth.

How To Invest In Fundrise

When you are ready to begin investing, you can set up an account with Fundrise in a few short steps. Anyone who is 18 years old or older and a US resident can invest with Fundrise. Currently there is a $500 account minimum to begin investing in the Fundrise starter portfolio and $1,000 minimum for the Fundrise advanced portfolios.

Step 1: Create an account with Fundrise here.

Step 2: Decide on an investment plan.

Step 3: Link your bank account and deposit the desired amount.

Step 4: Sit back and watch your money grow!

All distributions or dividends from Fundrise will automatically be deposited into your bank account on file unless you opt in to the dividend reinvestment program. If you want to maximize your returns with Fundrise and allow your dividends to compound, you need to opt in to the dividend reinvestment program or DRIP. Fundrise provides this dividend reinvestment program free of charge as a courtesy for investors.

Compound interest is the effect of earning interest on top of your interest. By reinvesting dividends you are able to earn more dividends because you have a larger investment. Over time, the compounding of these dividends will result in exponential growth of your portfolio.

Here is our comprehensive article on compound interest.

32
Fundrise Investment Performance, 2014 To 2017

Fundrise Investment Liquidity

Fundrise uses the funds you invest to purchase real estate. For this reason there is a 60 day waiting period for withdrawing funds. There are also quarterly redemption periods. This is why it is important to understand what you are investing in when you invest with Fundrise. Investors should aim for a long term investment of at least 5 years in duration when investing with Fundrise. Real estate is not an investment with high liquidity and it is not for everyone! Understand that liquidity and distributions are never guaranteed.

Fundrise Investment Taxes

At the end of the year Fundrise will send you any tax documents associated with your account. Investors may receive 1099-DIV for any dividends received throughout the year. Investors may also receive a K-1 for any income generated in an eFund. You may also receive a 1099-B from any other transactions within Fundrise. Your tax situation will depend on which portfolio you are invested in Fundrise. Consult a tax professional for guidance on how any income generated in Fundrise will affect your specific tax situation.

If you are looking to learn more about Fundrise, read our full review here!

Fundrise is a great platform for passive investors who are looking to gain access to private real estate markets. Fundrise is also great for investors who are looking to diversify asset classes and have less correlation to the overall stock market.

Since you can only liquidate your positions quarterly, you may be less tempted to actively trade in and out of positions. You can also automate your dividend reinvestment plan, allowing compound interest to build up in your account.

Fundrise is best for investors with a 5 year time horizon. Real estate is not a highly liquid investment and inexperienced investors need to take this into consideration. While Fundrise does offer a 90 day satisfaction guarantee, you should not invest if you have a short term investing mentality.

Click here to get started with Fundrise!

How To Invest Your First $100! (7 Ways To Grow Your Money)

Investing Simple is affiliated with Fundrise, Betterment, M1 Finance and Lending Club. This relationship does not influence our opinion of these platforms.

You have a crisp $100 bill in your hand and you have two choices. First of all, you could be like most people and spend that money. Or, you could invest it!

Most people do not realize that there are a number of investments out there that you can get started with that do not require thousands of dollars. We are going to be covering a number of different ways you can start investing with as little as $100.

100 Bill
$100 Bill, Wikipedia

In the past, investing was reserved for people who had thousands if not tens of thousands of dollars on hand. If you go into the office of a financial advisor and tell them that you want to invest $100, they will probably politely give you the boot! The reason for this is because these advisors make a commission off of what you have invested with them, typically around 1%. If you invest $100 with them, they stand to make about $1! It is simply not worth it.

But what about an online brokerage account? The good news is the options have gotten a lot better. When I opened my first trading account, I had to deposit a minimum of $500 and pay a commission of $6.95 per trade. Today, there are countless options for investing that require a minimum balance of $100 or less with little to no commission costs!

The reason behind this is technology. Thanks to modern day technology, automation and paperless communication, the cost of investing has been drastically reduced. This means better options for you and that $100 in your hand!

But is it actually worth it to invest $100? You could have a night out with some friends, go out on a movie date or buy a new gold club. What is the point of investing such a small amount of money?

As soon as you begin investing, you have made a decision. You have transitioned from someone who is living day to day to someone who is planning and preparing for tomorrow. What you are planning for is different for everyone. It could be a home purchase, an education, a new car or simply making sure mom doesn’t have to worry in her later years. The point is, you started. The amount does not matter, the action does.

Warren Buffett.jpg
Warren Buffet Caricature, Flickr

Let me share with you a story about Warren Buffett. He is arguably the most successful investor of our time with a net worth approaching $100 billion. There is a story about how Buffett was riding an elevator and he noticed a penny on the floor. He was on the elevator with a few other people, but he was the only one that noticed the coin. When the elevator doors opened, everyone walked off except for Warren Buffett. He kneeled down to pick up the penny on the floor while the others watched. As he walked past the others, he muttered “the beginning of the next billion.”

Warren Buffett is the last person in the world who needs to pick up change off the ground, but that does not stop him. He understands that it is the action and the principle behind it that counts, not the amount of money. Just like this story with Warren Buffett, the action of starting to invest is far more significant than the amount you invest.

Recently, we wrote a piece on Warren Buffett about how he invests and how you too can invest like him. You can read it here.

So, let’s get the ball rolling and figure out how you can invest your first $100!

1. Robo Advisor Modern Investing

Remember that financial advisor we mentioned above? If you went into his office with $100 he would send you away. Today, there is an entirely new form of advisor known as the robo advisor. This is an algorithm based investing platform where your money is invested based on your goals and current situation. Instead of having a human do this, it is handled by technology!

The result? A seriously inexpensive financial advisor that doesn’t need thousands of your hard earned dollars to get started.

Screen Shot 2018-09-10 at 10.04.48 AM.png
Betterment Robo Advisor

Take Betterment for example. This is the most popular robo advisor out there. While most financial advisors charge an asset management fee of around 1%, Betterment charges just 0.25%. Since Betterment is algorithm based, you can invest with any amount you have! Thats right, no minimum balance.

If you invest with a financial advisor, it would take them a few hours to have a discussion with you and set up an investment account for you. If they are going to make $1 off you, that is just not worth it! If they took on small clients like this, they would not be in business for very long.

Betterment on the other hand can easily afford to work with you. Betterment doesn’t have any physical brick and mortar locations, and everything is 100% automated. It does not cost them any more money to take you on as a client!

When you invest with a robo advisor, this is a 100% passive method of investing. You simply open an account, answer a few questions about your goals and your current situation and fund the account. After that, you are done! You will not think about this investment until tax season or if you choose to contribute more money.

Screen Shot 2018-09-10 at 10.05.54 AM.png
Betterment Sign Up Process

Your robo advisor will automatically rebalance and reallocate your portfolio. If you are investing for retirement, the closer you get to the retirement date the more conservative your investing strategy should be. Your robo advisor will me shifting more of your money into conservative investments as time goes on.

You will be able to have professional management of your money without having tens of thousands of dollars to invest and paying fees of 1% or more.

If you are brand new to investing and you don’t want to pick individual stocks or funds, a robo advisor like Betterment is a great option. You will have professional oversight of your money without paying a boat load of fees. If you want to pick your own investments, keep reading!

Click here to get started with Betterment!

2. Pick Your Own Stocks

Are you looking to be more active with your investments? If so, another option for investing is to pick some individual stocks or funds. This can be one of the most exciting ways to invest, but we recommend doing some research first!

Here is our free guide on investing in the stock market as a beginner.

In the past, your options for investing in individual stocks were the in person stock broker or the online discount broker. Your in person broker was someone you would call on the phone to make trades on your behalf. This was an expensive way to trade, with commission costs of $10 or more per trade common.

AMAZON NEW
Amazon Stock, August 14th 2018

This method of trading was largely phased out by the online discount broker. These services would offer an online trading platform and by cutting out the human involvement, commission costs were lower. My first brokerage account was an online discount broker, and I would pay a commission of $6.95 per trade. On top of that, as I mentioned the minimum to get started was a whopping $500!

The reason why I am telling you about this is so you appreciate the array of great options you have today! Just a few years have resulted in some major changes in the brokerage industry.

Thanks to paperless communication, technology and high frequency trading platforms, there are now an array of free investing platforms out there. Two of the most popular platforms are M1 Finance and Robinhood.

Here is our full review of M1 Finance.

Both of these platforms allow you to invest in stocks and ETFs traded on the major stock exchanges for free. Robinhood has a minimum account balance of $0 and M1 Finance has a minimum balance of $100. There are a number of differences between these two platforms that we discussed here.

1
M1 Finance Investing Platform

To summarize them, Robinhood only allows you to buy whole shares while M1 Finance allows you to buy fractional shares. If you wanted to invest $100 in Amazon stock, you would only be able to do that through M1 Finance due to the share price. Second, M1 Finance allows you to automate your entire portfolio as well as dividend reinvestment. Unfortunately, Robinhood lacks these automation features. Third, retirement accounts are offered through M1 Finance and not Robinhood. And finally, M1 Finance offers some expert built portfolios you can invest in for free. With Robinhood, you are on your own when it comes to building your portfolio.

Most people will find that the features M1 Finance offers make this a superior platform to Robinhood. Stocks are a long term investment, and M1 Finance has a platform that is better suited for this.

Click here to get started with M1 Finance! 

3. Invest In A Business

Watch out! If your friends approach you about a business opportunity, do your research on it. If this business requires you to buy a starter package, pay for your own website or buy inventory, it might be a multi level marketing business. While most of these are perfectly legal, they often require you to leverage your personal network of friends and family. There are probably better opportunities out there!

So, aside from selling tupperware and candles to your friends on Facebook, what businesses could you start with $100? The answer is quite a few! Here is a list:

  • Bucket + Sponge + Soap = Car Wash Business
  • Blog/YouTube Channel
  • Rent a truck for a day for a Junk Removal Business
  • Photography/Videography
  • Tutoring
  • Ride Sharing
  • Child Care
  • Social Media Marketing
  • Window Cleaning
  • Resume Writing
  • Vacation/Event Planner

Looking for more ideas? Here is our list of 50.

4. Invest In An FDIC Insured CD

If you are totally afraid of risk, you could invest in a certificate of deposit through your bank. Most of these bank investments have a minimum deposit amount and time threshold, but you could find one that has a minimum of $100 or less. The first certificate of deposit that I opened was a $500 deposit. This was a 12 month CD that renewed annually and the purpose of this CD was to secure a line of credit I had with the bank. At the time, I was 18 and I needed to establish credit. I was offered a $500 line of credit from the bank if I backed it with a certificate of deposit. I earned an interest rate of 0.5% on that short term CD, meaning I was earning $2.50 per year.

For most people, the returns from a CD are not what they are looking for. The purpose of a CD is to earn interest that is a little better than what you would earn from a checking or savings account. Bank CD’s are FDIC Insured for up to $250,000 meaning there is no way that you could lose money by investing in one.

Bank CD.jpeg
Bank CD Rates Ad, First United Bank

If you are a young person and you do not need the money you are investing in the short term, you should probably look beyond the bank CD. The interest you are receiving will not outpace inflation and you will be losing the buying power of your money.

Recently, a new bank opened nearby where I live. To get people in the door, they were offering a number of CD’s with great rates. The best one was a 48 month CD. The minimum balance to open it was $25,000 and the interest rate was a guaranteed 3% per year. This would be a great investment for someone who was saving for college or a major life purchase. You would not want to invest that money in the stock market as stocks are volatile and higher risk. Instead of leaving that money in the bank earning very little interest, a certificate of deposit is a great option.

5. Peer To Peer Lending

Have you ever loaned your friend some money and later on he paid you back with some interest? You gave your friend a personal loan! Traditionally, this type of investment has been reserved for the banks. Recently, a number of platforms have surfaced that allow you to loan your money to others just like the banks do! One of the most popular platforms for this is Lending Club.

These peer to peer lending platforms allow you to either lend or borrow money. Borrowers will pay interest to lenders based on a number of factors such as credit score, income and borrowing history. With Lending Club, you can invest in loans for personal reasons, medical bills, auto refinancing and even small business loans! You can purchase fractions of a loan called a note with as little as $25. Most people who have had success with peer to peer lending have suggested investing in at least 100 notes to be adequately diversified.

Screen Shot 2018-09-10 at 10.11.24 AM.png
Lending Club Peer To Peer Lending

These peer to peer lending platforms have a dashboard where you can screen loans and pick them individually. If you have a greater risk appetite, you can find higher risk loans that will pay a higher return. If you are more conservative, you can invest in only the safest loans from the low risk borrowers. If you don’t want to pick loans individually, you can invest in a preselected collection or portfolio of loans!

Peer to peer lending allows you to access an asset that was traditionally reserved for the banks! Now, you can be the bank.

Click here to get started with Lending Club!

6. Invest In Yourself

This is probably not an option you want to follow, but at least consider it! There are a number of small investments you can make in yourself that can generate huge returns in the long run. Here is a list:

  • Invest in a professional resume edit and review
  • Invest in new job interview clothes
  • Invest in books (or read at the library for free!)
  • Learn a new skill though an online course
  • Find someone you look up to and take them out for lunch
  • Invest in a gym membership for your health
  • Find continuing education classes at your local school

Often times, when it comes to a job interview the first impression is what matters. Something as simple as a fresh haircut and a new shirt and tie could put you ahead of the other candidates. If a $100 investment in your looks means you get the job, that is well worth it!

7. Invest In Crowdfunded Real Estate

One of the most exciting investments that has recently emerged is crowdfunded real estate investing. Platforms like Fundrise allow you to pool your money with other investors to invest in real estate projects.

LOGO 2
Fundrise Logo

I am sure we all have that rich friend or family member that made a fortune by investing in real estate. Typically, this is through buying multifamily properties and renting them out. While this can be a great investment, there is one problem with this. It is really difficult to get started! If you want to buy a piece of real estate, get ready to put down as much as 25% of the total price of the property, not including closing costs!

Here is our full review of Fundrise.

Thanks to crowdfunded real estate platforms, you can now invest in real estate projects with other people without shelling out thousands of dollars! It is a lot easier to get started. Real estate is one of the most popular investments out there, and you are able to make money while providing much needed housing to other people. This type of real estate investment is 100% passive, meaning you will not have to do anything after you invest! If you buy a piece of real estate to rent out to someone else, that is going to be a very active income source. You will be getting calls at all hours of the day, and night! On top of that, if your tenant does not pay rent you will have to evict them! This is a very time consuming process and you will not be making any money from that unit during that time.

With crowdfunded real estate investments, you own a small piece of hundreds or thousands of different properties! You won’t have to worry about vacancies or evictions.

Click here to get started with Fundrise!

How NOT To Invest Your First $100

What you do with your money is up to you! You might decide to follow one of the strategies listed above or continue searching. The last thing I want to do is cover a few things that you probably should not do with your $100 investment. Most people who do these things end up losing most if not all of the money. We want you to have the best chance at success!

  1. Avoid investing in penny stocks. While they may appear cheap, they are often cheap for a reason. If you are going to invest in individual stocks, stick to those listed on the NYSE or NASDAQ.
  2. As mentioned earlier, watch out for multi level marketing opportunities. This typically requires you to pester your friends and family to buy products from you. Consider this, if it is such a great opportunity why is someone telling you about it?
  3. These days, there are a lot of people running ads on Facebook and YouTube. Some of these ads include attractive people and sports cars. As I am sure you know, not everything on the internet is true! Watch out for these ads trying to sell you a course or training. While online courses can be extremely helpful, don’t just buy one because you think it will get you behind the wheel of a Lamborghini!
  4. Don’t waste your money on gambling. Lottery tickets are an optional tax that you do not have to pay! The odds are against you when it comes to lottery tickets.
  5. Do not use that $100 as a down payment. You might be tempted to put $100 down on a new toy, but all you will be doing is putting yourself in debt. Car dealers often advertise deals where you can drive a brand new car with $100 down or less. This is not an investment! You will be buying a depreciating asset and going into debt.

 

Fundrise Fee Structure: Are There Any Hidden Fees?

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

LOGO 2
Fundrise Logo

Fundrise is an online real estate investing platform that gives investors the opportunity to invest in private real estate with as little as $500. One of the reasons why Fundrise has become so popular is because of the low fee structure.

In case you missed it, here is our full review of Fundrise.

Compared to traditional real estate investments, fees are significantly lower on the Fundrise platform. Fundrise charges an annual fee of 1% of your investment. In this article, we will be explaining what this fee is and whether or not there are any hidden fees that you should know about.

Fundrise Fees Explained

Fundrise charges a fee of 1% per year. They do not charge any other hidden fees and there is no front end load fee with Fundrise.

fundrise fees
Fundrise Fees vs Traditional Investment Fees

This 1% all in fee is broken up into two individual fees.

The first is the asset management fee. This fee goes toward the management and oversight of real estate investments as well as the normal business expenses incurred. The asset management fee is 0.85% annually.

The second is the investment advisor fee. This fee pays for the online investing platform, reporting and other administrative fees related to investing in Fundrise. The investment advisor fee is 0.15% annually.

The Fundrise eREITs and eFunds do not carry any fees. Traditionally, when you invest in a publicly traded REIT you pay management fees indicated by the expense ratio. For example, the Vanguard Real Estate Index Fund has an expense ratio of 0.26% to cover management of the fund. Fundrise does not charge any additional expense ratio.

Fundrise vs. Traditional REIT Investment

Fundrise allows you to invest through two financial instruments that they invented; the eREIT and the eFund. The short explanation of these investments is that they are non traded, meaning they are not available on a public exchange like a traditional publicly traded REIT. The eREIT and eFund are also investments you purchase directly from Fundrise. This cuts out the middleman and reduces the overall fees.

How does the 1% Fundrise fee compare to a traditional REIT?

Many traditional REITs charge a front end load fee. This is a fee paid to the investment institution before a penny is invested. It is not uncommon to pay a front end load fee of 5% or more, meaning only 95% of what you invest ends up in your account. While that may seem insignificant, consider the following example:

$100,000 invested in a REIT

Front end load fee of 5%

Fee = $5,000

There are no front end load fees or large commissions paid to Fundrise to purchase your investment. The only fee is the all in 1% annual fee.

Most investors do not pay attention to commissions and fees. Unfortunately, this can be a detrimental mistake! While these numbers sound small, the compounded fees paid over time can have a huge impact on your overall returns. Traditional brokers often charge significant commissions, sometimes as high as 8% depending on the investment institution. As mentioned, with Fundrise there are no commissions or hidden fees. This allows you to keep more of your money invested and earn greater returns.

Fundrise vs. Vanguard REIT

If you have done your research, you have come across the Vanguard Real Estate Index Fund. This is a low fee REIT that gives you exposure to a diversified collection of real estate. This REIT has an expense ratio of 0.26% compared to the 1% fee associated with Fundrise. Is this Vanguard REIT a better investment? Let’s take a look at the performance of these investments over the last four years.

Screen Shot 2018-09-06 at 2.30.44 PM.png
Fundrise Historical Performance
Screen Shot 2018-09-06 at 2.28.29 PM
Vanguard Real Estate Index Fund Historical Performance

In 2014, the Vanguard REIT significantly outperformed Fundrise. However, each year thereafter Fundrise has had significantly better performance than the Vanguard REIT.

One con with investing with Fundrise mentioned in our full review is the limited operating history. We only have four years of returns to go off of, and that is not a large sample size. It is certainly possible that Fundrise will continue to outperform the Vanguard REIT, but returns are never guaranteed.

It is important to understand the difference between Fundrise and other publicly traded real estate investments like this Vanguard REIT. Fundrise is a unique real estate investment, where most traditional REITs contain real estate that has already been purchased. Fundrise takes a venture capital approach where they are constantly purchasing and selling real estate assets and debt. This unique approach could give Fundrise an edge.

The Verdict

Fees flat out lose investors money. Why start your investment already down 5% because you paid a broker a fat commission?

Traditional Wall Street fees have been sky high for a number of years. It wasn’t until recently that new online investing platforms have taken a foothold, and are competing against giants in the long established brokerage industry.

With Fundrise, the fees are transparent and minimized to save the investor money. You have the ability to earn higher returns because your initial investment is larger due to the fact that there is no front end load fee. There are no other hidden fees with Fundrise aside from the 1% annual fee.

Click here to get started with Fundrise!

7 Ways To Invest Like Warren Buffett Billionaire Investor

Warren Buffett is arguably the most successful investor of our time. Buffett is still the chairman and CEO of Berkshire Hathaway at 88 years old. As of 2018, Warren Buffett has a net worth of $86.7 billion. Buffett is known for being a philanthropist and gives away a lot of his money. Over the last 10 years, this has amounted to more than $27 billion.

Despite being one of the richest people in the world, Buffett is known for being very frugal. He still lives in his Nebraska home that is worth around $650,000 today.

Buffett House.JPG
Warren Buffett’s Home, Wikimedia

Aside from drinking more Coca Cola than most teenagers do, eating Cheetos and reading, Warren Buffett is a stock market investor. Warren Buffett earned most of his money from investing in companies and 99% of his net worth was earned after his 50th birthday.

Millions of stock market investors idolize Warren Buffett, and in this article we will be exploring 7 ways that you can think and invest like billionaire Warren Buffett.

1. Invest in what you know.

Did you hear about Warren Buffett buying weed stocks? Or getting in on the hottest new cryptocurrency to hit the market?

Probably not.

Warren Buffett is known for investing in simple businesses. He invests in what he understands. Cryptocurrencies and weed stocks would fall short of a lot of Buffett’s criteria, but the main point here is that he does not invest in something if he does not understand it. You shouldn’t either!

One of the easiest ways to test your understanding of a company is the elevator pitch. You have 30 seconds (the length of an elevator ride) to explain what that company is doing and why you are investing in it. If you can’t, you don’t understand what you are investing in. You need to be able to understand what the business does and what they are doing to make money. You should be able to identify the competitors, what isolates them from the competition and name their management team (more on that point later).

Warren Buffett does has some favorites. He invests heavily in banking, insurance, consumer staples and utilities. All of these businesses are easy to understand!

Screen Shot 2018-09-05 at 1.43.35 PM
Berkshire Hathaway Largest Holdings, Annual Letter To Shareholders 2017

In the annual letter to shareholders, Berkshire Hathaway discloses the largest positions they have in companies. You can see a common theme here, with Apple being the only stock that sticks out. Despite shying away from technology and still using a flip phone, Buffett has a sizable position in Apple. Buffett invests in Apple stock because he believes they have extraordinary products that have become an essential part of our everyday lives. Beyond Apple, we see investments in financial services, banking, telecommunications, food and beverage, airlines, oil and automotive.

One of the other characteristics of companies that Warren Buffett invests in is durability. Buffett invests in durable time tested businesses. He invests in companies that have been around for decades with experience in all market conditions. If you want to invest like Warren Buffett, consider investing in some durable blue chip stocks. A great place to start is by looking at stocks on the Dow Jones!

2. Understand price versus value.

“Price is what you pay. Value is what you get.” – Warren Buffett

Warren Buffett is a long term value investor. He invests in companies based on the underlying value of the shares. Determining the underlying or intrinsic value of a stock is very difficult, which is why Buffett recommends that most people just invest in low fee index funds.

If you do want to learn about value investing, you should learn from the man who taught Warren Buffett. This was a man by the name of Benjamin Graham, mentor to Warren Buffett. In the book The Intelligent Investor, Benjamin Graham teaches the principles of value investing. Before you run out and buy a copy, be forewarned that this book is over 600 pages long and it was originally published in 1949! Despite the age of this book, the principles are still valuable and relevant.

Here is a book summary you might enjoy.

3. Invest for the long haul.

Warren Buffett is a long term investor. He patiently waits for investment opportunities, and once he buys shares he rarely sells them. Some of Buffett’s investments date back to the 1960’s! Warren Buffett started buying stock in American Express in 1964.

If you want to invest like Warren Buffett, you need to have a long term mindset when it comes to investing. Buffett does not care about what a company or stock is doing in the short term. He focuses on the long term and looks at what companies will have a long term competitive advantage over the next decade or more.

Stocks are a long term investment. The movement of the share price in the short term is unpredictable. Trying to bet on what will happen to a stock in the short term is near impossible. If you want to pick stocks, your best chance of success with that strategy is investing for the long term. Not to mention, you will have a significant tax savings as well holding stocks for the long term.

Capital-Gains-Tax-Rates
Source: www.diffen.com

If an asset is held for one year or less, the capital gain recognized on that investment is considered to be a short term capital gain. This type of capital gain is taxed at the highest rate possible, typically the same rate as your ordinary income tax rate.

If an asset is held for over one year, the capital gain recognized on that investment is considered to be a long term capital gain. This type of capital gain is taxed at a lower tax rate.

4. Be greedy when others are fearful.

Benjamin Graham, mentor to Warren Buffett, once said that the market is a pendulum, forever swinging between optimism and pessimism. Warren Buffett learned a lot from Benjamin Graham. For example, Buffett has said that you should be greedy when others are fearful and fearful when others are greedy. Optimism leads to greed and pessimism leads to fear. Buying from the pessimist means that you are buying stocks when there is fear in the market, or buying low. Selling to optimists means that you are selling stocks when there is optimism or euphoria in the market, or selling high.

MARKET PENDULUM

If you hear everyone talking about a hot stock, it is probably time to sell it. The underlying value of a stock does not change in the short term, only the price does. At some points, the price is high due to greed and feelings of euphoria. At other points, the price is low due to feelings of fear.

Most people make money in the stock market through asset appreciation. You buy shares at a low price and sell them down the road at a higher price. If you want to invest like Warren Buffett, do not buy shares of stocks at all time highs! You do not see Warren Buffett investing in the high flyers of the market because it violates (at least) two of his investing principles; price versus value and being greedy when others are fearful.

Stocks are the only thing people are afraid to buy on sale. If you go to the grocery store and find out Tide laundry detergent is 50% off, you would load up. If Procter & Gamble stock goes on sale, the producer of Tide, people are afraid to buy it! When a company stock goes on sale, you typically have a lot of talking heads on TV telling you to sell. This is actually the time when you would want to buy!

With the stock market, doing what is right often feels wrong. 

If you study Warren Buffett, you will also find that he puts little stock in what Wall Street analysts have to say (pun intended).

“We have long felt that the only value of stock forecasters is to make fortune tellers look good.” – Warren Buffett

You will not find Warren Buffett glued to the TV on a Monday afternoon looking to catch up on the latest market opinions. Buffett is likely reading a book in his office. If you want to invest like Warren Buffett, you need to formulate your own opinion surrounding investments. While there is nothing wrong with having a discussion about stocks you own or are watching, you should not be swayed by the opinions of just anyone.

5. Buy Berkshire Hathaway stock.

One of the easiest ways to invest like Warren Buffett is to invest in his company Berkshire Hathaway. Berkshire Hathaway is a holding company owned by Warren Buffett. From 1965 to 2017, Berkshire Hathaway stock has had a compounded annual gain of 20.9% per year, compared to a 9.9% return from the S&P 500.

Screen Shot 2018-09-05 at 2.31.19 PM.png
Berkshire Hathaway Class A “BRK.A”

A lot of people are curious about the share price. The reason why Berkshire Hathaway stock trades at a share price of over $300,000 is that this stock has never been split. When the share price becomes out of reach for most retail investors, a company will often split the shares to make the price more accessible. Instead of splitting, Berkshire Hathaway instead offers Class B shares under the symbol BRK.B which currently trades at around $200 per share.

While Berkshire Hathaway has an impressive history of beating the S&P 500, you might not want to invest in this stock. The main reason is one that many large investment funds have as well. The larger a fund becomes, the larger the opportunities they need to find. It is difficult for a company with a market capitalization of over $500 billion and a cash pile of over $100 billion to find new investments. 

Small and mid cap companies are essentially off the table. For Berkshire Hathaway to have a meaningful position in companies these size, they would likely have to own it. This limits investments and acquisitions to just the largest companies out there. For that reason, Buffett has said that it will be more difficult to generate market beating returns going forward.

Another important factor to remember is that Warren Buffett is 88 years old. If you are looking to invest for the long term, you will need a new strategy or leader once Buffett steps down or passes on.

“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” – Chinese Proverb

It is much more valuable to know how to invest on your own instead of simply following the strategy of someone else.

6. Pay attention to the management team.

Warren Buffett spends a lot of time learning about the management team of a company. A good management team is a characteristic of any company Buffett invests in. Buffett looks at how management treats shareholders, employees, customers and even the environment. Above all else, he looks for management to be honest with the shareholders.

Buffet looks at a number of factors including share buybacks, dividends, dividend growth and the overall company reputation. If management is acting responsibly, dividends should be paid on a regular basis with a long history of consistently raising that dividend. Shareholders should also be rewarded through a company sponsored share buyback program.

If you want to invest like Warren Buffett, get to know the management. Read the annual reports, earnings reports, watch interviews and study the career path of the company management team. Do they have an outside hire? Where did they work before?

7. Invest in the two fund portfolio.

If Warren Buffett hadn’t made a career of picking stocks, how would he have invested? Luckily for us, Buffett has answered that question. In a letter to shareholders, he outlined a retirement plan that anyone could implement with ease. It does not involve diligent research and stock picking. It involves investing in two funds.

The first is a low fee S&P 500 index fund.

The second is a short term government bond fund.

That’s it. Warren Buffett recommends investing 90% of your money in the S&P 500 fund and the remaining 10% in a government bond fund. As far as funds go, Warren Buffett recommends Vanguard products for good reason. They are known for having extremely low fees and wonderful financial products.

Vanguard
Vanguard Logo

For the low fee S&P 500 index fund, the Vanguard 500 Fund is an excellent choice. Vanguard also offers bond funds. A suitable choice would be the Vanguard Short Term Treasury Fund.

Instead of trying to beat the market, Buffett believes the average investor should own the entire market. It is important to remember that this portfolio is very broad and it is not specific to any persons individual needs. If you are looking for a long term investing plan, you should consider speaking with a financial advisor.

If you want to pick stocks and invest like Warren Buffett, follow these strategies! If you want to follow Warren Buffett’s investment advice, go for the two fund portfolio. At the end of the day, the most important thing is that you are investing!

 

A Beginner’s Guide To Fundrise Real Estate Investing Platform!

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

Fundrise is a new investing platform that allows everyday investors to invest in private real estate projects traditionally reserved for the high net worth investors. For the first time, you can invest in private real estate investments with as little as $500 through Fundrise.

LOGO 2
Fundrise Logo

We did a comprehensive review of Fundrise, you can read it here. 

Getting started with Fundrise can be a bit complicated! We created this beginner’s guide to help you get started today.

Step 1: Open a Fundrise Account!

Start off by opening a Fundrise account here. 

You can fund the account and decide on what plan best fits your needs later on!

Fundrise has the entire application process online where they will guide you through a series of questions to create your account. Currently, Fundrise is only offered to US residents age 18 or above. The minimum to get started with Fundrise is $500, or $1,000 for the advanced investment plans. Fundrise charges an annual fee of just 1%. 

Fundrise Questionaire.PNG
Fundrise Questionaire

Step 2: Decide on an Investment Plan!

Next, decide what Fundrise plan is best for you.

Fundrise gives you the option to choose from multiple investment plans based on your investment objective. Each portfolio offered by Fundrise will comprise of a blend of eREITs and eFunds created by Fundrise.

If you invest $500, you will automatically be placed in the Starter Plan. If you invest $1,000 or more, you can choose between three Advanced Plans.

Beginner VS Advanced Plans.PNG
Starter Plan vs Advanced Plans

Starter Portfolio: This portfolio is designed for new investors who would like to give Fundrise a shot. The minimum account requirement is only $500 to begin investing. This portfolio consists of 50% growth and 50% income oriented holdings.

Supplemental Income: This portfolio is geared towards income producing real estate. Investors will earn returns primarily through dividends and appreciation of the underlying holdings. Dividends are generated through rental and interest payments in proportion to your share of of the fund.

Balanced Investing: This portfolio offers a balance of 50% growth and 50% income oriented investments. The balanced investing portfolio invests in a blend of eREITs and eFunds offered by Fundrise. The goal for this portfolio is for a balance of income and growth producing real estate.

Long Term Growth: The goal of this portfolio is to generate returns primarily from asset appreciation. This portfolio aims to purchase high growth potential real estate and generate returns mostly from the sale of the underlying properties. This includes buying property and performing renovations in order to sell the asset for a gain later.

Step 3: Fund the account!

You will link your bank account using your online credentials or by manually entering your routing and account numbers. ACH transfers are mandatory for transactions under $25,000. Above $25,000 Fundrise will accept wire transactions.

Fund The Account.PNG
Adding Funds To Your Fundrise Account

Step 4: Decide what to do with Dividends!

All distributions or dividends from Fundrise will automatically be deposited into your bank account on file unless you opt in to the dividend reinvestment program. If you want to maximize your returns with Fundrise and allow your dividends to compound, you need to opt in to the dividend reinvestment program or DRIP. Fundrise provides this dividend reinvestment program free of charge as a courtesy for investors.

Compound interest is the effect of earning interest on top of your interest. By reinvesting dividends you are able to earn more dividends because you have a larger investment. Over time, the compounding of these dividends will result in exponential growth of your portfolio.

Fundrise Portfolio
This Fundrise account has Dividend Reinvestment enabled

That’s it! Fundrise is a 100% passive investment. You simply fund the account and put your money to work. Down the road, you can add more funds to this account if you want to increase your investment.

Since Fundrise uses your invested dollars to purchase real estate assets and debt instruments, you are not guaranteed immediate liquidity. All Fundrise investors can obtain liquidity monthly. You must submit a redemption request followed by a 60 day waiting period, which is also subject to limitations. Fundrise is considered a long term investment, their investment team looks for opportunities over a 5 year time span. Anyone looking to invest in Fundrise must understand they may not be able to liquidate their position right away and they should be investing for a minimum time horizon of 5 years.

You will be updated on your investment’s performance through ongoing reports and status updates of your holdings. Fundrise will also send you tax forms at the end of the year for any earnings or dividends received for the prior year. You will also receive emails when new real estate projects are added to your plan!

Click here to get started with Fundrise!

The TRUTH About Forex Trading! (Interview Millionaire Trader Jason Graystone)

In this interview with Jason Graystone, we will be discussing forex trading, dispelling the myths and teaching you everything you need to know about forex trading!

Since starting his first business at 22 years old, Jason Graystone has successfully built and run multi million pound businesses both in the service sector and online. Coming from a working class family with little education, Jason embarked on a journey of self development from an early age which he says played a fundamental part of his success.

Jason believes that if you have the right mindset and adopt the right personality traits, you can use the same formula to achieve anything you want in life; and it’s this attitude that allowed him to achieve financial independence by the time he was 30. Jason believes that everyone deserves to live an inspired life.

“We are better people when we have time to contribute towards what we are passionate about. We can solve meaningful problems and be rewarded and fulfilled at the same time.” – Jason Graystone

This belief is what drives Jason to help others achieve financial independence by educating them on the true secrets of wealth so that they can be liberated from the societal restraints and live the life they deserve. Jason has become globally recognized for his transparent approach to teaching and his ability to transfer knowledge onto his students through integrity, accountability and his tireless contribution.

Learn more from Jason Graystone:

Free Forex Training Course

YouTube Channel

The Trading Coach Podcast

$1 Trial Membership Tier One Trading

Interview Transcript:

Ryan Scribner: How’s it going today, guys? Welcome back to The Channel. I’m here in New York City with a man by the name of Jason Graystone. It’s the first time I’ve ever talked to a trader on The Channel here, so it is super exciting.

Ryan Scribner: You’re all the way from London?

Jason Graystone: Yep.

Ryan Scribner: Thanks for taking the plane trip out. I certainly appreciate it.

Jason Graystone: It’s great.

Ryan Scribner: Why don’t you go ahead and start by doing an introduction about yourself, what it is that you do?

Jason Graystone: First of all, thanks for having me on The Channel. It’s a real joy to be out here in New York City.

Ryan Scribner: Aside from the traffic, right?

Jason Graystone: Aside from the traffic, yeah, and the humidity.

Jason Graystone: For those of you who don’t know me, my name is Jason Graystone. I’m a professional currency trader, and I’m also a co founder of a company called Tier One Trading. We specialize in helping people achieve financial independence through speculative strategies in the financial markets. I’m frequently number one author on TradingView.com. I’ve featured in blogs and podcasts. I’m currently writing a book, which will be out later this year. I’m also invited to speak around universities in the UK and take part in research for business development and things like that. I’m really enjoy entrepreneurialism as well as trading, but trading was what allowed me to be financially independent.

Ryan Scribner: Yeah, we were talking about that a little bit off camera. I think it’s super interesting, but for you, trading was a way for you to escape the traditional work environment that you weren’t really a fan of?

Jason Graystone: Absolutely. Trading is something different for everyone. For me, it was a vehicle to get to a point where I just had time. I wanted the time to decide how I spended that time, and it was a way to accelerate my wealth in order to do that. That was my motivation for it.

Ryan Scribner: Yeah, I know that’s one of the most frustrating things, is when you don’t know exactly what it is you want to be doing. You don’t have the time to figure it out, and so I think for a lot of people, maybe they focus on wanting the money, but really it’s more important to figure out why it is that you want that.

Jason Graystone: Absolutely.

Ryan Scribner: That’s really incredible to say, in order to figure out what I really want to do with my life and what really interests you on a natural level, so …

Jason Graystone: For me, the money’s just a byproduct. You need a why, and we’re going to go through that. The reason I wanted to come on this channel is I really resonate with Ryan’s approach, and if you’re familiar with trading at all, you’re going to see that there’s a lot of shit out there, right? I can say shit?

Ryan Scribner: Yeah, that’s perfectly fine.

Jason Graystone: There is a lot of unethical educators. There’s a lot of people selling dreams, false expectations, and people are really falling for this stuff and losing a lot of money. They really are. I lost a lot of money myself. Over the years, I’ve worked with thousands of traders, and I’ve seen a lot of predictable patterns. I’ve seen what works, what doesn’t work, and it is a massive failure rate. It is a massive failure rate.

Ryan Scribner: Yeah, do you have any numbers on that, as far as what it is? I know it’s quite high. In some of the stuff I’ve look at before, it’s most people are unsuccessful with it, right?

Jason Graystone: It’s about 90 percent, yeah.

Ryan Scribner: That’s about what I’ve seen too, about 90 percent are unsuccessful.

Jason Graystone: Yeah, we know that from broker statistics, that about 90 percent of people lose 90 percent of their capital within 90 days, so it’s a 90/90/90 …

Ryan Scribner: Ninety-ninety-ninety. That’s not really a good … although it’s easy to remember, but, yeah. That’s what I’ve heard about trading as well. Obviously, you guys who have watched my channel before know I’m a long-term value-oriented investor. Looking at both of us, we’re kind of polar opposites here, because I’m more focused on the fundamentals of a company, and you’re looking at strictly charts, right?

Jason Graystone: Yeah, absolutely.

Ryan Scribner: You’re looking at currency, so you’re looking at just trading based on patterns, right?

Jason Graystone: Of course. The reason this fits so well is because I was very much a pattern investor. I invested in businesses, stocks, real estate investment trusts and startup businesses as well. Although, take the startup businesses aside, they’re very passive, boring investments. They were long-term. I had an appetite for risk, and I wanted to just accelerate a little bit, so I started exploring speculative markets like options and Forex. I went into Forex, and I blew around 36 to 38 grand initially.

Ryan Scribner: That’s how much you lost? Is that the learning curve that people usually experience, or is that kind of …?

Jason Graystone: I think I made every mistake possible. I followed signals and all of that stuff that I’m going to go through with your listeners. After that I became very good. I learned a lot about what didn’t work, which allowed me to become really good, and I later on realized that it’s actually, you should be focused on what you’re not losing rather than what you’re gaining. If you can just focus on that, you become very good.

Jason Graystone: I went through all the crap … There’s a lot of scams out there. There’s a lot of automated systems, signal services, people selling pipe dreams. Over the years, I’ve been fortunate enough to work with thousands of traders in multiple countries, over 50 different countries. What we’ve seen is, is very predictable patterns in why people fail, because we’ve been analyzing data on the behavior patterns of people, how engaged they are, how accountable they are, what are they watching, what process are they taking, are they going from the start to the finish. Do they skip in? Do they jump in, jumping ahead? Do they actually want it? Have they got realistic expectations?

Jason Graystone: I’ve produced a framework almost that will guarantee your highest probability of success. Obviously, it’s down to you as a trader in the end.

Ryan Scribner: Based on looking at the behaviors of past students and past people who haven’t had a good experience with it?

Jason Graystone: Absolutely. If you follow the framework in this way, which a lot of it is down to psychology, by the way. The skill is the minority, believe it or not.

Ryan Scribner: That’s pretty much the same thing as well with investing in the stock market. It’s the psychology of it, as far as the investing goes and the fundamental analysis, that, based on looking at the numbers and the principles, but it’s a totally different experience actually doing it.

Ryan Scribner: As far as the risk side of it goes, I know you mentioned having that greater risk appetite. I know, personally, I dabbled around with swing trading very early on in my investing career. I can remember I had $500 I was swing trading, and it was keeping me up at night, worrying about it, so I learned early on that I do not have the risk appetite for much of anything beyond what I’m doing now.

Ryan Scribner: How do you know, I guess, when you have that risk appetite? Is it something you just try it out and you find out if you do, or …?

Jason Graystone: Yeah. I think by the time I’d lost 36 grand, it wasn’t just blowing 36 grand in the market. That was a long learning curve. It was over 18 months to two years.

Ryan Scribner: How did you feel about that? Did it make you feel like a bad person, or you just felt like, “Okay, I’m getting there?”

Jason Graystone: I felt frustrated. I did try to look at it as a donation to my education rather than a big loss. At the same time, that’s a lot of money. That can be a life-changing amount of money to lose. Fortunately, I’m a businessman and I’m not stupid, and I would never trade money that I couldn’t afford to lose, but it’s still a lot of money. By the time I’d lost that much, I really felt like I owed it to my family as well.

Ryan Scribner: To do it right at that point, yeah.

Jason Graystone: I was like, “That’s multiple holidays.” I was thinking of all the money that I’d blown. I really just needed to knuckle down and get it done. I knew. You’re so proud as a person. You don’t want to be told that you’re doing things wrong, and then you know, and you just keep doing it. Then by the end of it, you’re like …

Ryan Scribner: There’s no such thing as a free lesson out there. You either pay for it in terms of paying for education, or you make mistakes and you end up losing money.

Jason Graystone: Absolutely.

Ryan Scribner: I have a friend of mine who trades options. He’ll text me sometimes saying he lost 20, 30 grand in a day, but you can tell that it doesn’t affect him. Really, I think what it is, if you feel like less of a person after losing that money, then you probably shouldn’t be involved in something speculative, because it’s just money. It’s a tangible thing, but it doesn’t make or break you as a person. I think a lot of people tie their worthiness to their monetary value, and I think you have to have that separation there to really do something like you’re doing.

Jason Graystone: Absolutely. It’s really important as well before we get into it. I’m going to talk about it in a bit, but it’s really important to build a trading system around your lifestyle and your personality, because if you don’t, you’re essentially doing something that isn’t aligned with your comfort zone, and you’re just not going to succeed. It doesn’t need to be that way. You can build systems around your personality so that you’ve got the best change for success.

Jason Graystone: I’m going to go through a bit of a framework based on all the information and the data that I’ve analyzed over the years. I want to just, before we get right into that, I just want to debunk some myths, because some of your listeners are probably thinking … I get asked all the time, “Isn’t it gambling? Isn’t it risky?”

Ryan Scribner: Sure. I’ve said things about that on The Channel a lot, because, to be honest, I don’t know a lot about the trading side. Really, I don’t know much about it at all.

Jason Graystone: No. Like anything, the markets are the market. They just do what they do. It’s not the market that’s risky. It’s the approach you take to the market that’s risky. If you think about a casino, for instance, you’ve got one-armed bandits, you’ve got poker table, you’ve got Black Jack, you’ve got roulette. The reason the casino comes out on top in the end is because there’s no one who’s consistent. There’s no one with an edge. They just go there, blow some money, they’ve got no strategy, no plan, and they are approaching the casino as a gambler, whereas if you look at the winning poker table, it’s always the same players there, always the same players at the top of the tournament.

Jason Graystone: They’re winning the tournament time and time again, because they’ve got an edge. They’re not approaching the casino as a gambler. They’re approaching the casino as a business. It’s like they’ve got an edge, they’ve got a risk management strategy, a money management strategy, they know when to get in and get out, they know when to stop, and they know when to continue. The markets are exactly the same. The market, you cannot control. It just does what it does, so it can’t be risky. The market can’t be risky. Your approach to the market is what’s risky.

Ryan Scribner: Yeah, that makes sense.

Jason Graystone: Lots of people think that it’s risky gambling, but it’s down to you to approach it professionally as a business for it not to be a risk. We’re looking for an edge, a paper-thin edge.

Ryan Scribner: If you approach it like you would the casino, you’re going to get a similar outcome more than likely, right?

Jason Graystone: Of course. Before we go on, people come to me and say, “I want to be a consistently profitable trader.” Well, the clue’s in the title, right? You have to be consistent.

Ryan Scribner: Not all the time, right? Not every trade?

Jason Graystone: Yeah, absolutely. You just need to show up and do the same thing, same thing. I’m going to go into that in a bit.

Jason Graystone: Secondly, people think that you have to be intelligent, you have to have a high IQ. I came out of school with one grade, and that was aught. It’s just simply not true. If it was true, you would see a lot more brain surgeons ditching their 250-grand job, so earning seven figures trading, because they’re far more intelligent than me, right?

Ryan Scribner: Sure.

Jason Graystone: That’s absolutely not true. The next thing is that people think you need to know about all the global affairs, what’s going on in the country.

Ryan Scribner: Sure, current events and what’s going on in the political landscape and everything.

Jason Graystone: Absolutely. Unemployment rates, bank rates, all of that type of stuff, and that’s not true either. As a technical trader, I’m looking for patterns in the market. I couldn’t care less what’s going on in the world. The market doesn’t affect me. The bank rates don’t affect me. Brexit doesn’t affect me. I’m just looking for a probable edge out of patterns in the market that are predictable. You absolutely don’t need to know about all the global affairs of what’s going on.

Jason Graystone: Lastly on that, people think you need lots of equipment, lots of …

Ryan Scribner: Yeah, I’ve seen the six-computer screens and all kinds of stuff going on, and charts. Do you need all that, or is that just something that helps you, or does it complicate the process?

Jason Graystone: I started trading on a 15-inch laptop. You absolutely don’t need all those screens. Once you get down the road, it’s good to have two screens at least, because … I’m going to go through some equipment I recommend for you guys if you’re looking to start trading. Two is good, because you can have the markets, and you can have something else on another screen if you’re doing other things. You absolutely don’t need six screens. Down the road you might … The reason they have six screens or eight screens is because they’ve got a lot going on. To make it easier, they have different charts and different screens.

Ryan Scribner: Sure.

Jason Graystone: You’re not going to be on Wall Street from day one. You absolutely don’t need tons and tons of equipment.

Ryan Scribner: That’s a myth debunked right there, because that’s something I figured you needed the six computer screens, and I’ve said that in the past.

Ryan Scribner: One thing that was interesting I just wanted to mention, I was looking at one of your videos, and you said there have been times where you go a very long span of time without a trade because the right pattern doesn’t show up for you.

Jason Graystone: That’s right, yes.

Ryan Scribner: What’s the longest span you’ve gone without a trade?

Jason Graystone: There’s a saying that, “You don’t earn money from trading. You earn money from waiting.” It’s absolutely true, although, essentially, it’s trading in the end. Trading requires a lot of patience. One of the other myths is that people think that you always have to be in a trade when you absolutely don’t.

Jason Graystone: What we’re waiting for is a set of rules to play out. Then we know we have a paper-thin edge over the market. The probability of what’s likely to happen next based on that pattern happening provides us with our edge. If we can consistently trade that pattern, that’s how we earn the money. That could be one week. That could be five in a day. That could be once a month. That’s how it goes.

Ryan Scribner: It’s really about the patience.

Jason Graystone: It is about patience.

Ryan Scribner: There’s people who think, similarly, when it comes to investing, they think they need to be all in the market at all times, and if they have any cash, they’re like, “Oh, I’ve got to get this money to work. I got to put it to work.” Then you hear about people going all in with the stock market, investing all their money, and then they have no mobility there. If a deal comes along, they can’t buy anything, because they’re already all in to the market. It’s very similar too, that patience aspect and knowing when to hold them, hold onto your money and say, “Okay, I’m going to wait for a better opportunity,” look for what it is that you’re looking for.

Jason Graystone: Absolutely. Bearing in mind, the purpose of this video is to give you the best possibility of succeeding into trading if that’s something you want to do.

Jason Graystone: The last thing I need to mention on this bit is it’s not, don’t look at it as a get-rich-quick vehicle. If you’re trying to think about how much money you can earn from trading, you’re really missing the elephant in the room. It can be the fastest way to grow your wealth. I’ve invested in businesses. I’ve invested in property. I’ve invested in stocks and shares. This really is the most rapid way to accelerate wealth, but if you’re just chasing the money from day one …

Ryan Scribner: You’re in it for the wrong reasons, yeah.

Jason Graystone: You’re in it for the wrong reasons, which is leading us onto really the first step of the framework. The first, and you’ll know just as well as I am, the first step in the framework, the most important thing, is to actually want it, right? What I mean by that is so many people out there are fantasizing over someone else’s dream. They see someone that’s hit a trade or there’s crap where they’re flying around in rented helicopters and Lambos and the money …

Ryan Scribner: Yeah. I’ve seen it all, yeah.

Jason Graystone: Of course. Of course.

Ryan Scribner: Flashy lifestyle, the kind of in-your-face showing off your rich …

Jason Graystone: Absolutely. What people do is they go, “What are you doing?” They say, “Well, I’m trading.” Then they go, “I want to trade.” Do you want to trade, because, I’m telling you, if you don’t enjoy actually looking at the markets and enjoy solving the puzzle, you’re not going to stick with it, because there’s lots of hard work down the line that you’ve got to put in.

Ryan Scribner: Yeah, people tend to ignore that hard work piece, and they just see, “Oh, this guy’s driving a Lamborghini. I can do that too if I started doing whatever he’s doing.”

Jason Graystone: Yeah. It’s not for everyone. Trading isn’t for everyone.

Ryan Scribner: Do you have to have a natural interest in charts and patterns and puzzle solving, like you were saying?

Jason Graystone: I would say that you have to actually enjoy looking at the markets and coming in each day. You don’t have to look at them all day. You can do day trading, swing trading, which we’ll go through, and you don’t have to spend lots of time in front of the chart, but you do have to have an enjoyment for the psychology in the markets and going through the charts, because there’s lots of back-testing data that you need to accumulate so that you’ve got the psychology to put that into your plan. You have to just actually enjoy doing it.

Jason Graystone: Know that you actually want to trade, because that’s the first thing that’s important, and why, because the monetary value, or the monetary gains from trading, it can be life-changing. I was just with a couple of Wall Street traders, and they said the same thing, it can be life-changing. What’s the money for?

Ryan Scribner: Sure.

Jason Graystone: Because it’s just money.

Ryan Scribner: Right.

Jason Graystone: There’s some kids in the [prop firm 00:17:19], they’re just driven by the money, because they haven’t got that … They’re just out of school. They’re just trying to vector the other person for more money. It doesn’t really mean anything to them. They’re just trying to get more money, because it’s a competition, like a [crosstalk 00:17:32].

Ryan Scribner: See who can have the most money in their bank account, not really, “Why do you want that money?” It was interesting too. You were talking about some of your motivations for doing what it is that you do and wanting to give back to the people around you, and really the more money you have the more good you can do for the world, and the more good you can do for people’s lives.

Jason Graystone: Sure. For me, it’s to free up my time to do what I want to do. As I said to you earlier, I ask people or if people say, “You’re driven by money,” these are the sorts of people that I say, “How much would suit you,” and they say something like, “Half a million or a million or two, that would sort me out.” I think that’s very selfish, because you’re just thinking about you and your immediate family.

Ryan Scribner: Not the people around you or your community or people you could really help.

Jason Graystone: Absolutely. I’m thinking much bigger term. When you can teach someone the realistic expectations and teach, and they get results, that’s life-changing, and there’s not a better feeling than that. Even, like I say, the Wall Street traders that we was with yesterday, even they are going into education, because there’s just so much rubbish out there, it’s important to get the information right, because it’s giving it a really bad name, which you’ve probably seen.

Ryan Scribner: Just to tie in here, in case you guys aren’t sticking around for the whole interview, you have a whole YouTube channel, where you do videos like this, educating people pretty much for free?

Jason Graystone: Yep. Yeah, I’ve got my own YouTube channel. My personal channel is Jason Graystone.

Ryan Scribner: I’ll link that all up into, down in the description below, for you guys too.

Ryan Scribner: In terms of just giving back, that’s one way that you do it as well, just by making videos helping people, showing them the basics.

Jason Graystone: Absolutely. I’ve got a book coming out later this year that you can go and read. We’re going to go through this video, we’re going to go right into the technicals. I’m going to show you actually how to make money in the Forex market. It’s going to be really valuable for your listeners.

Ryan Scribner: If you end up taking a pause from this video, bookmark it and come back to it, because it’s going to be a long one, but a lot of value in this one.

Jason Graystone: It is going to be a long one. There’s going to be a lot to take in. I’m not going to give you everything, because that will be …

Ryan Scribner: That would be a couple days we’d be stuck here, sleeping at some point.

Jason Graystone: It’s going to be a good one.

Jason Graystone: The first step is I went over what was the want and the why. You have to know that you actually want it and why you want it. The second thing is expectations. This is the next problem. People, because of the way it’s advertised on TV or these adverts, people think, they massively overestimate what’s achievable in a short space of time, so the first 12 months, say.

Ryan Scribner: Sure.

Jason Graystone: They think that they’re going to double their account in a month. They think they’re going to be on yachts in a year, and it’s just not realistic.

Ryan Scribner: Not realistic.

Jason Graystone: It’s not realistic. I’ll be very surprised if it takes you less than 12 months to really go through the process and learn properly and have a system that you’ve tested and paper traded even, and then gone out in the markets. I’ll be very, very surprised. Then because of that, when they actually start doing it, they figure out it’s quite hard. They blow a load of money, and then what they do then is they underestimate what’s achievable from 12 months to 24 months, say. That’s when the results can really, really compound and you see exponential growth. People get turned away by that.

Jason Graystone: What I’m going to do is just give you some expectations. It’s going to take you around 12 months to really, really learn. Then after that, the money, if you can just go through and go through the process in the right way, the money just comes.

Ryan Scribner: In that 12 months, how many hours a week or a day are we talking about here?

Jason Graystone: It depends what type of trader you’re going to be, and I’m going to go through that in a bit more detail, but you can do anything from, the testing is what takes the most time. The testing is what takes the most time, because you’re essentially testing a strategy back in time, and that can take, you want to go back about five years. That can take a long, long time, depending on how many markets you’re going to be looking to trade. That’s the most time-consuming and the most grueling bit, and I’ll go through the process of that.

Jason Graystone: The next thing is, people just going through it not really knowing the numbers, so they don’t know what they’re going for. It’s like, they’re just trading, “Am I going to replace my income or I’m not going to replace my income. What am I doing with the money?” There’s a very, very simple formula. You talk a lot about stock market investing and passive income, building passive income streams.

Jason Graystone: Essentially, if you’ve got any sort of liquid assets, like money in funds, you’ve got some cash, a cash buffer, some savings, anything like that, essentially, all you’re doing is you’re taking that, and you’re working out your expenses for the month, and you just want to minus your trading income divided by your assets, and that is essentially it. What that will give you is a figure in time.

Jason Graystone: If you’re getting paid monthly, say, for instance, you’ve got $5,000 in assets or cash, and your expenses are $2,000 a month, say. If you’re bringing in $1,000 in trading income per month, then if you do the math on that, the 5,000 divided by the 2,000 minus 1,000, which the calculation is here, you’re going to have five months. You can buy five months. You’ve got financial independence for five months.

Ryan Scribner: Okay, I see what you mean.

Jason Graystone: You’ve replaced your income for five months.

Ryan Scribner: I’ve never really thought about it that way. That’s very interesting.

Jason Graystone: Right. This is what I was working from from day one, when I was 26.

Ryan Scribner: Your whole goal was to free up your time?

Jason Graystone: Yeah.

Ryan Scribner: By generating this income?

Jason Graystone: Absolutely. By having that sum, I put this down when I was 26 years old, and by having that sum in place, I knew what it was going for. It wasn’t just a dream. It wasn’t just a …

Ryan Scribner: It was a tangible number, what you were reaching for, not just some pipe dream, like a Lamborghini or a million dollars out of nowhere.

Jason Graystone: Absolutely. By doing that, you have something tangible, as you say. Here’s a great thing. As you get better and better at trading, you can match your living expenses, which then, your financial independence.

Ryan Scribner: Sure. Then at that point you don’t have to go work if you don’t want to do that, right?

Jason Graystone: You free up your time.

Ryan Scribner: That’s the situation you were in, right?

Jason Graystone: You free up your time. As you free up your time, you can earn even more money, because you’re focusing more on trading …

Ryan Scribner: More of your energy and efforts onto … Yeah.

Jason Graystone: Absolutely, so you’ve got it. Just have your numbers, work that out, know what you’re working towards, and know that it’s going to take you a while to learn. That’s expectations.

Jason Graystone: The next thing that’s really important is accountability, self-accountability, because it’s all on you. With other markets, if you’ve got a shot, you’re selling a product, you’re relying on customers, you can blame the staff for not showing up.

Ryan Scribner: Yeah, you have excuses.

Jason Graystone: You’ve got excuses. You can blame the supplier for bad goods. You can blame the economic crisis.

Ryan Scribner: Blame the weather, whatever you want.

Jason Graystone: Blame the weather, blame the traffic, blame the geographical location your shop’s in and everyone’s gone vegan. You can blame things. With trading the markets, it is all on you. If you lose money, it’s your fault.

Ryan Scribner: That’s something that I’ve heard from people as well is, they say, “Oh, the stock market stole money from me.” It’s like, “You handed it over.” If you lost money, you have to at least own up to that. You can’t blame the market. It didn’t reach into your bank account and pluck out money, you know?

Jason Graystone: We hear the same thing. It’s like, “Oh, the broker stopped me out,” or, “The broker took my money.” If you make statements like that or if you hear people say statements like that, it just shows a lack of knowledge towards how the orders are executed in the market. Absolute rubbish. You need to know that you’ve got to be accountable. Self-accountability is absolutely key.

Jason Graystone: Secondly, you’ve got to be accountable to not go off and chase the shiny object. You’ve got to stick at one thing. This is going to take you forever. This is what I struggled with. You think that someone’s got a better system, and you go and follow that.

Ryan Scribner: Yeah, jumping around from one thing to another and just kind of dabbling with it, right?

Jason Graystone: It’s so inefficient, right? If you just have one thing and go for it and don’t worry about …

Ryan Scribner: What everyone else is doing, yeah.

Jason Graystone: Just focus on one thing, one system. Trust me.

Ryan Scribner: That happens a lot of the time too with the stock market, it’s kind of a social thing. If you’re investing, you talk to your friends who are investing, and you hear about your friend’s in a certain stock, and maybe you’re not happy about the one you’re in, so you say, “Oh, I’m going to sell this and buy that,” and you end up jumping around.

Jason Graystone: You’re in too late.

Ryan Scribner: Generating a flurry of activity and really having no success with it, because you’re not really doing it for the right reasons. You’re just trying to …

Jason Graystone: It’s not strategy.

Ryan Scribner: Yeah, there’s no strategy to it. It’s just, “Okay, what’s this guy doing? I’m going to follow him.”

Jason Graystone: Absolutely.

Ryan Scribner: Now Jason is going to jump over and give you guys some recommendations as far as what equipment you need to get started with this whole process, so we’ll see you guys back here in a bit.

Jason Graystone: Sure.

Jason Graystone: All right, in this lesson I’m going to be going over the equipment that I think you need to be able to trade professionally. There’s lots of common misconceptions about needing thousands of pounds worth of PC equipment and six monitors and so on, and that’s simply not true. When I started trading, I started trading on a 15-inch laptop, and I did most of my testing on that laptop as well. In this video, I’m going to go over what I think are the minimum requirements, and then I’m going to go over what I think you should really have if you have the budget for it. If you only have the budget for the minimum standard, then go ahead with that. If you don’t have the budget for the minimum standard, well, you can either not trade or simply go with what you have.

Jason Graystone: When I start talking about i5 or i7 processes, and you say you only have an old Core Duo, then you can start on that, but if you’re going to treat this as a business, I really believe that you need at least the minimum specification laid out in this video. You may be aware that technology moves very, very quickly, and it becomes dated quite quickly. If the last time you upgraded your PC was over three years ago, say, then it’s likely that the software or the hardware that you’re running is out of date. The first thing you need is a decent processor. If you have recently bought a laptop or a PC, the chances are you already have one. It’s going to be an i5 or an i7 processor. The minimum requirement, in my opinion, would be an i5 processor, and if you have the budget, well, then an i7.

Jason Graystone: The second thing that’s important is the RAM. What RAM does is it allows your PC to run multiple processes at once. If you think of the processor being the brain of your PC, then the RAM is how many different things the brain can juggle at one time. What I recommend is 4 gigs of RAM as a minimum. I’m going to suggest to you that you go with an 8 to 16 gig of RAM, but if you buy a new PC or laptop, it’s likely to come with 8 gig unless you specify otherwise. RAM Is very cheap, and if you get the chance to upgrade when purchasing, it will be well worth investing in the upgrade. Otherwise, you may get down the road and wish you had done it when you bought the PC, but just know that 8 gigs of RAM is enough.

Jason Graystone: Next on the list is an upgraded hard drive. If you think of RAM as processes handle at once, then the hard drive is the memory. It’s the place that stores all of the processes that aren’t being used. The speed at which it can grab the unused processes depends on the speed of that hard drive. You can have a lot of RAM and a great processor, but if it takes your hard drive a long time to find the information that the RAM and the processor is asking for, then you’ll still have a slow machine. Many machines will come with a traditional hard drive, such as a one-terabyte hard drive, 7200 RPMs SATA drive, and it will get the job done for most people. Since you aren’t most people, and you are a trader in the making, I’m going to recommend that you upgrade to a 256 gigabyte Solid State drive. There are a couple examples here. The first one is a Samsung SSD 830, which is very good. The next one is a SanDisk SDSSDP-256G25.

Jason Graystone: The next thing I’m going to go over is a solid graphics card, because crashes aren’t fun. The graphics card will allow your PC to run smoothly without lagging, crashing, and run multiple programs and use multiple monitors if you want to without getting that blue screen of death. Then you have to restart your PC, and you don’t want to have to deal with all that. You don’t want a graphics card that’s too small, especially with all the charts and live data that you’ll be using, and I have two recommendations here. The first one is an EVGA GeForce GTX 680, which is an amazing graphics card. It’s what graphic designers use for CGI. The other one is an EVGA GeForce GTX 760, which is nowhere near as expensive as the first one and will happily run a couple of monitors. If you want to be able to run three or more monitors, and you’re that type of person, then you may want to go for something like the 680.

Jason Graystone: The next thing is monitors. Don’t believe that you need six-plus monitors to be able to trade successfully, because you don’t. You can just use one monitor. I would recommend having a second screen, purely because you can use one for your chart testing and one to log your results. You can use one for your analysis and the other to place trades, or you might be part of a live room, where you want the live room on one screen and your charts on the other so you can follow along. This simply makes your life easier, and that’s really the only reason.

Jason Graystone: I have six monitors, but if you think of all the stuff that I do, I run a webinar, have news and social feeds going on, have the lower time-frame paris, the higher time-frame pairs, the screen recording software running, and I need to keep my eye on a lot of stuff at one time, especially as I’m talking to people in the live room and explaining my analysis in detail, I need to be able to keep an eye on things as I trade live in that room, and I don’t want to miss anything. For you, it’s really just not necessary.

Jason Graystone: With regards to monitors, I use the AOC 27-inch HD monitors, but in my opinion, you really should have two qualities. The first is that the monitor should be HD so that charts are crystal clear. The second is that they are anti-glare or matte finish screens. These two qualities will ensure you don’t strain your eyes when spending hours in front of the charts whilst learning and testing and even trading.

Jason Graystone: The last thing is your internet connection. A decent internet connection is essential to trading. Execution is critical, so you need your connection to be fast-working, reliable and not cut off just as you’re about to place an order, or a news event comes out, and you can’t get your stop list in place. It happens, so do your best to make sure it doesn’t. I would recommend an upload speed of at least 786 kilobits per second and a download speed of at least 3 mg, which is very common these days anyway, but make sure you can get fast internet. Don’t skimp on it. It will cost you in the long run, believe me.

Jason Graystone: All right. Just a recap, you need a computer with an i5 or an i7 processor, 8 to 16 gigs of RAM, upgrade to a Solid State hard drive, upgrade your graphics card, a monitor that won’t fatigue your eyes, and a solid internet connection, and that’s it. Even if you go with the low end of all of that stuff, you’ll still have a great trading machine. It’s going to do everything you need it to do. That’s it. That’s what I recommend, and if you have all of that, then you’re good to go.

Jason Graystone: This must be one of the most commonly asked questions that I get. “What charting software do you use? What charts are those? What do I need? Is that okay if I use this one? Is it okay if I use that one?” I know you’re probably seeing tons of different trading platforms advertised on the TV or web, and you have absolutely no idea what one you would need, so I want to share with you what I think are a few of the best charting packages that you can use.

Jason Graystone: I’m going to go over just three different platforms and give you the advantages and disadvantages of all three, in my opinion. Firstly, there are a few functions that I think you need on a good charting package. The first one is flexible movement. In other words, you want to have that 360-degree movement so that you can easily manipulate the charts whilst doing your analysis. The second thing I think is very important is to have real-time data connection. You don’t want a delay in your data, because this will be detrimental to your trading.

Jason Graystone: The third thing is a full set of indicators. You want to have all the indicators at your disposal should you require them. I use very little in the way of indicators for my own trading, but you’ll need to have the RSI ATR and the Fibonacci indicators as a minimum. The first platform I’m going to recommend is TradingView.com. TradingView.com is a completely free charting package that offers extremely flexible and powerful tools in real time.

Jason Graystone: You can now link your broker account to that package, and you can place trades on the charting package as well. For charting and analysis, this is a great package. It has the 360-degree movement on the charts. You can set watch lists. You can set alert levels that will email you or text your phone when the market has reached them, so you don’t have to be at your PC all day. All of your analysis is also saved on the screen until you delete it, so you can close the web page, open up on another PC, and it will all be there just as it was when you left it. It has all the tools and indicators, and the developers are frequently releasing new tools and features. This package will give you news releases, you can place demo trades, so it’s good for your forward testing or demo trading, and it will even log your performance for you.

Jason Graystone: A couple of downfalls to the package, in my opinion, is the lack of data. You can currently only go back around a year or two, which means if you’re testing strategies on the 60-minute time-frame or even the 15-minute time-frame, the chances are you’re not going to get that 100-trade sample size that I recommend.

Jason Graystone: The second thing is that this platform has a social media aspect to it as well, where you can share ideas with other traders, which is quite cool, but the only downside, in my opinion, is the forum section. This can be extremely damaging and dangerous to traders, because trading is a fairly lonely business, and some traders get tempted to participate in the forums, and this results in Chinese whispers, lack of correct information, or just simply the urge or temptation to check that next shiny object, which we’re trying to move you away from. This will end up with you getting lost in the abyss again, and that’s not what we want. Don’t get me wrong. This is a great platform, except there isn’t quite enough data, in my opinion, and the forum section should be approached with caution.

Jason Graystone: The next platform I’m going to recommend, purely because it’s still very popular, probably the most popular trading package, and you may or may not have heard of it, but that’s MetaTrader, or MT4. This package is clean. It has all the indicators you will need here and can place trades directly on the chart, so it’s a charting package and a trading platform in one. The downside to this platform, in my opinion, is the indicators aren’t very user-friendly. The charts aren’t easy manipulated and can be quite limiting when it comes to the more advanced trading strategies. The platform is free, and as long as you have a data feed provided by a broker, you’re good to go.

Jason Graystone: The last trading platform I’m going to recommend is NinjaTrader. NinjaTrader is a very crisp, clean, and extremely flexible charting package. Again, it’s a charting package and a trading platform in one, so you can place trades live on the charts, and all of the tools are extremely user-friendly. The charts are easily manipulated, and everything is customizable. The platform, again, is free if you have a data feed from a broker, and you can save different workspaces for different portfolios or back-testing and real trading workspaces.

Jason Graystone: Also, the platform offers advance ATM strategies, which means once you get slightly more advanced, you can code your own automatic trade executions. This is the platform that I use, and I think it’s a great package, not only because of everything I’ve just mentioned, but to top it off, they have an outstanding support team and tons and tons of video tutorials on their YouTube page.

Jason Graystone: There we have it. You no longer need to worry about what platforms you should choose and what charting package to use. I would say go and have a play with all three, get a feel for which one suits you best.

Ryan Scribner: Okay, guys, welcome back. Now Jason is going to go into more detail here about really identifying some of these patterns in the market, correct?

Jason Graystone: Yep, that’s right. The first thing I want to talk about is the difference between fundamental analysis and technical analysis, because there’s no right or wrong. There’s people that rubbish either/or, and the truth is, there’s no analysis that tells the future.

Ryan Scribner: No. As much analysis as you do, you have no idea what’s going to … You can manage your risk involved with investments, but there’s never a guarantee that the market’s going to go any one way or another.

Jason Graystone: No. I think it’s crazy when people say, “Oh, that’s, you can’t use technical analysis to …” It’s crazy, right? Fundamental analysis is more news-based, more, the economic data, what’s going on in the world. Really, the reason that I don’t like to use fundamental analysis for trading is because you’re not getting the figure or the result. You’re guessing the market participants’ reaction to the result, which is impossible, right? You don’t know how people are going to react to a certain news release or a certain event.

Ryan Scribner: It’s the same way as well with investing in companies when you’re trying to bet on an earnings report. You guess about what the numbers are going to come in at, but you could have one thing in that earnings report that people don’t like, and that stock can go in the complete opposite direction of where you’re expecting it to. I completely understand you on that piece.

Jason Graystone: Yeah, a hundred percent. With technical analysis, technical analysis is based on psychology. There are patterns in the market, although people think the patterns are … We never know what’s going to happen next in the market. Contrary to popular belief, there are patterns in the market that stood the test of time. They’re not entirely random. The way that we build our edge is to identify a sequence of patterns in the market so that we know that if we get this pattern, then it’s likely to do this next.

Ryan Scribner: Sure.

Jason Graystone: What we’re looking to do is build rules around that pattern. If we see something that happens frequently, and we go back and test that, and it’s happened frequently for five years or six years or ten years, then if we can build rules around entering that, exiting that, that move, then we’ve got a high probability, we’ve got positive expectancy. We’ve got a system that provides us with a positive edge, a statistical positive edge. That’s really all we’re looking to do.

Jason Graystone: The reason I love technical analysis is because we don’t have to worry about what’s going on in the world. There’s a saying that the technical trader can trade the market regardless of knowing the market, and although that’s not entirely true, because you have to test the market, what they’re saying is, because of the technicals, it’s the patterns we’re looking for. It’s not necessarily the market. It could be Apple, Google, it could be currencies, it could be futures. It’s the patterns we’re looking for and the psychology in the markets.

Ryan Scribner: Can you make money in both bear markets and bull markets with this type of strategy? Does it matter if it’s going up or down?

Jason Graystone: Yeah, it makes no difference. That’s one of the great things about Forex, which is you can short the market and you can buy the market.

Ryan Scribner: What’s the majority of the trades you’re doing? Are they betting against, or are they bullish trades?

Jason Graystone: With investing, for instance, what you’re really doing as a passive investment, is you’re hoping that it goes up.

Ryan Scribner: Sure. [crosstalk 00:40:55] asset appreciation. You’re going to buy it and eventually sell it down the road at a higher price or collect your dividends.

Jason Graystone: Absolutely. The Forex market is in a different … It essentially moves sideways over time. Although it might be going bullish for a long, long time, it will end up at the same price that it was sooner or later, and we can go short, we can go long. The Forex market actually consolidates for a longer period of time than it actually is in a trend. Seventy to 80 percent of the time, we’re in consolidation, some form of consolidation, and only 20, 30 percent of the time we’re trending.

Ryan Scribner: Do you trade when it’s in consolidation, or no?

Jason Graystone: Yeah. I’ve got strategies for bullish, bearish, or consolidation. Another important thing is to be able to adapt for that, not just be arrogant, sort of stuck.

Ryan Scribner: If you can only make money at a certain … That’s also people who only can make money during a bull market with investing, you have to know how to make money in all, you’ve got to an all-weather investor or trader as well.

Jason Graystone: Yeah. Yes.

Ryan Scribner: All season trader. You can’t just be able to make money at a certain time and then say, “All right, I’m going to take a break for nine months,” or wait for …

Jason Graystone: That’s an interesting point. I think it’s important that you just touch on this again, that trading isn’t investing. We’re not just going long and holding. That’s not what we’re doing. We’re trying to get in and out and capture a higher, a move in the market that has a high probability so that we can get the profits out, and that’s it. We’re going in and out.

Ryan Scribner: I’m sure it varies, but how long do you usually have a trade open then? Is it, you close them at the end of every day, or do you have some overnight?

Jason Graystone: Yep, I do. About three hours a day trading a day, there sort of in and out within a half hour. I really day trade for the education piece so that I can show people what I’m doing, the methodologies, the process. If I wasn’t doing education, I’d purely be a swing trader, so four-hour time-frames. I’m in the trades from anything, for two days, up to two weeks maybe.

Ryan Scribner: They’re holding it overnight. I guess that was one of the other misconceptions, is that all day traders close everything by the end of the day. Is that true or it depends?

Jason Graystone: In the stock market, it’s close of the day. With the Forex market, if you’re in the UK, it closes at 10:00 on Friday night, and it reopens at 10:00 on Sunday night, but that’s it.

Ryan Scribner: The Forex market. Other than that, it’s open 24 hours, Monday through Friday?

Jason Graystone: Yep.

Ryan Scribner: Very interesting, so you could, if you wanted to trade at two in the morning, you have the availability to do that?

Jason Graystone: Yeah, you can trade 24 hours.

Ryan Scribner: Okay.

Jason Graystone: Now I’ve been over the technicals and explained a bit about the patterns in the market, what I really want to do is show your listeners how we can identify these patterns. I’m going to go into my trading desk and give you guys an example.

Ryan Scribner: Okay, sounds good.

Jason Graystone: All right. As mentioned just now, we’re going to look at the way the markets move and how we can identify some patterns, and I’m going to be going through a simple pattern I want to share with you that then you can go and identify for yourself.

Jason Graystone: The first thing I want you to be aware of is the market moves, how the market moves, because you’ve probably seen the market move up, and you’ve probably seen the market move down, and you’ve probably seen the market move sideways. When we’re moving up, we call this a bullish trend, and when we’re moving down, we call this a bearish trend. When we’re moving sideways, this is either called ranging or consolidation.

Jason Graystone: When we see the market moving in any direction, there’s certain things that we can pay attention to that are likely to cause a reaction or the market’s likely to respect. The first thing is going to be even-handled numbers. If we’re talking about the market being driven and the patterns in the market being respected by psychology, patterns being psychologically driven, sorry, one of the things we’re paying attention to are even-handled numbers. Anything like a dollar flat or 1.5 or 1.1, 1.2, anything with an even-handled number, the market tends to respect more often than it doesn’t. Not every time, but more often than it doesn’t. Remember, we’re going for that statistical edge.

Jason Graystone: Another thing that the market respects are numbers with 50 in it, so anything with 50, so 1450, 1550, 1350. Fifty and even-handled numbers, just bear in mind that that’s respected. Any time that the market respects any psychological number, what we see is structure. The next thing we’re going to show you is how the market moves. What you’ll see is this cyclicity, where we see cycles in the market of a new high, a retracement, and then we’ll see a new high. Then we’ll see a retracement. Then we’ll see a new high. The market moves in ebbs and flows like this.

Jason Graystone: Usually, the structure, this is what creates structure. Normally, these structure levels are created by even-handled numbers or significant levels of importance of being respected previously in the market. What also tends to happen is as we push up, what we call this is a resistance level, and what we call this is a support level, so this is like the ceiling, where we hit resistance. This is like the floor, where we bounce, we hit that support level. What we normally find is that when we put in new highs and we push back down, previous resistance then becomes support, so the structure is actually respected as well.

Jason Graystone: One of the things I just want to touch on is how to identify a trend. Then what I’m going to talk about is how we look at the end of the trend, and we can predict a reversal. First of all, to identify a confirmed trend, we’re looking for a three-point move. We’re looking for this move, the retracement, and then the new structure high. Then what we know is, we have a high probability that the market’s going to continue up until we violate this previous outside return or retracement here, at which point we’re in consolidation, and then we need to look for that three-point move again, one, two, three, in order to make a prediction that we’re likely to see a continuation to the downside.

Jason Graystone: Normally, we see this, this, this, this, until we end up reversing again, violating this outside return or retracement, and then we look for that three-point move again. It just continues like that. The reason we do that is because once we hit that three-point move, we know we have a higher probability that the market’s going to move up or down, depending on what direction we’re going in.

Jason Graystone: The pattern I want to talk to you about today, there’s many, many different ways to make money in the market. I’ve been over certain things that affect structure in the market, like even-handled numbers, 50-levels, previous structure, and historical levels that have been respected time and time again. What I want to go over in this video is, when we spot a reversal, so there’s a pattern that happens frequently at this point that we can use to short the market at the end of a bullish trend, or if we’re in a bearish trend, we can then look to, by the end of the bearish trend, and look to buy this up.

Jason Graystone: There’s a simple pattern here called a double top. You might have heard of this referred to as a V-top, but it’s a double top. Essentially, what it looks like is this. We get to the end of the trend, we then have a small retracement here, and then one final push up, we get reject to this test, and then we fail to put in a new high, and then we roll over. This is called a V-top, or a double top, and I’m going to go through the rules of this right now.

Jason Graystone: Let’s just say, for instance, that the market’s been pushing up, and we’ve identified our test, our initial test, and then we’ve started to retrace. What we’re looking for for this to be considered a valid double top is a test of this high. This high wick of the candle, we’re looking for a test of this level, so this zone here, for a second test. What we’re looking for is a test of this high, and what we can’t do is close above this previous high. If the candle pushes up and closes above this previous high, what we’re talking about then is a continuation to the upside. It’s important that we wait, and we wait for the close of this candle. As long as it doesn’t close above the high, it can do this, it can push up and put in a higher high, but it can’t put in the higher close.

Jason Graystone: We’re looking for a test of this zone. We cannot close above this high, and as soon as we get a valid retest, which can look like this, it can look like this, it can even look like this, or it can look like this, because we’ve tested this zone, and we haven’t closed above. As soon as we get this formation, this is considered a valid double top. Normally, double tops are price and time symmetry on the retracement, so we have price and time symmetry on the retracement as well, but, essentially, what we’re looking for is this little V, and then we’re looking for a retest of the initial test high but not a close above the high. This is what we call a double top. Typically, what we’re looking for after this is to enter a trade on the next candle, and then we’re looking for the market to roll over.

Jason Graystone: Now you’ve got a grasp on how to identify some patterns. What we’re going to talk about is how you actually build a trade plan, because this is essentially going to be your business plan for being a trader. What I always say to people is, the first thing you want to ask yourself when deciding what time-frame to trade or when to trade is, when can you consistently be in front of your charts, because people have jobs, people run errands, people take their kids to school. They’ve got their shopping coming on Tuesday. They’ve got the things going out on … Right?

Ryan Scribner: Yeah.

Jason Graystone: When can you actually consistently dedicate time to being in front of your charts, because what we’re going for here is consistent profit. Everything needs to be grounded and based off of a consistent plan. It makes no sense for someone who’s got a full-time job to try and check charts at lunchtime or …

Ryan Scribner: At their desk or sneak it in between … Yeah.

Jason Graystone: They’ll phone to a client, or they’re rushing for a meeting. It’s silly. You don’t want to do that. The first thing you want to do is go, “When have I got an hour to dedicate?” It might be at lunch. It might be an hour after work, after the gym.

Ryan Scribner: But uninterrupted time, basically, is what you’re getting at.

Jason Graystone: It’s uninterrupted time. It doesn’t matter if there’s more volatility. It doesn’t matter what’s going on. Just make sure it’s a dedicated time that you can just dedicate to being consistent. Then just find one pair for now, one market. Don’t try and find lots and lots of different markets. Don’t scout for different markets. Just get to know one.

Jason Graystone: I always like to think of it, when I met my wife, I met her in a bar, and all I knew about her that night was she liked white wine, right? That’s all I knew. The next day when I rang her up and wanted to meet her again, we went out to dinner. I knew what food she liked. Then I knew what pattern, when she had lunch, when she was out on Sunday. If you can just get to know one market first, you’re going to get to know the market, you’re going to understand more about that market and how it behaves. The markets behave in different ways. There’s different markets that behave different ways. It’s best just to know one pair.

Jason Graystone: If you’re looking at what market to look at, just pick one of the majors, one with the dollar in it. You’re going to get a bit of movement. Any pair with the dollar is going … The dollar’s the base currency for the world, and if you pick a pair with the dollar, you’re going to have some movement. It’s not going to be boring. There’s going to be something for you to test. There’s going to be something going on. Just pick one, so Euro dollar, pound dollar, Aussie dollar.

Ryan Scribner: I believe that’s familiar or similar to, as well, with people who day trade, they usually only trade a basket of stocks. They have a couple that they’ve learned the personalities. They typically don’t just pick one out at random. They learn the personality of each one of these stocks. Is that the same thing as what you’re talking about here?

Jason Graystone: Absolutely. I always say that, trading is a business, and these markets that I’ve got on my screens are my employees. They’re my employees. They’ve got different personalities. Some perform better under pressure. Some perform better in the summer. Some show up late. It’s very, very similar to running any type of business. If you look at it like that, you’re going to appreciate that some are going to perform differently. Also, if you did start a business, you wouldn’t employ 30 people on day one.

Ryan Scribner: That’s a very good way to explain that, yeah.

Jason Graystone: Right? It’s insane. You just wouldn’t.

Ryan Scribner: It’s kind of like, because I talk a lot about passive income on The Channel. They say the average millionaire has seven sources of income. You’ll get people who want to start all seven at once. It’s like, what are you going to do, dedicate one hour a day to each one and then become a millionaire? You do one very well, and then you move onto the next one. There’s a lot of ways that that’s applicable.

Jason Graystone: Then once you’ve got your pair then, and you’ve got the strategy, what you want to do is, you don’t just want to take every single setup that you see. If you was to go through different markets and apply one strategy, you’d probably have thousands of thousands of different opportunities per month. What we want to do is, we want to add some filters to that so that we get the higher probability move. Although we’ve got an edge by identifying a pattern in the market, what we really want to do is identify the really high probability. You can add things like filters, and what I’m going to do now for your listeners is just show you how we go back to that example I just gave and then add some filters to that to really give you the higher probability trades. Let’s jump back to the desk.

Jason Graystone: All right. As we’re building out a trade plan, what we want to do now is take the double top principle, and we want to apply some filters so we’re not taking every double top that we see, because if you just apply those rules and you look for those rules for a valid double top, you are actually going to see them form in many places that don’t provide high probability trading opportunities.

Jason Graystone: What we’re doing is we want to build some rules, build out a plan and say, “I’m going to have some filters in place so that I only look for these trades in the highest probability zones.” Taking into consideration what I’ve been over already, what we’re going to look at is, we’re going to see that we’ve pushed up here, and you can see that we’ve held this level before we’ve started to see a retracement. We’re monitoring the market pushing up, and we’ve seen a hold of this level, which just so happens to be the 0950 level. If you look over here on the right, we’re at a psychological number, that 50 level.

Jason Graystone: We’ve hit that level, and what I’m going to say is, if we zoom out now, so if we just zoom out this market and we go back in time, we put our horizontal line in, and we’ve scrolled back in history, and we’ve seen, actually, we’ve tested this level once, twice, three times, four times, five times, six, seven, and we’ve held this level much more often than we’ve broken through it. Every time it’s tested, it holds more often than it doesn’t before it’s violated. What I’m going to say is, you have a rule in your trade plan to say, “I need at least three previous touches of this level before I consider entering this trade.” The first rule is, a minimum of three previous touches of this level before I take the trade.

Jason Graystone: The next thing I’m going to look for is something called the RSI. This little squiggly line down here is the RSI, which stands for relative strength index. What this does is, it indicates over-bought conditions in the market. I’m not going to go into too much detail on this right now, but just know that if we pushed above the over-bought condition, it indicates that the market’s running out of steam. If we couple this as a filter with the fact that we’re at a psychological number that’s been tested three times, at least three times previously, we’re likely to see a little retracement.

Jason Graystone: We’ve seen the retracement already, so now what we’re looking for is that second test and that rejection, that hold of this level. What we’re going to do is, we’re going to watch what price action does next. We know we’re interested in this level. Now we’re going to peel our eyes and wait for the rest of our rules to be met, which I’m going to explain right now.

Jason Graystone: You can see the price action’s started to push back up, but remember the rules of the double top. We are actually, we need a test of the high, the previous high, which is this little zone here, the high wicks of the candle. We need the price action to push up and at least test that zone and not close above the higher of that test. Let’s see what happens next.

Jason Graystone: All right. You can see that this candle here hasn’t quite tested the zone. It’s pushed up, but it hasn’t quite tested the zone. Therefore, it’s not valid, so we can’t take the trade yet. What I’m going to be looking for on the second test, you know I mentioned that we were over-bought. What I’m going to look for is some bearish divergence. I’m looking for equal tests of this high, and I’m looking for bearish divergence, so a slope down on the RSI, equal test of the high on price, bearish divergence on the RSI, and that’s going to be used as another filter.

Jason Graystone: So far we have psychological number, which I’ve moved, psychological number, at least three tests of the level previously, over-bought condition on the initial test, and the bearish divergence on the second test. By waiting for those filters alone, it’s going to turn your trading opportunity that you’re looking for, your trading strategy and your plan, into a very, very high probability system. Let’s see what happens next.

Jason Graystone: All right. You can see on this candle, we’ve actually tested the zone. We haven’t closed above the high, so what we can do now is actually sell the market, next bar market. what that means is as soon as this candle closes, and we have to wait for this to close, because if we don’t wait for this to close, the chances are we could push up and close above the previous high, which would mean it’s invalid, so we wait for the close, we wait for the candle to close, and then we sell the next bar market.

Jason Graystone: Then what we want to do is we want to put our stop loss above the high, and I’m going to use a ten-pip stop loss, so we’re going to go ten pips above. We’re going to up at -60, 0960, and we’re going to take profits off, for this example, a retest of the low. We’re just looking for a pull back down into a retest of this low. We’re going to sell this now next bar market and we’ll see what happens next.

Jason Graystone: There we have it. You can see that we’ve rolled over. This is a high probability, because we’ve waited for those filters to be met. We didn’t just take any double top that we saw. We waited for those filters, which gave us an extremely high probability of being right. In fact, you can see here that we continued down even further.

Jason Graystone: That’s how you identify a trading strategy, a pattern in the market that happens frequently. That’s how you add filters to it to make it a very, very high probability trade rather than just taking those low-quality trades. That’s how we combine it all together to really give you those high probability moves.

Jason Graystone: Let’s just say for the sake of this example that this risk here, where we entered, was one percent of your account. Then if we just clone this, you’re going to see that this was a one, about one-and-a-half-to-one risk reward, which means this would be a one-and-a-half percent profit on your account in one trade.

Jason Graystone: Hopefully, you can get a bit more excited about how we can really hone in on those high probability trades, and instead of there being thousands of different opportunities, we’re honing into ten opportunities a month here to really get those high probability trades out of the market. What that does, it suits many peoples’ personality, because if you’re like me, I personally like to be right more than I’m wrong, and I like to win more when I’m right than I lose when I’m wrong. I just like that edge. Some traders I know, they’re happy being wrong seven times out of ten. They’re happy with that, because they’ve got a much bigger risk-reward profile.

Ryan Scribner: Is that based on your personal preference, or is it based on your risk tolerance, or you just figure that out through testing it out?

Jason Graystone: Absolutely. It’s your personality really. It’s so important to build it around your personality. If you’re not happy being wrong more than you’re right, then don’t have a system that does that, right?

Ryan Scribner: Sure, yeah, makes sense.

Jason Graystone: I like being right at least 50 percent of the time, because then I know I can make money with money management. I’m going to talk about money management now. Once you’ve found a system that is profitable and it’s proven to be profitable, where the real money’s made is through money management. This is a strategy. If you think about a coin flip, if I was to flip a coin, if you flip a coin a hundred times, over that hundred times you’re likely to be right 50 times, right?

Ryan Scribner: Sure.

Jason Graystone: It’s a 50/50 flip. If every time it was heads, I paid you a dollar, and every time it was tails, you had to pay me 50 cents, you’re going to want to flip that coin as many times as possible, because you’ve got a statistical edge of having 50 percent, but you’re going to win more over time.

Ryan Scribner: Yeah, you’re not going to lose as much when you lose. You’re going to make more when you’re right.

Jason Graystone: Absolutely. That’s called risk management. If you just add a money management strategy to that, let’s say, for instance, every time you hit ten winning trades or ten winning flips, we increase the size, and every time you lost five …

Ryan Scribner: You decrease …

Jason Graystone: You decrease.

Ryan Scribner: Okay.

Jason Graystone: What we’re doing is we’re protecting our capital as we’re going through a bad period, because there will be losses, there are losses. Then we’re increasing your capital, or your position size, as you’re doing well, as you’re going through those hot streaks. What that does, it allows you to accelerate your account and protect your capital.

Ryan Scribner: One question that I have, and I’m not sure if you touched on this previously, but how much … If you really want to get started with this, and you want to go through the whole testing phase, and you know you’re going to lose money, how much money do you realistically need to have in order to get through that learning curve and figuring this all out?

Jason Graystone: Let’s talk about losses then, for instance, because there’s a cost of doing business, right? As you said earlier, whether it’s education …

Ryan Scribner: Yeah, there’s no such thing as a free lesson out there.

Jason Graystone: No, there’s not. It’s a business, so you’ve got to buy a laptop, a PC, right, which I’ve been over, the equipment. You might have to have a membership to a trading platform. It’s the cost of doing business, so there are overheads. With the markets, the losses are the same as any other business, except they don’t come in the same order.

Jason Graystone: If you think about a product, if we sell a physical product, we’ve got a markup on that, but we’ve got overheads, and we’ve had a cost of producing the product. If we sell a product for ten dollars, we might get three dollars profit at the end of it, and every product we sell, we know that we’ve got to pay the overheads, we get three dollars, and we’ve got the profit.

Jason Graystone: With trading, the losses are just the cost of doing business. Then the profits, they don’t come on every trade. It’s over time. You could have a week of losses, and then you could have two weeks of winning trades. It’s not on every single trade that you get the profit and loss, and that’s what people really struggle with, because they think, “Oh, God, I’m losing trades,” but that’s why it’s important to stick to the plan, because you know you’ve got a statistical edge over time.

Ryan Scribner: Sure. Is it really about just consistently showing up and applying the same principles each time?

Jason Graystone: Absolutely. We’re going to talk a bit about back testing now, because now you’ve got the plan, and you’ve got the rules, and you understand money management. The first thing you need to do, or the last thing you need to do, I should say, before you go live is to test the system. This is the thing that’s skipped most. I would say that 98 percent of the people that go into trading don’t do this bit.

Ryan Scribner: Really?

Jason Graystone: Yeah.

Ryan Scribner: You think this is a big part of why that failure rate is so high?

Jason Graystone: One hundred percent. For me, take my example, for instance. For me personally, it was a turning point. It was what changed me from just blowing money to being very consistently profitable. I’m going to talk a bit about back testing.

Jason Graystone: Once you’ve got your market, and you’ve got your system, your strategy, you want to go and test that over time. Use your historical data that I went through on the trading platforms, and what you’re looking for is a minimum of five years, or a hundred trades, whatever comes first. Depending on the time-frame, if you’re very small time-frame, you’re looking for a hundred trades, which might be two years, or if you’re in a higher time-frame, on the four-hour or the sixty, you might have to go back five years to get the hundred trades, right?

Ryan Scribner: Sure.

Jason Graystone: You want a minimum of a hundred trades or five years of data. What the back-testing phase does is it gives you black and white results on the probability of your trading system. What you then you want to do is go out and replicate in the markets what you’ve tested. You don’t want to deviate from that at all. You literally want to build the rules off of your back-tested plan and say, “This is what I’m going to do going forward.” It’s a set of tangible rules that says, “This is the results you’re likely to expect, so go out and do that.”

Ryan Scribner: Based on the historical data looking at those trades.

Jason Graystone: Yeah. If you’ve got a system that provides a return of 40 percent, 50 percent, return on investment per year, you want to stick with it. You want to go with that, right? You don’t want to tweak it, but the amount of people then get that and then go out and start breaking the rules and then going, “Why am I losing money?” The other problem that they do is they test one market, and because that’s profitable, they bring in another market, and they assume the strategy works on that one.

Ryan Scribner: Oh, they try to take that strategy and apply it to a different market entirely?

Jason Graystone: Because they can’t be bothered to test it, right?

Ryan Scribner: Is this the most time-consuming aspect of it?

Jason Graystone: Yeah. It takes me around 20 hours per market to test.

Ryan Scribner: To back-test it, okay.

Jason Graystone: I would say that you need to test one market, one strategy, one time-frame, at a time. You don’t want to be jumping around strategies. You don’t want to be jumping around markets. You just want to get one whole set of results done, and it’s going to take about 20 hours to do one.

Ryan Scribner: That’s funny how that is. The most time-consuming piece is usually the most important piece. Then people just skip it, because they’re like, “Ah, I’m not going to be bothered to spend 20 hours …” and it’s really, if that’s the differentiator there between the successful and the unsuccessful …

Jason Graystone: It really is.

Ryan Scribner: … it’s amazing, but I certainly believe it.

Jason Graystone: I want to give you guys the realistic expectations. If you don’t do this, you’re going to have a very hard time. Just get it done, and it is grueling. It’s horrible. It’s the worst part.

Ryan Scribner: Is it just sitting there looking at chart after chart, looking at the outcome?

Jason Graystone: Tick, tick by tick, going through the rules. If this happens, then I’m looking for this. If that happens, then I’m looking for that. Then you’re setting your entries, and I’m going to give you guys an example on the spreadsheet on how to do that. It is just horrible. I didn’t speak to my wife for three months when I was doing the testing. It was horrible. That’s what’s required. In the grand scheme of things, it’s not a lot of time. You’ve just got to get it done.

Ryan Scribner: Yeah, you just got to get through it. That’s the way it is with anything, and you saying, having been involved in different businesses, there are certain parts of it that you love, and there are certain parts that you hate, but they’re equally important, and you have to get through those parts that might not be so glamorous or interesting to you.

Jason Graystone: Of course. Lots of people don’t talk about back-testing, because it’s not very glamorous.

Ryan Scribner: Yeah, that’s not going to sell this when you sit through, if people are trying to sell their programs, if you sit there and say, “You’re going to hate this. It’s going to be grueling. I didn’t talk to my wife for three months,” that’s not a great sales pitch, you know?

Jason Graystone: By myself. Yeah, yeah.

Ryan Scribner: Buy it anyway, you know? I think that’s why people really appreciate you, is because you’re so honest, and it’s almost kind of takes people back that you’re this honest, because there are a lot of very shady people involved in trading, in particular. You see a lot of it.

Jason Graystone: I get that. There’s people, the trolls on YouTube, and they retaliate, and I get that, because they have been led up the garden path, and they’re like, “Oh, no, I’ve actually got to do some work. This can’t be true. I’m going to just … No, you’re telling lies.” It’s sort of like denial. You can see from the people that I work with and the community I’m in that my only motivation is to give people the truth, based on my own experience.

Ryan Scribner: Absolutely, yeah.

Jason Graystone: If you take one of my private clients, for instance, he applied the strategy, tested a couple of pairs, and then he just went and assumed that it worked on all the markets, right? He was trading for two years, just slowly bleeding money, and he wasted two years of his life until I said to him, “Show me your back-tested data,” and he said, “I haven’t got any.” I said, “Well, you’ve got to go and do that, and I’m going to give you three months to do it.”

Jason Graystone: He went back. Three months later, he had all the tested data. I was checking it all for a, spot-checking everything. He then produced a report that said, “This pair wasn’t profitable. That pair wasn’t profitable. This pair wasn’t profitable with that pattern. This pair wasn’t profitable with that pattern.” He knew to take out all of that stuff, and it changed him from being, bleeding money over two years, to doing three and half, four percent, per month, in three months.

Ryan Scribner: Amazing. It just seems silly to me if that takes … Okay, it is a grueling process, but if it just takes that certain amount of time, to then waste two years doing it wrong, because you don’t want to start and have that proper foundation, is just crazy to me.

Jason Graystone: If you think about it, it’s just because they didn’t go back to the start of this video and actually want it. They haven’t got expectations. They don’t know why they’re doing it. That’s why this process is absolutely crucial.

Jason Graystone: Lots of people over-complicate back-testing. They don’t know where to start. They ask me if we can automate it or use a mechanical system. My answer is always, it’s always best to do it manually. I like good old Excel, and I’m going to show you a spreadsheet that we’ve developed, very comprehensive spreadsheet, that does all of the calculations for you, and it’s also a journal, and it also does your money management. I’m going to just show you in Excel first, just so you can grasp the concept of back-testing, because it really is easier than you think.

Jason Graystone: There’s a few things you want to pay attention to when we’re back-testing. The first column I’m going to put the market. In our instance, we’re trading Forex, so I’m just going to write the pair. That will be the Aussie CAD or, in our example, the double top that we just went over. It was the Euro dollar. The first thing we want is the market or the pair.

Jason Graystone: The next thing we want is the time-frame. We want to know what time-frame we are testing, if it’s the 60-minute, the 15-minute, the four-hour, the daily, or whatever. In our example it was the 60-minute, but we want to make a note of the time-frame.

Jason Graystone: The next thing we want is the entry date. We want to know where we got in. We want to know what date we got in. If we ever need to refer back or we’re crunching the numbers at the end, and we want to find out if there’s any periods that are unprofitable time and time again, and we need to remove them, it’s going to be important to have this information. On from that, we also need the entry time.

Jason Graystone: Lastly, we want to know the entry price, where we’re actually entering, buying or selling. Once we’re in the trade, we want to make a note about stop loss level, so that’s where we’re going to be wrong. Then we want to know our target price, so where the target is. Then, of course, on the way out of the trade, we want to know everything in reverse. We want to know the exit date, because the trade could go on for one day, two days, three days, whatever. We want to know the exit time, and of course the exit price.

Jason Graystone: The exit price is either going to be one of these two. It’s going to be the stop loss, or it’s going to be the target, because we’re either going to get stopped out, or we’re going to hit our target. The exit price will be one of these two, and we can use that combination to calculate the profit and loss at the end. In this one, we can have the total pips, or points.

Jason Graystone: Let’s go back to our example now and put some data into this table. Okay, looking at our example here, we know that we had to wait for a test of this level right here before we entered, and we had to wait for the close of this candle before we entered. If we hover the crosshair over this next candle, you can see that this is the 26th of April, and it’s at 8 am. The first thing we can do is our pair, which is the Euro dollar, so we’re going to go, “Euro, USD.” The time-frame is the 60-minute chart, so we’re going to go, “Sixty minutes.” We know that it was the 26th of April, so we’re going to put, “Twenty …” You guys in America do it opposite to us, so, “Four/Twenty-six/Eighteen … Seventeen.” Sorry.

Jason Graystone: Then we’re going to the entry time, 0800. Then what we’re going to do is put in the entry price. We know that it was next bar market, so we’re going to put the crosshair at this level here, and you can see on the right-hand side of the chart, it says, 1.0946. That is where we sold the market, 1.0946. Our stop loss I said was ten pips above the high, so we looked at the previous high, and we said, “Right. It’s ten pips above that,” so it was up at 0.961, so 1.0961. Then our target price was a retest of these lows down here at 0926, so 1.0926.

Jason Graystone: What we want to do is we want to track what happened next. The exit date was actually straight after, so this lasted one hour, this trade, a maximum of one hour, so the exit date is the same. I’m going to copy that and paste it in there, because I’m being lazy. The exit time was the same hour, so we’re going to go, 0800 again, and the exit price was, of course, our target price, so 1.0926.

Jason Graystone: Then what we’re going to do on this is, because we are selling the market, we’re going to go our entry price minus our target price, which will give us the total pips. You can see that the entry price was 0946. Take away 0926. That’s a 20-pip profit. You can put calculations in here to automate this, but you’re going to essentially see that we’ve got a 20-pip profit on that trade.

Jason Graystone: Now I’m going to show you our spreadsheet, which is a lot more comprehensive. It actually works out everything for you. It’s got some nice little charts here to show you your win percentage, your maximum losing streak, which is essential when we’re setting that risk tolerance and our position sizing. We’re looking at massive sample size. This is earlier on this year. You can see that we’ve been logging trades on this particular project for a long, long time. This goes all the way back to 2009, I believe. If we just scroll up here, there’s tons and tons of data here. This essentially works it all out for you.

Jason Graystone: In this case, we’re taking two positions, so we’re taking two targets, which is a little bit more complex, but it allows you to boost your account a bit more. Then what you can see, that this actually logs the back-testing into a money management spreadsheet, which actually tells you what your position size should be. It tells you the difference between fractional and smooth ratio, and also you can set the level at which, when you go above a certain profit, it triggers your position size so that then you increase your position size.

Jason Graystone: This is, as I mentioned earlier, how we can really accelerate our returns when we’re doing well and then protect our capital when we’re going for a draw-down. You can see just to here, for instance, that we’re increasing our position size until we take a loss, and then we drop back down. We then hit a winning streak until we take a loss. Then we drop down, and then so on. You can see how this takes, in this instance we took a $50,000 account to just under a million, and this is obviously over, since 2009, so this is a nine-year process from taking 50 grand to a million, but pretty decent.

Jason Graystone: This spreadsheet is very, very comprehensive, and you don’t really need something like this, but if you are treating your trading as a business, then I highly recommend that you have something a bit more complex than Excel, but just to go and back-test a strategy, hopefully you can see from now, from this little example here, how simple that can be and how you can really be on your way to go out and start testing these strategies.

Ryan Scribner: Something else I want to ask as well, can this be a hobby, or is this something you really have to be all in about? Can you just day trade casually or get involved with trading casually, where maybe a couple days during the week you want to sit down and trade, or do you really have to have that dedication to this?

Jason Graystone: That’s a really great question. The answer’s no. You cannot dabble in trading. You have to show up. Summer months are going to be quiet. Christmas is quiet. The big institutional traders who move the market, they’re the ones that go into the Hamptons for the summer. You have to understand, we don’t move the market. Retail traders, we have no power moving the market. It’s all …

Ryan Scribner: That’s the same way with retail stock market investors as well. Your buy order of ten shares of Facebook is not going to move that share price, you know?

Jason Graystone: Exactly. Exactly. All we have to do is, during those slow periods, we just have to show up, because there’s going to be maybe one trade, two trades, that we catch that keep us afloat in the summer. We’re really looking at a return on investment over time here. We’re not looking at a consistent hundred pips per day or a thousand pounds per month. It’s over time. You might have a month where you lose. You might have a negative month. You might have a break-even month. June, for me, was extremely profitable. May was flat. Then February was very profitable, and April was flat. It’s just looking at the average over time. You have to show up. You have to be consistent.

Ryan Scribner: Yeah, that is very interesting, because I’m sure a lot of people maybe don’t want to go all in with this, and it’s important to realize that it can’t just be a hobby.

Jason Graystone: It can’t be a hobby. You need to want it. You need to know why you want it. You need to have realistic expectations. You need to hold yourself accountable. You need to learn the right way, start at the beginning in the process, go through it the right way, and then you’ll have the results that you want. It’s as simple as that. The results are inevitable if you just go through that process.

Ryan Scribner: Sure.

Jason Graystone: Finally, let’s just talk about results then. If you’ve gone through that process, realistic results. People think that they’re going to double their account week after week. That’s absolutely ridiculous. What you don’t want to do is risk so much that you’ve taken a big hit, and you are now having to make up so much money just to get back to breakeven.

Ryan Scribner: Sure.

Jason Graystone: I use a smooth ratio money management strategy, which I’ve been over. Some people who just get into trading use a minimum percent risk of their account. Some people like to say one percent. I’d say that’s a good start, right? You don’t want to risk more than one percent of your account on any one trade. If you can consistently do that and just focus on not breaking that, then it’s going to take you a long time to be out of the game, right? You’re going to have your chips. You’re going to have your poker chips. If you blow 50 percent of your account, you’ve got to make up 100 percent of your account to get back.

Ryan Scribner: I’ve mentioned that too before, people think 50 percent loss, 50 percent gain, but that’s not going to get you back where you started. If you have a 50 percent loss, you now have to double your money to start back.

Jason Graystone: It’s very hard to double your account. It’s very, very hard to double your account. Realistically, in terms of results, what you’re looking at is if you can be consistent, and you can go through this process and learn the right way, you’re looking at around three, maybe four percent, conservative, per month, which compounds out to 40 percent per year.

Ryan Scribner: Which can do astronomical things to your money. I know a lot of people don’t understand the power of compounding, but that’s, I know it sounds like a little bit, but that has a huge impact on your …

Jason Graystone: Of course. If you couple that with obviously passive investments …

Ryan Scribner: Sure. Then something else that we could also tie in here as well is, do you recommend that a lot of people maybe take some of the profits from the high-risk side of investing and put it into a more passive strategy?

Jason Graystone: When I started trading well, I was investing anyway. I’ve got automated systems that do my investments and everything. When I started trading, I started splitting the money 70/30, so I had a 70/30 split. Then as I became better and better, I went to 50/50, but, absolutely, if you take some of the profits that you’re getting from your investments and you put them into your trading account, then you’re talking about a serious acceleration strategy there.

Ryan Scribner: Or the other way around as well, where maybe you want to take some of your profits and put them into a …?

Jason Graystone: Into an investment.

Ryan Scribner: … passive strategy where …

Jason Graystone: Yeah, absolutely.

Ryan Scribner: Okay, yeah.

Jason Graystone: It works both ways.

Ryan Scribner: You don’t have to be polarized there where you’re one or the other, you can do a mix of both of these things?

Jason Graystone: No, just find your strength. Again, you’re not going into trading as a be-all-and-end-all. This is another wealth acceleration strategy. It’s not something that’s the end. It’s just going to help you achieve financial independence quicker. That’s it.

Ryan Scribner: Okay, Jason. Thank you so much for coming on The Channel here. I certainly appreciate it. Where do people go if they’re looking to learn more?

Jason Graystone: We’ve obviously been over a lot in this video, and there’s a lot to take in. I recommend you go and re-watch it. If you really are interested in learning more about how to trade the financial markets, you can find the website below this video.

Ryan Scribner: Yep, everything’s linked up in the description. What is it, Tier One Trading?

Jason Graystone: Tier One Trading, yep.

Ryan Scribner: Then you also have a YouTube channel as well, where you’re pretty active posting videos on a consistent basis?

Jason Graystone: Yep.

Ryan Scribner: Okay.

Jason Graystone: Everything’s below, and hopefully be working with you soon.

Ryan Scribner: All right. Thanks so much for coming on.

Ryan Scribner: Thank you guys for sticking around and watching this whole video. If you guys want to see more videos like this, where I talk to different experts out there, let me know down in the comments section below. I’d love to hear your feedback. All right. See you guys later.