The Best Ways to Invest
The best investment for your money will always be the investment vehicle, practice or strategy you can repeat for the longest period of time. Therefore, part of becoming a successful investor is identifying this as early as possible. Diversify into the other vehicles as you see fit, and identify opportunities, but always practice your primary investment approach.
Savings & Emergency Fund – Idea #1
Emergency Fund
I love the quote below from Rachel Cruz because it is so true. As we all know, there will always be a surprise expense in the coming months. As such, all we can do is get prepared and have some money set aside. I recently wrote an article for an emergency fund calculator. While simple, it takes into account unique factors like mental health and your social support systems.
Aside from being available during an emergency, this cash hoard plays a protective role for our other assets. We protect them by tapping into our emergency fund first and not selling the other assets.
Index Funds – Idea #2
Above all asset classes and vehicles for investing, index funds and ETFs reign supreme. Therefore, in my opinion, they should be the first asset you consider after your emergency fund is established. Index investing is so effective, and such an efficient manner of allocating capital, that I would go as far to say that every investor should own some. Put another way, any investor who eschews index funds will later regret not having some in their portfolio. If I had to pick one best investment your money, above all others, this would be it. The longer your investment time horizon the more compelling this argument becomes.
Domestic US Stocks
First and foremost your primary holding should be a broad based US equity index ETF or fund. They offer the most diverse exposure across the widest group of industries. Here you will find the global leaders across all industries: high tech, financial services, retail, industrial manufacturing, oil & gas, mining, health care, and consumer goods. The only way you can get this same level of diversification and business leadership is to invest in the rest of the world ex-USA.
International Stocks
International stocks should be added to supplement your portfolio. Additionally, they will diversify your geographic risk away from just being focused on America. On top of this, you get currency diversification if you choose a fund without currency hedging in place.
My 2021 Portfolio
Back at the start of the year I outlined how I’m investing my capital for 2021. An allocation of assets like this could be the best investment for your money in 2021 and beyond. For example, you can probably imagine how well that Bitcoin allocation has done already.
Robo-Advisor
If you want a comprehensive index fund solution which is hands off, a robo-advisor could be your answer. When you sign up with a robo-advisor, they will ask you a few risk tolerance and timeframe questions. Afterwards, they will recommended a suitable portfolio tailored to your needs. In the U.S.A. check out M1 Finance, or Bettermint . In Canada you can check out WealthSimple or Questrade.
Passive Income Idea: Dividend ETFs
Further to our discussion here on index ETFs, some investors need passive income from their investments. If this more accurately reflects your needs, consider dividend focused ETFs. There are a number of options in this space given the low interest rate environment we’re in. Also, if you’re interested in even more yield, check out covered call ETFs. However, just be careful you don’t pick one with too high a yield as they erode the asset base.
Real Estate – Idea #3
Real estate is a terrific investment which has minted more millionaires than any other asset class. On top of this wonderful claim, it is versatile and can be used in many different ways to generate wealth. For example, rent it out to generate cash flow, flip it as a speculative bet, secure a loan against it, or buy the property outright as a low risk store of value. As such, this makes it arguably the best investment for you money regardless if your goal is to get rich, or stay rich.
Rental Properties
One of the best ways to invest in real estate is to buy a rental property and generate cash flow from the rent. Furthermore, this money can be used to pay down the mortgage, or spent in place of active income. Yes, it is an effective method to replace your active income altogether. So as we can see, it is entirely possible to fund your retirement through rental properties.
Flip it!
Flipping a property is when you buy a property with the intent of improving it quickly and selling it for a profit. Of course, the ideal situation is that we sell for much more than we buy, after accounting for renovation and improvement costs. While this entails more risk than a rental property, if you know what you’re doing, keep your costs low, and get a great entry price, you can make substantial money in a short period of time.
Passive Income Idea: REIT
Not to be negative, but the worst part of real estate is you get to solve real problems: leaky faucet, furnace breaks down, noisy tenants, they sub-let the place, or even fix a diesel engine in the bathtub (true story). Luckily there are more passive options. REITS (Real Estate Investment Trust) provide this solution and are easily traded on the stock exchange. Investors love them because they generate terrific cash flow and pay investors on a regular basis without any hassle.
Cryptocurrencies – Idea #4
The next best investment for your money comes in the form of digital currencies or money known as cryptocurrencies. The two largest, by market cap and trading volume, are Bitcoin and Ethereum. Both share similar traits but there are some differences with Ethereum that could make you consider an investment there as well.
Bitcoin
Bitcoin was introduced to the world on January 3, 2009, when the genesis block was mined and the blockchain set in motion. Since then, the distributed network has run uninterrupted and processed more than 622 million transactions.
The appeal of Bitcoin, as an investment for your money, is four fold in my opinion: decentralized, deflationary, industry adoption, and diversification. Which is to say, it is not controlled by any central bank or governing authority, the supply of new coins is decreasing and capped to 21M, industry leaders and the wealthy have started buying up the daily supply, and the digital currency is a powerful diversifier for investment portfolios.
Bitcoin is seen as a store of value, a medium for exchange; and the pioneer digital currency against which all other cryptocurrencies are compared and priced against. If you can only pick one cryptocurrency, go with Bitcoin.
Ethereum
As mentioned above, Ethereum and Bitcoin are similar in many ways. However, Ethereum distinguishes itself from Bitcoin in that it is not striving to become a replacement currency or alternative to government fiat backed money. Rather, it is striving to become a decentralized platform to facilitate immutable, programmatic contracts, and applications. Put another way, the primary purpose of Ethereum is not to establish itself as an alternative monetary currency like Bitcoin, but rather a distributed platform to execute smart contracts.
A Small Difference With Huge Impacts
This may seem like a small difference, but the execution of smart contracts on a decentralized platform is huge. Through its platform, the following use cases are enabled:
Financial Services Contracts
Ethereum smart contracts have several use cases for the banking sector. These contracts can be used in mortgages, bill payments, loans, and insurance claims. Utilizing such contracts will simplify the process and make the transaction fast, transparent and trusted. For example, when a bond matures under a smart contract, it will automatically transfer the money back to the lenders account without the involvement of a third party. On top of this, the transfer of cash, stock, options, futures, and any paper asset can be facilitated and guaranteed with these contracts without the need for 3 day settlements or a costly third party.
Prediction Markets
The prediction market can also make use of Ethereum smart contracts. This can be a prediction for the outcome of an NFL game, an election, or financial markets. So in this way, Ethereum smart contracts can be used in any kind of betting, gambling or even in deciding whether a company should make a deal or launch a product. This makes the entire prediction process more rewarding, cheaper, trusted, and faster.
Escrow
Smart contracts replace middlemen, save you money, transparent, and fully guaranteed. This can be applied to real estate, trusts, wills and in places where there are nominees. The process becomes trusted as the transfer of assets is guaranteed when conditions are met. So in any place where there are two or more parties and the transfer of assets is under scrutiny, smart contracts can be put in place and executed without fail.
Here is a quick summary of the smart contract use cases as provided by 101blockchains.com
Passive Income Idea: Crypto Lending and Staking
One exciting opportunity with Bitcoin and Ethereum is that you can lend your asset for a healthy yield and return. While rates on cash and bonds are typically below 1%, rates on Bitcoin and Ethereum can easily exceed 3.5%. To show you more, I have an article on exactly what it looks like to lend out your crypto.
Check current lending rates: BlockFi.com Crypto.com
Lastly, there is the opportunity to stake your assets and earn higher returns. A governing principle of over cryptocurrencies is decentralization with a distributed ledger. Further to this, it means that you as a private citizen can participate and lend your computer hardware to this cause. In return for providing computer power and holding assets in the currency, you can receive returns in the 8-10% range, and sometimes more. Read more about this here on the Ethereum.org website or google “proof of stake”.
Gold and Commodities – Idea #5
Another one of the best ways invest these days is to buy gold or other valuable commodities. As a base, you would want some gold first, and then if you’re wanting to expand into other commodities there are some ideas below to take advantage of the green energy movement.
Gold
Gold is as timeless as it gets for money, assets, and value. It has been prized by all civilizations and hoarded by many. Historically, all government issued currencies were back by gold and fully redeemable. In other words, at one point you were able to exchange $35 USD for one ounce of gold.
With continual printing of government backed debt and currencies, it is nice to hold gold which is immune to government actions. It is nice holding something in your hand that has timeless value and is always liquid. Come what may, your gold will always be a solid store of value.
Green Energy Commodities
Another investment idea is to buy the commodities that will be in high demand with the green energy movement. Over the next 10 years, as governments try and implement the necessary changes to meet their Paris Climate Agreement obligations, certain commodities will be required to move away from carbon based economies.
Here are the commodities and their basic uses for green energy initiatives:
Lithium Ion
Should be self explanatory as with most auto manufacturers moving to electric cars their batteries will rely heavily on Lithium Ion. Demand for Lithium Ion is expected to triple by 2025 and there are already predictions that the current supply cannot meet the demand. So alternatives will be sought for too. In summary, take a position in a miner or supplier of Lithium Ion but keep an eye out for the next element that could be used in its place.
Copper
As cities and states build out their electric grids to meet demand from electric vehicles they will require more copper. As you know, copper is one of the best electrical conduits and as such demand for this industrial metal is set to triple by 2030 in the most conservative base cases.
Iron
One exciting use case for iron is as a green energy replacement for coal and other fossil fuels. Meaning, it can be burned and the energy released can be quite intense. After it is burnt, it leaves rust which can be recycled back to iron using electricity from wind or solar. The benefit here with iron is that it can release the intense energy required for many industrial uses. Furthermore, it is completely reliable, reusable and releases zero CO2. See this video on how it works.
Uranium
Uranium is the primary fuel used in nuclear reactors. So if the world begins to pursue nuclear reactors as one of the answers to the green energy problem, then demand for uranium will rise substantially. A lot of the forecasts aren’t as exciting or dramatic like iron or copper but this could change if new technologies are developed to make nuclear power safer and more reliable. So in this way I don’t believe uranium is the best investment for your money
Anti-Green – Oil
Conclusion
At the start, I mentioned that the best investment for your money will always be the investment you can repeat for the longest period of time. This is because it gives compounding returns the time and exposure to do its magic.
These are my best investment ideas to make money with for the next 10 to 30 years. Given where the dollar is heading, the possibility of the Fed losing control over interest rates and inflation, I believe you want to steer clear of dollar based investments.
So, once we have our emergency fund established and funded we need to seek and find assets that cash has difficulty keeping up with:
$1,175,671.47
— Stephen Wealthy (@mywealthmoney) March 11, 2021
- Start with $0.00
- Invest $500 a month into the S&P 500
- Reinvest Dividends
- Repeat for 30 years
- You're a millionaire by age 50 if your start by 20
Man, why do we complicate it?
Let me know your thoughts on these ideas and what you would add — my contact details are just below!
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