6 Investments To Build Your Future
The most common question we see is “Where should I be investing my money?”. A number of millennials just getting started with investing often believe the stock market is the way to go, especially with the returns over the past few years. The truth is that picking stocks can be very risky. The pros get paid a significant amount of money to pick stocks, and even them most are wrong majority of the time.
-You can read more about this in Main Street Trading’s Ebook “The Psychology of Money”
Yes, of course it is possible to get lucky and pick a stock poised to double over the next few years, but for every stock that doubles there are many more that tank. Here we will discuss 6 safer methods of investing and saving your money to begin building your financial future, and we will also touch on some more advanced investments once you have become accustomed to these methods.
Certificate of Deposit (CD)
Before we begin, we need to say that overall we do NOT recommend a CD as a viable long term investment. Returns historically and presently are extremely low compared to other low risk investments.
The reason why we do highly recommend a CD for a Millennial beginning to save and invest is that you cannot spend the money in a CD without paying an early withdrawal fee. We highly recommend this over a savings account simply because you can easily withdraw and spend your money in a savings account. You are locked into a CD for 6 months to a few years. Most simply, this is more about creating an illiquid investment more so than looking to create a massive return year after year.
As with a CD, our disclaimer is that most mutual funds do not offer a very high return and there are also annual fees regardless of whether you make money or not. Mutual fund however are also fairly illiquid. It can often take a month or more to withdraw your investment and it will take a few months to a year to see a return. Mutual funds are however a great alternative to trying to pick stocks. Mutual funds will have plenty of pros creating the most efficient fund possible for the funds level of risk. Some funds that we recommend are 50% stock / 50% bond; this creates an investment that won’t blow your account out if the market tanks.
Personal loans are an investment that are not talked about enough. There are sites that offer users to both take out personal loans and also invest in other user’s personal loans. Often these are debt consolidation, construction, medical expense, or a similar type of loan. Interest rates vary between 1% and as high as 30% for more risky borrowers. We recommend investment in loans with an interest rate under 10% to begin to get your feet wet.
For more information on personal loans and how to get started please contact us below.
Start Up Debt
Similar to personal loans this is an investment rarely, if ever, talked about among millennials. Most common we are familiar with investing in a company’s equity and if the company value increases, so does our investment.
By investing in a company’s debt, you are basically investing in a “personal loan” equivalent for a business.
Example: Brewery ABC needs to raise money to build a new location. If they let outside investors purchase equity they could miss out a significant returns and will need to cater to investor questions, comments, and advice similar to how a public company has a board of directors it needs to consult.
By allowing investors to purchase their debt, the company does not lose any equity, they are able to build their new location, and investors still see a large and low risk* return.
Brewery ABC issues $100,000 in debt paid back at 1.5x by 5% of revenue quarterly.
Through this an investor with $1,000 will see a 50% return during the life of the loan. Note that the debt is paid off out of REVENUE and not NET PROFITS. A company that already has revenue can be seen as extremely low risk and it is highly likely to see your $1,000 turn into $1,500 within a few years.
Exchange Traded Funds (ETF)
ETFs are also a great alternative to investing in stocks, similar to mutual funds. ETFs are seen as riskier than mutual funds so although they are not for everyone, we do recommend them over mutual funds. An example of two ETFs are below:
S&P 500 ETF (SPY) - Easiest way to invest in the overall S&P 500. Access to 500 stocks in one investment
Nasdaq ETF (QQQ) - Nasdaq is comprised of technology stocks. Access to over 3,300 stocks in one investment
These both allow you to see returns that the overall market is seeing without getting hit with the fees of mutual funds or the risk of picking stocks individually.
Government Bonds - T Bills
Government bonds are a great way to preserve wealth. Similar to a CD you cannot spend the money once it is investment. Most bonds often pay interest twice a year, and if you hold a bond to it’s maturity date you will receive to full principal (original investment) back.
The downside is that most bonds require a $1,000 investment, some even require a $10,000 minimum investment. Please email us below to discuss various opportunities to invest in bonds with a small amount of money.
At this point we are ready to get out there and put our hard earned money to work. There are no ways to get rich overnight, but by investing small and investing often we will begin to build, expand, and preserve our wealth!
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