Low Risk to High Risk Investments with Low to High ROI - (W6:D5) Debt Free Millionaire Podcast

Debt-Free Millionaire

Simplified Explanation: When you have paid off your debt, built up your emergency fund, and have excess money collecting in your savings, money that you don’t need for a while or until retirement, then you can invest that and grow it. When you are debt free and these investments - including a paid off house – add up to $1,000,000, only then are you truly a millionaire. Those that have $1,000,000+ of assets and then have even thousands in debt, are not truly millionaires.

Real Life: There are many ways to invest. We have discussed them in an early chapter but let’s quickly go over them again. Look each of these up at debt-freemillionaire.com/search/ (7)

You are looking for high Return on Investment (ROI) and low risk. Normally, you can’t have both, so you take one or the other or find a smaller balance. Normally, while you are younger, you are okay taking higher risk and reaping higher rewards and failures, but as you get older, you want to be more secure with your retirement.

Single Stocks – Also known as shares or equity. These are partial ownership in individual companies that are traded to the public on platforms such as the New York Stock Exchange or the Dow Jones. These are some of the highest risked investments. These include stock like Ford, Apple, Facebook. These investments have slow increases, but are normally reliable, depending on the investment you choose. Medium risk, medium ROI.

Common Trend – Buy these stocks low and sell high, or hold on to them for longer as they continue to grow. Stock do have a higher risk and may close without any return or losing your investment, if the company goes under.

Privately Traded Business Ownership – Publicly traded stocks are those with a history of making money and are available to the public, while Private Stocks are higher risk to fail, because of the lack of history. Larger buy-ins are normal. If the company closes, then all investments are lost, but if the exceed, you could 20x your money. High risk, high ROI.

Common Trend – If you have full faith in the company, being the first to invest is the most lucrative, but it also riskier. Be careful which companies you invest in.

Corporate Bonds – These funds are where you are lending money to an entity, usually for one of their projects, for a certain amount of time. They guarantee you a set return when the bond matures and closes. Low risk, low ROI.

Common Trend – These are contracted investments, they guarantee you a set return - normally small, but very secure – secured so it normally does not fail or close without paying you the set amount of money. A company that issues this bond can still default, leaving you with nothing, but, unless the company closes, you’ll be paid. These have a smaller ROI.

Municipal Bonds – When a city or county wants to build a school or anything, they vote to release a bond where different entities invest while they build. On a set date, the bond will mature, and you will be paid. Very low risk, low ROI.

Common Trend – These are highly secure bonds being run by local governments, but it is not out of the possibility that a local government will default, and you won’t get paid, just less likely.

Federal Government Bonds – For government bonds, you are lending the government money over a long period of time. Interest rates are based on the Federal Interest rates instead of what the market rate. Savings Bonds are the most common, which appreciate over many years. Very low risk, low ROI.

Common Trend –These are highly secured debt since it is unlikely that the federal government will default, but it may and then you will receive nothing since you are only paid when you cash them.

Mutual Funds are a pool of many investor’s money to buy a diversified portfolio of investments, including bonds and single stocks. These are stock traders and very well trained on picking those that will make the most ROI. Since it’s very diversified, it is highly unlikely that all the companies will default at the same time. A fund may invest in 100 companies, to spread the risk. Yet, if the market and economy decrease, then the fund will lose money, but not all of it. Medium risk, high ROI.

Common Trend - Mutual funds are highly secure and have some of the best returns you will find. Some years could be 25% ROI. These you will want to stay in for years, not months or days.

Exchange-Traded Funds – Similar to mutual funds, these are a collection of many investments, but these are sold on the stock market directly and their value fluctuates throughout the day, instead of at the end.

Common Trend – These are recommended to new investors (day-traders) because they are so diversified and more secure than single stocks and if they drop, you can pull out quickly.

Certificate of Deposit (CD) – A certificate of deposit is a very low risk investment. You give the bank a certain amount of money that they can use paying you a specific interest rate and return you a guaranteed amount of money based on what you invested. Low risk, low ROI.

Common Trend – The longer they can keep the money, the higher the interest rate. Currently, the federal interest rate is low, so they are offering a low rate, yet it’s insured by the government.

Retirement Plan – There are many types of these plans: 401k, 403(b), Roth IRA, Traditional IRS. These are accounts you set up and buy your investments through (usually mutual funds, bonds, and annuities) in order to save them until you retire, at which time you withdraw.

Common Trend – There are great tax benefits by using a retirement account to invest, being taxed now or when you retire and have less income. Taking money out before 65 is awfully expensive.

Options – Options are less direct investments. These are buying the option to buy a stock at a certain, lower or higher price. You can call options to buy assets if an investment increases, or discard if the investment drops.

Common Trend – The risk comes if the stock price drops and you can buy it for the same amount, then the option is obsolete. These are investor tools and non-trained investors should be cautious.

Annuities – These are basically insurance policies you buy and receive periodic payments in return. You may buy these by paying one time or periodically. They may also be link to the stock market. Low risk, low ROI.

Common Trend – These are low risk, and not high growth. They may supplement your retirement but will not get you a solid investment plan. Those who sell them get paid a lot to sell them.

Cryptocurrencies or NFTs – This is basically a digital currency, stored on a digital ledger or blockchain. It’s value is just as much as the collective market of investors places it, buying the asset at the value they place on it. So, you buy it at the cost of whatever minute you submit your buy. These are new investments, so their history is still being developed. They are much like a stock, yet have nothing behind their value. There is no company that increases the value, it is all based on how much the market thinks they are worth. They also don’t have the largest following right now so that go up and down very quickly. They could lose 10% in one day and return 10% in one day. The most popular are Bitcoin, Ethereum, and Litcoin, which are more secure because you have more investors insuring their value. NFT or a non-fungible token is a unique unit of data stored on a blockchain, a form of digital ledger for some digital information that can be sold and traded.

Common Trend - If you buy them when they are worth pennies, you could sell them when they are worth thousands. The risk is that they will not grow and since there is nothing behind them, they could easily default. If purchased after their initial growth, their returns are more like stock. Example: I bought Bitcoin, Ethereum, and Litecoin a year ago and in that one year has increased 400%, while an stock would only increase 20% per year. At the same time, that one year investment, in February 2022, dropped 20% in one month, so it is still very volatile.

Precious Metals and Gems – These include gold, silver, rare metals used in technology, diamonds and rare gems and are purchased retail and sold retail. They are not as much of an investment, but insurance. Gold only has a value if you give it a value. The only reason diamonds are valuable is the sentiment we put on it for jewelry or a wedding ring. The rock itself is not that valuable. Yet, something like silver or platinum is used in computers.

Common Trend – Because they are a physical commodity, their value is not likely to be zero, just that no one would be interested. If they became less rare, their value would decrease. Low risk, low ROI.

Agriculture – Ever wanted to buy a large amount of wheat or corn? Here you don’t have to collect it, you simply buy an Option to buy them at a certain price and sell them for a higher price. Low risk, low ROI.

Common Trend – These are based on a market of how high demand is and how much is supplied at harvest time. If there is too much, the price drops. If the demand is high, the price increases.

Livestock and Meat – Ever wanted to buy livestock, probably don’t have room, right? This too is the option to buy at a certain price and if the demand goes up so does your return. If it was an actual cow and if the price didn’t go up, you could always eat it, but unless you have the room, an option to buy is more valuable. Low risk, medium ROI.

Common Trend – Because people need to eat, the price will never hit zero, but the price all depends on how many people want that commodity and how much supply there is. Less supply or higher demand increases the price.

Energy – You will probably never buy crude oil or a gigawatt of energy or a cubic yard of natural gas, but like most commodities, you are not buying it retail but the option to buy it at a certain price and then hopefully selling the option higher. Low risk, medium ROI.

Common Trend – Supply and demand, as most people need it and it becomes rarer, the more you get paid. The increase is supply and the less people use it, the less it is worth.

Residential Real Estates – People will always need a place to live and in the U.S., people will always be able to buy a house and either fix it up and sell it, or rent it out to someone else and collect rent from them.

Common Trend – Houses appreciate quickly between recessions (8-10 years). Nearing recession, the price will peak and then the house value will drop dramatically to rebalance the inflated price. If you cannot sell through a recession, but instead rent it out, you shouldn’t lose money, possibly making money. It is more valuable if you can buy a house that is run down and fix it up, if you have the skills.

Commercial Real Estates –Businesses need places to sell their merchandise/food, a location to hold and manage their staff, or a place to manufacture their goods. You can sell or rent it to a company to utilize.

Common Trend – During COVID, companies began working remotely. Realizing they don’t need physical locations, demand for these properties has decreased and building are sitting vacant.

Industrial Real Estates – Large warehouses and factories are more industrial than just commercial. Companies need large locations to build or assemble their goods before selling them, but as the property becomes older, the less likely you will find someone to buy or rent it and you won’t have the money to fix up the warehouse.

Common Trend – With the increase of manufacturing in China and other countries, these large buildings are sitting vacant and the property owners who rented them out can’t rent or sell them.

Land – Land is the most secure investment to own. Land can always be used for something, whether for hunting grounds, farming, storage, or building. People rent these properties out like a completed building.

Common Trend – Land is normally hard to sell unless it is in a prime area of growth, but if it is zoned agricultural then property tax is low and there is little/no upkeep.

Art – Another commodity that never truly loses its value completely. Paintings, drawings, sculptures are not store like other commodities, instead displayed for visitors to see and appreciate it for the time you own it. Low risk, medium ROI.

Common Trend - When buying art for an investment you take the risk that it will not sell in the future, because no one can afford it or want it. It sells like residential property in comparison to recessions.

Anything We Give Value – You won’t find many financial people remarking on this investment, because they want to make a commission off your investment, but if you and others give any object value, it can be considered an investment and may go up and down in value, including baseball cards, stamps, and coins.

Common Trend – Objects increase between recessions (8-10 years) and rebalance during a downturn. Most objects of value are held on to to increase their price, at least 8-10 years.

But how do you manage your investments? Normally you use professionals to manage stocks, bonds, mutual funds, retirement, and any option, for a fee. At the same time, you may buy most of these on your own, without the training. Recent technology and software have opened the doors to buying almost all of these on your own for a low price or free. Commodities or physical objects of value can and should be obtained with the help of trained professionals (property, cryptocurrency, commodities) but then managed by the owner.