I rang the closing bell at the New York Stock Exchange on Friday. One of the epicenter’s of the global economy!!! Here’s the fun story.
In September, I went to FinCon in Austin. While there, I met the two brothers—Brett and Taylor Sohns—who founded LifeGoal Investments.
LifeGoal is solving a cool problem.
- Many everyday money situations would benefit from investing
- But each situation requires a specific balance of risk and reward.
- Too much risk opens up the possibility of catastrophic loss.
- Too little reward…well, then why bother investing in the first place?
- And normal people—like you and me—might not possess the skills to balance that risk and reward
- LifeGoal Investments has created specific exchange-traded funds (or ETFs) to address some of these situations.
Example: Housing Down Payment
Here’s an example of one such situation. Readers ask me all the time:
“Jesse – I’m saving up for a down-payment on a house. Should I invest that money?”
Depositing that money in a savings account will lose ground to inflation. That’s not an ideal outcome.
But to invest that money in a stock index fund isn’t ideal either. Stock index funds are best for timespans of decades. If you’re buying a house in less than 5 years, a stock fund is too risky.
What’s the solution?
The LifeGoal Home Down Payment Investment ETF (ticker = HOM) is an investment designed specifically to act as a place to store your housing down-payment savings.
The fund contains mostly bonds—a stable base that’s neither too risky nor overly rewarding. The fund is also comprised of about ~30% stocks. Many of those stocks are tied to the housing market (home building companies, home furnishing companies, kitchen appliance companies, lumber companies, etc.). And that is an important touch.
What’s the logic? For most future homeowners, a rising housing market is bad. But since $HOM owns stocks associated with the housing market, the rising housing tide will also lift HOM’s investments.
In this way, the $HOM ETF is a specialized tool designed for a specific problem.
As you might expect, you have to pay for that tool.
$HOM charges a 0.44% expense ratio. That’s a higher expense ratio than where I normally invest. I set the bar at 0.25% (or lower) for long-term, buy-and-hold style funds (i.e. the funds in your retirement portfolio).
But those long-term funds are a dime-a-dozen because you can find them anywhere.
$HOM, however, is a special tool for a special job. And because you’ll only hold $HOM for the short period before you buy your house, I think the 0.44% expense ratio is reasonable from the investor’s point of view.
You’re paying a premium for a premium tool. That’s ok!
Quick Math – The Cost/Benefit of $HOM
Imagine someone saves $20,000 a year for 5 years. Their goal is to fund a $100,000 down payment.
In a traditional bank account, they’ll earn $1,500 in interest over those 5 years (assuming 0.5% per year).
But inflation will eat away over $9,000 in value (assuming 3% inflation per year).
$HOM will protect this person against housing-specific inflation (due to its home industry assets). However, $HOM will cost them $1320 in fees over that time. Is that worth it?
To answer that question, the LifeGoal team backtested $HOM uses historic market data. Historically, the fund would have returned 5.7% per year, with a maximum decrease of only 7% over one year. That’s stable.
Using that prior 5.7% annual return from $HOM**, this investor would have seen ~$18,000 in returns while saving their $100,000 down payment. This return would overcome both the $9,000 inflationary loss in purchasing power and $HOM’s $1320 in fees.
And since $HOM is an ETF, it’s liquid. It’s easily tradeable. The future homeowner can convert their $HOM back to dollars and pay for their house in a matter of days.
**Note: the returns on investment products like $HOM aren’t guaranteed. 5.7% is a reasonable guidepost for this article.
Uhh…But What About the Closing Bell?
That’s LifeGoal and their flagship ETF, $HOM. Their other ETFs address similar “life goal” style needs.
I think it’s a really cool idea, mainly because their ETFs address the problems of everyday investors.
And because I like their idea, I’ve reacted in two ways:
- I became a small seed investor in LifeGoal.
- I’ve helped LifeGoal connect with other like-minded creators.
And last week, the LifeGoal founders were kind enough to invite me to New York City to stand beside them as they rang the closing bell. Thanks for the opportunity, Taylor and Brett!
Being at the NYSE – one of the epicenters of modern finance – was a once-in-a-lifetime experience. Very, very cool! And we relaxed afterward with a nice Italian dinner (eggplant parm? yes please!).
But by the end of the night, LifeGoal co-founder Brett Sohns was back to business. He told me:
“Today was great. But we haven’t done anything big yet. We still have a lot of people to help. A lot of people, with a lot of life goals. We started this company to help them. And that’s what we’ll do.”
Pretty good attitude, right? Mark that down as another reason to like LifeGoal.
Thanks again to Taylor and Brett Sohns and the whole LifeGoal Investments team!
**As discussed in the article, I am a seed investor in LifeGoal Investments. I’m sure my monkey brain is influenced by this fact. Keep that in mind!
P.S. – If you enjoy podcasts, check out the Best Interest Podcast!