5 Types of Investments (Which is Best for You to Get Started Investing?)
Welcome back for Part 3 of our 5-Part Mini-Masterclass on Investing!
In Part 1 we discussed The Foolproof A-Z Investing Roadmap for Beginners and in Part 2 we covered 5 Little-Known Mistakes Most New Investors Make - so you have an overview of what you can do, and what to look out for. Today we’re going one click deeper and digging into different TYPES of investments you can buy.
Specifically, I’ll walk you through five different investment asset classes, what it takes to get started in each, and other key points to consider. By the end, my goal is for you to have a general sense of which might be best for you!
Before getting into the asset classes, a reminder of what an asset is: an asset is something that puts money INTO your pocket in the long run. It’s something you buy that grows in value which you can then sell later for more money. I tend to use the words ‘investments’ and ‘assets’ interchangeably.
What are 5 different asset classes you could invest in?
1) PAPER ASSETS
Think of stocks, bonds, etc. “Paper assets” refer to representations of something. For example, a stock is a representation of ownership in a company. A bond is a representation of a loan.
I like to think of paper assets like this: these are assets I cannot physically TOUCH but my ownership of them is proven by documentation (think: paper).
In my opinion, paper assets are the easiest to get started with, and the main reason I say that is because you don’t need much money to begin (for example, some platforms will let you start investing in the stock market for $1). Beyond $1, the only other thing you need is a brokerage account where you can deposit the cash you’ll use to buy the assets.
It’s also worth noting that, in my experience selling paper assets, you can initiate the sale at any time by clicking a few buttons online, and it normally takes a few days for the sale to complete.
2) REAL ESTATE
Think of houses, raw land, condos, duplexes, commercial real estate, etc. You’ll quickly notice that, unlike paper assets, these are things you can physically touch.
In my opinion, it’s harder to invest in real estate than it is to invest in paper assets for a few reasons. First, you’ll likely need a sizeable down payment upfront which, depending on the property, is usually several thousand dollars at minimum.
Next, unless you have enough money to buy the property outright, you’ll need to qualify for a loan and be able to afford monthly payments on that loan. This contrasts paper assets because, although I think regular, monthly investing is wise, if money ever becomes tight, you can stop putting money into paper assets whenever you want. If you have a loan out on your real estate, you cannot do that.
Last, real estate requires upkeep and, to sell, it can take anywhere from weeks to months to even years depending on the market, your price point, and your specific property.
3) COMMODITIES
Think of naturally occurring things like precious metals, grains, livestock, oil, etc. If you’re familiar with the story I tell about the chicken versus the egg… the CHICKEN is the asset… and, specifically, the chicken is a commodity.
Again, commodities are goods sold for production or consumption just as they were found in nature. There are ways to invest in commodities that would fall under the paper assets category, but here we are talking about investing in physical assets.
To get started investing in commodities, financially speaking, it would depend on what you’re investing in, and how much (for example, a chicken would be cheaper than a cow, and one chicken would be cheaper than five chickens), BUT I can assure you it’ll be more than the $1 you need to start investing in the stock market.
Something else to consider when it comes to commodities is that you’ll need physical space to store them. Cory and I learned this when we decided to buy coffee beans from El Salvador to resell… space becomes a consideration.
Beyond that, let’s talk about selling commodities. Because these are physical goods, selling commodities would require you to find a buyer and either facilitate a meet-up to hand the goods over, or coordinate shipping or transport to have the goods sent to the buyer.
4) CRYPTOCURRENCY
Think of Bitcoin, Ethereum, and a host of others. You’ll notice some similarities between crypto and paper assets like, for example, that you cannot physically TOUCH cryptocurrency, you can get started for $1 (technically, less than $1), and you can make sales in a matter of clicks.
But something worth considering when it comes to crypto, especially if you’re a beginner, is that the learning curve is steep, it can be extremely volatile and it’s still largely unregulated.
For some, this can be a good thing. But for those just getting started, I consider these as barriers to entry… in other words, these things can make it harder to get started.
5) BUSINESS
Think of selling your products or services! This one can be super fun but it’s certainly the most labor-intensive.
Not only do you need a business idea, but you also need the time, energy, finances, and willingness to work on it… which means creating the product or service, marketing it, managing customer relationships, and fulfilling orders.
It can take months to years to build an audience that is ready and willing to buy what you’re selling so if you’re just looking for a way to make money, I don’t suggest starting a business. However, if there’s something you’re PASSIONATE about and you think it’s valuable enough that people might pay you for it - it’s one of the most rewarding things I’ve ever done. Just something to consider.
QUESTIONS TO ASK YOURSELF
Now that you know 5 different asset classes you could get started investing in, it’s up to you to decide what’s best for you! Here are some questions that may help:
1) How much money do you have to invest upfront and on an ongoing basis? --> Answering this question can help you quickly rule real estate in or out since you need quite a bit to start and, since you’ll likely need to take out a loan, that would mean you’d need a certain amount to pay your loan payment each month. (If you’re not sure how much you can afford to invest, my budget calculator guide can help you figure this out.)
2) Do you have the physical space to store physical goods and/or the time/energy to coordinate the sale of physical products with potential buyers? --> Answering this question can help you begin to rule commodities or a product-based business in or out because if you don’t have the space to store physical products or the time, energy, or interest to fulfill sales of physical products, then this might not be for you.
3) Do you have a services-based business idea and the time, energy, interest, and willingness to make it into a formalized offer, market it, and manage clients? --> Answering this question can help you start to rule a service-based business in or out because if you aren’t interested in this or if you don’t have the time or energy to do this, it probably isn’t for you.
4) Do you have the time, energy, and interest to learn about crypto, and, if so, are you willing to invest in a new, largely unregulated asset with relatively high volatility? --> Your answer to this question will help determine if crypto is something you’ll want to consider for investment purposes now, in the future, or not at all.
5) Do you have the time and energy to select a brokerage firm, deposit money, and use that money to invest in the traditional stock market? --> Your answer to this question will largely help determine if paper assets bought in the stock market might be the best place for you to start investing.
THE BIG PICTURE: GET STARTED INVESTING
As with most things in life, especially when you’re first starting, your path forward often comes down to this: 1) how much time do you have to dedicate to this new activity, 2) how interested are you in it (which will dictate your willingness to learn about it and stick with it), 3) and what resources do you have (or NOT have) that will enable or prohibit you from participating.
As you can see, each of the 5 asset classes we discussed requires a different amount of time and energy to get started, a different amount of time and energy to maintain (which is where your interest and willingness will come into play), and different amounts of money to begin.
Which of the five asset classes we covered do you think you’d be most interested and qualified to get started investing in: paper assets, real estate, commodities, crypto, or business? That’s for you to decide, but if you’d like some support, I have resources that can help!
NEXT STEPS
I think investing regularly is wise, so knowing how much you can afford to invest on an ongoing basis might be a good thing to know as you’re looking into this. That is one thing my budget calculator resources are great for! These resources give you a single place where you can compare your income to your expenses and see what’s left over (which is the amount you can afford to invest!).
I have a free PDF version with 43 fill-in-the-blanks or you can grab the repeatable online version that I use since your budget likely varies each month. The online version also comes with a mini-training to make sure you’re successful.
So that’s the first thing and here’s the second: for me, personally, I think getting started investing in the stock market is the easiest place to begin. So if that’s something you’re interested in exploring further, check out my 14-Point Checklist for New Investors Who Want to Start Investing the Easy Way.
If you’ve been wanting to start investing but you’ve been unsure how to start, NOW is your moment to take action! Both guides and the checklist are simple but powerful tools that can help you take a meaningful step in the direction of your goals.
Do not put this off any longer - take action today to progress on your journey toward investing!
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