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 hundreds of those emails in the past month alone.
The best investing strategies are ones 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.
Investment Strategies for Beginner Investors
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 investments 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.
1. Short-Term Investment Strategies (1-5 year horizon)
🏆 Best Short-Term Investments: Bonds and CDs
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, Wellesley has returned 6.98% per year!
Quontic Bank has a commitment to offering ultra-competitive rates on their CDs. A Quontic Bank CD is a great place to park some cash with the peace of mind with high earnings!
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, or 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 for your investment to decline 20% right before you find the perfect house or are ready to take that vacation.
2. Long-Term Investment Strategies (10+ year horizon)
🏆 Best Long-Term Investments: Roth IRA, 401k, SEP-IRA, Brokerage Account
I manage 100% of my long-term investments myself and still follow my daily investing habits. 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 that 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.
Once you realize how investing works – the opportunities and how to minimize your risk, it helps take the emotion out of it.
Roth IRA, 401k, SEP-IRA, Brokerage Account
All of my long-term investments are held in four different accounts, three of which are tax-advantaged (Roth IRA, a 401k, and a 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 earnings of your 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. 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.
In 2017 I put:
- $5,500 in my Roth IRA (through a traditional IRA backdoor conversion)
- $18,000 in my 401k
- 25% of my side hustle income into my SEP-IRA
Then the money I have left over, I invest in my Vanguard Brokerage Account.
Index Funds: 70%
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% in 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 do not day trade or recommend that anyone day trade – it’s too risky and emotional for me.
It also takes way too much time and most people lose money. Day trading is actually one of my biggest money mistakes.
Real Estate and REITs: 5%
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.
Fundrise offers crowdsourced real estate investing, most real estate investing platforms are only open to accredited investors, but Fundrise makes it accessible to all investors.
Non-Traditional Investments: 5%
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.
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.
Beware: Some Investing Advice is Shady and Just Gambling
I hear more terrible investing ideas, than good ones. I attended 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.
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. 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, 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.
Don’t Invest in Anything You 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.
5 Tips to Avoid Crappy Investments
- NEVER buy a financial or investing product from someone you just met
- Getting returns 12%+ per year is ridiculously hard and if anyone promises you a return they are probably full of it.
- If you don’t understand it, don’t invest in it.
- 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.
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Playing the Lottery is NOT an Investment Strategy
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!
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 worked for me and have 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.
Alright, that’s it. Pretty simple. Following this investment 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