Beginner investors are looking for a way to grow their money, but many are uncertain about what investment to make. Sure, the one that provides the highest return and the lowest risk should be the go-to answer. But does that even exist? There is no single investment I found that’s exempt from risk. But I found three that I feel to be the safest.
Real Estate
To me, the best kind of real estate is the one that I can rent. I’m more of a fan of renting on a daily basis than on a monthly basis to one tenant because I can generate a higher rental income. But to rent on a daily basis, it’s necessary to have an apartment that’s in a great location.
I don’t consider residential property to be a great investment unless a part of it is rented. The reason is that residential property costs money to maintain and doesn’t bring in an income if the owner isn’t letting a part of it.
Eventually when the residential property is sold, the profit isn’t the selling price minus the buying price. The owner has to factor in all the costs such as water and electricity, rates, taxes, repairs and others, which should be added to the buying price to obtain the true profit. That’s because the owner had to incur all those expenses to get to the point when the property was able to be sold.
Sure, having a tenant also brings along with it its own headaches. The tenant can pay for the first month and then decide to stop paying. You then have to go through a legal process to evict them. Your repairs and maintenance costs are likely to be higher and more frequent with a tenant than in your residential property because you’ve got someone living in your property who likely won’t take care of the place the way you would.
The ideal situation that I want to be in is my rental property generating a large enough income to pay for my residential property. That is possible if I rent out on a daily basis. This rental method is more lucrative than having a monthly tenant, but it requires a more active approach. Unless the owner delegates the task to a property rental agency.
S&P 500
The S&P 500 is an index that tracks the 500 biggest companies listed on the United States exchanges. Instead of focusing on individual stocks, which are risky, I decided to opt for a safer option.
Why is the S&P 500 safer than an individual stock?
Having an investment in an individual stock exposes an investor to the risk of the stock eventually being valued at zero. Remember Enron? Investing in a fund that tracks the S&P 500 helps the investor to diversify, which is crucial in investments. The chances that all of the 500 biggest companies will go out of business are slim. There’s a chance but a much smaller one than one company going bankrupt.
Since the S&P 500 is an index, an investor cannot invest in it directly. The way to do it is through a broker who offers an exchange-traded fund (ETF) that tracks the S&P 500. When investing with a broker, it’s important to ensure that they have a good reputation, a long track record of providing satisfactory services, provide great returns and low fees.
The fees associated with ETFs is called an expense ratio. That’s the total cost to manage it.
The fee is the component that most beginner investors overlook. They get starry-eyed at the returns and fail to question the elements that can reduce their returns. The S&P 500 has historically provided 10% annual returns on average. Some years it’s more and some years it’s less. But being with a broker who offers high fees can significantly reduce that earning potential.
Yourself
There’s no better investment that you can make than in yourself. I am constantly looking for ways to better myself and sometimes that means spending money on a coach. When I became homeless after several consecutive financial mistakes, I admitted to myself that I was the problem. That was the best thing I ever did. Doing that made me realise that if I was the reason for my failure, then I could be the reason for my success.
Instead of being a know-it-all, I became a learn-it-all.
That led me down a path of seeking knowledge. I knew that it was a lack of knowledge that left my finances in shambles, so I had to have knowledge about money management. I heard a rich man say, “If you want to solve your problems, you gotta learn.” That’s exactly what I did.
I read books, attended seminars, and spoke to successful people with the intention of gaining more knowledge and implementing it to mimic rich people’s results. That knowledge helped me to pay off $40,000 of debt and eventually save up $50,000. I’m now working towards saving up $1 million.
One of the biggest obstacles preventing people from reinventing themselves is their ego. They don’t want to admit to themselves that their poor choices led them to their financial rut. Acknowledging that truth was my turning point. Had I not done it, I would still be blaming my teachers, the government, ex-bosses and everyone else but myself.
It’s the person in the mirror who’s screwing up your finances. And since that’s the case, then that same person can fix everything.
Some of the actions that I took included public speaking classes to improve my communication and confidence, speaking to random strangers on the street to step out of my shell, frequenting the gym and striving to generate several streams of income.
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