When most people think about investing, the first thing that tends to come to mind is the stock market. In fact, the word “investing” has become almost synonymous with stock market investing. While stock market investing is certainly something that deserves a place your portfolio, it isn’t the end all and be all of investing. In fact, there are a lot of other great ways to grow your wealth.
Merriam-Webster defines the word “investment” as: “the outlay of money usually for income or profit : capital outlay.”
So, to “make an investment” simply means to spend money in the effort to make a profit from that expenditure. You are spending money hoping it will make more money.
Obviously, an investment encompasses a lot of different expenditures. Investing money in the stock market is certainly one type of investment. However, so is putting money into interest bearing accounts like CDs, money market accounts, and savings accounts. There are also investments that can be made in real estate and other property. Business owners have certainly made an investment in their business. Then, there is investments in commodities, foreign currencies, and precious metals. You can even make an argument that financing your education is an investment, although the student loan crisis may call into question how wise of an investment you are making.
What are the Best Types of Investments?
Here’s the obvious question: With all of the different types of investments around, what investment is the best to choose?
Answer: The best investment is the one you understand, feel comfortable with its risks, and makes you money. Period.
What Am I Invested In?
So, you want to know what I’m invested in? Sure, I’ll go ahead and tell you! (Just remember, these are my personal investment selections and should in no way be construed as me recommending them to you!)
Like I said, stocks (also known as equities) should probably have a place in almost everybody’s portfolio. Being relatively young, most of my retirement accounts are invested in stocks.
However, I do not invest in individual stocks. Why? Frankly, I don’t know enough about them. For me, investing in individual stocks would be about the same as putting my money on black and letting it ride. It would be a total gamble. Furthermore, it takes a lot of money to get the right amount of diversification with single stocks. Since I don’t pay enough attention to understand what I’m investing in and I don’t want to spend the money to diversify properly, I simply don’t invest in single stocks.
Although I used to invest primarily in mutual funds, I have switched to invest most of that money into index funds. Essentially, I get the same type of diversification as a mutual fund, but without the high management fees. Furthermore, my index fund isn’t trying to beat the market, it is trying to mimic the market. Therefore, I have a little less volatility – which I like.
In the same way that I want to be diversified through different asset and industry types in the stock market, I also want diversification throughout all the types of assets I hold. Enter real estate investing!
Real estate is easily one of my favorite investments types. I love the value that I can get from stock market investing, but in the end, all of that is just paper money. It isn’t tangible. With real estate, I have something that I can touch and feel. Plus, I make money two ways: rental income and property appreciation. The rental income is cash in hand, while the property appreciation is only something I can cash in upon its sale. Owning real estate is an important piece of both my wealth creation and retirement strategies.
Investing in my own businesses is the final way that I currently invest. Like real estate investing, this provides me with another type of investment besides paper money. At the moment, my businesses are what pays the bills. They are what supports our family. They are what currently generates the income that allows the rest of my investments to grow.
Although there has been some capital investment in the business, it has been relatively miniscule. At this point, the real investment is in time. I’m hoping that my time investment will lead to the business being valuable enough to sell. In that way, I will have created an income stream on both the front and back-end of the process.
What about you? What are you invested in? What are your favorite types of investments? Feel free to let us know you thoughts in the comments!