If you’re new to the investment world, the universally accepted advice is to follow the tenets of value investing. It’s a safe, reliable, stable way to invest in stocks and other assets, and is used by billionaires like Warren Buffet and everyday consumers planning for retirement alike. The basic idea is to look for stocks that are undervalued—in other words, they’re priced attractively, compared to the power and growth potential they offer—then buy them and hold them for the long term. If done correctly, you might not sell those stocks for decades, or never sell them at all, instead reaping your dividends as income.[REITs]
It’s a time-tested way to plan for the future, but if you’re genuinely interested in the idea of investing, eventually, you may become bored. Other areas of investment offer more risk, more potential reward, and more activity—all of which are attractive to someone who sees themselves as an investing hobbyist or professional.
So what options do you have to spice up your investments?
Greater Risk, Greater Reward
These are just some of your possibilities:
- Futures trading. You could start trading futures. Futures are a contractual agreement between a buyer and a seller to exchange an asset (such as a stock or commodity) for a fixed price at a future date. There are many ways to trade futures, including as a way to hedge your investments, but one of the most popular is using the financial leverage of futures in combination with predictions about pricing fluctuations as a form of day trading. If you know what you’re doing, you can make a significant profit, but you might face higher risks in the process.
- Options trading. Options trading is similar to futures trading, but with a handful of distinct differences. For examples, if you’re trading stock futures, you’ll be responsible for paying an initial margin, while with options, you’ll usually pay a one-time fee called a premium. Options and futures also have different financial liabilities, and buyer and seller obligations, so make sure you understand them before you settle on either of these possibilities.
- House flipping. If you invest in a decent rental property and commit to tenant screening and regular upkeep, you can make a steady stream of rental income. Investing in REITs is even safer, exposing you to a variety of property holdings. But if you’re looking for something more hands-on, with the potential for a much higher return, you could get into flipping houses—the process of buying damaged property (or property otherwise in need of work), fixing up the property, and reselling it for profit. These excursions are rarely profitable for amateurs, however, so you’ll want to spend significant time learning the process and scouting for the perfect opportunities.
- It’s also relatively easy to start trading commodities, such as oil, sugar, and precious metals. While many commodities traders end up favoring futures, you could also invest in commodities through ETFs or a commodities broker, similar to how you might invest in stocks. These investments tend to be more volatile, and exposed to more variables that influence their price, such as laws, demand, and even the weather. Accordingly, it’s better to specialize in a handful of specific commodities, understanding their price fluctuations, than to try to expose yourself to many of them.
- Alternative investments. Though this is often referred to as a single category, there are many types of alternative investments to choose from. For example, you might turn your money into venture capital, investing in promising startups or small businesses, or invest in assets like stamps, coins, or baseball cards. You could even use your money for personal loans.
Tenets for Success
If you choose to follow any or all of these riskier, more exciting strategies, there are a handful of tenets you’ll need to follow for success:
- Dip your toes in first. Don’t stake too much of your money upfront if you’re just getting started. Even if you feel confident, it’s better to risk a small amount of money until you gain enough experience to feel comfortable with more capital.
- Keep learning. There’s always more to learn. Commit to acquiring new information and more experience as much as possible, talking to other experts and engaging in online forums.
- Always diversify. Even if you’ve fallen in love with a new strategy, remember to diversify your holdings. No single strategy, risky or safe, will give you the best possible outcome by itself.
If you’re reasonable with your adoption of these strategies, you can make your investing more exciting without risking your long-term potential. Experiment to find what interests you, and stick to the strategies that have the highest potential of helping you achieve your goals.
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