A wise man once said “Safety first, then teamwork”. Well today, we’re going to work on the safe side, which gives you the balance to pursue your passion and take risks that will enable you to achieve higher investing goals. If those goals cause you to stumble, your safety net will catch your fall, so you don’t hit rock bottom. We do not want to be singing “started from the bottom now we here” again now do we? These are strategies that if implemented diligently, have withstood the test of time and can give you a fancy retirement all on their own.
1.) Index Funds: My Favorite Option
“Instead of looking for the needle in the haystack, why not buy the haystack”.
I love me a good ol’ fashioned index fund. Why? Because these stone cold foxes have withstood the test of time, and made a steady return since their inception. They are the best option for someone who wants a “Set it and forget it” investment. Here’s a simplistic breakdown of what they are. Let’s use the Vanguard S&P 500 Index Fund (A nice selection, if I do say so myself). This fund mirrors the S&P 500 Index, which is a collection of 500 of the largest companies in the U.S. stock market. If you buy this fund, congrats, you just bought 500 stocks at one time. Not just any compilation of stocks, but a collection of the 500 most rock solid businesses around. You just became as diversified as just about anybody in the market. You also just signed yourself up for a 7.5% return (The average since they have been around). They also pay you a dividend on your investments that can be used as additional income in retirement. The vanguard Total Stock Market Fund pays a 2% dividend on top of the 7% returns. That 2% a year is enough money for some people to live on, without ever touching your initial investment. If you buy a Roth IRA with vanguard index funds, and max it out each year ($5,500), you will have over $1.3 million dollars in 40 years!
Stocks are not the only flavor of the index fund world. You can also buy bond index funds, real estate, and many other investment vehicles. If you have more experience in any of these markets, or prefer going this route, then more power to you. Jack Bogle’s books (The founder of Vanguard) are great resources on index funds and their history.
2.) Real Estate
Real Estate is another great option for your retirement plans, especially when you look for cash flow properties. These cash flow properties are essentially mini businesses and should be treated as such. Each of these little businesses that you purchase can give you a secure stream of income that will last through your retirement. Say you start buying properties in your 30’s. You start small and get a single family, three bedroom, two-bathroom house. You purchase it for $100,000 and it rents out for $1200 a month. You save a portion for future expenses, and you have a business that will pay you a minimum of $600 a month for the rest of your life (as long as you keep a tenant in there). If you have a few of these little beauties, you can retire early and live off the income provided. The downside to real estate for most people is that they don’t want to deal with finding tenants, but you don’t have to. There are many property management companies who will do all the work for you, including finding the tenants, dealing with any issues in the home, and collecting the rent. They will charge between 8-12% of the rent, but will give you the opportunity to never have to take a tenant phone call. If you like the idea of property managers, make sure you do your research as with any “employee” there are bad apples that will neglect your property. I would suggest reading a few books and looking into real estate websites sites such as Bigger Pockets before getting started.
3.) Dividend Investing
Dividend investing, also known as dividend growth, is for the more educated investor. It is not something that you can just jump into without doing research. You need to understand how companies operate and the math behind how they make their money. If done correctly, you can buy good reliable companies, who have historically raised their dividends, and use those dividends to supplement or accelerate your income. Once you perfect your stock picking craft, companies that are solid earner will jump off the page as great buys. If you re-invest those dividends into more solid companies, you are planting a money tree that can bear fruit for years to come. A great blog on this very subject is Dividend Mantra where Jason Fieber has done this at an incredible rate. He started with a net worth of 0 five years ago and is now seeing months of $900+ in dividend checks cashing right into his account through discipline and saving!
These are some great options to really look into, especially if you are building a foundation or looking to increase your nest egg. They have withstood the test of time and have rewarded disciplined investors who stick to their guns. As with any investment paths I discuss, please don’t take my word for it. Do your own research or email me any questions you may have and I will be happy to suggest additional resources to complement your search. Thanks for reading, and lets raise that Stash Flow!
Andrew is the host of The Personal Finance Podcast, a show that is changing the way you think about your money. His primary goal with the podcast is to bring as much value as possible to his listeners.
Andrew's favorite free financial tool he's been using since 2014 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
His favorite investment platform is M1 Finance, a site that allows him to build a custom portfolio of stocks for free. It has no trading fees and is his preferred way to invest without having to lift a finger.
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