Your Secret Weapon to Explosive Success

The Daily Dough team watches the markets for big moves every single day…

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What’s on the Menu 🍴

Welcome to the 686 new dough-growing subscribers this week!

As the fireworks of Independence Day fade and the stock market swings back into action, it's time to get back in the kitchen and start cooking up some coin!

Here’s what we’ve got for you today:

• Your Secret Weapon to Explosive Success 💥

• FOMO Inflates Stock Market Prices 😨

• Bitcoin on Steroids 💉

• Hidden Pitfalls of Roth IRAs 🛑

Read time: 5 minutes.

Your Secret Weapon to Explosive Success 💥

Picture this: You're hiking up a hill, it's a slow and steady trudge.

Initially, each step seems insignificant.

Then, before you know it, you're standing at the top, looking down at the world from a vantage point you only dreamt of reaching.

This is the power of the "Compounding Effect."

Whether you're pumping the weights, establishing a start-up, or venturing into the investment jungle, the compounding effect is your silent partner, working behind the scenes, promising a performance that's more dramatic than a Broadway show's finale.

Imagine a snowball rolling down a hill.

It starts off tiny, but as it rolls, it gathers more snow, growing bigger and rolling faster.

Compounding works in a similar manner, making your investments not just grow, but accelerate over time.

This marvel of compounding is all about reinvesting your earnings, which in turn earn their own.

In other words, it’s not just your capital that's working for you, but also the returns on your capital.

So, how do we harness this powerful financial phenomenon?

Here's your roadmap:

1. An Early Bird Gets the Compounded Worm: The magic of compounding loves time. The earlier you start, the faster you reach your financial peak. ⏱️

2. Consistency is Key: The compounding effect is a slow burner that rewards long-term commitment. Regular investments are your ticket to a faster wealth-building ride. 🔑

3. Don’t Splurge, Reinvest: Once your investment starts yielding dividends or profits, resist the temptation to splurge. Instead, reinvest the earnings, feeding your compounding machine. 💸

Remember, compounding is more than a financial mechanism; it's a philosophy, a habit.

It's the understanding that today's disciplined investments will become tomorrow's bountiful returns.

It might take some time for your efforts to bear fruit, but when they do, you’ll be astounded by the power of the compounding effect.

So, stay patient, stay disciplined, and watch your dough grow!

FOMO Inflates Stock Market Prices 😨

The ‘price-to-earnings’ ratio is probably the MOST important ratio to know as a stock market investor.

It tells us how cheap or expensive a stock is trading…

But a lot of investors don’t use its full power.

P/E ratios give us the ability to filter noise and build more confidence buying stocks when everyone else is saying that the sky is falling.

For the S&P 500 index, the P/E ratio (dividing the price of the index by the earnings of corporations in the index), is at an interesting level here.

The S&P 500 is not historically cheap, but, it’s also not expensive.

So this is leaving a lot of investors unsure about what to do since this rally in stocks has already surprised them.

But, I think we could see things get even NUTTIER. 🤪

Can you guess what higher interest rates mean?

People are getting paid some dough to have money invested in risk free assets like money market mutual funds.

So, the big takeaway?

The FOMO (fear of missing out) buying doesn’t feel like it has begun in stocks.

YTD, we’re STILL seeing INFLOWS into money market funds.

This means that there is a lot of cash on the sidelines…

And people will want to start buying stocks as they realize they’re missing out on higher returns.

So, once the FOMO buying begins, and the globs of money market cash start chasing stock returns, it could drive the market to expensive territory pretty quickly.

In other words, higher prices encourages more buying.

This rally is one to watch! 👀

Bitcoin on Steroids 💉

If you think Bitcoin’s 88% year-to-date gain is impressive, check out Grayscale Bitcoin Trust (GBTC), which is up a whopping 149% year-to-date!

GBTC has been performing like Bitcoin on steroids lately.

Why?

In addition to the gains in the value of the underlying BTC it owns, the trust has also been clawing back the massive discount to its net asset value that it traded down to during the bear market of 2022.

Travis (aka the Stockgeek) nailed the trade perfectly back in November, during the height of the panic over Digital Currency Group’s distress:

What made this trade so compelling was a fundamental misunderstanding by most market participants about the structure of GBTC.

Most traders thought Digital Currency Group would raid the Grayscale trust to help with its liquidity issues, but it was not legally viable with Coinbase acting as asset custodian.

It’s a perfect example of how small details can really make a difference in investing and why Travis LOVES getting his hands dirty with deep research.

Even if Bitcoin had remained flat, GBTC had nearly 2X upside from its fall lows if the trust was converted into a traditional ETF since ETFs have mechanisms for arbitraging NAV discounts.

As Grayscale battles with the SEC in court over ETF conversion, the trust has already started to trade closer to its Net Asset Value on its own.

Today the NAV discount is just under 30%.

One of our readers asked us on Twitter about next steps for GBTC:

Grayscale is awaiting a DC Court of Appeals ruling in their case against the SEC. The ruling could come any day now.

The upside for GBTC to reach NAV (assuming Grayscale prevails in court) is theoretically around $28 per share, or about 38% higher than last close.

The ruling could also have implications for other entities that have filed for bitcoin ETFs including Blackrock, Fidelity, WisdomTree, Valkyrie, ARK, and others.

Travis rang the register on some of his position on Monday, but he’s holding a runner position to squeeze out additional upside should the complete bull thesis play out.

As always this isn’t investment advice, but we share it because it’s a good example of a contrarian investment that went against the herd and won!

Hidden Pitfalls of Roth IRAs 🛑

The Roth IRA is an amazing account to invest in for retirement.

You put funds in post-tax (so you don’t get a tax deduction), but you get to pull the GROWTH out in retirement tax-free (plus, other great benefits).

But, there’s a problem we are seeing…

Personal finance influencers are recommending a Roth IRA without context about how that might NOT be the best decision!

For one, you can’t contribute to a Roth IRA if you make too much money (hello IRS penalties!)

There are things you can do to get around this, like a backdoor, or MEGA backdoor Roth conversion, or even contributing to a Roth 401k, but it still may not be the best play for you depending on your average tax rate.

Think about it this way: contributing to a Roth or doing a Roth conversion is great if you think your tax rate will be higher in the future than it is today.

But, believe it or not, there are a lot of people out there building wealth (especially business owners) paying higher tax rates today, who are more likely to have LOWER tax rates in the future.

This is where doing a Roth contribution (which high income earners won’t even qualify for a Roth IRA) or Roth conversion may not actually make tax sense.

They’re better off getting tax deductions today through traditional retirement accounts.

If you’re pushing those higher tax brackets, keeping more of your hard earned money by maximizing tax deductions will help you compound that cash even faster!

We’d be weary of anyone out there who is a one trick pony with financial advice.

It simply doesn’t work that way.

What’s Your Biggest Financial Goal This Year? 🌟

We read every single email readers sent us this week with their biggest financial goal of 2023…

And wow, you guys are on the right track!

We want to help you get the ingredients and understand the recipes to bake up life-changing wealth.

Here’s a taste of some Daily Dough reader goals…

Delicious Bites 😋

• 30 financial tips to make money more abundant

• What life changing thing can you buy for less than $100?

• Congress is rife with insider trading & conflicts of interest

• Bitcoin investments attracted $310M in two weeks 

• The most profitable US companies by sector

Food For Thought 🧠

"If somebody offers you an amazing opportunity but you are not sure you can do it, say yes – then learn how to do it later!”
- Richard Branson

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.