How to invest in 2021: Do not miss this opportunity!
Tags: Etf, Investing, Wealth, Bitcion, Ethereum

2.1 Investing in the Stock Market

The stock market allows anyone, no matter how much money they have saved, what their background is, to easily participate in the wealth growth of entire countries, industries, technologies and companies. All you need is an account with an exchange trader and some money. Essentially, you have the option of investing in individual companies through the stock market or putting your money into Exchange Traded Funds (ETFs) which contain a whole basket of different companies [3]. While individual stocks allow higher returns than ETFs, the risk of a sharp drop in value is also greater and deficits of individual companies are easily offset by profits of other companies in the case of ETFs. Most people should usually prefer an ETF, as with individual stocks you should have a lot of knowledge and experience in the stock market. The top ETFs show a better annual return than most of the best money managers and are comparatively cheap in their fees. However, Single stocks are useful to a certain extent and should be present in every portfolio as it can easily increase the returns significantly. Of course, the time should be spent accordingly in the research of suitable individual stocks. Usually the fees are less than 1% p.a., but they should be considered in any case.Furthermore, it makes sense to invest in so-called accumulating ETFs, which reinvest their returns and thus create a tax advantage. Returns like dividends have to be taxed, therefore accumulating ETFs are more attractive in terms of the compound interest effect. So which ETFs should be in every portfolio?

MSCI WORLD ETF

One of the best known and most popular ETFs is probably the MSCI World. Although the name sounds like a globally diversified portfolio, about 65% of the companies are from the US. The MSCI WORLD mostly contains these companies with the following exposure in %:

ISHARES MSCI WORLD UCITS ETF

Company / Exposure(%)

Apple Inc. / 4.31% Microsoft / 3.02% Amazon / 2.62% Facebook / 1.32% Alphabet / 3.44% Tesla / 0.89% Johnson&Johnson / 0.80% JPMorgan Chase & Co / 0.74% Visa / 0.70%

The performance over the past decade is very nice (132% from top to bottom, dividends not included) and invesors can expect an average return per year of 6–10%. As mentioned above, this ETF is particularly heavily invested in US companies and therefore further ETFs should be added in any case.

Motnhly Chart of the “ISHARES MSCI WORLD” ETF (by https:/tradingview.com) [4]

NASDAQ ETF

Alternatively or in combination to the MSCI World the “iShares NASDAQ 100 UCITS ETF” would be interesting. It contains some of the big technology stocks from the MSCI World with a greater exposure and has performed very well in the last 10 years.

iShares NASDAQ 100 UCITS ETF

Company / Exposure(%)

Apple Inc. / 13.09% Microsoft / 9.90% Amazon / 9.65% Tesla / 4.63% Facebook / 4.14% Alphabet / 7.47% NVIDIA / 2.54% Paypal / 2.00% Comcast Corporation/ 1.83%

Performance of the NASDAQ 100 Index (by https:/tradingview.com)

Disruptive Technologies — Ark Innovation ETF

Not to be neglected are companies that are making enormous progress in the fields of biotechnology, renewable energies, digitalization, artificial intelligence and next generation transportation etc.. Some of these are only included in the NASDAQ Index to a lesser extent. However, there are ETFs that focus particularly on these innovative companies. One of them is the “Ark Innovation ETF”. This includes the following companies and has been able to achieve an extraordinarily high return in recent months and years [6].

Ark Innovation ETF

Company / Exposure(%)

TESLA INC / 9.85% ROKU INC / 6.97% INVITAE CORP / 6.24% CRISPR THERAPEUTICS AG / 6.11% SQUARE INC — A / 5.30% TELADOC HEALTH INC / 3.91% ZILLOW GROUP INC — C / 3.04% SPOTIFY TECHNOLOGY SA / 3.00% PROTO LABS INC / 2.98% EDITAS MEDICINE INC / 2.77%

Performance of the Ark Innovation ETF (by https://ark-funds.com/arkk)

Other ETFs

As you can see, the above mentioned ETFs are particularly heavily invested in US companies, which is in no way a bad thing, but it would be intelligent to invest more globally and also include companies with smaller market capitalization. There are several ETFs that can be included to provide good portfolio diversification. I will list some interesting ones here below.

Invest into Emerging Markets

The first ETF I would like to list is the “iShares Core MSCI EM IMI UCITS ETF”. The index provides access to mid- and small-cap stocks from emerging markets around the world, yet Asian companies account for over 70% of the total portfolio.

iShares Core MSCI EM IMI UCITS ETF

Company / Exposure(%)

Alibaba / 5.89% Taiwan Semiconductor Manufacturing Co. Ltd. / 5.34% Tencent Holdings Ltd. / 5.06% Samsung Electronics Co. Ltd. / 3.69% Meituan Dianping Class B / 1.56% Naspers Limited Class N / 1.06% Reliance Industries Limited / 0.89% China Construction Bank Corporation / 0.84% Ping An Insurance (Group) Company of China Ltd. / 0.83% JD.com Inc. / 0.83%

Performance of the MSCI Emerging Markets ETF (by https://extraetf.com)

Invest into Small Caps

iShares MSCI World Small Cap UCITS ETF

Company / Exposure(%)

Caesars Entertainment Inc / 0.19% Entegris Inc / 0.17% Plug Power Inc / 0.17% Charles River Laboratories International Inc / 0.17% Nuance Communications Inc / 0.17% Five9 Inc / 0.17% Bio-Techne Corp / 0.16% Penn National Gaming Inc / 0.16% Graco Inc / 0.16% L Brands Inc / 0.14%

Price performance of the iShares MSCI World Small Cap UCITS ETF (by https://extraetf.com)

Invest into China

Especially in view of the fact that China had recovered significantly better from the Corona crisis than the rest of the world, this suggests that the economy will continue to develop positively in the future. Of course, the risk due to the strong intransparency of Chinese companies and the government is a small drawback. Therefore, the majority of assets should probably not be invested in Chinese companies. If you want to invest into China stocks, you can consider to directly invest into a MSCI China ETF.

Xtrackers MSCI China UCITS ETF

Company / Exposure(%)

Alibaba / 17.07% Tencent Holdings Ltd. / 14.36% Meituan Dianping / 4.60% China Construction Bank Corporation / 2.60% JD.com Inc / 2.51% Ping An Insurance (Group) / 2.41% Industrial and Commercial Bank of China Limited / 1.33% Baidu Inc. / 1.31% Pinduoduo Inc. / 1.30%

Performance of the Xtrackers MSCI China ETF (by extraetf.com)

Invest into Europe

After the ETFs shown so far are more invested in the USA, China, Asia and other emerging markets, it would be interesting to supplement the portfolio with strong companies from Europe. There is also an interesting MSCI ETF on Europe, which has also achieved a decent performance in recent years.

iShares Core MSCI Europe UCITS ETF EUR (Dist)

Company / Exposure(%)

Nestle S.A. / 3.34% Roche Holding AG Dividend Right Cert. / 2.49% Novartis AG / 2.10% ASML Holding NV / 2.01% LVMH Moet Hennessy Louis Vuitton SE / 1.73% Unilever PLC / 1.59% AstraZeneca PLC / 1.45% SAP SE / 1.32% Novo Nordisk A/S Class B / 1.23% Total SA / 1.19%

Performance of the iShares Core MSCI Europe UCITS ETF EUR (Dist) (by extraetf.com)

Invest into Clean Energy

The demand for clean energy will increase significantly in the wake of globalization and population growth. Therefore, companies that deal with this problem are very lucrative in the future and should be in your portfolio in any case. An interesting ETF for this purpose is the iShares Global Clean Energy UCITS ETF which is composed of the following stocks:

iShares Global Clean Energy UCITS ETF

Company / Exposure(%)

Plug Power Inc / 6.01% Meridian Energy Limited / 5.66% VERBUND AG / 4.96% Enphase Energy Inc. / 4.90% Siemens Gamesa Renewable Energy S.A. / 4.77% Contact Energy Ltd / 4.75% Vestas Wind Systems A/S / 4.62% Orsted / 4.43% First Solar Inc / 4.43% Xinyi Solar Holdings Ltd. / 4.06%

Performance of the iShares Global Clean Energy ETF (by https://extraetf.com)

2.3 Anti-cyclical investment

With a smaller part of the portfolio, individual stocks should be purchased in any case, provided they have been carefully selected and researched. One of the best tips I can give you is to develop an anti-cyclical mindset in the stock market. What does that mean exactly? It essentially means avoiding stocks that have already risen extraordinarily strongly and rapidly and instead buying stocks that are comparatively cheap at the moment.

As an example, we can look at companies that have been particularly devalued due to the Corona crisis and that have not yet fully recovered. However, we must of course also assume that the company will recover in the future and be able to operate a normal business.

For example, companies in the travel industry have been hit hard by the Corona crisis due to severely restricted tourism and have so far recovered only weakly. However, it can be assumed that the industry will recover soon and I could imagine that many people will catch up on their summer vacation in the coming years and that there could be a real travel boom next year. That said, I would look at airport operators like Fraport, Paris Airport, Zurich Airport or Shanghai International Airport. But of course it can also be other airports. In addition, aircraft manufacturers such as Airbus, Boeing, etc. or travel companies and hotels such as Carnival and Marriot are interesting. It is possible that those who survive the crisis will strongly differentiate themselves from their competitors and take over a large part of the business.

As can be seen in the following chart, the deviation from Fraport’s current share value is still about 100% from the all-time high and thus offers significant growth potential should day-to-day business return to normal.

Chart of Fraport on XETRA Exchange showing 100% deviation fromprevious all time high (by https:/tradingview.com)

2.4 Cryptocurrencies

In addition to the stock market, investors should also keep an eye on the cryptocurrency market. Especially in times of the Corona crisis and the currency crises of emerging markets, the particularly important role of digital currencies, digital gold and contactless payment methods has become clear.

Bitcoin

Most of you have probably heard of Bitcoin during its last rally in 2017, where the media hype around Bitcoin was particularly strong [7]. This year, Bitcoin has also performed particularly well and has seen growth of over 160% in 2020. The strong growth, especially at the beginning of the year, can certainly be attributed to the halving event in May, where the block reward is halved, thus drastically decreasing its supply. However, since the middle of the year, more and more companies such as Microstrategy, Square, Paypal and most recently MassMutual Insurance have published that they are actively holding Bitcoin as a protection against inflation or want to offer investing and storage of cryptocurrencies for the public. The general concept behind Bitcoin is more and more accepted as a store of value or digital gold.

Price chart of Bitcoin in USD (by https://tradingview.com)

According to the so-called stock-to-flow model, which was first used by PlanB for the price development and prediction of Bitcoin, more than 100,000 USD [8, 9] in value can be reached in near future as can be seen in the following figure. Even more so, after next halving in 2024, the model predicts 1,000,000 USD for one Bitcoin.

Bitcoin Stock-to-Flow Model by PlanB [10]

Update: As I write this article, Bitcoin has just hit a new all-time high, unbelievable. It’s a shame that so many people are missing the boat again, preferring to spend time on conspiracy theories during the Corona crisis rather than investing in the future. Congratulations to you, you are smarter than most people now.

Ethereum

Besides Bitcoin, Ethereum is the second largest digital currency and should definitely be part of your crypto portfolio. Ethereum provides the platform, software and toolkit for blockchain applications (dapps) such as NFTs (non-fungible tokens), smart contract applications, blockchain games and the DeFi tools, which is discussed in the next paragraph. This cryptocurrency still offers enormous growth potential and probably has the largest amount of talented developers and brightest minds in the entire crypto space. This year, Ethereum has achieved a performance of about 400%, but even stronger growth is possible next year.

Price chart of Ethereum in USD (by https://tradingview.com)

DeFi — Decentralized Finance

Decentralized Finance, or DeFi for short, stands for the combination of traditional financial concepts and products, as they are known from banking, with blockchain technology. DeFi is about transferring well-known principles of the classical investment world into the world of cryptocurrencies and distributed ledger technology.

The problem with traditional financial services are increasingly becoming obvious to everyone: compounded costs due to middle(wo)men, slow transactions, delays for cross-border transactions, and inaccessibility to many sectors of the population. Financial services today are providing an important service, but at a very high cost. To that end, Decentralized Finance and blockchain technology offer trustless systems and smart contracts that allow to dramatically reduce transaction costs and transaction time while beeing fully transparent and fully accessible to everyone.

DeFi offers a solution to the problems of traditional Finance and Fintech (image by DefiChain [11])

Cryptocurrency itself cannot be invested in the same way fiat money can be and require different instruments. DeFi providers use instruments such as decentralized lending, asset tokenization, decentralized exchanges, direct peer-to-peer currency exchange, liquidity mining and more to allow investments of cryptocurrencies and generation of passive cashflows. The promising potential of this sector has led to a small boom in DeFi applications since 2019, which has intensified in 2020. And indeed, the yield possibilities and the simple and fast usability of DeFi Apps are clear advantages that justify an investment in this sector.

Cakepool and Defichain

One of my favorite investments in this sector is the DefiChain coin [12], which is based on a fork of the Bitcoin blockchain but designed to financial application. The goal of Defichain is to give people transparent access to the world of decentralized financial services with high transaction throuput, reduced risk of errors, and great support.

Cakepool [13] is a plattform, going hand-in-hand with DefiChain, that allows users to earn passive income with their cryptocurrencies like DefiChain, Bitcoin, Ethereum and many more. There are various possibilites like staking or liquidity mining which offer yields of approximately 6–11% per year. You can also recruit friends via a link and get a small advertising bonus. If you are interested in the Defi area and the Cakepool, I would be happy if you register via my link, which will give me a small bonus, there will be no extra fees for you.

2.5 Human Capital

While investing in the stock or crypto market etc. are very important for one’s financial future, investing in oneself should always come first and take a special general stand in the whole construct. What I mean by this is commonly known as human capital and generally refers to improving and expanding your own skills and social network.

You should always expand your own skills and regularly learn new things. Instead of mindlessly watching movies on Netflix, a good book or online course might be a good idea. A few good online services that offers a variety of online lectures and certificates are: Coursera, Udemy or edX-Learning. Likewise, you could use your time more wisely and specifically educate yourself professionally, generating more cash flow that can then in turn be better invested with your newfound knowledge. You also have the opportunity to meet new people and expand your social network during continuing education or seminars, the potential new opportunities are virtually endless. You can see the strong synergies that come from looking for opportunities and trying to combine them. In the same way, you should invest time in your health, because without a healthy body you cannot develop a healthy and positive mind, and vice versa.And last but not least, investing your time in your family, your wife or husband and also your friends is essential and extremely important.

I think what I mean by human capital in general should be clear by now, and a whole series of books could be written on this topic. However, that is not the aim of this article, but should only be listed as a completion and spark your curiosity. So I hope that you will use your free time in the next year and perhaps also take some money in hand to invest in your human capital.

2.6 Diversification

I would like to reiterate the importance of broad diversification and give a few tips. First of all, it should be emphasized once again that ETFs are to be preferred over individual stocks, as there is already a broad diversification in different companies. This avoids large fluctuations in the portfolio, while good gains of 7% p.a. or more are still possible as a general rule. The corona crisis has again shown that in general the stock market recovers from strong economic crises and especially broadly diversified ETFs have quickly regained a positive performance. Nevertheless, it should be said that some ETFs in particular, such as the MSCI World, are very heavily invested in companies in the U.S. and therefore other ETFs from the emerging market or Europe should also be used for compensation. In addition, some ETFs, like the MSCI World or the NASDAQ 100, are particularly heavily invested in large companies, so ETFs with a focus on small caps are also interesting as a complement. Last but not least, it should be mentioned that other asset classes, especially cryptocurrencies, definitely belong in the diversified portfolio. The risk/reward potential of Bitcoin and co. is significantly higher than for other asset classes.

Risk/Reward of Bitcoin compared to other assets, by PlanB. Source: https://twitter.com/100trillionUSD/status/1338149844188344320/photo/1

The exact distribution of the portfolio is up to you, but I would recommend to invest the majority in ETFs and to diversify, especially if you have little experience in investing. Cryptocurrencies are cyclical assets and especially strong during the “halving” period, which occurs every 4 years. During this time, of course, you can diversify more in cryptocurrencies, as long as you have enough information and are aware of the risks and dangers.

3. Conclusions

The financial crisis has widened more than ever the gap between poor people — who generally do not invest into the stock and cryptocurrency market and do not care much about finances — and the rich people who invest heavily into various market and have great financial knowledge. Everyone should therefore think about how they will start investing next year, should they not already be invested. In today’s world, various financial products such as ETFs or digital currencies and DeFi apps enable a broad diversification of one’s assets and above-average high return opportunities. Especially the technology sector will continue to grow strongly in the coming years and decades and enables enormously high returns for investors. Anti-cyclical investments, as shown by the example of the travel industry, also have a particularly high asymmetric risk-reward potential and should in any case have their place in a diversified portfolio.

4. References

[1] https://wallstreetonparade.com/2020/10/the-new-york-fed-pumping-out-more-than-9-trillion-in-bailouts-since-september-gets-market-advice-from-giant-hedge-funds/

[2] https://www.pewsocialtrends.org/2020/09/24/economic-fallout-from-covid-19-continues-to-hit-lower-income-americans-the-hardest/

[3] https://www.fidelity.com/learning-center/investment-products/etf/what-are-etfs

[4] https://www.ishares.com/de/privatanleger/de/produkte/251882/ishares-msci-world-ucits-etf-acc-fund

[5]https://www.tradingview.com/

[6] https://ark-funds.com/arkk

[7] https://money.cnn.com/2017/12/07/technology/bitcoin-explainer/index.html

[8] https://medium.com/@100trillionUSD/modeling-bitcoins-value-with-scarcity-91fa0fc03e25

[9] https://medium.com/@100trillionUSD/bitcoin-stock-to-flow-cross-asset-model-50d260feed12

[10] https://twitter.com/100trillionUSD/status/1338809429345570818

[11] https://defichain.com/white-paper/#roadmap-and-milestones

[12] https://defichain.com/

[13] https://pool.cakedefi.com