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Best Investing Strategies | Millennial Money
How to avoid bad investment advice
- Never buy a financial or investing product from someone you just met.
- Getting returns over 12% per year is ridiculously hard. If it sounds too good to be true, it is.
- If you don't understand it, don't invest in it.
- If one of your friends recommends an investment that's making them a lot of money, they are probably suckers too. If you see the "results not typical" on any marketing materials, move on.
- There are no "secrets of the super-wealthy" that anyone will sell you for $500 or that you can take advantage of unless you have hundreds of thousands of dollars.
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Common investment questions
Two of the most common investment questions are "what do you invest in " and "what are the best investing strategies"?
The best investing strategies are where you can maximize your return while minimizing the risk.
Shady investment advice
Bad investing advice can come from many quarters, such as wealth expos or financial advisors. If anyone promises you any type of return over 12%, 99% of the time, they are probably playing you.
There are great financial advisors out there, but many people who sell investment products just want your money. However, it's not that hard to invest for yourself.
The best investing strategies
You do not have to have a lot of money to start investing.
- You could start by investing your spare change with Acorns.
- An inexpensive platform is Ally Invest. You can get started with Stock and ETF trades for $4.95 with no account minimums. Mutual funds are priced on a per trade basis at $9.95.
Don't invest if you don't understand
You've worked very hard for your money. Don't gamble on investments you don't understand, nor listen to pitches unless you solicited them.
There is a huge difference between long-term and short-term investing. Many people don't invest in stocks because they are afraid of losing money in the short term. But, that only affects you if you need money in the short term.
Getting emotional over investments
Many people get poor investment returns because they get emotional. Emotions around investing are simply due to a lack of knowledge.
Curb emotions through reading investing books and blogs. Once you realise how investing works, it will help take the emotion out of it.
Taxes and investments
Three essentials for successful investing: Invest in things you understand with low fees and minimal taxes.
Taxes can take a massive chunk of your investments' future earnings, so minimize their impact as much as possible. With long-term investments, first max out your 401k, Roth IRA, and SEP-IRA, since they offer a tax benefit either when you deposit or withdraw the money.
Long-Term (10+ years) Investing Strategy
After you maxed out your 401k, Roth IRA, and SEP-IRA, invest the rest in the following:
- 70% in index funds. They are low-tax since minimal trading is done within them.
- 20% in individual equities that you plan to hold for the long haul like Amazon, Apple, and Facebook. Invest in companies you use and believe in.
- 5% in physical real estate and REITs.
- 5% in non-traditional investments, like domains and art.
These percentages can fluctuate during the year, depending on the value of the individual equities. As you make more money, diversification becomes more important.
Short-Term (1-5 years) Investing Strategy
For short-term investing, keep your money in a bond fund like the Vanguard Total Bond Market Index Fund or a certificate of deposit (DC) at your local bank.
If you are willing to take on a bit more risk, put your money in a balanced index fund like the Vanguard Wellesley Income Fund, which invests in about 60% bonds and 40% stocks to generate a higher return with a slightly higher risk.
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Investing defined
Investing is about laying out cash or assets now, in the hope of more cash or assets returning to you tomorrow, or next year, or next decade.
Most of the time, this is best achieved th...
Productive assets explained
- Productive assets are investments that internally throw off surplus money from some sort of activity.
- Each type of productive asset has its own pros and cons, unique quirks, legal traditions, tax rules, and other relevant details.
- The three most common kinds of investments from productive assets are stocks, bonds, and real estate.
Investing in Stocks
- It means investing in common stock, which is another way to describe business ownership or business equity.
- When you own equity (the value of the shares issued by a company) in a business, you are entitled to a share of the profit or losses generated by that company's operating activity.
- Equities are the most rewarding asset class for investors seeking to build wealth over time without using large amounts of leverage.
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Investing
... is the trading of your money today for a lot more money in the future. It is a high yield over the long term.
What happens to your money
Banks don’t like to give away their money. That mindset is reflected in the interest rates of checking and savings accounts of 0,5% and 0.9% avg. annual interest respectively.
When you deposit your money in the bank, the bank turns around and invests that money at 7% a year or more. After they collect their profit, they give a tiny shaving of it to you.
Portfolio and Diversification
- Your portfolio reflects your long-term wealth building investment strategy – not the short term. It includes everything you own. Your retirement accounts, your investment accounts, even your home are types of investments.
- Diversification is a way to describe owning multiple types of investment assets. Diversification is smart because you both protect yourself from failure and position yourself to take advantage of multiple robust methods for building wealth.
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6 ideal investments for beginners
- If you have a 401(k) or another retirement plan at work, it’s very likely the first place you should put your money— especially if your company matches a portion of your contributions.