Time is your friend when it comes to investing. Like Warren Buffett, successful investors have capitalized on the simple yet powerful concept of compounding interest wherein a hypothetical $100 of investment each month for the next ten years with 2% annual interest can grow your savings into over $13,000. To maximize the returns on your financial investments, starting early is vital and can make thousands of dollars in difference. Here are five safe assets to add to your portfolio before you turn 40.
Stocks are the go-to asset for investors who want a bit more control and versatility over traditional 401(k) and Roth IRA plans but without the technical complexities of the financial products bought and sold by hedge funds and Wall Street giants, such as derivatives and foreign currencies. Stocks should comprise anywhere between 30 to 90% of your portfolio, depending on your current age. For instance, according to Investopedia, those in their 20s should have a stock allocation of 80 to 90%, while those close to their 40s should only allocate up to 70%. Which stock you buy further depends on many factors, including risk profile and strategy. Dividend-paying stocks are a preferred choice as it guarantees a percentage of profit every month or quarter.
Government-Issued Notes, Bills, and Bonds
U.S. treasury bills and notes are considered one of the safest asset class globally as the U.S. government backs it. Brokers sell T-bills and bonds in $100 increments, or you can bypass the middlemen and simply purchase some treasuries for yourself through Treasury Direct. Before investing in any of the three types of treasuries, make sure you understand each one’s pros and cons, especially their risk implications. T-bills mature between a month to a full year, while treasury notes can last for up to a full decade before expiring. On the other hand, T-bonds can take the longest to mature, 30 years to be exact.
Real estate is another safe financial investment that can pay off handsomely if you pick the right properties for your portfolio. As the human population continues to swell up, space will be a limited precious resource. You can take many paths when getting involved in real estate – buying fixer-uppers and then reselling for a profit, buying land and leasing to commercial enterprises, buying rental units, and charging monthly rent to tenants, etcetera. Nowadays, you can find quick ways to liquidate your real estate assets as well. There are many cash home buyers in San Antonio that make it easy for property owners to sell their estate to reinvest it in another property or asset class quickly.
Aside from stocks, companies also sometimes issue bonds to raise capital. Most of the companies that offer corporate bonds are larger and more established organizations with proven track records, which means risk is relatively low from an investor standpoint. When buying corporate bonds, look for lower-yielding options. This may sound counterproductive, but higher-yielding bonds tend to also be low quality and high risk, according to experts, since you carry both interest rate risk and default risk. Relative to stocks, bonds are assumed to have a lower level of risk. If a company files for bankruptcy, for instance, bondholders are paid back before stockholders are.
Although it comes as a relatively higher risk asset than the first four investments covered, commodities can also have a much higher ROI and can inherently protect you from inflation. When inflation rates are high, demand for commodities like wheat and corn increases, ultimately pushing up commodities’ prices. Adding entities to your portfolio requires a deeper understanding of macroeconomic factors, including global interest and exchange rates, to predict a given commodity’s future direction.
Investors under the age of 40 can still find relatively low-risk options without having to settle for measly returns. Pick financial investments that take time to mature but guarantee payments in the form of dividends and periodic interest. If you want to diversify your portfolio further to spread the risk, consult a financial advisor to determine what other assets to explore.