Young families looking to start investing (a very smart move so as to begin to build wealth) might wonder how to pick winners. Learn about the best (and worst) financial investments you can make. Do your research and find the best investment for your risk tolerance.
Choosing Financial Investments
According to Money Advice Service, the best strategy for a wealth portfolio is to write down what you want to achieve. Do you want high growth, fixed stability or tax deductions? Then, determine your own risk tolerance and find assets that fit that mold.
Best Financial Investments
Index funds and exchange-traded funds (ETFs) allow you to invest in a fund that represents entire categories of assets. You can buy indexes for an entire country’s stock exchange (i.e. Dow), volatility (i.e. VIX) or precious metals (i.e. gold). Are these good investments? These can be good investments because they allow you to diversify your holdings. You can target very specific functions for your wealth portfolio.
If you want high returns, then aggressive growth mutual funds and international mutual funds can deliver. If you want tax deductions, then ROTH IRAs and 401(k)s are useful. And, residential real estate can also be a solid investment.
But, with residential real estate, you need to only take on what you can handle. People who buy too much might find themselves underwater financially. If the housing market drops precipitously, your investment might be in trouble.
Worst Financial Investments
Beginning investors should stay away from volatile investments with low returns. Get rich quick schemes can also be destructive. The wise beginning investor focuses on long-term value.
The returns on certificates of deposit (CDs) are horrible. That is because American banking is a fractional reserve system. Commodities and currencies are very expensive. Whole life insurance (universal life or cash value life insurance) is very expensive and offers low returns.
Most MLMs, penny stocks, and house flipping scams allow you to make a lot of money in a short window of time. It is like trying to force a camel through the eye of a needle. If you blink, you might lose all of your money. Real Estate Elevated advises that “knowing what real estate scammers are doing will not only help you avoid getting scammed yourself, but it’ll also help you avoid sounding like you’re pulling the same kind of scam.”
Figure out what your risk tolerance is for these decisions, and from there, sort out what financial decisions are going to fall within that risk spectrum for you.
The best financial investments perform an important function in your wealth portfolio. And the worst financial investments are the ones that do not properly reward you for your risk, so you’re going to want to think long and hard about the decisions you’re going to make. It’s often said that to make business and to build wealth, one has to make a considerable risk, but that’s only true if you enter that risk wisely and with plenty of research. Find the best financial investments that fit your risk tolerance, and don’t try to rush your decisions.