Financial freedom, what is it? This question is similar to that of “what is art?” These questions invite open interpretations because not everyone has the same identity, culture, upbringing or values; therefore, there is no concrete definition for “financial freedom.” Financial freedom can come in various forms, whether it is becoming debt free or grossing over $300,000 annually. Regardless of the differing answers, the more important question is “How Do I Get There?”
While there are several ways for everyday Americans to invest their money, many find themselves asking, “how do I choose and what do I do after that?” The most realistic answer is that you have to decide what works for you the best, which can be challenging. In order to do this, you should understand the difference between the most common options and some of the benefits to them:
Investing in a new start-up can be a strong avenue to earn wealth. Starting or joining in a business venture may be considered small business. Often, there are more than one individuals in the venture with the expectation of gaining capital from the business for themselves. These kinds of investments are riskier and typically take larger amounts of money than simply buying a share of stock. These business opportunities most frequently arise where there is a lack of supply in the market or higher market demand. This opportunity takes a lot more footwork and maintenance to keep running than many of the other options, but the profitability can be very high.
For example, one of my best friends starting a trucking company three years ago as a sidehustle. He has gone from two trucks to eight, and now the company brings in $60,000 in profit a year for him. Starting a new business can have high risk and high cost associated with it. To be successful it takes dedication and work along with the initial capital.
One of the most popular forms of investment is with stocks. A stock is simply a small piece of a company. Typically, individuals trade stocks of “public” companies that are offering their shares to everyone for a price set by the market. Those investors sometimes have a say in certain decisions that the company makes. Private companies do not have shares listed on the exchanges for the public to invest in.
The main appeal of stocks is either earning a profit on the increase in value on the stock or earning a percentage of money from the performance of the stock. In the United States, the public trades stocks on the New York Stock Exchange or Nasdaq.
If you have decided investing in stocks is the best option for you, the next step is to examine the approach you find most helpful in your pursuit of financial freedom. You can choose to buy shares (1) by doing it yourself or (2) hiring a broker to manage the stocks for you.
You are in control of how your money is being invested. Additionally, investing in individual stocks yourself is cheaper because you do not have to pay any fees to a mutual fund or manager. You get the encouragement of “winning” or “losing” to give you a rollercoaster of feelings while investing. This can be tough because you never want to make an emotional, uncalculated decision while investing.
Broker/Mutual Fund benefits:
Your investments are hands-off. The investor will make educated, professional decisions about your portfolio (hopefully). Also, the fund is likely to be diversified, which can prove difficult when starting with little money.
Real estate investing is another large traditional area for investing. Individuals can speculate on a potential increase in land value; buy a residential or commercial property for rental income; or even fix and flip properties for a profit. The real estate avenue of investing typically has a larger startup cost, but can bring in some really profitable returns.
One nontraditional way of investing in real estate is by having a radio, television, or cell tower on your property and renting out tower space. Tower rentals can be highly profitable.
Buying a bond is lending a company or government money based on the promise that they will pay you a larger amount in the future. A local, state, federal, or even foreign government can issue bonds. The bond issuer borrows the money from the investor. The issuer agrees to pay whoever holds usually pays the bond interest on a regular basis before eventually returning the principal of the loan when the bond has matured. Typically, bonds are stable, safer investments with lower yields than above-mentioned investment types.
We’re not talking about the kind of CD you listen to. A CD, or certificate of deposit, is a savings account that has a fixed interest rate and fixed date of withdrawal, known as the maturity date. CDs also typically don’t have monthly fees.A certificate of deposit, or CD, is a savings certificate that has a fixed maturity date, specified fixed interest rate, and can be issued in any amount once you reach a threshold minimum amount. With a CD, you are not able to access your money until the date of maturity. Banks are the issuers of CDs, and CDs are insured for up to $250,000 by the FDIC per person. The insurance of CDs and the default rate of banks make CDs likely the safest investments on the list, but CDs also provide the least reward for the least risk.
The foreign exchange market is where the world’s currencies are traded. Forex is the largest, most liquid market in the world. Trading nearly $5 billion a day, Forex is way larger than even the stock market! This market is usually traded by individuals that are looking for one currency to outperform another currency and a profit is made on the change in their respective values. Forex usually includes small to large leveraging, which increases risk and the potential for reward. This market can be highly profitable, but can also be very risky, especially if you do not know much about it.
Cryptocurrency is a new frontier among the options. Three quarters the way through 2018, cryptocurrency has dropped considerably. However, many still contend that crypto is here to stay. Blockchain technology at the heart of most cryptocurrencies are revolutionary and the idea of using the blockchain for solutions to complex problems brought wealth to many early investors of crypto. Many Initial Coin Offerings (“ICOs”) of useless coins have hurt the crypto atmosphere, but the big currencies remain relevant. Regulators have not caught up to cryptocurrency trends yet, so it is currently like the wild west. If crypto bounces back, there will be money to be made if you get in when the cryptocurrencies are low.
A collection of materials that hopefully increase in value over time. This can be anything from Pokémon cards to coins. A holographic Charizard card can be worth thousands of dollars, and some coins are worth hundreds of thousands of dollars. Collections can be a bit of a crapshoot, but some are easier to make money off of than others. For example, classic cars are a great investment if you are good at repairing them.
Choosing the best option for your situation is up to you. You can try more than one option, but achieving financial freedom requires investment of time and money. We will be posting about our achievements towards financial freedom in monthly posts, but it is never too early to start!