As Investopedia noted, there are only two ways to make money in this modern world: by working for yourself/someone else or having your assets work for you. When you keep your money locked up in your house or a safe deposit box, it’s not working for you. And with the low interest rates on savings account, keeping your money in them won’t help your retirement savings reach its true potential. We spoke to a few investment experts on what they believe are the best investments you can make in 2019 and they each had their favorites – all of which are great investments to consider. Start making your money work for you with their recommendations.
A Diversified Portfolio of Stocks
“Despite the recent volatility, a diversified portfolio of stocks is the best investment consumers who want to build wealth can make. Individuals need to be taught to invest and not to save. The surest way to build true long-term wealth is to invest in the stock market,” says Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance at Heider College of Business and Creighton University.
Johnson went on to note that time is the key to successfully building wealth because of the effect of compound interest, to which he quoted Albert Einstein: “Compound interest is the greatest mathematical discovery of all time.” Time is the greatest ally of the investor because of the "magic" of compound interest.
According to data compiled by Ibbotson Associates, large capitalization stocks (think S&P 500) returned 10.0% compounded annually from 1926-2018. Over that same time period long-term government bonds returned 5.5% annually and t-bills returned 3.3% annually. The surest way to build wealth over long time horizons is to invest in a diversified portfolio of common stocks. Someone with a long time horizon should not have exposure to money market instruments, yet many investors do because they fear the volatility of the stock market.
Investors simply can’t afford to make oversized bets on individual securities. And, often that is what happens to beginning investors who buy the stock of the company they work for or the stock of a product they like. When they experience failure, they withdraw from the equity markets. Investing in a broadly diversified basket of securities — a diversified ETF or mutual fund — is a prudent strategy.
An interesting study done by University of Arizona professor Hendrick Bessembinder shows that only four percent of common stocks have provided a higher return than Treasury bills. In other words, the returns on the market have been driven by a small percentage of big winners. Trying to pick winners, for most, is a loser's game. The solution is to invest in diversified funds and you don’t need to pick those winners.
— Robert R. Johnson, Ph.D., CFA, CAIA
An Investment App
Logan Abbott who runs Wirefly.com, a comparison engine that helps people save money on the most important monthly services suggests investing in a great investment app. Since 2015 he has been using Betterment and raves about it.
Abbott explained that Betterment allows you to link your financial accounts including bank accounts, as well as loans and liabilities, so you can calculate your net worth in real time and track your saving progress over time. In addition, you can set goals and alerts, and they let you know if you’re missing out on any benefits they provide, like Tax Loss Harvesting, which can reduce your tax liability by automatically selling and re-buying similar securities, he says.
Betterment has a tool called Smart Saver that you can link to your checking account, and they use AI to determine how much money they can withdraw and automatically invest for you periodically. Alternatively, you can also set up a weekly or monthly fixed auto deposit amount. In addition, Betterment will use its proprietary investing algorithm to put your money to use investing in stocks, bonds, and other securities automatically, if you so choose. This “robo advisor” as it’s known will rebalance your portfolio automatically and makes sophisticated investing accessible even for people with little financial experience. Once you realize how easy it is to effectively invest your money without needing to sit down with a financial advisor, you’ll also be more inclined to spend less money on frivolous pursuits, when you know it could be put to work for you in mere minutes.
1. Logan Abbott
Multi-Family Real Estate (100+ units)
“Investing in multi family real estate as a passive investor has many benefits,” advises Matthew Baltzell who works in investor relations at Boardwalk Wealth - a private equity company that specializes in multi-family real estate in the United States. Baltzell explained the following benefits of investing in multi-family real estate.
1. It’s recession-proof. Due to the economies of scale in larger multi-family apartments, you find there to be less volatility. People will always need a place to live and studies are showing Millennials are purchasing houses later and are more likely to rent. Thus, in theory, you would hopefully have a stable occupancy rate and with it comes consistent cash flow. This is comforting especially in a recession.
2. You’ll earn passive income. In general if you were to invest as a passive investor in multi-family apartments, a typical deal would be a six to eight percent preferred rate of return with a 70/30 split upon sale (70 percent for limited partners, 30 percent for general partners, and a 2x equity multiple on a five year holding period. You as an investor (limited partner) would get the six to eight rate every year on your money until the property is sold. Upon that time, if the equity multiple is achieved (2x) you would have doubled your money in five years.
3. Tax benefits. By investing as a passive investor in multi-family apartments you're entitled to the tax benefits of the property such as forced depreciation, etc. However, it's best to consult a tax consultant.
4. Tangible asset. Apartments are something you can physically see. You can see the condition of the property, where it's located, and renovations occurring. This is appealing to many investors. Unlike the stock market, you don't really know what's happening with a company other than financial statements and headlines.
2. Matthew Baltzell
“Index funds are, and always will be, the best investment option in my opinion. Similar to how eating right and exercising will outlive any diet fad, investing in broad market index funds will outlive any investment fad. Over time, they are the best option for most investors,” says Kevin who runs the personal finance website, Just Start Investing.
“Index funds are simply mutual funds. Except, unlike actively traded mutual funds, index funds are designed to match a broad index (like the S&P 500) and do nothing else. Since they are just copying an existing index, costs to run them are much lower. In turn, this keeps costs down for investors as well. These two benefits, low costs, and efficient matching of established funds, are why index funds are great choices for investors.
3. Kevin from Just Start Investing
Another way to earn money on the side is affiliate marketing. If you have a blog, a strong social media presence, an email list, or another way of reaching an audience, you can earn some extra income by advertising on behalf of another company’s products or services. On the LeadsMarket.com website, affiliates can sign up to join their consumer loan affiliate marketing program. If you have an online audience, it could be an idea to consider.
Now that you know where you should invest in 2019, get started making your money work for you and be sure to check back next year for an updated list.
About the author: Luke is a writer and editor based out of Los Angeles. He specializes in finance, as well as health and wellness. In his free time, he enjoys watching Astros baseball. You can find him on LinkedIn.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.