Posted 07-10-2015 2:39 pm by
It is an age-old question. What should I invest in? What are the hottest investments of 2015? Should I buy gold? Should I buy stocks? How about real estate? Or buying a business? How should I invest my money?
The honest answer is that "it depends". There are lots of people who make money in stocks, as well as lots of people who lose money in stocks. There are plenty of investors who make fortunes in real estate, as well as plenty who lose their shirts. You get the point. If you don’t know anything about running a business, should you buy a business? If you don’t know anything about apartment buildings, should you buy an apartment?
As you can see, the real question is not “is X a good investment in 2015”, but “how knowledgeable are you about X”? Two people can buy the exact same stock. The experienced stock investor knows when the get out and sells at a profit. The inexperienced stock investor holds on for too long and ends up selling at a loss. Two people can buy the exact same business. One person could grow the business and increase profits, while the other could run the business into the ground.
If you are not an expert in precious metals investing, stock investing, real estate investing, or running a business, perhaps the best investment you can make is in your own financial education. Investing some money to increase your own financial IQ beats losing much more money buying a bad investment.
Here is an overview of the various investment opportunities available, and the pros and cons of each:
* Gold and Silver. Precious metals can be a hedge against inflation, and it is a place of safety people run to in times of extreme economic or social upheaval. Gold and silver have been used as money for over 5,000 years, and they have intrinsic value that will always be treasured by mankind. A downside to investing in gold and silver is that they do not provide any cash flow. You can either buy low, sell high for a profit or buy high, sell low for a loss. Having good education and knowledge is key to invest in gold and silver successfully.
* Stock Market. The stock market is filled with thousands of stocks, mutual funds, and exchange traded funds (ETFs). Some offer dividends, others offer growth potential. The key to investing in the stock market successfully is knowing what to buy, when to get in, and when to get out. The stock market is hitting all-time highs in 2015. When most people are crazy and bullish on the stock market, it is probably time for the astute investor to get out. Be sure you are confident in your ability to perform fundamental analysis and technical analysis before sinking your life savings into the stock market.
* Bond Market. Instead of investing in equity (as in the case of buying stocks), you can lend money to governments or corporations (as in the case of buying bonds). The price of the bond and the interest rate offered are inversely correlated. The lower the interest rate, the higher the bond price. Since interest rates are at historic lows in 2015, bond prices are at historic highs. Astute investors should be cautious about buying bonds when bond prices are at all-time highs.
* Real Estate. There is a lot of speculative buying in the real estate sector in 2015. Housing prices seem to climb higher and higher in many parts of the country, and the cap rates of rental real estate keep falling. To put it another way, investors are willing to pay more for the same amount of cash flow, which is a sign that the real estate market may be too hot. It is not that one cannot make money in the real estate market, but caution is advised.
* Business Opportunities. Buying a business is considered an alternative investment that most people do not think about. Imagine becoming a small business owner by buying an existing business in your town that has been running for many years. Buying a business is a great way to become your own boss without the risks of starting a business from scratch. If you buy a good business, you can expect to have a stream of customers and cash flow from day one. Having that said, the ability to operate a business well is not something everyone has. If you have a strong business background, buying a business may be the investment vehicle for you.
When it comes to which investment is right for you, the answer is that it depends on who you are. Don’t chase the hot investments people tell you are good. Look at your own background and experience, figure out what you are good at, and focus on opportunities where you know what you are doing.
Aaron Muller is a business broker in Washington State who has sold over 120 companies and facilitated over 40 SBA loans for his clients. Contact Aaron at (425) 766-3940 to inquire about buying or selling a business.