Did you know that right after receiving his share of the proceeds from Zip2, Elon Musk immediately invested in two businesses? And now that he’s rich, he has countless other investments, most of which have contributed to him becoming one of the world’s richest men. This is all to say that investing is the cornerstone to wealth creation and if you ask me here are 5 investments worth owning for life!
Investment #1: Index Funds
The index fund can be categorized along with ETFs (exchange-traded fund) and mutual funds. An index funds is an investment holding a specific group of securities in an index. The aim is to match the performance of that benchmark closely. You may purchase index funds via an index-fund provider like Vanguard and BlackRock; or your brokerage account. Among the primary advantages of index funds is their track record of consistently beating the other fund types in overall return.
The primary reason for this is because generally, they have management fees that are lower than other funds. The management fees are less due to the fact that they are passively managed rather than stationing a manager actively trading. With a research team continuously making recommendations and analyzing securities, the portfolio of the index fund gets to duplicate that of its designated index.
Index funds also have lesser transaction costs since the index itself rarely changes. These lower costs that are available with index funds can, over the long haul, make a massive difference in your returns. With all the advantages of owning an index fund shown earlier, it’s already clear why the rich are keen on this investment; however, there’s more. By less frequently trading in and out of securities as opposed to actively managed funds, the index fund experiences less events that will have your investment being taxed meaning that this is also an investment that will minimize tax owings.
Finally, index funds employ one of the most important rules of investing which is diversification. By investing in index funds, you can invest in a group of stocks you admire without having to invest in each one individually which gives the average investor a way to diversify more easily. Therefore, for these reasons and more, the index funds are a wise investment to hold for life.
Investment #2: High-Yield Dividend Stocks
High yield dividend stocks are another investment that may be worth holding for the long-term. If you’re unfamiliar, dividend stocks are the money that shareholders receive as passive income from the companies they’ve invested in. Dividend stocks come with two primary means of profits: growth and a high-dividend yield.
While growth stocks have to do with earnings that are constantly growing, high yield dividend stocks may not always increase continually; however, they disburse dividends earlier. The earnings from high yield dividend stocks come at rates that are higher than the market average.
Now, while many popular dividend stocks offer investors sizeable payouts, shareholders frequently reinvest those dividends. This is beneficial to everyone involved, including the company and the investors. Those who reinvest their dividends are very helpful because they kill two birds with one stone. How? Such reinvestments help to acquire relatively inexpensive shares if a stock stays at a relatively low point. They also help to slow the downward momentum of these shares.
Those who like to invest in these instruments have the opportunity to sign up for dividend investment plans. They can also manually reinvest their dividends at the time of entry. But how do investors know which high dividend yield stock to invest in? Let me get into that now.
Before choosing the dividend stock of their choice, credible investors begin by comparing the dividend yields with their peers. Once an organization’s dividend yield is way higher than the ones from companies of similar stature, that usually signals a red flag. If anything, the investor has to conduct more research on that company to ensure safety. However, once reliable dividend stocks are found, they are typically a lifelong hold.
Investment #3: Real Estate
Real estate investments are quite popular now and this isn’t surprising given all the benefits they offer. Once an investor can carefully select profitable real estate to invest in, he or she will reap bountifully in terms of diversification, tax advantages, excellent returns, and predictable cash flow. For these reasons and more, the generally the wealthy among us leverage real estate to build wealth.
Now, let’s dive further into those benefits I previously mentioned. Real estate offers a lot of benefits and quite a minimal risk and, as such, is considered an investment anyone who desires wealth should own. Allow me to show you the reasons behind such conclusions. The cash flow generated by real estate is one reason rich people love it. Cash flow is the net income that a real estate investment generates for an investor after operating expenses and mortgage payments are subtracted. The cash flow produced by the investment is often strengthened over time as the investor pays down the mortgage and then builds up equity. Another benefit of real estate is the tax deductions and breaks it offers you. A person that invests in real estate is usually opened to numerous tax deductions and breaks, which help to save money during tax time. Generally, a person can subtract the reasonable expenses of managing, operating, and owning a property.
Another of real estate investment’s many benefits is leverage. Leverage can be defined as borrowed capital, which is debt or different financial instruments, to improve the potential return from an investment. For example, a mortgage down payment of 20 percent may get you 100 percent of the intended house. That is leverage. Real estate is one tangible investment that can be used as collateral; it makes getting finances easier.
Moving on, real estate investments can also offer an investor competitive risk-adjusted returns. The returns from this investment vary based on factors like management, asset class, and location. However, the aim for most investors is to beat annual market returns and very few other investments can provide the kind of risk-adjusted returns that real estate does. Finally, another benefit is an inflation hedge. An inflation hedge is an investment that protects its investors from a decline in money’s buying power. The inflation hedging capability of real estate’s capacity for inflating hedge comes from the relationship between the positive demand for real estate and GDP growth. The demand for real estate generally drives rents higher as economies continue to expand, which leads to higher capital values. In that way, real estate helps to keep the buying power of your money, bypassing the pressure from inflation to the tenants. These are the main advantages of real estate and part of the reason why it is arguably one of the best investments around.
Investment #4: Government Bonds
In the world of investors, government bonds are still as important as ever. For many years, people have been made to believe that stocks are the best investment instrument for growing your wealth. You see, until today this sentiment persists even after the advent of two major crashes in the stock market. However, people who downplay the importance of bonds are missing out on a potential cash cow, and you guessed right, the rich are not missing out on this opportunity. Of course, you want to know what gets people so excited about this particular investment and you can be sure that I’ll do justice to that right now.
Firstly, government bonds are a viable way to provide income. Although multiple investments offer some kind of return to investors, bonds generate the a dependable money streams. Even when the prevailing rate in the market is low, there is still a number of options for investors to construct an effective portfolio. These options include emerging market debt and high-yield bonds.
Another benefit of government bonds is their ability to offers investors diversification. As the popular warning for investors goes, “don’t put all your eggs into one basket.” Employing bonds is a vehicle for diversification for those who are smart enough to adhere to that time-tested wisdom. It is of utmost importance for any investor to be protected against market volatility, and this is where government bonds come in. They offer a low-risk profile that, when paired with stocks, can ensure that an investors portfolio is protected from massive declines when the market takes a dip.
Finally, one of the biggest advantages you get investing in government bonds are the tax advantages they provide. There are very few things that the high-income earners hate more than taxes; after all, it is not their fault that they want to have wealth and know how to get it. Bonds are useful to people who want to minimize their tax burdens. While most equities and money market funds are taxable (except if those kept in a tax-deferred account) at the federal level, the interest on government bonds is tax-free. So between the diversification they offer and their tax advantages, this is another investment you should definitely own for life!
Investment #5: Precious metals
Investing in precious metals such as silver or gold means the exchange of legal tender and lawful money. It is trading your local currency for an international currency or exchanging public money for private money. People can always obtain silver or gold for cash which is just one of the many benefits of investing in precious metals for sure. But what are some other benefits? Well another is that even when a person buys jewelry, these precious metals still hold some real value due to their purity and weight. Therefore even if nobody wants to buy the precious metal as jewelry, the seller may take it to scrap or coin dealers and get paid the melt value of the metal.
Now, you may be wondering how much of your investments should be in precious metals and it’s a great question that I want to answer now. Generally, financial advisers recommend that you invest between 5–10% of your cash in this particular asset and below, I will convey to you some specific wealth principles that outline the wisdom in investing in precious metals. Firstly, unlike most other assets out there, precious metals are hard assets that hold real intrinsic value. Yes, paper, cash, and plastic assets will make your investment life convenient in steady economic times. However, when the market gets volatile, as is usually the case during a recession, hard assets are the real thing. Precious metals have a history of not only providing security during volatile times but offer the biggest returns immediately after. The financially savvy among us understand that in the global economic times we’re presently in, the business and political landscape is quite volatile. Keeping that in mind, you should join the rich in protecting yourself by investing in precious metals. Investing in paper or intangible assets like cryptocurrency should be considered as potential wealth. By this, I mean assets like that only become actual wealth after you’ve successfully traded them for hard assets, services, or goods.
Also, investing in precious metals is not only a secure investment but an excellent savings method. The fact is, no other asset can provide constant owner accessibility, consistent returns, high liquidity, and a solid saving mechanism to you as an investor. Getting a good return from your investments in soft or paper assets is generally predicated on making savvy gambles or long-term investment decisions. Therefore, if you’re someone who doesn’t like having to wait years to reap the rewards and doesn’t have the stomach for risks, precious metals are the thing.
Another benefit I must point out is that, precious metals are widely regarded as an investor’s best inflation hedge. When you understand that the dollar loses a minimum of 2% in value every year, you probably stop saving altogether and invest in precious metals instead! Therefore, for these reasons, precious metals, and the other 4 investments I’ve shared above can be your tools for wealth generation for life!