The human brain has a tendency to make simple things more complicated than they need to be, and perhaps nowhere is this more true than in the area of personal finance.
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It doesn't help that most people have to educate themselves when it comes to budgeting, saving, and investing. Add to that a truly dizzying number of account types and asset classes competing for your investment dollars, and it's no wonder so many people find financial planning confusing and intimidating.
However, it doesn't have to be that difficult. In fact, it's entirely possible to secure your financial future by investing in just a handful of asset classes while ensuring proper diversification. GOBankingRates spoke to a financial advisor about his three assets you can invest in for the rest of your life.
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index fund
It's no secret that stocks have historically delivered the highest returns of any asset class, but it's important to understand that not all stocks are winners. In fact, the high returns offered by stocks are consistently driven by a small number of big winners, and picking such winners can be very difficult, especially for non-professionals.
The good news is that you don't have to pick individual stocks. You can gain exposure to a broader range of stocks by investing in an index fund instead.
“For most investors, the KISS credo — keep it simple and stupid — should guide their investment philosophy,” said Robert Johnson, professor of finance at Creighton University's Heider College of Business. said. “The idea behind index investing is, 'If you can't beat them, join them.' Investors can't afford to make large bets on individual securities, and the companies they work for. That often happens to novice investors who buy stocks or stocks of their favorite products.
Index funds attempt to replicate the composition of stock indexes such as the S&P 500's Dow Jones Industrial Average, essentially allowing individual investors to own pieces of many different stocks. Even better, because index replication strategies are largely passive, index funds typically have very low fees and are less likely to eat into your profits to pay for portfolio management.
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dividend stocks
While the capital gains index funds provide are a great foundation for your overall investment portfolio, it's also a good idea to invest in assets that provide passive income. To that end, investors should focus on dividend stocks. Owning stocks in companies that pay monthly or quarterly dividends means you have a regular stream of income that you don't have to think about.
“Investing is the ultimate game of patience, and high-dividend stocks can really make you money while you sleep,” said Taylor Kovar, CFP and CEO of Kovar Wealth Management. “Companies with a solid history of paying dividends over decades, such as Procter & Gamble and Johnson & Johnson, are examples of such assets. With consistently increasing dividends, It can provide a steady passive income.”
A great place to find this type of dividend stock is a list of so-called Dividend Aristocrats, those that have increased their dividends every year for at least 25 years.
However, if you don't feel comfortable picking individual dividend stocks, which many investors shouldn't do, you can look for dividend-themed exchange-traded funds (ETFs). This allows you to spread your funds across a large number of dividend stocks. .
rental property
Although real estate isn't as passive as dividend stocks, it can also provide a steady source of income. Because real estate returns are not directly affected by the stock market, real estate should provide additional diversification and reduce overall portfolio volatility.
Steve Davis, CEO of Total Wealth Academy, is a strong proponent of investing in real estate through rental properties. Davis said real estate assets account for 90% of America's billionaires.
He likes real estate as an asset class because it generates income in four ways: equity acquisition, principal repayment, cash flow, and value appreciation.
“This allows you to profit in both rising and falling markets, unlike other investments,” Davis said. “For example, if you find a broken-down property worth $300,000 and buy it for $180,000 because it is in poor condition, you can spend $40,000 on repairs and lease it for a net profit of about $400 a month. This amount excludes principal, interest, taxes, insurance, maintenance fees, and vacancy.
Distressed properties are often the best investments because there tends to be a difference between the cost of repairs and the market value of a move-in home. But if you want to avoid the hassle of renovations, that's not the only way to invest in real estate. Buying a home in good condition and renting it can still be a great investment.
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This article originally appeared on GOBankingRates.com: I'm a Financial Advisor: Invest in these 3 assets that are set up for life
