In our last and final article in this series, I want to talk about keeping your money in cash and other currencies. But I also want to briefly touch on two other forms of investment that are probably more significant than any of the other asset classes we have talked about – investing in yourself and investing in a business. In part 1 of this series, we talked about defining your investment strategy and in Parts 2 and 3, we talked about investing in stocks and bonds and investing in real estate. If you have not read those, I encourage you to read at the minimum part 1 before you get to this article.
Cash and Currencies
You may be asking yourself the question – who on earth considers cash an investment? That’s a reasonable question depending on the prevailing interest rates. If interest rates are rock bottom, nobody wants to keep money in cash. If interest rates are high enough, then suddenly keeping money in high yield savings accounts or money market accounts are more attractive.
As I have mentioned in the article on emergency funds, you need to keep cash as a liquid asset to ensure you are well protected for emergencies but also to keep yourself well positioned for volatility in your income sources and investment returns. Outside of that, you have to assess the prevailing interest rates to understand your returns on it. Cash always has a spot in an asset allocation for the reason I mentioned above.
Keeping money in other currencies outside of your home currency is something you should do only if you have a specific need for it unless you are a currency trader. This is because there can be a fair amount of exchange rate volatility and most often it’s not worth it.
Finally, the hot ‘investment’ these days (Jan 2021 when this article was written) is Bitcoin and cryptocurrencies. I am not going to comment on it because I don’t fully understand it. But I know there are a lot of smart people out there investing in cryptos so I will punt on commenting on this.
Investing in Yourself
I have talked about this in a previous article. In fact, one could argue you should start with this investment first. In my opinion, if you have extra money, you can never go wrong in investing in yourself. But often this does not require money, but more an investment of time. If you have come this far in reading these articles, you are in a way investing in yourself in improving your financial knowledge. I invested some money in taking a course on real estate investing from a mentor who I really look upto and consider it the best investment I have ever made. It was the foundation for all my real estate investments. I personally invest my time every day in listening to podcasts and reading books on specific topics that have been immensely valuable for me. I know folks often invest in continuing or higher education like an MBA. Obviously, develop a good understanding of the ROI of the investment.
I personally invest my time every day in listening to podcasts and reading books on specific topics that have been immensely valuable for me.
Investing in a Business
I am not qualified to talk about this because I don’t own a business (outside of my real estate investing) nor do I have the experience running one. But I feel it would be a miss if I did not mention this. Most of the wealthy folks became wealthy by investing in their own business (remember Jeff Bezos?) or investing in another person’s business (more like angel investing). But don’t think of owning a business only for multi-billionaires. You can own a small business too. This is not for everyone and only for those who have the conviction and belief they can and want to do it. Also, the failure rate of new businesses is very high. So think hard about whether this is for you but if it is, I would encourage you to assess this like every other investment we have talked about.
Conclusion
This concludes my 4 part series on where to invest your money. I recognize this has turned out to be very long but my intent was to give you a framework on investing rather than tell you where to invest. Some concluding points:
- Understand every investment before you do it. Educate yourself and don’t shy away from understanding how an investment works and how one makes money from it.
- All forms of investing involve some risk so do your best to spread your risk and diversify. But don’t be too hard on yourself and try to do it all at once. You will probably get overwhelmed. Take it one at a time – remember, this is not a sprint but a marathon.
- Beyond understanding the math behind the investments, make sure you understand your personal risk appetite. Sometimes, no amount of math might make you feel comfortable about the investment. Acknowledge that, and understand you need to sleep well at night.
- Finally, sometimes people are obsessed with finding the most optimal and highest return yielding investments. I am not saying you should not do that. But for most folks, I would encourage you to keep it simple. While simple may not be the most optimal, simple can be good enough.
Thank you for reading and I wish you success in your financial journey.
Disclaimer: I am not a financial advisor and all the information in my articles are from my personal experience and are for informational and educational purposes only. Please consult with a financial advisor or CPA for professional advice.
