Do you think shares of Telstra Corporation Ltd (ASX: TLS) and Commonwealth Bank of Australia (ASX: CBA) are the best investment you'll ever make? Think again.
Investing 101
Every moment of every day you are making an investment.
Whether it is your money. Or your time. You are investing.
At the beginning of our lives, we invest our time learning — because we don't have money… and for the reasons I outline below.
Later in life, we have money but less time.
"Anyone who steals my time is stealing my life because they are taking my existence from me." – Stirling Silliphant
I'm not saying you need to spend every waking moment focused on achieving something.
But even if you have 10 credit cards, two sets of octuplets and you've just received your letter from Elizabeth (the letter you receive from the Queen when you turn 100) — you have the ability to make an investment.
My list does not include credit cards and ignores super. If you have a credit card, pay that off before you do anything else – it's a guaranteed return.
Here's where I would tell my children, friends or my baby boomer mother to invest.
1. Invest in yourself.
Ben Franklin famously said, "An Investment in Knowledge Pays the Best Interest". It doesn't matter if you want to paint emu eggs or go to uni for 15 years to become a doctor for Elon Musk's SpaceX. An investment in yourself will always make the best return.
Why?
Because our knowledge snowballs rapidly. And there are many things you will never achieve without knowledge.
If you don't know how to read, you'll never be able to interpret a financial statement or understand the terms of a mortgage.
If you don't learn your time's tables, you'll struggle to understand compound interest.
It's no coincidence that we go to school at the beginning of our lives and that university HECS debt is the cheapest you'll ever find.
2. Investment in a business.
Investing in yourself will only get you so far. If you really want to make game-changing amounts of money you'll have to 'give it a go'.
You'll have to start a business.
This isn't for everyone (see #3, below).
But what do the richest people have in common?
Scroll through your Facebook contacts, whip out the phone book or search for the BRW Rich List for 2017. What do you notice?
Chances are, many of them are — or were — business owners.
It's risky to start a business make no mistake. But if you can do it… do it.
3. Invest in shares.
If starting a business is out of the question – buy someone else's.
You can do that by buying shares in businesses that are available on the share market.
You can still have a great job and take advantage of the earnings power of a reputable business by owning shares.
If you are investing for 10 years or more, companies like Commonwealth Bank or Telstra might pay decent dividends. But you could buy other, smaller companies which are more likely to grow.
Finally, if you find investing in shares is daunting, you can buy one or two index funds and Bpay money into them regularly as a 'bottom drawer investing plan'.
The Australian Shares Index Fund and International Shares Index Fund run by Vanguard are worthy contenders for your money – and they are cheap! You just Bpay the money in and they do the rest!
4. Invest in property.
I'm going out on a limb here because I believe property is NOT as good an investment as many Aussies believe it is.
Have some exposure to property, for sure. But if your only investments include the family home and an investment property (also in Australia) that is far too much risk.
Nonetheless, investing in property can have advantages.
My advice:
- Don't buy units/apartments/townhouses if you want capital growth. If you want income, they are okay.
- Never buy off the plan.
- Buy houses.
Why?
While units have had short periods of outperformance — less than a handful of years — the prices of houses have grown much quicker over the long-term.
Foolish Takeaway
My ordered list may be a bit unusual given our country's ingrained belief that every person must:
- Get a job
- Get a puppy
- Get a 30-year mortgage
- Get a kid (or two)
But, my four-point list of investments has worked wonders for me and my partner – and we are not even at step 4!
