Where to invest can be particularly tricky. And, as usual, the answer isn’t the same for everyone. Each individual needs to be able to answer the following questions:
1. How much effort am I willing to put forth?
2. What type of returns do I want?
3. What is my risk tolerance?
Effort: Investing can range from passive to active, even within a given asset category. For example, many people refer to real estate as passive. It can be passive… eventually! However, getting good and putting systems in place takes a great deal of education, time, and often a few failures before we get it right.
On the other hand, throwing all your money into an S&P 500 index fund is a widely accepted strategy that is relatively low effort.
Returns: Returns can vary widely across investments. While the S&P500 has averaged over 9% over the last 10 years when adjusted for inflation, any year can swing wildly negative (hello, COVID). Across other assets, returns can be through the moon. Some real estate investment strategies can yield over 100% returns. Some individuals analyze and invest in individual stocks and see great returns in the long term.
Risk: Are you willing to go to zero? Are you in a position where you may OWE more money than you originally invested? Typically, the higher the potential reward, the greater the risk. For example, you could purchase a rental property that ends up being a complete lemon and you are forced to either invest more to fix it up or sell at a loss. On the other end of the spectrum, those who invest only in T Bills their entire lives will never gain immense wealth.
NOTE: Graphic is relative, don’t come @ me.
Rules of thumb:
More Effort, Higher Returns
Higher Returns, More Risk
Always remember: Earn, Save, Invest, Repeat!