Best Investing Strategies
The two most frequent questions I get from Millennial Money readers are “what do you invest in” and “what are the best investing strategies?” I’ve received over 300 of those emails in the past month alone.
The best investing strategies are one where you can maximize your return while minimizing your risk, and while you can invest in literally anything, the best investments I’ve found are stocks, bonds, and real estate.
Below is the investing strategy I’ve used and still use to this day to build wealth. I’ve outlined some of these ideas before in my millennial millionaire strategy and millennial money portfolio posts, but this post focuses exclusively on investing.
Nothing I did or do is magic. I don’t day trade, buy calls, short sale, buy tax liens, broker debt, or invest in any type of hedge funds. A few readers think I must have won the lottery and that it’s impossible to go from $2.26 to over $1 million in 5 years.
Unfortunately, in the United States, a majority of the population thinks the only way you can actually get rich is by winning the lottery.
This is why Americans spend over $70 billion on lottery tickets each year, which is more than we spend on books, music, movies, video games, and sports tickets combined! Whaaa?
The average person spends over $800 per year on lottery tickets and some people even believe they are investing when buying these tickets.
Simple math shows that if they put that $800 into the Vanguard Total Stock Market Index Fund each year over the past decade they would have $13,071, but many of them are broke.
The primary reason why people don’t invest is that they think investing is complicated, it’s too risky, or they think it’s gambling. A lot of people are also afraid. So in this beast of a post, I am going to outline my investing strategy and why you should stop thinking about a saving rate and start thinking about an investing rate.
These are tried and true investing principles that have not only worked for me, but they’ve actually worked for millions of people to help them build wealth and reach financial independence.
While everyone’s personal situation is unique, there are some general principles here you should pay attention to if you want to build wealth.
Beware: A lot of Investing Advice is Shady and Just Gambling
I hear more terrible investing ideas, than good ones. I was just at a wealth expo and 90% of what the speakers shared was not only wrong, it was dangerous and destructive. I watched as over 6,000 people listened to pitches for everything from tax liens to software the speaker promised only picked winning stocks (just click the green arrows!).
It was all crap and a majority of the audience fell for it – lining up to pay thousands of dollars on speculative investing products that promised 30%+ per year. Thousands of people fell for it. They were swindled by slides that showed manipulated data (like screenshots and links to random articles over 15 years old).
It was crap, but people lined up to buy it all. They will very likely all lose their money on strategies that don’t work.
I’ve also had family members who have gotten screwed by financial advisors who promised returns of over 30% per year. They are usually dudes with nice suits and big smiles, who talk about how many assets they have under management or that they are “conflict free”. If a dude looks sleazy than he probably is and if anyone promises you any type of return over 12%, 99% of the time they are probably playing you.
Sure, there are great financial advisors out there (I’m not hating), but a lot of people who sell investing products or work with money, just want your money. I’ve watched too many people get screwed to just stay silent.
That’s one of the primary reasons I started this website because there’s just so much confusing and misleading information out there. Don’t fall for the scams or crappy investments.
A vast majority of these you can invest for yourself. It’s not that hard and I will show you what I do below.
Lots of new investors take chances on long shots instead of buying shares of great companies. I prefer businesses like Amazon, Netflix, and Apple — they’re all on my best stocks for beginners list. There’s a company that “called” these businesses long before they hit it big. They first recommended Netflix in 2004 at $1.85 per share, Amazon in 2002 at $15.31 per share, and Apple back in the iPod Shuffle era at $4.97 per share. Take a look where they are now. That company: The Motley Fool. For people ready to make investing part of their strategy for financial freedom, take a look at The Motley Fool’s flagship investing service, Stock Advisor. They just announced their top 10 “best buys now” across the entire stock market. Whether you’re starting with $100, $500, or more, you should check out the full details.
Where to invest $500 right now
Lots of new investors take chances on long shots instead of buying shares of great companies. I prefer businesses like Amazon, Netflix, and Apple — they’re all on my best stocks for beginners list.
There’s a company that “called” these businesses long before they hit it big. They first recommended Netflix in 2004 at $1.85 per share, Amazon in 2002 at $15.31 per share, and Apple back in the iPod Shuffle era at $4.97 per share. Take a look where they are now.
That company: The Motley Fool.
For people ready to make investing part of their strategy for financial freedom, take a look at The Motley Fool’s flagship investing service, Stock Advisor. They just announced their top 10 “best buys now” across the entire stock market. Whether you’re starting with $100, $500, or more, you should check out the full details.
5 Tips to Avoid Crappy Investments
- NEVER buy a financial or investing product from someone you just met
- Getting returns over 12% per year is ridiculously hard and if anyone promises you a return they are probably full of it. If it sounds too good to be true, it is.
- If you don’t understand it, don’t invest in it. Period.
- If one of your friends recommends an investment that’s making them a ton of money, they are probably suckers too. Most “investments” people sell might have worked one time, if at all, and simply can’t be recreated by you. If you see the “results not typical” on any marketing materials rip them up and run the other way!
- There are no “secrets of the super wealthy” that anyone will sell you for $500 or that you can actually take advantage of unless you have hundreds of thousands of dollars. I wanted to hit the guy that kept saying this onstage.
The Best Investing Strategies
If you made it this far in the post, you can totally do this. A lot of readers ask what they should do if they have $1,000, $5,000, or $10,000 to invest and these ideas all apply, BUT you should know, you DO NOT have to have a lot of money to start investing, you could start by investing your spare change with Acorns, or if you have an extra $100 to invest, you can start today!
A great inexpensive platform is Ally Invest. You can get started with Stock and ETF trades for $4.95 with no account minimums. Mutual Funds are priced on a per trade basis at $9.95.
I Don’t Invest in Anything I Don’t Understand.
I’ve worked super hard for my money and don’t gamble it on investments I don’t understand. So many people, especially now that they know I have some money, try to sell me stupid investments. I don’t listen to pitches unless I solicit them. An investment has to be really compelling for me to go beyond my core investing strategy. A vast majority of my money has been made and still sits in the following investments.
There’s a big difference between long-term and short-term investing. A lot of people don’t invest in stocks because they are afraid of losing money in the short term – which only really matters if you need the money in the short term. But if you are investing for the long term, then I don’t know of any better investment than equities or real estate. Sure, stocks can go down, but over any 10 year period in history they are always up at least 7% per year when the gains and losses are averaged out. Here is how I invest for the long and short term.
Long-Term Investing Strategy (10+ year horizon)
I manage 100% of my long-term investments myself and still follow my daily investing habits – putting money into my investing accounts every morning when I’m drinking coffee. I don’t work with any type of financial advisor or firm. It’s actually pretty easy to do yourself with a bit of reading and emotional bulletproofing. A vast majority of the reason people get poor investment returns is because they get emotional. This is one of, if not the primary benefits of working with a financial advisor – they can help you control your emotions.
You can also teach yourself, like I did, through reading investing books and blogs. A lot of anxiety and emotions around investing are simply due to a lack of knowledge. It only takes one book and you get it.
If you only have the ability to read one investing book here’s my favorite – The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On with Your Life.
Once you realize how investing works – the opportunities and how to minimize your risk, it helps take the emotion out of it.
All of my long-term investments are held in four different accounts, three of which are tax advantaged (Roth IRA, a 401k, and an SEP-IRA), meaning I get a tax benefit either when I deposit or withdraw the money.
Taxes can take a massive chunk of the future earning of you investments, so it’s important to minimize their impact as much as possible. This is why I always recommend maxing out your 401k, Roth IRA, and if you have a side hustle, your SEP-IRA before investing in anything else. One cool feature of most IRA accounts is that you can buy and sell stocks inside them.
This is why I always recommend maxing out your 401k, Roth IRA, and if you have a side hustles, your SEP-IRA before investing in anything else. One cool feature of most IRA accounts is that you can buy and sell stocks inside them. I buy AMZN in my SEP-IRA.
Unfortunately, since the IRS wants to get its money, there are contribution limits on any tax-advantaged retirement account.
Then the money I have left over, I invest in my Vanguard brokerage account:
70% of my long term investments are in index funds.
My two favorites are the Vanguard Total Stock Market Index Fund and Vanguard Total Stock Index Fund, but I invest in a few others highlighted here.
About 80% of my index investments are in domestic funds, and 20% international. I’m heavily invested in equities for the long haul. The best thing about keeping money in these index funds is that I don’t have to worry about it and they are low-tax since very little trading is done within them. Also, 90%+ of investors don’t beat the stock market, so I prefer to track the market instead. Every dollar I invested when I started my financial independence journey in 2010 is now worth over 3 dollars today. That’s an insane return for just a few clicks on my phone.
20% of my long term investments are in individual equities that I plan to hold for the long haul like Amazon, Apple, and Facebook. I invest in companies I use and believe in. I buy, but I don’t sell stocks very often because I want to minimize my taxes and if you hold an investment for at least a year then it is only subject to capital gains tax – approximately 15-20%. I definitely don’t day trade or recommend that anyone day trades – it’s too risky and emotional for me. It also takes way too much time and most people loose money. Day trading is actually one of my biggest money mistakes.
5% is invested in physical real-estate and REITS. I am looking to invest in more real estate properties after my decision to buy instead of rent helped me make over $350,000 on a property in only 4 years. I am planning to keep investing at least 5% of my portfolio in real estate and starting to explore investing in multi-unit buildings (but finding a deal is tough and this type of investing comes with a lot of hassles). I’ll keep you posted.
Wanna get started in real estate investing without the hassle? Try Fundrise with historical returns 8.7% – 12.4%.
Learn more: Are REITs a Good Investment?
5% is invested in non-traditional investments, like domains and art. While these can both be great long-term investments, both of these are more speculative – but I know them well, so can make educated purchases. I have made a lot of money investing in domains and only recently started investing in art, but look to expand both. I’m a huge fan of domain investing.
Please note: This percentage distribution fluctuates quite a bit during the year, depending primarily on the value of the individual equities that I own and my real estate property. As I continue to build more wealth I am planning to pursue other diversification opportunities (those mysterious assets and alternative classes the wealthy may or may not make money on!).
As you make more money, diversification becomes more important, since you don’t want too much of your money in one type of investment. Right now I am probably a bit over-exposed in equities, but in my 30s, I have a long time horizon.
That’s it. I invest in things I understand with low fees and minimal taxes. Those are my 3 essentials for successful investing.
Short-Term Investing Strategy (1-5 year horizon)
I personally don’t have anything that I am saving for in the short term, so a vast majority of my investments I am holding for the long haul. If I do decide to buy another property in the next few years, then I will plan to take that money out of my brokerage account, or start building a cash reserve once I have a new purchase goal. But since I am not sure that I will buy anything large in the short-term, then I am keeping my investments focused on a longer-term time horizon.
A lot of my early retirement calculations are based on mostly staying invested in equities and expecting a 6% compounded annual return over the next 30 years. I personally think that a lot of people sit on too much cash, but that’s a personal decision and for a lot of people, it helps them sleep at night. I sleep better knowing my money is making money, and even if I lose money in the short term, over time I will come out way ahead!
But, if you do want to save for a vacation, home, car, or make an investment in the next 1 to 5 years, then I don’t recommend you put your money into 90%+ equities like me. That’s likely too risky since stocks can go up and down wildly over any short term period. The last thing you want is your investment to decline 20% right before you find the perfect house or are ready to take that vacation.
So for short-term investing, I recommend you keep your money in a bond fund like the Vanguard Total Bond Market Index Fund or a certificate of deposit (CD) at your local bank. These two options are definitely better than keeping your money in a savings account at 0.1% interest, where you are actually going to lose money due to inflation.
Another option if you are willing to take on a bit more risk is a balanced index fund like the Vanguard Wellesley Income Fund, which invests in approximately 60% bonds and 40% stocks, so you can generate a higher return (with slightly higher risk). Over the past 5 years, the Wellesley has returned 6.98% per year!
Alright, that’s it. Pretty simple. Following this investing strategy and managing my investments myself were essential in helping me reach $1 million in five years. My investments also continue to grow and I’m still benefiting from the compounding of the money I started investing in 2010.
Please remember that I am not a financial advisor and that any investing comes with risk, but I hope this helps you on your journey to financial independence and beyond.
What do you invest in?
To learn more about investing in my book Financial Freedom: A Proven Path to All The Money You Will Ever Need