I have recently posted a few articles and tweets about investing. I think it’s an important skill that every American should learn. However, I realized that I haven’t really explained the asset class es that I mention in my posts. I thought I would do that now. Hope this helps you avoid suffering during the coming retirement crisis!
The Asset Classes:
Here is how different asset classes work:
Cash isn’t particularly volatile and is very liquid. You can store it and buy what you want when you want. But it doesn’t appreciate in value at all. Instead, it loses value because of inflation (although there are a few savings accounts that will about keep it steady with inflation). You won’t build your money passively with cash, you have to earn more to build your cash reserves.
Sometimes they appreciate, sometimes they don’t. Like cryptocurrency you are just gambling that someone will want to pay more in the future for it than you have paid for it. It is however a good store of wealth that generally keeps up with inflation. The saying goes that an ounce of gold will always buy you a nice suit. But it generally doesn’t appreciate faster than inflation unless there is undue speculation in the precious metals market, generally caused by fear of a bear market or global crisis.
Bonds are a way to store wealth while also earning income. A well diversified bond fund generally won’t lose too much value, and it will pay you dividends. They don’t appreciate all that much though, so they’re better for retirement income than building wealth. Also, they can be volatile, so you can have paper losses at some points.
Real estate will appreciate at a few percentage points per year, and sometimes more if the market is hot due to economic growth in the area. You will also make lots of cash through renting houses or commercial real estate. But costs of management can weigh it down and the average real estate investor only builds wealth at the rate of a few percentage points per year, not much better than bonds.
Stocks and REITs:
These are the wealth builders. Most appreciate and pay dividends, although some grow more and some pay more dividends. It depends on the underlying business of the equity. You will generally average around 10% annual returns if you hold a well-diversified number of equities for the long term and avoid high costs for brokerages or ETFs. These are the ways to build wealth.
Hope this Asset classes review helps you with investing. I’ll post again soon about how to use this information to make an investing plan and avoid the coming retirement crisis.
By: Gen Z Conservative
Read more of my thoughts on Investing here: https://genzconservative.com/the-importance-of-investing/
Use this site, my favorite investing brokerage, to invest- M1 Finance- https://mbsy.co/shlGr
If you’re interested in learning more about investing and asset classes, buy these books on Amazon:
“One up on Wall Street”- https://amzn.to/2uGuOf8
“Security Analysis”- https://amzn.to/2Useugc
“Winning the Loser’s Game”- https://amzn.to/2HSmIbE