Real estate or alternative investing?
Last week I did a hit piece on stock investments. It was pretty brutal and definitely true. This week, I will go over the reasons you would want to invest in other areas besides real estate.
First, let's talk about stocks and bonds. For the modern investor, you can choose individual stocks in your favorite company like, say, Microsoft for example and just buy a bunch of it. You can also nowadays use a robo-advisor to select a portfolio of stocks for you based on your risk tolerance. There are benefits and disadvantages to both of these methods of course. If you feel like investing all of your money in a single stock, that would probably be the least diversified portfolio possible, and therefore it would be considered risky, especially depending on which stock you choose. You can attempt to emulate that level of risk assumption with a robo-advisor by simply selecting 100% stocks in your mashup. Usually they have a sliding scale like betterment uses:
Basically, if you want more risk you just adjust the slider up to 100% stocks and it will automatically re-balance the entire portfolio for you. If you want less risk just adjust the slider to 100% bonds. This process is about as simple as trading one stock for another through the many websites that allow it. I would imagine that managing a reasonable sized portfolio of various stocks on your own would be difficult and time consuming which is why these Robo-advisors started to take off in the first place. They are highly diversified and you are likely holding hundreds of stocks for even the smallest deposit amount.
So why would you invest in stocks at all? Well for starters, almost every 401k plan in the world is base lined to utilize only stocks and bonds so you pretty much have no alternative there. When it comes to 401k with employer matching I would say you should be doing this always if it is available to you, and the minimum should be what your employer matches. The maximum contribution is set by the government and it moves around every year, this year (2017) it is 18,000$ pre-tax.
Another reason to invest in stocks would be that you do not have enough money for a major purchase of a home, or you are not planning on any major expenditures for a while to come. This would mean that the amount you save every month, though not large enough for a major purpose, can be dumped somewhere where it will generate a return. Notice I said that you should not need this money any time soon, because if you did it would be unwise to gamble it on short term investing in the market. Time in the market is the best way to detract from risk, utilize your future plans to invest in an intelligent manner.
Of course, the last reason to invest in the market would be that you have more money than you know what to do with and you don't even want to spend it on anything. Imagine if you already owned your house and enjoyed your lifestyle the way it is and you love driving your crappy Honda. Having extra money piling up in cash somewhere likely won't be helping you much so just drop it in the market and forget about it.
Alright so where else can you invest if you don't like stocks? There is another option on the simple end of the spectrum.
CD's: Almost every major financial institution can provide a CD at a reasonable rate. The rate is never all that good to be honest, but they all come in the same ballpark. There are a ton of places to check rates like nerdwallet or google.
As you can see, 2.4% isn't a great return, but it is risk free and better than a sharp stick in the eye. Make sure you don't need the money before the mature date (5 years above example) or you will likely have to pay a hefty fee. This might be a good way to invest money if you are tempted to spend it on things, because literally you can't have the money until it's ready without losing quite a bit of it.
Always remember the primary reason you are saving money. For some this will be to start a family, retire earlier, or travel more. Others will want a new fancy cars and to go to Vegas on the weekends to ball super hard. Whatever it is, if you think about it and your specific goals it will help you stay motivated.