I was wondering if you can offer me any information about investing in stocks and real estate. I am tired of doing this shift-job. My hours are 7-3, and getting a salary with one minute you have it and the next minute its all gone. Please help.
- Writes Beckie
First of all, good job with wanting to do better. The drive to have financial stability is an important (and seldom talked about) first step in financial independence. But here’s the reality. What you need to figure out first is not how to invest, but to learn how to live below your means and save. Investing requires capital, and that comes from money you have. It could come from savings, or from a side hustle. Either way, money doesn’t grow on trees.
And don’t listen to everyone who tells you that you can make money in investments out of nothing either. While there are examples of people who seem to be stock picking geniuses, the odds of someone having those abilities seem to rival winning the lottery. The majority who become wealthy with investing do so from income generated through managing other people’s assets. Getting rich solely with the stock market, or other investments, is largely a fantasy. It’s possible, but chances are slim that you could do it. Investing will help your money grow, but if you need it to explode to the upside to replace your job, I hate to say this, but don’t bet on it happening. Again, save, save, save, and put it in online savings accounts first.
Once You Have Money to Invest..
This is when you can look at the different alternatives available to you. You mentioned real estate, so I assume you mean rental properties. Being a landlord is a business, and it requires work. Managing tenants and properties is not easy, so embrace the fact that you are getting a second job. Many who first start in real estate get a reality check when their tenants call them at 3am in the morning to fix a toilet seat.
If you don’t mind that…
In real estate, there are usually two types of investors.
- The cash flow investor, who buys properties to provide a positive cash flow when it’s rented out. These investors generally have no intention of selling the underlying asset. Or
- The appreciation investor, who is buying a property expecting to sell it at some point at a higher price.
In practice, most investors are a mix of both, but in my opinion, it’s much better to figure out what the goal of the investment is before you even start. This way, there’s less chances of letting your emotions wreak your investments. For example, if you are a cash flow investor who can’t find a property where the rent exceeds your mortgage payment plus miscellaneous cost, you need to wait. I know people who have bought properties for possible appreciation. Then when the housing market tanked, they rented them out at negative cash flow hoping that the value of the property will rise. Since then, the value dropped another 30%. Not good if you don’t have the capital to hold onto it. Real professionals have a plan before they start. Don’t be like most people and try to get lucky.
Ultimately, people tend to fall under each based on their personality, but most people start out as cash flow investors because cash flow properties are generally cheaper to own (and hence require less capital to start). If you choose this route. Make sure you are bringing in enough money each month to justify the cost of your time managing your property as well.
I have thought about rental properties myself, but I think REITs are more for me. Here’s an article where I talked about the pros and cons of both, along with one where I compared an investment property with a dividend yielding stock.
What about Stocks
This one is easy. Skip stocks. They are too volatile and I actually have never met anyone who spends the necessary time required to consistently do well. Instead, build a diversified portfolio of index funds, and set it up so you regularly invest in them. It’s boring, but it works wonders. The best part is that this requires little effort and knowledge, and money you make from your own investment is, for the most part, passive income.
One type of index fund I can strongly recommend is the dividend paying type. As I mentioned before, I like these because when the market is down, re-investing the dividends will automatically force you to buy more at low prices. They are generally less volatile as well, which help people sleep at night.
That’s It?
As you can see, this barely qualifies as an introduction to investing. There is much to learn in the world of making our money work for us, and one short post will never be enough to write all there is to know. Continue to ask questions, and more importantly, learn from your own experience and keep reading. You will for sure be more comfortable once you get started, and knowledge allows you to ask even more specific questions, leading ultimately to more insights.
Keep learning, because that’s actually where the fun is.
Any one else have other recommendations for Beckie?
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{ 11 comments… read them below or add one }
If she’s new to investing, she can look into hiring a financial advisor. But interview a few before you decide & get references. I wouldn’t suggest anyone investing in the market if they don’t know what they’re doing. You can lose everything if you don’t diversity your assets.
Financial advisors are a great option, though one should probably accumulate a bit of assets before finding one to make it worth while. At the beginning, focusing on living below your means is still much more effective then trying to increase your investment gains.
Good basic info. I would just remember that your J-O-B is a means to an end. Even those who seem to have made it quickly were probably slaving away after hours or after study time in their garage and may continue to work 16-hour days to grow what they started.
To replace full-time income with what comes from investments takes time and patience, no matter which vehicle(s) you select.
The most important tip, learn to live below your means. cd :O)
“Investing requires capital, and that comes from money you have. ”
best advice.
You need a little cash to begin this game of investing
Great information. It takes money to make money. Investing can be a risky business, just make sure you know what you are doing and research it before hand.
I’ve wondered the same thing. I’m no expert, but to me, real estate seems like the smarter (or at least the least scary) choice because your asset doesn’t evaporate. If the housing market goes down, you still have something to rent out, hopefully for more than the mortgage. If your stock tanks, better luck next time…
Stocks and index funds kind of intimidate me because I don’t know if I’d be able to differentiate very well between my emergency cash and my investment money. With a mortgage you have a fixed term and fixed payments. What determines how much income you want to invest in the stock market? And at what point do you stop throwing money at a stock investment when things start going bad. Or do you simply always assume it will always come back and keep digging a bigger hole?
Real estate can have a devastating effect just like any other investments. Natural disasters like fire and hurricanes can make a serious dent with your asset, while those who bought a house in Detroit is probably wondering what happened to their supposedly “safe investment”.
I had a friend in Japan who told me that the value of his home just went back to when he purchased it… after 22 years. When my parents moved a couple of years ago, they sold their home for a lost after being there for 15 years. Real estate is not always a good investment.
The key is to know your investments, since no one particular one is worst than another. For most people, real estate is easier to understand because they see the asset and can better foresee risks. For others, stocks are a better way to go because information about it is actually more readily available.
If you are into dollar cost averaging, the only time it make sense is when you are investing in a safe investment. In that, I mean an index fund like the S&P 500 because you are essentially betting that the U.S. economy is not going to have a total collapse in our lifetime. For stocks, unless you do your homework, dollar cost averaging is like driving blindfolded, you will get killed eventually.
Success in markets comes from buying x when everybody else is buying y.
Neither is a fundamentally better investment; it depends on the market situation. Now, however, is probably not the best time to speculate on real estate.
It’d be a good idea to start reading books of interest to you, Beckie. I’m not sure that investing in real estate will relieve you of your 7-3 job but maybe it’s time for a career and lifestyle change. Little changes here and there that will add up to one big one.
In real estate there is also the creative investor who using techniques like lease options, owner financing, short sales and wholesaling to make money from real estate with very little cash and no credit. Of course these types of strategies are based on your ability to find motivated sellers.
Real estate will always be the number one way to creating wealth in America.