Investing Made Easy

 

All right, let’s cut through the bullshit. Investing can be easy.  A lot of financial “experts” out there try to make it so complicated when it comes to investing. But it really comes down to just four main asset classes that you can invest in. It’s that simple.

 

Investing in Cash

Pretty much as it sounds, putting money in the bank. Usually via a term deposit. Over the long run from 1985 to 2015 cash has returned around 7.9% per year.

I know this sounds crazy considering where our interest rates are at the moment, but you when you think towards those late ’80s, early ’90s, cash was paying 17%-18%. So that’s why cash is averaging that return.

Generally the long term average for cash is somewhere between 6% and 7%, so that’s something to keep in mind.

 

Investing in Bonds.

So this asset doesn’t sound sexy and not a lot of people pay attention to it, but 9.8% over some 20 years is quite a good return. A bond is essentially a loan.

You’re loaning money to usually the government or a corporation and they’re going to give you your money back at the end of the agreed period, and they’re going to pay you an interest in between.

So you might get a bond with a yield that’s 5%, and a maturity of 10 years. If you invest $10,000 and it’s paying you 5%, you will receive $500 income per year. At the end of the 10 years, you will get your $10,000 back. That’s the basics of bonds.

 

Investing in Property

 Everyone knows what property is. Residential property, commercial property, you can get holiday property. Pretty straightforward, you’re making money through capital growth if it’s a good suburb, or you can get your rental return as well.

 

Investing in Shares

The essence of shares is that you’re taking ownership in a company. Nothing more, nothing less. You become a micro owner in a company. Shares have done 13.5% over a long period.

They are not only the highest return but they’re the highest risk asset class as well. Because they can go up and down like crazy. So with shares, you’re taking ownership in a company, which means that you have to start  thinking like an owner.

If a company’s operating and putting into place a strategy that you disagree with, then maybe it’s a good sign to move on and not invest in that company.

So there are the four basic asset classes. And when you think about it, everyone of these is equivalent to receiving rent for your money. If you give money to the bank in a term deposit, they’re giving you interest right back.

You’re renting your money to the bank. If you buy up  treasury or corporate bonds, you’re giving your money to that company, and they’re renting it and giving you interest right back. Renting for property is self-explanatory.

With shares you can get a dividend. So some companies will pay quite a good dividend, 7%, 8%, 9%, 10% per year. So you’re giving your money over to the company and they are paying you back for a dividend.

A lot of people talk about just focusing on capital growth, just talking about cash flow. The absolute premium is to find the middle ground and get two. Find something that’s going to go up in capital growth, and something that’s also going pay you income as well.

That’s it, don’t worry about paying attention to anything else. These are the four main asset classes that you’ll be investing in. Sure there’s a few others, but when you boil down to the crux of it, you’re investment’s will be tied up in one of these four.

 

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