“While money can’t buy happiness, it certainly lets you choose your own form of misery.” ― Groucho Marx
So, you’ve got a decent job and the bosses are happy with you most days. You’re putting a percentage of your salary into your 401(k), Personal Pension Plan or Retirement Annuity and you still have a little over for a new fishing rod or big screen telly (or a pair of earrings for the Missus/Mister). Life is good. But could it be even better?
Investing for your retirement and stashing a little extra away for the kid’s college tuition or a decent home for the rapidly aging mother-in-law is great but, what about you? Are there more ways you could be investing for some nice little returns with risks that don’t keep you up at night?
The answer is yes, loads. There are Online Businesses That Make Big Money, and even some hobbies that can begin to pay off for you. But if you’re completely happy with your life and would just like to branch out into some passive investing, then there are a few tried and tested ways to accomplish this.
You don’t have to be rich in order to begin investing. The truth is that with as little as $50 you can begin putting money into investments that will get you a return. The stock market is certainly a popular and sexy way to invest one’s money but not all investors do it that way.
There are loads of ways to invest your money which offer far better returns than the stock market and with far less stress. If you’ve never invested before, then some of these ways might actually surprise you. Naturally, each of these methods have varying degrees of risk. Similarly, they each have their varying advantages, timescales and interest rates. Your partialities and investment decisions will naturally depend on your assets, knowledge, and the amount of cash you can afford to put in.
As Warren Buffett once famously said, “Never test the depth of the river with both feet”. You certainly don’t want to place all of your savings into your investments. Diversifying a little is one way to positive, incremental growth. Over and above the savings you haven’t invested for retirement and tuition, set a little aside for emergencies or planned expenses so there’s no risk of you being without a chair if the music suddenly stops.
Most investments take time to make you money, especially the ones that aren’t as risky, so make sure you can afford to lose access to that money for the duration of your investment. If you don’t have money that you can afford to set aside untouched for at least a few months, it’s best to wait until you have the savings to invest your money properly. You don’t want to be having to sell a kidney to make your house payments. Many investments can take years to return a substantial profit, but the patience is well worth it.
You may have doubts if you are a first-time investor, this is normal and expected. However, there are several smart ways to invest aside from putting your money in the stock market that are safer and equally effective in making you money. Here are four of the safest and most profitable ways to invest for beginners:
This has nothing to do with James Bond, so stop worrying. Investing in bonds is a clever avenue to lurk down for first time investors; though there are some details that need to be examined before any bonds are purchased. (Also, don’t worry too much about an investment calculator or what it foretells in the initial stages of any investments)
Bonds are debt investments in which the investor loans money to a government or corporate entity at variable or fixed interest rates for an established period of time. The price of the bond equals the amount of money lent to the entity, and investors receive interest in exchange for loaning the money.
Bond interest rates can either be fixed, floating, or payable at maturity. More measured investments offer lower returns while the higher risk investments naturally offer higher returns. The rule is, the higher the interest, the higher the risk, so be mindful when selecting which bonds to invest in and pay careful attention to the bond’s interest rate (coupon).
Gold has been traded as currency since 560BC so, buying it as an investment may seem a little antiquated. But don’t think because it’s been done before that this investment is no longer necessary or valuable in today’s economy. In fact, nothing could be further from the truth.
Gold is a physical asset that holds real value and consequently remains a shrewd investment when handled correctly. Gold isn’t just found in jewellery or in Kanye West’s teeth – it can be purchased as coins or bullion bars and kept safe either at home or in a bank vault.
One of the greatest benefits of investing in gold is that it preserves wealth. While currency may be affected by inflation, the value of gold cannot be reduced by such economic developments. What’s more, experts agree that gold will become a “larger part of global commerce in the years ahead.” Some experts believe that gold can go up as high as 10,000 dollars an ounce during the next economic meltdown, making it a truly worthy investment for the future.
3. Peer-to-peer lending
No, peer-to-peer lending is not the practise of giving your mate a tenner for a swift pint down at your local and then hoping he’ll do you a solid next time around. Peer-to-peer lending is actually another relatively safe investment method, and it can be utilized with significantly less funds than most other approaches. With peer-to-peer lending, you lend money to other people or “peers” through peer-to-peer companies such as Prosper, Lending Club, and Peerform.
The borrowers then proceed to pay back the loans with various interest rates. The benefit of peer-to-peer lending is lessened risk through spreading out investments over many borrowers. Rather than placing all of your funds into one borrower who may not pay back the loan, the money is spread out over many to compensate for any of those who fail to make their payments. To get started with this type of investment, simply visit one of the many peer-to-peer lending company websites in your country.
4. Property Investment
While real estate takes a lot more than a few gold coins to invest in, it is a good market that can make you significant profits depending on how you choose to go about it. You can make money by renting out your property to tenants or businesses, through capital appreciation, or through buying and selling (aka flipping properties).
Property is a safer investment because it is a physical asset that is and will always be in demand. As long as people need homes, and businesses need buildings to produce goods and host customers and products, real estate investments will be profitable.
You can purchase property on your own, or go in with a partner with whatever funds you have available. You can also invest in a Real Estate Investment Trust if you don’t want to deal with buying property yourself.
These are just four of the ways that you can begin investing outside of the stock market. Property requires more money for investing than gold. Bonds can be purchased at a range of prices, and the amount invested in peer-to-peer lending is entirely at your discretion.
You may also choose to make your decisions based on the investment opportunities present during the various economic conditions. Fortunes have been made this way. But it’s important that you have at least a basic understanding of your preferred method before you begin. Do a little research before you start, examine some of the success stories as well as the cautionary tales. Stick to the lower risk investments if you are feeling unsure.
Bonus: 10 Lessons from Warren Buffett
1. Invest in what you know…and nothing more
“Never invest in a business you cannot understand.” – Warren Buffett
This doesn’t mean we can’t invest capital in these areas of the market, but we should approach with caution.
Think of the types of businesses that are doing really well today. They are, for the most part, very simple to understand.
Instagram is basically an online photo album, that’s it. And they sell advertising space on the platform. Besides some clever ways to leverage this elementary dynamic, that’s basically it. Instagram did $14 billion in turnover last year and are expected to double that by 2022. Everyone can use it because it’s very easy to understand, both for the user and for the advertiser.
2. Never compromise on business quality
While saying “no” to complicated businesses and industries is fairly straightforward, identifying high quality businesses is much more challenging.
Warren Buffett’s investment philosophy has evolved over the last 50 years to focus almost exclusively on buying high quality companies with promising long-term opportunities for continued growth.
But you have to know what you’re talking about. Warren reads 1000 pages a day, every day, he doesn’t own a smart phone or a computer, but he knows stuff about an industry before he invests.
3. When you buy a stock, plan to hold it forever
“If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.” – Warren Buffett
“Our favourite holding period is forever.” – Warren Buffett
“If the job has been correctly done when a common stock is purchased, the time to sell is almost never.” – Phil Fisher
Warren Buffett clearly embraces a buy-and-hold mentality. He has held some of his positions for a number of decades.
Why? For one thing, it’s hard to find excellent businesses that continue to have a bright long-term future (Buffett runs a concentrated portfolio for this reason).
“The stock market is designed to transfer money from the active to the patient.” – Warren Buffett
4. Diversification can be dangerous
“You will notice that our major equity holdings are relatively few. We select such investments on a long-term basis, weighing the same factors as would be involved in the purchase of 100% of an operating business: (1) favourable long-term economic characteristics; (2) competent and honest management; (3) purchase price attractive when measured against the yardstick of value to a private owner; and (4) an industry with which we are familiar and whose long-term business characteristics we feel competent to judge. It is difficult to find investments meeting such a test, and that is one reason for our concentration of holdings. We simply can’t find one hundred different securities that conform to our investment requirements. However, we feel quite comfortable concentrating our holdings in the much smaller number that we do identify as attractive.” – Warren Buffett
When such an opportunity arises, he pounces.
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” – Warren Buffett
“Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.” – Warren Buffett
5. Most news is noise, not news
“Owners of stocks, however, too often let the capricious and often irrational behaviour of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest rates, price behaviour of stocks, etc., some investors believe it is important to listen to pundits – and, worse yet, important to consider acting upon their comments.” – Warren Buffett
“Remember that the stock market is a manic depressive.” – Warren Buffett
6. Investing isn’t rocket science, but there is no “Easy Button”
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ.” – Warren Buffett
It doesn’t take a genius to follow after Warren Buffett’s investment philosophy, but it is remarkably difficult for anyone to consistently beat the market and sidestep behavioural mistakes.
“Investors should be sceptical of history-based models. Constructed by a nerdy-sounding priesthood…these models tend to look impressive. Too often though, investors forget to examine the assumptions behind the models. Beware of geeks bearing formulas.” – Warren Buffett
7. Know the difference between price and value
“The stock market is filled with individuals who know the price of everything but the value of nothing.” – Phil Fisher
“During the extraordinary financial panic that occurred late in 2008, I never gave a thought to selling my farm or New York real estate, even though a severe recession was clearly brewing. And, if I had owned 100% of a solid business with good long-term prospects, it would have been foolish for me to even consider dumping it. So why would I have sold my stocks that were small participations in wonderful businesses? True, any one of them might eventually disappoint, but as a group they were certain to do well.” – Warren Buffett
“Price is what you pay. Value is what you get.” – Warren Buffett
8. The best moves are usually boring
“We make no attempt to pick the few winners that will emerge from an ocean of unproven enterprises. We’re not smart enough to do that, and we know it.” – Warren Buffett
“Beware the investment activity that produces applause; the great moves are usually greeted by yawns.” – Warren Buffett
9. Low-cost index funds are sensible for most investors
Did you know that most investors fail to beat the market – and often by a wide margin?
“My advice to the trustee couldn’t be simpler: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.” – Warren Buffett
10. Only listen to those you know and trust
Simply put, Warren Buffett is very careful when it comes to selecting his business partners and managers. Their actions can make or break an investment for many years to come.
“Once management shows itself insensitive to the interests of owners, shareholders will suffer a long time from the price/value ratio afforded their stock (relative to other stocks), no matter what assurances management gives that the value-diluting action taken was a one-of-a-kind event.” – Warren Buffett
“We’ve long felt that the only value of stock forecasters is to make fortune tellers look good.” – Warren Buffett
“Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.” – Warren Buffett
“Management changes, like marital changes, are painful, time-consuming, and chancy.” – Warren Buffett
Please enjoy the full Warren Buffett documentary below
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