Another one of my most popular questions I am asked is, “What is the best investment?” On the surface it is an excellent question, but it’s not complete. The better question is, “What is the best investment FOR ME?” Let me explain.
A few years ago, I challenged myself to read the Bible from cover to cover. I followed a 90-day reading plan, which can be overwhelming. Of course, studying the Bible is a lifetime commitment and shouldn’t be rushed.
There are many versions of the Bible. I ended up reading the New Living Translation (NLT) because, in my opinion, it is more like a novel and easier to read. The NLT served the purpose for my challenge, but I do have an English Standard Version (ESV) to study.
When I asked my pastor what the best version of the Bible was, he just smiled and said, “The one you’re reading.” It may sound dismissive or sarcastic, but there was wisdom in his little quip. The Bible is the greatest story ever told, but like all books, it only has value if you read it.
To paraphrase my pastor, the best investment for you can only be discovered while you are implementing your financial plan. It’s virtually impossible to grow your wealth if your money is constantly on the sidelines. Eventually, you will have to invest in order to have a realistic chance of reaching your goals.
The best investment for you should align with your risk tolerance.
There are a few things I need to know about you before determining the best investment for you. That’s impossible to do without having a meeting. However, we can go over some basics here. Then email me about that meeting!
First, we’ll need to determine your comfort level before your money is put to work. You’ll need to complete a survey called a
Risk Profile Questionnaire that gives us an idea of your risk tolerance.
Risk tolerance just means whether or not you are comfortable investing in risky products. For example, cryptocurrency is considered to be a high-risk investment. In fact, it’s so risky that we must submit extra paperwork if we want cryptocurrency in your portfolio.
At the other end of the investment spectrum would be short-term treasuries. These are basically investments in the United States Government. They pay you some interest and are considered to be “risk-free,” but nothing in the world is truly risk free.
Before determining the best investment for you, we must understand how investing works.
The basic definition of investing is buying an asset with hope that it will increase in value over time. All investments have a level of risk because they may decrease in value or never reach our anticipated future value.
For example, collectibles, such as comic books, have price guides showing their “value.” Unfortunately, all types of investments are only truly worth what a buyer is willing to pay, which is why it’s important to diversify your portfolio.
My job is to build portfolios with a variety of investments while staying within the clients’ acceptable level of risk. Typically, this involves stocks and bonds. In the old days, investors had to pick these individually, but now we can invest in groups with things like mutual funds and Exchange-Traded Funds (ETFs).
A short description of the different types of investments.
Stocks can be thought of as a piece of a company. With one share you are technically part-owner of the company. In the past you would get a nifty certificate, but that’s no longer necessary thanks to advances in technology.
Think of bonds as a loan. By purchasing a bond, you give the company (or government entity) money, so they can complete their mission. They pay you interest just like you pay interest on your car loan or your home mortgage. Technology has made investing with bonds easier too.
Of course, there are more tangible investments, such as real estate, collectibles, and precious metals. Fortunately, most of these can be traded like stocks and bonds.
Exchange-Traded Funds (ETFs) allow you to invest in precious metals, like gold, without having to hide your treasure like a pirate. ARRRGGGHHH! Real Estate Investment Trusts (REITs) allow you to invest in real estate without having to buy physical property.
Also, both REITs and ETFs help to diversify your portfolio. A Real Estate Investment Trust that focuses on healthcare could invest in assisted living facilities, doctor’s offices, or hospitals. I think that’s less risky than buying an office building and dealing with renters.
The best investment for you may be completely wrong for me.
Everyone’s situation is different, so finding the right investment takes a little work. Let’s use me as an example. As you probably guessed, I prefer stocks and bonds. After studying them for most of my life, I am comfortable putting money to work in the markets.
Furthermore, I value the convenience of stocks and bonds. While some people have done really well investing in real estate, it wouldn’t work for me because it’s not nearly convenient enough.
With stocks and bonds, I can buy or sell by pushing a button. Buyers and sellers are already in the system, so all I have to do is implement my financial plan. That freedom and ease of the transaction is my priority.
A good thing about real estate investing is that, with good credit, you can invest money that you don’t have. You can do something similar with stocks called margin, but it’s risky. If you’re already nervous about the stock market, discussing margin probably wouldn’t be helpful.
Honestly, for the beginner investor, I’m not a fan of investing money you don’t have. That goes for buying on margin and
buying real estate. As the client, there are other concerns with real estate for me as a person with a disability.
First, I cannot maintain the property. Yes, there are services that would do that stuff for me, but that’s another expense. Also, I would have to pay property taxes, homeowner’s insurance, and probably extra liability insurance. Unfortunately, there are always people looking to get easy money by suing the “big, bad, wealthy landlord.”
As much as I love helping people, the thought of dealing with renters or people trying to buy my property is terrifying! Plus, it can be really inconvenient. My personal care assistant recently had to miss work because she is selling her home and had to get it ready for a showing. She lost a day’s wage (around $150) and the people didn’t buy the house!
Sure, it may feel good to drive by a property knowing you own it. For some, that is valuable. For me, it’s not worth the extra stuff. I would rather press a button, buy or sell a stock, and not add stress to my life.
Remember, identify the best investment for you, then commit to chasing your dreams.
Unfortunately, there’s not one answer that will solve the investment needs for every person. If there were, my job would be a lot easier, and we would all be rich, right? Not exactly.
If we all could obtain wealth freely and easily, the value of that wealth decreases. This is how inflation works. The risk we face while investing actually helps your money maintain its purchasing power by fighting inflation. Weird perspective, right? Well, thank you! I enjoy being a little different.
I cannot promise that all of your investments will appreciate in value. Also, cannot guarantee that we’ll reach your goals even by following your financial plan. However, I can promise that investing gives you a better chance than sitting on the sidelines afraid ever will. Email me!
