Investments: Where People Put Their Money

Investing is the process of putting money into something with the aim of making a profit. There are several types of investments, each with its own level of risk and potential reward.

The most common types of investments include stocks, bonds, mutual funds, exchange-traded funds (ETFs), certificates of deposit (CDs), retirement plans, options, annuities, derivatives, commodities, and hybrid investments.

When deciding how to invest, it's important to consider your investing style, budget, risk tolerance, and time commitment. Active investing requires more time and research, while passive investing involves less effort but may yield lower returns.

It's also crucial to assess the level of risk you're comfortable with, as some investments carry a higher risk of loss but also offer the potential for greater gains.

By understanding these factors and choosing the right investments for your goals, you can make informed decisions about how to allocate your money and build wealth over time.

Stocks

Amazon (AMZN)

Amazon has diversified across multiple sectors, including e-commerce, cloud computing, streaming, and smart home devices. Its scale and brand recognition give it an edge over competitors, and its total sales in 2023 were roughly $575 billion.

Alphabet (Google) (GOOG)

Alphabet is the parent company of Google, the world's leading search engine, as well as YouTube and Android. It also invests in self-driving cars. With dominance in online advertising and its Android OS on billions of devices, it has a vast user base for its products and services. Alphabet's heavy investment in R&D may also lead to future innovations. Its annual revenue for 2023 was about $307.4 billion, an 8.7% increase from 2022.

Walmart

Walmart is the largest retailer in the world by revenue and has a strong e-commerce presence. Its scale and efficient supply chain give it a cost advantage, allowing it to remain profitable even during economic downturns. It also offers a reliable dividend that has increased annually for 51 consecutive years.

Nvidia (NVDA)

Nvidia is a semiconductor company that has become a household name with the rise of AI technology. It crossed the trillion-dollar mark in June 2023, and its shares are up about 87% in 2024 as of May 9, 2024. Nvidia ended 2023 with a remarkable 246% increase from the start of the year and generated about $27 billion in revenue during its fiscal 2023.

Costco

Costco is a membership-based warehouse club with a loyal customer base. Its membership model creates recurring revenue and customer loyalty. It also offers a reliable dividend, which sat at about 4.6% in early May 2024. Costco shares have increased by roughly 7100% since the company went public in 1985, undergoing two stock splits since then.

Microsoft (MSFT)

Microsoft is a software giant known for its Windows operating system and Office products. It has continued to innovate and expand into other sectors, including cloud computing and gaming. Microsoft generated consistent revenue growth during its history, with an 8% increase in its 2023 fiscal year, totaling $56.2 billion.

Other Options

Other stocks to consider investing in, based on recommendations from financial sources, include:

• Spotify Technology S.A. (SPOT)
• The Progressive Corporation (PGR)
• Intuitive Surgical, Inc. (ISRG)
• Tapestry, Inc. (TPR)
• TopBuild Corp. (BLD)
• The Kraft Heinz Company (KHC)
• Fidelity National Information Services, Inc. (FIS)
• Charter Communications Inc Class A (CHTR)
• Tesla
• Boeing
• ServiceNow
• Starbucks

Remember, investing in stocks carries inherent risks, and past performance does not guarantee future results. It is essential to conduct thorough research and consider your risk tolerance and investment goals before making any investment decisions.

Bonds

There are three main types of bonds: corporate bonds, municipal bonds, and treasury bonds. Corporate bonds are issued by companies to raise capital for initiatives like expansion and research and development. Municipal bonds are issued by a city, town, or state to raise money for public projects such as schools, roads, and hospitals. Treasury bonds are issued by national governments and are considered the safest type of bond.

When investing in bonds, it is important to know when the bonds mature, what the bond's rating is, and the track record of the issuer. It is also important to understand your tolerance for risk and to factor in macroeconomic risks.

Mutual funds

There are several benefits to investing in mutual funds. Firstly, they are affordable, with most funds setting a relatively low dollar amount for the initial investment and subsequent purchases. They are also professionally managed, meaning the fund managers do the research for you, selecting the securities and monitoring their performance. Mutual funds are also highly liquid, meaning investors can easily redeem their shares at any time. Finally, mutual funds are diversified, typically investing in a range of companies and industries, which helps to lower the risk if one company fails.

There are four main types of mutual funds: money market funds, bond funds, stock funds, and target date funds. Money market funds are considered low risk as they can only invest in certain high-quality, short-term investments issued by US corporations and governments. Bond funds aim to produce higher returns and are therefore riskier. Stock funds invest in corporate stocks and can be further categorised into growth funds, income funds, index funds, and sector funds. Target date funds hold a mix of stocks, bonds, and other investments, gradually shifting their mix over time according to the fund's strategy.

Real estate

There are several ways to invest in real estate, each with its own level of risk and potential returns. Here are some of the most common methods:

Rental Properties

This option is suitable for individuals with DIY skills, patience in managing tenants, and the time to dedicate to the role. While financing can be obtained with a low down payment, substantial cash is needed upfront to cover maintenance and any potential vacant periods. However, once the property starts generating income, it can be leveraged to acquire more properties, creating multiple income streams.

REIGs are ideal for those with some capital who want to own rental real estate without the hassle of managing it themselves. They are similar to small mutual funds, where a pool of money from multiple investors is used to invest in rental properties. A company buys or builds a set of apartment blocks or condos, and a single investor can own one or multiple units. The company then collectively manages all the units, handling maintenance, advertising vacancies, and interviewing tenants, in exchange for a percentage of the monthly rent.

House Flipping

House flipping, as popularized by TV shows, involves buying undervalued properties and selling them quickly for a profit. This strategy requires significant experience in real estate valuation, marketing, and renovation. It can be risky as it is difficult to accurately estimate repair costs, and holding the property for longer can lead to snowballing losses.

REITs are ideal for investors who want exposure to real estate without making a traditional transaction. They are similar to mutual funds and can be bought and sold on major exchanges. REITs must pay out 90% of their taxable profits as dividends and avoid paying corporate income tax. They provide regular income and are a more liquid option, though there is still a risk of a real estate market downturn.

Online Real Estate Platforms

Online real estate investing platforms, also known as real estate crowdfunding, allow investors to join others in investing in large commercial or residential deals. They provide an opportunity to diversify into real estate with a relatively modest stake, but the investments tend to be illiquid with lock-up periods, and management fees can reduce profits.

Other Options

There are also other, less common ways to invest in real estate. For example, individuals can rent out a room in their home, providing an additional income stream while also reducing their own housing costs. Alternatively, sites like Airbnb allow individuals to rent out their entire home for short periods, providing more flexibility than a long-term tenant.

Overall, real estate investing can be a lucrative and relatively low-risk option, but it is important to understand the risks and requirements of each investment strategy before committing.

Robo-advisors

The first robo-advisors, Betterment and Wealthfront, launched in 2008. Today, there are hundreds available in the US and worldwide, with the industry experiencing explosive growth. According to Polaris Market Research, the robo-advisory market size was valued at $7.39 billion in 2023 and is projected to grow to $72 billion by 2032.

Frequently asked questions