Best investment opportunities
Given the above, what are the best investment opportunities to build wealth from nothing?
1. Stock ETFs
Buying the shares of companies is one of the best ways to build wealth. As a shareholder, you benefit from the growth in the company’s value; the company is working for you.
The best way to buy stocks is through ETFs (exchange-traded funds). ETFs are passive funds that are cheaper, less risky, more transparent, and more profitable in the long run. Instead of buying individual stocks (and exposing yourself to a lot of risk), ETFs help you diversify your investment without the fees, taxes, and market timing of mutual funds.
Stock ETFs also allow you to diversify your equities. You can buy stock ETFs that focus on developed markets, emerging markets, and the United States. You can also diversify by market cap (large cap, medium cap, and small cap) as well as industry (finance, technology, etc.)
A place to start learning about ETFs is Vanguard, which provides more than 81 low-cost and transparent ETFs designed to complement one another in a diversified portfolio. There is no level of diversification that you can’t achieve with Vanguard ETFs.
Though stocks are riskier than other asset classes, they produce the best returns on investment. With a good diversification strategy, you can minimize the risk and earn higher returns.
2. Bond ETFs
A bond is a debt instrument used by governments and corporations to raise money. Bonds can be corporate (issued by companies), federal (issued by the federal government), or municipal (issued by government agencies). When they borrow money from you, they pay it back with interest.
Like stocks, the best way to buy bonds is through ETFs.
Bonds are less risky but they offer lower returns compared to stocks. However, when combined with stocks in a portfolio, they reduce the overall risk of that portfolio.
3. REIT ETFs
Instead of renting or buying and selling real estate properties, which is very risky, REITs (real estate investment trusts) provide an alternative way to profit from the real estate industry.
REITs are stocks of real estate companies that purchase and sell properties and mortgage companies that provide the finance to customers. When the value of the real estate or mortgage company rises, your money grows in value; those companies are working for you. REITs pay a very high dividend (they are mandated to pay at least 90% of income as dividends), which provides extra investable income for you.
Like stocks and bonds, ETFs are the best way to buy REITs.
