Lots of young investors get sold on sure-fire, long-term success stories of conservative investors. Now, there’s nothing wrong with investment conservatism. Conservative investment strategies are usually built upon index mutual funds. I have been conservative all along, in the case of investment risk taking. I have always spoke about index mutual funds in earlier blog posts.
For those of you a little confused by the term, index mutual funds are made up of a smattering of hundreds of share portions of America’s largest companies.
Because the American economy, as a whole, has tended to grow for its entire history, buying small stakes in hundreds of its largest companies will give the buyer the benefit of this tendency for growth, even as companies rise and fall by the wayside.
In this way, mutual fund buyers don’t have to worry about “picking winners” like investors in individual stocks do. barring exception, statistics show that this is a loser’s game more often than not and that investors in index mutual funds tend to outperform stock pickers.
In response to this knowledge, many investors go on autopilot, so to speak. Instead of deepening their knowledge of investment through theory and practice, in order to find investment opportunities outside of mutual funds and ETFs, they essentially “Set it and forget it”.
Set it and forget or rather, buy it and reap it philosophy helped me so far. over last few years since 2008, I got a return of 5-10% year over year.
Which is not bad. But if I had invested in Apple in 2008 with all my money, I could have grown my portfolio at much faster rate.
So, for the risk freaks, and the ones who like to take control of their investment, this strategy of conservative stock picking do not work.
The auto-pilot fund model also favors those who presently have a comfortable lifestyle and are only hoping to see big returns on their money many years down the road.
But what about those who want to see returns in the here and now?
For these people, a higher risk tolerance is necessary. People advocate for index mutual funds because they have the lowest associated risk of just about any investment which is likely to see significant returns.
But this strategy won’t work (on its own) for investors hoping to see real returns in the here and now. For people like this, you’ve got to take a few more risks, but you’re likely to see bigger rewards, sooner. Here’s how I go about it.
I am an obsessive researcher of the housing market in my area. I’m not an agent, but I’ve learned to get most of the information that formal agents have access to. Because I’m hungry to find good deals on investment properties, I find I have more information than the agents do on many houses.
I’ve learned to do household renovations on my own, getting a house ready to be rented out. The rent always far exceeds what I’m paying in mortgage, and this provides passive income, not to mention increasing wealth through the gradual ownership of more and more properties.
By learning when to rent and when to sell, I haven’t lost money yet, though I got careless and only broke even on one occasion.
I also know a lot about Forex investing. This is a form of day trading where you’ll make predictions about value changes of relative currency or asset pairs. If you get your guess right, you’ll see immediate payoffs in proportion to how much you invested.
A Forex Broker will be able to provide free education opportunities before you even invest a dime. That way you’ll be able to develop skills that you can use across a wide range of investments, without having to risk any money at all.
Of course, when you get good at it, you’ll definitely want to risk some money, because the rewards can be enormous. In both of the above cases, you can see how investments can pay off soon.
I recommend mutual funds and always max out my 401(k) and IRA. But if you’ve got to do some shorter term investments too, if you want to see your lifestyle improved in the here and now.
What should you have to venture into a nonconservative investment arena?
- You do not have a non-mortgage debt
- You have a steady income, at any point of time you are invested in the high-risk investments
- You have some spare money left from your saving, which is left over after maxing out retirement funds,