This website, Wealth Well Done, is mostly dedicated to mastering your mind. If you can understand how your thoughts are creating your reality, you can begin mastering your life. But if you want to learn how to create wealth and master your reality, you have to also learn how to save and invest so you can master your money. This article details my five best investments that can change your life, and easily make you a millionaire over time.
I believe that if you can discipline your mind to take the steps toward your dreams, your body will follow your mind, and you will one day naturally arrive at your dreams. However, to be able to master your external life, you need more than just strong, quality thoughts surging through your brain at all times. You need the help of friends, and financial assets that will help propel you to your dreams.
One of the biggest, and most helpful steps I took toward mastering life was first learning how to master my money. The formula to create wealth is actually very easy. It’s just difficult to execute.
Here’s the most basic formula to create wealth: If you can spend less money than you make, and invest the remaining money you save after your bills are paid into the right financial vehicles, you can gain the time and freedom to explore some of the deepest and greatest subjects known to man.
Thoughts such as: Who is God? What were you created for? Why are you alive? What is your purpose in life? These are the thoughts I believe the wealthiest of the wealthy people should be asking themselves.
If you can save and invest enough money to build a strong financial portfolio, then you can then literally buy yourself the time to go on a quest with your life to find answers to these questions. Once you begin to find your answers to the deepest questions known to man, then you have reached our definition of what being wealthy ultimately means.
Now, onto my five favorite financial vehicles that will help you build wealth, security, and financial-freedom so that you can go on an adventure to find your purpose in life:
#1 Best Financial Investment:
My Emergency Fund. (I call it my sleep-at-night, and mental-health fund.)
I’m going to keep this one easy. It’s really not a true financial investment, but it’s one of the most powerful investments that helps me maintain my mental health. Pro-tip: To be truly wealthy, your mental-health should always be your most important asset and investment.
Discipline yourself to save, save, save so that you can build up an emergency fund with around 6-months of cash in it. I always keep about $10-15K available to me in cash. Why? That way I never have to stress about paying a bill. I never have to say “No” to an opportunity I really want to experience. I never have to worry about money in my short-term views. That freedom from worrying about money in my short-term views is priceless to me.
I sleep soundly every night not having to worry about my money in my short-term decisions. My mental health is always my number one investment. I encourage you to prioritize your mental health the same way. Start your investing strategy by building an emergency fund of six months cash. We keep ours in a money market account that pays 2% interest. The peace it will bring you will be priceless to you.
#2 Best Financial Investment:
Individual Retirement Accounts (IRA and Roth IRA’s.)
I am self-employed, so I have little knowledge or advice to give about employee-sponsored retirement plans as I’ve never had one. But I do have experience and advice on how to pick individual retirement plans, also known as IRA’s and Roth IRA’s.
I started investing with Vanguard 2 years ago, and I have been so happy with them, I don’t have any plans to leave them. They make investing so easy. I only invest in two accounts with them to keep things simple, and here they are:
Every Year the federal government allows me to make a maximum investment of $5,500 (per person) into a tax-free individual retirement plan. This money grows tax-free, and being tax-efficient with your money is extremely important to building wealth. Would you rather pay yourself? Or the government? Always want to pay yourself. That’s why being tax-efficient with your money is so important.
On average, money in these accounts will double every 9 years. $10K becomes $20K, and doubles to $40K, and doubles to $80k, without me having to work to grow that money. (However, I have to leave that money in that account until I’m age 59 1/2, or I have to pay a 10% penalty to take it out.)
Every year, I invest in the Vanguard “Target Retirement Fund,” with my $5,500. This fund is structured to target the year I want to retire in.
For example, I am 36 years old and my wife is 28. I target age 65 as the worst-case year we want to retire in. (I can change it to a different year at any time, with no penalty fees, if I want to retire early, but I thought 65 was a good, conservative starting place for me to begin.) I just invest in the target-retirement-account for the year 2045 for myself, and 2050 for my wife, when we will both be 65. (The symbols for these funds are VTIVX, and VFIFX, respectfully.)
I simply max out these retirement accounts ($5,500 each) each year and forget about it. These seeds of dollar bills I am planting in this account will grow into massive forests of money in 30 years. Then, when I am ready to retire, I simply pick the fruit of $100 bills growing off these money trees to be my income.
If you want to read further on the differences between a Roth-IRA and Traditional IRA, clicking here will take you to a good article to help you decide what is right for you. And if you’re really a personal finance junkie, clicking here will take you to a good article by the Mad Fientist that advises how you could structure your retirement accounts if you choose to retire early in your 30’s, 40’s or 50’s.
I like to keep my investing strategies simple. So I make my decision between a Roth-IRA, or Individual-IRA, based on the tax bracket I fall into for the year. If I need to lower myself into a lower tax bracket, I choose a Traditional IRA. If I am already in the lowest tax bracket, then I choose a Roth. See, pretty simple right? Once I max this account out for the year, I forget about that money, and move on to find answers to my biggest questions in life, like how do I fulfill my purpose in life? How can I hear God better? How can I accomplish the mission I was created to live?
PRO-TIP: Don’t get super intimidated by trying to pick out the perfect retirement account. If you’re feeling overwhelmed, just invest it into a target-retirement account like I do, and forget it. Doing SOMETHING is always better than doing NOTHING.
Some experts would advise choosing a stock/bond percentage, like 90% stocks and 10% bond portfolio, to lower the maintenance fees Vanguard charges. (.16% annual maintenance fee for target-date-funds, compared to .05% annual maintenance fee if you chose to balance your bond/stock portfolio yourself with with stock-funds like VTSAX, and bond-funds like VBTLX.)
But we’re only talking a .1% difference in fees!!!!! Yes, I said POINT ONE percent difference.
For a person like me, who is more interested in finding the answers to the deepest questions in life about meaning, purpose, and existence; rather than agonizing over tiny percentage point difference in maintenance-fees, I am Ok with paying the .11% higher maintenance fee to have Vanguard make those decisions for me.
Do the math on this scenario: Even in an account worth $100,000, the annual maintenance fee would be $50 compared to $160. A hundred bucks a year, on a $100K account, is worth it for me not to have to worry if I am doing it right. Once my account is above $100K, and those percentages do equal significantly larger sums, I may decide to customize my own bond/stock holding to my liking.
But for now, I am happy to pay that extra .11% fee to invest in a target-retirement account to know that my retirement money is happy, healthy, and structured correctly. This is the way to grow your money seeds into an awesome money forest, and retire on a beach relaxing in the shade one day like this:
#3 Best Financial Investment:
Mutual Fund Investing in Taxable Accounts.
Once my emergency-fund, and retirement accounts are maxed out for the year, I love to invest the extra money that I have into a more liquid mutual-fund account to make life easier for me.
I personally choose to put this extra money into Vanguard’s Total Market Index Fund, or VTSAX. Click here to read the story how I got into stock investing, and how I found VTSAX.
VTSAX is basically an index fund that follows the S & P 500 (along with a few thousand other small companies added to it that will hopefully grow into big companies one day.) As these companies grow in profitability, my stocks value also increases, making me more money as I journey to find the answers to my biggest questions in life.
I personally enjoy investing in mutual funds such as, VTSAX, because this account pays me a quarterly dividend, which is another source of income for me. Most of the time I choose to re-invest this dividend payment to buy more stock, and let compound interest grow, grow, grow, and compound into millions of dollars over a long period of time.
But it is also nice to know that if I have a bad business year, or I find a better investment, that I can sell this account at any time and not take the 10% penalty that I’d face if I tapped into my retirement account.
Or, if I need some extra money during a bad year, I can take the dividend payment from this account as a cash payout, to help me get through a rough financial period in life. Having a large mutual-fund account that I can rely on for extra cash, almost like a backup emergency-fund, to my emergency-fund, is a huge financial luxury to have. This is why I invest in it.
Think about it: Every time you invest into these accounts, you’re basically building a bigger and bigger money printing machine that can pay you a salary down the road even when you’re not working.
Pro-Tip: This is basically how people retire early. They build a large enough stock portfolio, that pays out a large enough dividend, that they can live off the dividend payment. Why work for money, when you can build a money printing machine instead? That’s what’s investing is: You’re building a money-printing machine over long periods of time. This is the magic of investing early, aggressively, and often.
#4 Best Financial Investment:
I’ll warn you: This financial vehicle is only right for you if you love property and all the challenges that come with maintaining property. If you dread picking up a drill and fixing things, or doing regular house maintenance, avoid real-estate altogether and prioritize being mentally healthy instead! But I enjoy fixing stuff, and making it better, so I love real estate, which is why it’s one of my favorite investment vehicles.
I read an awesome quote recently that stated, “Once you’re bitten by the real estate bug, you’ll either be hooked for life, or you’ll never do it again.”
I was hooked the day I bought my first house in 2015. We bought an extremely affordable home in a desirable location, and I have loved everything about home ownership since. I enjoy learning how to fix stuff, and then executing my plan to make my properties even more valuable. I enjoy having a mortgage payment that is half the price than if I rented, and by paying off the balance each month. I am slowly owning these giant assets in full! I just love it!
In fact, I liked real-estate investing so much, that just two months ago, in 2017, I bought a second property, which was actually the other half of my twin home. Click here to read how and why we bought it. I rent that side out, and it cash flows beautifully for me, ($620 per month) and the renters pay another $200 off my mortgage per month.
I do see visions of renting my side out, and then buying another house for myself at some point. The rent from my two current properties would pay for third mortgage, and then I’d own 3 houses and wouldn’t be paying a dime for any of them! I love the sound of that life.
But even though I love real estate, I am very picky about which real estate investments I pick. I am not house hungry. Once I buy a property, I want to own it for the long haul, so I only buy real estate that I am in love with. I only buy quality properties that will attract quality renters. I prefer multi-family properties (twin homes, duplexes, and apartment buildings) over single-family homes just to keep all my maintenance issues isolated in a few locations rather than having issues spread all over town. I personally love real-estate deals at good prices, in quality areas, that show the promise to be good investments for the long haul. I let the slum-lords deal with the headaches the slums will bring. I focus on good school districts, and safe neighborhoods, that attract good, responsible people that I typically enjoy working with, who have good jobs and can afford their rent every month.
#5 Best Financial Investment:
I left this one for last, as I believe it is the last investment you should make as you climb the ladder to wealth and becoming a professional investor. Individual stocks can surge, and fall over night so be wary about them.
I see the game of buying and selling individual stocks like a night out playing blackjack at a casino table. It’s fun. It’s entertaining. Yes, you are in control of some of your fate in the game of blackjack, but ultimately in blackjack, (and individual stock investing), most of the outcome relies on forces outside of your control. I personally HATE losing money at the casino, and walking out of there poorer than when I walked in. That’s why I avoid investing in individual stocks until I can afford losing the money I invest in them. It’s the same way when I play games at a casino. I never play because I need the money. I only play for the entertainment value, and hopefully winning more than I lose along the way. (Honestly, it’s too easy too lose at a casino, which is why I almost never visit them.)
I personally like to have a fully-funded emergency fund; retirement account; and at least $100K in my VTSAX mutual fund account, before I start buying and selling individual stocks. Because then, even if I took a big hit and lost a lot of money on an investment, I’d still have an awesome and healthy financial portfolio to fall back on. Who cares if I lose $10K or $20K in an individual stock, if I still have a $500K portfolio to fall back on? At that point, it was worth taking the risk to try to turn my portfolio into $750K, or a million, or a couple million.
I personally am not buying individual stocks right now, but I am watching them and mentally practicing my picking acumen, and when I should buy and sell them. For example, I remember on May 13th, 2016, I noticed Apple stock fell to $90 per share. I remember thinking at the time, if I had more money, I’d buy $5 or $10K worth of Apple stock right then because I felt good about the chances that the company would rebound quickly. If I would have done it then, that would have been a great investment, as Apple stock did rebound quickly and is now up to $150 per share. I could have almost doubled my money in a year.
I do look forward to the day when I can start building my own mini-collection of stocks based on the companies I love and trust, and create my own mini-mutual funds with them. I think I could have fun, and some success, investing this way, but I am going to be patient and wait until I have a $500K portfolio as a backup so I don’t get burned by a bad decision. Until I can stand to lose $5 or $10K overnight, I am going to stick investing with my favorite mutual fund, VTSAX.
IN CONCLUSION ON MY FIVE FAVORITE INVESTMENTS:
If you follow these investing steps, you will begin creating wealth beyond your wildest dreams like I have started to do. You can do it too. These steps have worked awesome for me as I took $5,000, and in five years, have built a portfolio of cash, stocks, and real estate, worth around $220,000, while never making more than $70K a year.
If you follow these steps, work hard, embrace discipline, and aim for the goal of using your finances to find your purpose in life, I am sure you can do the same thing.
Anything I missed? What are your favorite investment vehicles that are driving you toward millionaire status?
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