Finding a balance and setting proper expectations with your investments while understanding your limitations is a common challenge for digital nomads.
The topic of investing as a digital nomad is a recurring theme with my consulting clients and GWP Insider members.
Most “traditional” folks follow a certain path with their wealth building strategies.
- … max out their 401k’s, or other employer sponsored plans.
- … max out their IRA’s, or other individual tax advantaged plans.
- … often buy some rental property.
If they are really exotic, they buy some gold and silver and put it in their safe at home or safe deposit box down at the local bank.
These strategies have their place, and tend to serve those who are more geo-centric with their life choices.
They don’t work for most digital nomads or otherwise location independent entrepreneurs and freelancers.
I work with clients from around the world, from the German living in Bali, the Australian living in Portugal, to the American living in Mexico. The vast majority of digital nomads I know are either entrepreneurs running a virtual business with virtual teams, solopreneurs, or freelancers.
Before I go any further, I should caveat that this article is not targeted at Americans. While the U.S. is my country of origin, the fact is, the nation of digital nomads face their own unique set of issues.
For starters, they struggle with how and where to register their businesses and how to optimize their tax situation. If you are location independent and partially or fully nomadic, you may be unclear on how or where to file and pay your taxes.
This is a topic for another day, but we’ve helped thousands of location independent entrepreneurs with tax and residency planning. By joining our membership program, GWP Insiders, you get unlimited consultations, discounts on company formation, access to our events and my personal rolodex of professionals around the world, plus tons of content on internationalization strategies.
Second, and more related to this article, is the struggle for investment clarity. What to invest in? Where to invest? How to structure the investment? How to manage it?
Since most location independents are not traditional employees, they likely don’t have employer sponsored savings or retirement accounts. This, of course, adds to the complication of where and how to file and pay taxes on your investment income.
Another issue I’m sure many of you deal with is related to investing in real estate. How can you possibly decide where or how to invest in real estate if you are not living permanently in the place of your investment property?
As a fellow digital nomad, I clearly cannot give specific advice for your individual situations but I can share with you some of my personal strategies that I have found.
Invest in Your Own Business
This seems obvious, but often we are so focused on the holy grail of passive income we devote hours upon hours of research trying to create a passive portfolio that generates 5% annualized return.
For many of you, investing that time otherwise spent chasing a passive portfolio can yield infinite returns within your own business. And your money could return 50%, 100% or more.
However, there is a very fine line here. There comes a point in your business that you need to start “taking some chips off the table” so to speak.
While investing in your own business can give you tremendous returns, you are also emotionally connected to it and don’t always see the warning signs of a downturn or worse, collapse.
Because of this, there needs to come a time in your business when you STOP reinvesting all of your profits back into the business and start building a passive portfolio that can sustain you through the downturns.
From an emotional perspective, having a nice size nest egg that generates passive (or nearly so) income will free your mind to make better decisions without being under financial stress.
I hesitate to even mention this as I am 100% confident I will get barraged with emails telling me how irresponsible and risky trading options is, and how it is a short road to poverty.
I’ve heard it all before. But here’s the thing. I’ve been trading options for 12 years. In 12 years I’ve had 2 down years and the downside was minimal. Some years I had 100%+ gains. Nearly every year exceeded a 20% annualized return.
In my opinion, option trading is one of the best kept secrets in generating safe and steady cash flow while minimizing risk.
Everyone has a different strategy. There are tons of books written on the subject that interview traders to discuss their strategies as well as books on technical and fundamental analysis.
From my experience, it is best to find a trading strategy that works for you, your emotional composition, risk profile, time management, and level of involvement.
I’m not trying to convince you that trading is easy and a get-rich-quick scheme. Anything worthwhile requires research, time and work. But if you are willing to put in the effort to read some books, practice paper trading or trading small lots, and come up with your own strategy, it can be very worthwhile.
For reference my strategy is relatively simple.
I trade primarily stocks, rarely ETFs. I find it easier to do my research on just a few stocks and trade them well, than trade the broader market.
I trade mostly on fundamental analysis, but use a bit of technical indicators to determine entry, and sometimes exit points.
I only trade individual stocks that pay a dividend. This lowers volatility and if the stock is put to me, I can then collect a dividend until it is called away again, basically I’m double-dipping.
I primarily sell naked puts on these types of stocks 1-3 months out, and 2-4 price points below the ITM option (in the money). For example, if it is August 15, 2020 I would sell the September, October or November expiration with a strike price of $49, 48 or 47 (assuming the ITM price was $50).
Since approximately 80% of all put options expire worthless, that means 80% of the time, I keep 100% of the option premium.
In the 20% cases, I would either; buy to close at a loss, do a calendar put spread where I buy to close then sell to open in a future month collecting a bit of additional premium, or I would allow the stock to be put to me, then sell call options 1-3 months out and collect some additional premium.
The key here is risk management. There are many ways to mitigate risk, but my strategy is to not put on a trade that exposes more than 5-10% of my account. For some people, that is a big risk and they only do trades that expose 2% or 3%, but I’ve found this to work well for me.
The best part about option trading (aside from the cash) is that it can be done from anywhere on earth as long as you are willing to work during the trading hours of the exchange, in most cases this is US east coast time.
Cryptocurrency Trading & Investing
I really should clarify what I mean here regarding cryptocurrency. I rarely, if ever, engage in trading cryptocurrencies in the traditional sense.
I don’t follow technical analysis and trade in and out of various coins and tokens based on short term indicators or trends.
I only consider the fundamentals of the project, the team involved and their history and previous successes, the use case for the coin or token, and the liquidity.
Mainly I am a buy and hold investor in cryptocurrencies as long as the coin or token still meets my requirements based on my research.
I do however, use Crypto.com to hold and stake my coins and earn yields ranging from 6% up to 18% annualized return paid weekly. This has been my go-to defi platform for getting a great yield on cryptocurrencies.
We published 2 articles within the past couple of months for reference where I go into more depth about the use case of cryptocurrencies and the future of money.
If you are interested, you can read them here: “The Crypto Economy has Arrived and Not a Minute Too Soon” and here: “Cryptocurrency is Here to Stay”.
This is a topic I’ve spent considerable time with. I grew up with a father who owned a construction company and a real estate development company.
I worked summers as a teenager doing finish carpentry.
I started buying investment property in my mid-20s.
I’ve directly invested in small residential property, warehouses, office buildings, raw land, as well as vacation and short term rental property.
Beyond that, I’ve invested in various REIT’s and done extensive research in many real estate sectors for building a nice dividend paying REIT portfolio.
With that said, real estate is very tricky. Even trickier if you are location independent and more-so if you are nomadic in your lifestyle.
Many of my clients inquire about real estate investment while maintaining this nomadic lifestyle. The biggest hurdle I see is the lack of control when you are half a world away from your investment property.
Some of this can be mitigated by having great property managers, but even then, they are just managers and prone to quit due to their own personal circumstances leaving you with a problem to deal with while being halfway around the world.
From my perspective, direct ownership of real estate as an investment means you need to have close and direct access to your property within a very short window of time.
That can certainly work if you are investing in holiday rentals in Spain while living in Austria since you can get there very quickly by plane, or even possibly drive on a whim.
But if you are living in Argentina and there is a house fire in your coastal duplex in Malaga and your property manager decides to quit, you are left in a very difficult predicament. This is a serious consideration for the nomad investor.
As with any investment, you need to consider the properties of the investment as well as your goals and exit strategy. For example, you are always balancing yield, liquidity, and potential capital gains appreciation.
With direct ownership of real estate, you often can get a good yield. If you purchased properly, you can also get good potential capital gains. But liquidity always suffers since the asset cannot be quickly turned into cash.
For this reason I find building a REIT portfolio is a great compromise that allows you to get a good yield, a dividend, possible upside, and near instant liquidity.
Something to consider when you are planning your nomadic lifestyle.
Peer-to-Peer Lending Platforms
Lastly I will briefly discuss the P2P lending platforms that are becoming very popular over the past few years.
Many of these are a great way to earn a good cash flow yield on your investments as well as being outside the realm of the traditional banking system.
A few of the platforms I’m familiar with are Yieldstreet, Twino, Mintos, EstateGuru, and Royalty Exchange.
These all offer various debt products you can invest in with a fraction of the cash necessary to do these big deals on your own. These platforms aggregate smaller investors money to make loans for private deals.
For example, Yieldstreet currently has listed for investment: art portfolio, supply chain financing, apartment building renovation, and short term notes. Just taking a look at a few options listed on their main page, I see yields ranging from 4% – 10%, all asset backed.
Royalty Exchange let’s you participate in owning a piece of the rights to various music assets. They’ve facilitated through their platform the sale of songs and albums by Rihanna, Eminen, Drake, and Skipknot. As an investor in these assets, you would get royalties on these songs forever.
I’m a big fan of the P2P platforms as it allows smaller investors to participate in investments not otherwise available and earn really nice yields. But like with direct real estate investments, you need to consider your own goals especially as it relates to liquidity.
As a fellow nomad and location independent entrepreneur, I know it can be difficult to navigate the investment waters with all the uncertainty, tax implications, and opportunities out there.
I would encourage you to get involved sooner rather than later in your own personal financial journey. One of the greatest things about being nomadic is the freedom it provides. But that freedom comes at a cost: responsibility. You cannot 100% outsource your money management. You need to get involved.
Until next time, live well.