How to

What are the Main Asset Classes (INVEST LIKE THE RICH!)

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focus on buying these five types of assets and you'll become very very rich there are five main asset classes to know about when you get started investing the ultimate goal is to own a little bit of each asset class so you have a really strong diversified portfolio in this video I'll explain each of these five asset classes in detail and I'll also give you some tips on how you can get started investing in them even if you don't have a ton of money to invest right now and before we get started go ahead and hit that subscribe button my channel is all about money and investing for beginners and I know it's gonna help you learn a ton so make sure to hit subscribe and hit the notification bell for new videos every week the first asset class is equity aka stocks or shares when you buy equity you become a co-owner or a shareholder of the issuing company if the company has 10,000 shares outstanding and you own 1000 shares then you own 10% of the company as an equity investor you get returns in two ways when the stock price increases the market value of your equity stake goes up which you can sell at a profit so that's the first way you can make money investing in stocks the second way equity investors make a return is via dividends since you're a part owner of a company you're entitled to a piece of its profits and you generally receive that in the form of dividends dividends are typically paid quarterly and back in the day every shareholder would actually receive their quarterly dividend as a paper check in the mail but nowadays you'll most likely get an electronic deposit in your account that looks something like this there's two ways to buy stocks you can either buy stocks via a fund which are pooled investment vehicles or you can buy individual stocks now if you want to invest in individual stocks you should only pick stocks and invest in companies that you're knowledgeable about and it does take a bit of skill and knowledge to do that so I talk more about how to assess companies and what factors to consider when picking stocks in this video right here and if you also want to learn more about funds then check out this other video right here so if you want to invest in a fund then that's gonna be really convenient for you because funds package a bunch of stocks into a nice diversified portfolio this is the best way to earn the average market return and benefit from the wealth building upward trend of the stock get without having to go down the rabbit hole of analyzing individual companies because let's face it not everyone wants to do that I personally love doing that but it's not for everybody before you can invest in stocks you first need to open a brokerage account a brokerage account is kind of like a bank account but it's a place to hold your investments instead of holding cash so brokerages that you can look into our fidelity Vanguard TD Ameritrade and Robinhood the second asset class is debt or bonds when you buy a bond you become a lender so bonds are very different from stocks because unlike equity investors bondholders don't own anything you're just lending money to the borrower in return for periodic interest payments which are typically semiannual and then at the end of the loan you get the original principal amount back you can invest in either government bonds or corporate bonds government bonds are issued by governments in order to fund infrastructure projects education and pay for all the other things that governments do corporate bonds are issued by firms that need funding for projects and initiatives to grow the company so you can either buy government bonds or corporate funds the number one factor to consider when investing in bonds is creditworthiness as long as the borrower is in good financial shape you're pretty much guaranteed the interest payments and the return of your principal but if the borrower goes bankrupt then you're out of luck Moody's Standard & Poor's and Fitch are agencies that publish blood ratings to show a borrower's creditworthiness so this makes it easy for you to do your due diligence before you invest your money in a bond triple-a bonds are about the safest you can get with basically zero chance of default triple-a companies have a lot of cash flow compared to their debt payments so it's a very low risk of default for you as a lender and the further you go down the ratings table you'll see bonds offering higher interest rates obviously as a lender you want to get as high of an interest rate as possible but the key is to balance that with the risk of not getting your money back when you see a bond offering really high interest that's because the borrower is in shaky financial condition and there's a high chance of you not getting your money back so they have to pay really high interest rates to compensate for this risk for example Argentina's government bond is paying around 12 percent whereas US Treasuries are paying only around 2% and go figure Argentina's defaulted eight times on its debt throughout its history whereas the US has never defaulted so that's kind of how it works you know you get what you pay for and something's too good to be true then it probably is hey and if you're liking this video so far give it a thumbs up to let me know bonds are considered to be safer than stocks because when a borrower goes bankrupt bondholders are usually first in line to get their money back where stockholders are usually the very last to get paid in a default situation so you get a lot less upside with bonds and with stocks but it also comes with less risk if your goal is to grow your money then you'd want to invest most of your money in stocks not in bonds that's why generally for young people for basically people my age around to in 20s and 30s then definitely most of your money should be in stocks you can invest in bonds using the same brokerage account that you use for stocks however the minimum investment is usually $1,000 so unless you have tens of thousands of dollars to invest in bonds it probably makes more sense for you to invest via bond runs which are again pooled investment vehicles just like stock funds except they do bonds and they give you access to a wide range of bonds with no minimum investment some example of bond funds you can look up to jumpstart your research is the fidelity long term Treasury bond index fund or FN bgx and I shares Treasury bond exchange-traded fund or IES the third asset class is cash and cash equivalents so anything that's sitting in your checking or savings account or in your wallet that's cash and cash equivalents also known as the money market are securities that earn a little bit of interest and can easily be converted to cash any form of debt that has a loan term of one year or less is considered a cash equivalent so that's CDs one month's Treasury bills three months Treasury bills six months Treasury bills repurchase agreements and commercial paper have you ever seen those news articles talking about how some companies are sitting on tons of cash like Apple they always have hundreds of billions of dollars of cash on hand that's obviously not sitting in a bank account somewhere because banks don't pay any interest and a company like Apple wouldn't just wouldn't do that so often in the business news when you hear about companies holding onto cash they're actually parking it into cash equivalents like the money market and that's something you can do – there's no reason to be sitting on tens of thousands of dollars or even thousands of dollars of cash when it's earning nothing in the bank account so this is where cash equivalents come in one way you can invest in cash is by purchasing shares in the money market fund like FDL x x and vm f XX you could also purchase CDs otherwise known as certificates of deposit either either through your bank or in your brokerage account or you could just find a savings account that earns decent interests and park your money there I have heard of some savings accounts that pay up to 2% which isn't too bad I do want to point out that cash and cash equivalents are not an asset class for long-term investing even though they pay a little bit of interest cash loses its purchasing power over time due to inflation so it's a very very bad idea to keep all your money in cash or cash equivalents it's really just meant to be a place to park your savings but it's not gonna provide you the kind of growth you get from stocks and real estate which leads me to the next asset class on the list real estate real estate is property it can be residential office commercial industrial there's two ways to make money investing in real estate kind of like stocks when property values go up you can sell them at a profit and you can also collect rental income as long as you own the property real estate is a lot like stocks in that sense it gives you a combination of growth and income and people who like real estate like it because it's something tangible that you can just touch and see and it's a pretty simple asset class to understand paper assets like stocks and bonds are a bit harder to wrap your head around another benefit of real estate is that it's the only asset class where banks will lend you money to buy it you can always get a mortgage to buy a property but very few banks are gonna lend you money to invest in stocks as long as a cash flow from the property pays the monthly mortgage you can use less of your own money and still enjoy the benefits of owning the property this is called leverage and if used wisely can generate a high return on your money so in general real estate is the only asset class where you can use leverage to juice up your returns of course the catch is that real estate is the most capital intensive of all the asset classes and buying any piece of real estate is usually going to require tens of thousands of dollars if not hundreds of thousands although a less capital intensive way to invest in real estate is by investing in rates or real estate investment trusts REITs are basically shares of ownership and companies that own huge portfolios of real estate REITs are basically stock and they trade like stocks and you have to buy them in a brokerage account just like stocks they generally pay nice dividends and you'll never have to fix a toilet or deal with property management stuff like if you owned real estate directly so REITs are also a great way to get started in this asset class you can also try out funding platforms like fund rise Realty mobile and crowd Street investing in real estate crowdfunding deals is a lot like investing in reap except that you're investing in private deals versus publicly traded deals however both of these options crowdfunding and wreaths generally come with less control and more fees so we've covered the four main asset classes stocks bonds cash and real estate I also wanted to quickly mention some alternative asset classes because they're all there are other ones out there there's precious metals so gold silver platinum palladium there's also fine art collectibles like fine wine and exotic cars so these are some other asset classes that generally hold their value against inflation some other ones you might have heard about our hedge funds commodities and derivatives these are mostly meant for high net worth investors and it's generally not recommended for anyone who's just starting out so I'm not really gonna get into that video here stocks bonds cash and cash equivalents and real estate are the basic building blocks of a bulletproof financial portfolio most of the growth in your investments are gonna come from stocks and real estate and you can use bonds and cash for income and stability and to make a small return on your savings for more beginner-friendly videos about investing make sure to also check out these two videos right here and if you're new to the channel hit that subscribe button below for new videos every week always remember to go after your dreams unapologetically and to live life on your terms Cheers [Music]

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