How do you diversify your investments?
The first step in investing is understanding what type of investments are available out there. It can be different depending on where you live and what kind of income you have. Although, in today’s market you will have a lot of options, some would even say limitless amount of options.
So what kind of investments are there? If we try to summarize the most popular and common ones you have, Shares, Gold, Real estate, P2P lending, Bonds, and even Art. The goal with investing for me, and for all of us, is to find an asset that will increase in value.
These forms of assets are well-known and most recognized as investments in the financial market, but there are other ways of investing in things out there. For instance Bitcoin and other electronic currencies. For now, we will focus on the main investment tools out there.
Shares are definitely one of my favorite type of asset out there. To actually buy a part of a company and become an owner of this company is a thrilling feeling for me. Taking part of annual shareholder meetings and listening to the CEO of a global company talk about his thoughts and ideas of the future is so rewarding. Better yet, the stock market has been a solid investment tool historically (This is where I will warn you that historical numbers are in no way a guarantee of future returns). An added bonus is the dividend. The possibility, no the privilege, to take part of the company’s profit. Without any time, work, sweat, or tears put into creating the dividend. As you can probably tell, I’m very much a fan of stocks.
Gold, the most precious of all metals. Gold has been used as a hedge against “bad times”, since the gold standard is considered a safe investment. Physical gold usually goes the opposite way of the stock market. When the stock market is soaring, the investor usually move his asset allocation from gold, that is a stable and safe but low yielding investment to a more risky, high yielding investment like stocks. When the market is shaky and moving a lot the investor searches for the safe harbor of gold investment. Actually getting a gold coin is not that hard. There are multiple sites out there that can sell and ship you gold.
A lot of Personal Finance blogs out there are trumpeting the real estate investment as the best bet for financial freedom. The principle is simple, you own a property that rents out to tenants that pay you a monthly fee. Another added bonus about real estate, other than paying you rent, the property itself can increase in value, and by leveraging with a mortgage your return on equity will get even higher. Sure you could always loan money to invest in other assets but usually these are at a higher interest rate and require a higher profit for you to actually make something out of it. although in Sweden Nordnet just launched a sweet knock out loan that you can get with an interest rate of 0,99% which is even better than the mortgage loan. It’s something I’m going to look into in the near future.
Companies like Trustbuddy or the American one Lending Club is for the investor that likes to invest in people. You get to lend out your money to other people for an interest of between 3-15 %. My own experience has been very mixed. I liked the interest payment that you could see almost daily, but taking out the investment has taken over a year and I’ve still not received the full payout (I’m looking at you Trustbuddy). This feels like I’ve been cheated a bit. If there is anything important to an investor other than the value of the investment it’s the mobility or availability of the investment. When I finish an investment I would want to access my invested money as soon as possible to be able to invest again.
It’s beautiful and part of the finer things in life that we all enjoy. However, I have to shake my head when I see an ugly painting to go for millions of $ because it was painted by a certain artist. And who can tell what art will go up and what will go down? There are a lot of people speculating about the next Van Gough that fail miserable at the same time that there are people sitting on gold mines with a lot of chinese art and artifacts of old that are now sold for millions. Even here in Sweden where we had one of the earliest trade lanes going to China trading gods for Chinese pottery, we get a lot of international buyers for the art auctions where Chinese artifacts are involved. I would say that this is one of the more riskier investments out there if not the riskiest. That’s just my very inexperienced opinion.
What do I invest in?
The road forward for me is shares. Like a mini Warren Buffet I will put my eggs in the basket called stock market in hopes that it will grow even bigger. My investing philosophy like many others is to invest in dividend paying stocks that eventually will pay enough dividend to cover all my expenses. It’s all about getting that snowball rolling effect. I will contribute to my shares over the year as much as possible and hopefully one day the dividend payouts are higher than my own contributions, leading to the snowball growing faster than I can control.
My only tip is to invest your money where your interests are. It will be so much easier to invest in something you actually enjoy and want to know more about. A lot of people dread at looking into the stock market. Or don’t want to have the responsibilities that renting out a property brings. So step one would be to find what you enjoy investing in. From there it should be an easy Google search of finding out how to invest in your interest.
So what do you invest in?