Best Ways to Invest your Money for the Long Term

The two things to remember when investing is diversification and cycles. Diversification means investing in different areas to prevent putting all your eggs in one basket. If you put all your money in rental properties, and the real estate market takes a dive for the next 10 years, you will take a big hit. Cycles means that all investments go through periods of time when they are hot, and periods of time when they are not. Tech stocks were all the rage in the late 90’s, but were decimated in 2001.

The main investments that have outperformed over time are stocks and real estate. A third, small businesses, is more of a life style change and is beyond the scope of this article. A good strategy is to simply put 1/3 of your money in stocks, 1/3 in real estate, and 1/3 in cash and bonds. This will give you the diversification. To take into account cycles, simply rebalance your portfolio every year or two. For instance, if you start out Jan 1 with $1000 in stocks, $1000 in real estate, and $1000 in cash, and on Dec 31 your stocks doubled to $2000, but your real estate and cash remained around $1000, you would sell $666 worth of stock and put $333 into real estate and $333 into cash. This would give you $1333 each in stocks, real estate, and cash. I use cash and bonds interchangeably, although there are distinctions.

Now, the specific stocks or real estate or bonds you buy is another story. If you want to make it very simple, simply buy a total market index fund for stocks, a REIT index fund for real estate, and a total bond fund or money market fund for cash/bonds. If you want to get more complicated, you can choose individual stocks, buy investment properties, and also include other asset classes in your allocation, like materials and energy. You can adjust your stocks/real estate/cash mix to 40%/40%/20% if you want to get more agressive. You can add commodities like oil or gold. For example, make a mix of stocks/real estate/gold/cash of 40%/30%/10%/20%. As long as you remember the key concepts of diversification and rebalancing, you will do fine in the long run.