Good Cash Podcast: Crypto Credit score Playing cards and Brief-Time period Investing

36 mins read

Welcome to NerdWallet’s Good Cash podcast, the place we reply your real-world cash questions.

This week’s episode begins with a dialogue of bank cards that provide rewards in cryptocurrency.

Then we pivot to this week’s query from a listener who emailed us asking: “ETFs or index funds: Which of the above is healthier for short-term investing?”

Take a look at this episode on any of those platforms:

Our take

In case you’re contemplating a cryptocurrency-earning bank card, weigh the professionals and cons. Crypto is fashionable in the intervening time, however its volatility signifies that your rewards incomes fee may fluctuate drastically from daily. Alternatively, utilizing rewards factors to purchase cryptocurrency could possibly be a simple solution to dabble with out a lot threat.

On the subject of short-term investing, know what your time horizon is and what your targets are earlier than selecting an funding car. For time horizons shorter than three to 5 years, take into account conservative funding choices.

Issues like money administration accounts, high-yield financial savings accounts and certificates of deposit have a decrease potential return fee than different funding choices, however that is the trade-off for shielding cash wanted within the close to time period.

Different investments are fashionable for an extended timeline. Alternate-traded funds and index funds each will let you put money into a basket of securities, which may help diversify an funding portfolio. ETFs could also be barely extra tax-friendly than index funds. For retirement financial savings — which is most individuals’s longest-term funding — take into account the distinction between IRAs vs 401(okay)s.

Our suggestions

  • Know your long-term funding choices. ETFs and index funds each have low prices and provide straightforward diversification. ETFs could also be extra accessible and handy.
  • Watch out with short-term investing so you possibly can experience out volatility. Perceive that choices with decrease threat and volatility seemingly means accepting a decrease potential return.
  • Examine short-term funding choices. Money administration accounts, cash market funds and certificates of deposit can have increased returns than a financial savings account. They could be decrease threat than different choices.

NerdWallet shouldn’t be an funding advisor and doesn’t present recommendation, brokerage companies, or suggestions to purchase or promote explicit shares or securities. Our podcast is for informative and academic functions solely.

Have a cash query? Textual content or name us at 901-730-6373. Or you possibly can e-mail us at To listen to earlier episodes, go to the podcast homepage.

Episode transcript

Liz Weston: Welcome to the NerdWallet Good Cash Podcast, the place we reply your private finance questions and provide help to really feel somewhat smarter about what you do together with your cash. I am Liz Weston.

Sean Pyles: I am Sean Pyles. To contact the Nerds, name or textual content us on the Nerd hotline at 901-730-6373, that is 901-730-NERD, or e-mail us at

Liz: Hit that subscribe button to get new episodes delivered to your gadgets each Monday. And when you like what you hear, please depart us a assessment. Additionally, we need to know what you need to hear about in relation to cash. There is a hyperlink within the episode description to an extremely temporary two-question survey the place you possibly can weigh in. We might love to listen to what you assume.

Sean: On this episode of the podcast, we’re answering a listener’s query about tips on how to strategy short-term investing. However first, we’ll have a chat with bank cards Nerd and occasional co-host of the podcast Sara Rathner about crypto-earning bank cards, that are bank cards that provide rewards in digital currencies. With a fast caveat that crypto is unstable and dangerous, and that we’re not funding advisors, Sara, what do you assume folks ought to find out about bank cards coming into the crypto area?

Sara: Yeah, it appears recently — I hate this phrase as a result of I like cats — however you possibly can’t swing a useless cat with out any individual speaking about cryptocurrency. Many people have both dabbled in it ourselves or we now have associates or members of the family who’re investing in crypto. And from my expertise, nothing will increase your threat of speaking about crypto on a regular basis like investing in it.

Liz: Sure, that is a hazard.

Sara: One thing that we’re seeing right here at NerdWallet on the bank cards group, which I am part of, is a rise in bank cards which are providing cryptocurrency rewards not directly. You may see that as a cash-back card that lets you redeem rewards for cryptocurrency, along with different methods to redeem rewards, otherwise you may see playing cards which are created by cryptocurrency corporations that create accounts that will let you commerce crypto. They’re additionally creating bank cards that earn rewards on various kinds of spending, after which you possibly can deposit your rewards into your account after which purchase cryptocurrency with these rewards. That is very completely different. That is one thing that is new. And for individuals who is likely to be trying to dabble in a really small method in cryptocurrency, a lot of these bank card merchandise is likely to be attention-grabbing.

Liz: There are additionally mutual funds and exchange-traded funds that put money into cryptocurrency, so it is somewhat extra diversified. And in any case, we must also point out that cryptocurrency shouldn’t be regulated. And doubtless while you hear about cryptocurrency, it is when it is gone up. Nevertheless it’s very dangerous, it’s extremely unstable. You’ll be able to lose some huge cash right here, too. And when you’re solely listening to the upside, you may assume, “Oh, it is a nice solution to develop into a billionaire.” Possibly not a lot.

Sara: Proper. And there have been safety breaches on cryptocurrency exchanges, in order that’s a threat, too. Anytime something is hacked, it is a threat to your funds. When your bank card will get hacked, you may get that cash again. If you lose your crypto on this method, you do not actually have the identical insurance coverage coverage. There are issues that make it much less safe as an asset, and that is simply all issues to remember while you make investments. That is why our tackle it right here at NerdWallet is when you’re involved in investing in it, nice, however perhaps do not load your portfolio with it. Possibly make investments not more than 10% of your portfolio in issues like cryptocurrency or different dangerous belongings. That is only a solution to defend your self.

It is form of like tremendous microinvesting as a result of when you’ve ever had a cash-back bank card that earns 1% to 2% on your whole purchases, you know the way lengthy it could actually take you to rack up perhaps $25 value of rewards. That could possibly be, relying on how you employ your card, at the least one billing cycle if no more, when you’ve made a significant buy. In case you simply use your card casually, it would take a few months. You are not speaking about investing giant sums of cash of earned rewards on any of those bank cards.

Liz: Proper. And at this level, you possibly can’t take your crypto and stroll into Goal and immediately purchase something.

Sara: No. These types of issues are altering. We’re beginning to see particular distributors, particular retailers, enable fee within the type of cryptocurrency. I believe the Oakland A’s are accepting crypto for funds for one particular sport. You’ll be able to pay with Dogecoin.

Liz: Oh yeah. Yeah, I heard that. And likewise Microsoft’s been accepting cryptocurrency for some time. There have been some large corporations which are doing it.

Sara: Yeah. Then there is a resort in Las Vegas that partnered with Gemini, which is a cryptocurrency alternate. You need to use particular cryptocurrencies to make funds there of their on line casino. It is like playing on high of investing in a method.

Liz: Oy vey.

Sara: Yeah. Now, then what does it imply? Ought to I take advantage of my cryptocurrency to purchase baseball tickets and go to a on line casino? Now, this is the difficulty with that. If the worth of your cryptocurrency would go up sooner or later and also you blow 100 Dogecoin or no matter quantity on baseball tickets, then you definately’ve simply missed out on the chance to carry onto your funding and permit it to develop over time. There is a threat there, there’s a chance price. It is form of like what are you investing for? Are you investing so you’ve got some crypto put aside to make a lot of these purchases or are you investing since you’re hoping it grows?

Liz: Yeah. Folks want to grasp what they’re doing, perceive what the actual crypto is that they are investing in and perceive what their purpose is, proper?

Sara: We joke, however there’s something to be mentioned for understanding what you make investments your cash in.

Liz: Sure, that is fairly vital.

Sara: Lots of people purchase into hype, “You’ve received to do that. You’ve received to do that together with your cash. You have to get this factor,” and when you do not fairly know what it’s you are placing your cash into, you do not fairly know while you’re doing effectively and while you’re not, after which what subsequent steps you may need to take based mostly on the way you’re doing and the way you feel and the way the market is. That is form of what I’d warning towards. Clearly, if you are going to put money into cryptocurrency, it’s best to get a way of what it’s and the way investing works, and like several funding, perceive the tax ramifications of promoting cryptocurrency, since you do not need to find yourself with an enormous shock tax invoice since you bought off a bunch of shares, since you’re like a crypto millionaire now. After which all of a sudden, you owe… I imply, I’ve heard tales of individuals owing 5 figures to the IRS and probably not realizing that that is what was going to occur.

Sean: It is also vital to remember the acute volatility of crypto. We have seen a variety of cryptocurrency take a tumble in latest weeks. Bitcoin was down 30% over a single week lately. Dogecoin, my pet crypto, if you’ll humor a foul pun, is down by greater than half. However by the point this episode is printed, these cryptos may have taken one other tumble or completely recovered or completely skyrocketed. Their trajectories are simply so, so unpredictable, however I’d enterprise a guess that these on the Dogecoin hype practice are hoping that Elon Musk doesn’t make one other look on SNL anytime quickly. And full disclosure, I’ve bought Doge, however that does not imply I believe it’s a good suggestion. I purchased it as a joke.

Sara: It goes to point out you once more how dangerous this may be as a result of actually, the ideas and opinions and public statements of just some folks in energy, whose opinions are listened to, can dramatically swing the worth of this asset. That is one other factor to consider as a result of it isn’t based mostly on something tangible out there, like an excellent or a service or provide or aggressive benefit over different manufacturers or different issues you could measure, it is based mostly on any individual’s opinion and what they are saying on Twitter.

Liz: OK. Properly, I believe with that, let’s get on to this week’s cash query.

Sean: This episode’s cash query comes from an nameless listener who emailed us asking: ETFs or index funds, which of the above is healthier for short-term investing?

Liz: To assist us reply this query, on this episode of the podcast, we’re joined as soon as once more by investing Nerd Chris Davis.

Sean: Hey Chris, welcome again to the pod.

Chris Davis: Hey Sean, thanks for having me. All the time good to be right here.

Sean: Our listener is involved in short-term investing and is presently contemplating two choices, ETFs and index funds. Let’s begin by explaining what every of those choices is.

Chris: Let’s begin with index funds. Index funds principally pool cash from plenty of traders into one large pot after which the index fund supervisor invests these in varied securities. If it is a bond index fund, then these can be invested in bonds. If it is a inventory index fund, will probably be invested in shares. What’s actually vital to grasp about index funds is that they’ll observe an index. That is the place they get their title from. What does that imply? Let’s use the S&P 500 for instance. The S&P 500 is an index. And when you put money into an S&P 500 index fund, you are investing in all the corporations that make up the S&P 500. Your funding is distributed throughout all these corporations in the identical method that they’re weighted within the S&P 500 index.

Liz: In order that they’re principally mimicking a benchmark, a market benchmark of some sort, and what is the benefit of that?

Chris: So with that, you are getting actually quick diversification and it is very easy to ascertain. Reasonably than investing individually in 500 corporations on this case, you are investing in a single index fund that spreads that funding throughout all of these corporations. Diversification is simply extremely vital for long-term portfolios and decreasing your threat and your volatility.

Liz: However there are actively managed mutual funds, and index funds are completely different, proper?

Chris: An index fund goes to be what we might name passively managed, which means you do not have a fund supervisor again there choosing and selecting and shopping for and promoting shares inside the fund, it is passively managed. It simply tracks that underlying index. An lively fund, then again, it is extra hands-on for that fund supervisor and they’re choosing, selecting, shopping for, promoting shares, and that may really result in increased expense ratios. A passive investing technique by way of index funds can actually maintain your prices down.

Sean: What do you concentrate on these as an possibility for short-term investing?

Chris: It is usually not used for short-term investing. Index funds are actually good for long-term investing due to the issues we have talked about. They’re low-cost. They provide actually nice diversification. You are not going to be seeing somebody shopping for and promoting index funds on a short-term foundation.

Liz: Properly, one of many difficulties is you could principally solely purchase them as soon as a day, proper?

Chris: That is proper. You’ll be able to solely purchase them as soon as a day at a hard and fast value that is established on the finish of the buying and selling day, and that is really one of many greatest variations between index funds and ETFs.

Sean: Let’s dive into that. Are you able to clarify ETFs?

Chris: Certain. Initially, they’re similar to index funds. ETF stands for exchange-traded fund. And like index funds, they pool traders’ cash to purchase varied securities. In addition they typically observe an underlying index, similar to an index fund. There are actively managed ETFs. They will are inclined to have increased expense ratios, they’re going to be barely dearer to personal the place a supervisor is actively shopping for and promoting them. However typically, you will discover ETFs are these passively managed, low-cost funding autos, very like index funds.

Sean: OK. These appear somewhat bit comparable to one another. Are you able to get away how they’re distinct?

Chris: Yeah. The largest distinction between ETFs and index funds is that ETFs might be traded all through the day, very like shares. Therefore their title, exchange-traded funds. As a result of when you keep in mind, index funds can solely be purchased and bought on the finish of the day for a set value, referred to as the NAV, the web asset worth. Whereas ETFs, you should buy and promote them all through the day. In case you watch their ticker, their value goes to go up and down similar to a inventory and this may make it much more handy to purchase into ETFs than index funds.

Sean: From what I perceive, there are some tax variations between the 2, proper?

Chris: It may not be an enormous distinction for the common investor — it is the best way that they are structured. Index funds are barely extra difficult of their method, and that may result in further capital good points taxes. It isn’t an enormous distinction, however you might say that ETFs are barely extra tax-friendly than index funds.

Liz: And likewise, mutual funds can have a minimal, which could be a barrier to people who find themselves simply beginning out.

Chris: I’d say that is one other main distinction. Index funds, typically you are going to see a minimal. That could possibly be a pair hundred {dollars}, it could possibly be a pair thousand {dollars}, and that may be a barrier to some folks. Whereas ETFs, you purchase in at the price of one share and you’ll, after all, purchase a couple of share, however it tends to be simpler for folks to purchase into ETFs due to that. You do not have these excessive minimal investments.

Sean: Each might be accessed by way of a brokerage account.

Chris: Yep. Via most brokerages, you’ll kind by way of index funds and ETFs. In case you’re searching for how a lot does this index fund price to purchase into, search for the NAV, the web asset worth. That is going to provide the value. Versus the ETF, you are going to see the worth fluctuating similar to a inventory there.

Sean: So, because it pertains to our listener’s query, it looks like neither is mostly a nice possibility for short-term investing.

Chris: That is true. Each of them are very effectively suited to long-term investing. They’ve actually low expense ratios, they’re very easy so as to add diversification to your portfolio, and this actually makes them good for long-term investing, not essentially short-term investing. Once we’re speaking about long-term investing, we’re considering these are folks’s retirement accounts. It is 10, 20, perhaps even 30 years. This can be a actually very long time horizon. Once we’re speaking about short-term investing, to be clear, we’re not speaking about day-trading right here and we’re additionally not even speaking about shopping for a inventory and promoting it a pair days later. That is not essentially investing, that is extra alongside the strains of speculating.

Liz: And speculating is equal to playing. Whereas, investing is placing some cash in, you’re placing it in danger, however you’ve got an inexpensive expectation of an excellent return, proper?

Chris: Proper. You will take a calculated threat based mostly in your timeline and the portfolio that you just arrange.

Liz: What sort of time horizon are we speaking about once we’re speaking about short-term investing?

Chris: Usually, we’ll take a look at, we’ll say, 5 years. You actually need to give your self time to actually experience out any market volatility that will occur. You set your cash into an funding. It is potential that you might see regular good points for 3 or 4 years, and that final 12 months, it actually tanks. If you’re investing for the quick time period, you really want to contemplate that volatility. Giving your self about 5 years signifies that you may be capable to experience by way of any of that volatility that does happen. The very last thing you need is to want that money proper when the market tanks and you’ll’t let it keep out there to attempt to get better a few of that worth, so you actually need to assume by way of making some short-term investments.

Sean: It looks like it is usually a sensible concept when you’ve got a shorter timeline to tackle much less threat in order that you do not have to fret about a lot volatility.

Chris: Proper. So if we take a look at it by way of long-term investing, you’ve got that point to experience out no matter might occur out there. If there is a large dip, you possibly can depart your cash invested for one more 12 months, one other two years, one other 5 years. It is simply, it offers you that flexibility to not be compelled to promote when the market is down. So then we take that and we take a look at short-term investing, meaning you are going to need to tackle much less threat. Whether or not that is by decreasing your volatility by investing in much less dangerous, much less unstable investments, or it is simply taking up a just about zero-risk sort of funding, there are alternatives to do this, however you actually need to take into consideration that in short-term investments.

Liz: Let’s speak about a few of the choices if you do not have 5 years, in case your time horizon is shorter, in case your purpose goes to be one to 3 years sooner or later.

Chris: You’ve a pair choices right here, and the entire purpose is to actually decrease and decrease that threat when you’re speaking about a few years right here. One which’s gotten actually fashionable lately is the money administration account. This can be a actually versatile account. A few of your funds might be invested. it may be used as a checking account, and you’ll have a debit card hooked up to it, they usually’ll additionally earn usually increased rates of interest than your typical financial savings account.

Liz: We should always point out that nothing’s incomes a fantastic rate of interest proper now although, proper?

Chris: That’s true. Yep.

Liz: What about cash market funds?

Chris: Cash market funds are actually cool. It is a sort of mutual fund that is really going to put money into, as a substitute of shares or one sort of safety, it would unfold your cash throughout very protected short-term investments that, these are issues like U.S. treasuries. It could possibly be high-grade company debt. It is these investments which are very low threat, usually decrease return, however it can be a great way to see increased rates of interest than your typical financial savings account.

Liz: There’s financial institution choices, proper, like certificates of deposit, financial savings accounts, high-yield financial savings account, issues like that.

Chris: Yeah. You’ve your high-yield financial savings accounts. Typically, you will see these on-line lately and people have a few of the increased charges than your typical-brick-and mortar banks. However then you’ve got different merchandise like certificates of deposit, or CDs. With these, you will put your cash as much as the financial institution for a particular period of time. And in return, you will get a hard and fast fee of return.

Sean: I additionally need to speak about an possibility that folks is likely to be involved in, however it’s somewhat bit riskier for many who need to make investments and get their a reimbursement inside three to 5 years. These are peer-to-peer loans. Chris, are you able to clarify how these work and why they is likely to be somewhat riskier?

Chris: With peer-to-peer loans, you’re appearing just like the financial institution. You’re the lender and also you’re giving it to somebody who wants the mortgage. You’ll be able to select your stage of threat and that may even result in, , when you select one thing that is decrease threat, you are seemingly going to see a decrease return.

Liz: We should always speak concerning the diversification as a result of that applies right here, too. You are not simply investing in a single mortgage, you are really investing in a pool of loans, proper?

Chris: That is a great way to think about it. Your cash is unfold out throughout varied loans, so it isn’t simply mounted on one recipient of the mortgage and so all the chance is tied up on this one individual or this one establishment, it is unfold out throughout. So once more, you are diversifying your funding to decrease that threat.

Sean: Properly, Chris, thanks a lot for speaking with us. I recognize your insights.

Chris: Yeah, completely. Thanks for having me.

Sean: And with that, let’s get on to our takeaway suggestions, and I can kick us off. First step, know your long-term funding choices. ETFs and index funds are each nice long-term autos because of their low price and simple diversification, however ETFs could also be extra accessible and handy.

Liz: Subsequent, watch out with short-term investing. If you wish to go this route, it is most secure to go for choices which have decrease threat and volatility, which seemingly means accepting a decrease potential return.

Sean: And lastly, examine your short-term funding choices. Money administration accounts, cash market funds and certificates of deposit can have increased returns than a financial savings account and might be decrease threat than different funding choices. And that’s all we now have for this episode. Do you’ve got a cash query of your personal? Flip to the Nerds and name or textual content us your questions at 901-730-6373, that is 901-730-NERD. You can too e-mail us at and go to for more information on this episode. And keep in mind to subscribe, fee and assessment us wherever you are getting this podcast.

Liz: And this is our temporary disclaimer, thoughtfully crafted by NerdWallet’s authorized group. Your questions are answered by educated and proficient finance writers, however we’re not monetary or funding advisors. This Nerdy information is supplied for normal instructional and leisure functions and will not apply to your particular circumstance.

Sean: And with that mentioned, till subsequent time, flip to the Nerds.

Extra From NerdWallet

Liz Weston writes for NerdWallet. E mail: Twitter: @lizweston.

Sean Pyles writes for NerdWallet. E mail: Twitter: @SeanPyles.

The article Good Cash Podcast: Crypto Credit score Playing cards and Brief-Time period Investing initially appeared on NerdWallet.

The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.

Leave a Reply

Previous Story

CushWake arranges $115M build-to-suit building mortgage in Rutherford

Next Story

Name the Financial institution Now: Two Extra $1400 Stimulus Checks Are Coming