5 Smart Investment Plans & 5 Poor Investment Schemes

Did you know that one-fourth of all Americans have no retirement savings or even a pension outside of Social Security?

Seventeen percent of those 45 to 59 cannot afford to quit work, for those 60 and above, it’s 13 percent. Perhaps that’s why you see so many seniors still greeting people as they come into Walmart.

Let’s take a look at five investment plans that could help you prepare for retirement or at least give you an advantage. Likewise, I will discuss five things you should not do when it comes to investing.

What’s more, if there’s a 401(k) or similar retirement plan at work, don’t pass it up! Many employers offer matching funds. You can stash retirement money in it tax-free until you use it. And, chances are you will pay a lot fewer taxes after retirement than now.

Tom Handy wrote an excellent piece on retirement savings and investing that you should read, after you finish this, of course.

#1 — Put 3–5% of Your Income in a Cryptocurrency

I am not going to pretend to understand precisely how cryptocurrencies work or which is the best to invest in day-to-day. I just think it’s a good idea to put some money into it in case it takes off. What if it never does? OK, that might happen too, chances are it won’t, but I’m not advocating dumping massive amounts of money into it.

I have been buying $200 per month for a few years, spreading it out over a few I like. Now, $2,400 a year is not much money, so even if I lost it all, it would not cripple me financially; however, if cryptocurrencies do take off and reach $80,000 or $100,000 per coin. I will have quite a nest egg.

If you want to learn more about cryptocurrency, read How to Invest in Cryptocurrencies Beginners Guide, but the way I see it, you do not need to know how it works to invest a small, consistent amount.

#2 — Put 5% of Your Income in a Broad Mutual Fund

Your aim here is to invest your money across a highly diverse group of stocks. Yes, if the market goes down, the value of your mutual fund will go down too. However, this investment strategy makes use of large corporations, small companies, those that pay dividends, those with rapid growth, and even a few lesser-known companies.

According to Investopedia’s article, 4 of the Best Total Market Index Funds are:

1. The Vanguard Total Stock Market Index

2. The Schwab Total Stock Market Index Fund

3. The iShares Russell 3000

4. Wilshire 5000 Index Investment Fund

I’m not touting either of these four, though I have used Schwab for years. It doesn’t matter which you use; the point is to find one and start putting money into it. Each of these four has given its investors around a 20% return. That’s excellent compared to the miserable bank rates!

#3 — Put 2–5% of Your Income in Gold, Precious Metals, or Precious Metal Funds

Gold is another way to invest, though most experts like Warren Buffett insist that gold is not a good investment. In fact, he called it stupid to invest in gold. I am not saying invest in precious metals but invest in precious metal funds. Besides, investing in physical gold or precious metals could cost more for insurance and storage than you could make.

What I am saying is to have a small amount in a good fund to spread your money out a little further to hedge against disaster. So, find a good precious metals fund and keep two to five percent of your savings there.

#4 — Buy a Franchise

This strategy is one investment tool that I must say I have never tried. However, I know some franchises are wildly successful, and if you find one you would like to try, give it a shot. You can start by reading the Fit Small Business article, Buying a Franchise: How to Buy a Franchise in 8 Steps.

Make sure the franchise you want to buy into has a good track record. You can check with the Better Business Bureau to get started. You might even be able to include a partner or two and/or get a small business (SBA) loan for start-up capital.

#5 — Invest in Rental Properties or a REIT

“Someone’s sitting in the shade today because someone planted a tree a long time ago.” — Warren Buffett

He also made a ton of money investing in real estate. He bought run-down houses, fixed them up, and rented them out.

Another caveat of his is, “Like it such that you’d be content to own it in the absence of any market.” What I take from that is when you buy a house, it should have the potential to be your family home. If you can’t sell it or rent it, would you be OK living in it?

So, you might be thinking, “I don’t have the money to go out and buy a house or commercial rental property and renovate it to rent out.” That’s the beauty of Real Estate Investment Trusts (REITs), you can earn a portion of that income produced from owning commercial real estate — without having enough money to buy that commercial real estate. You can learn how to buy and sell REITs from investor.gov.

5 Poor Investment Strategies

#1 — Following the Herd

I bet you know someone who is crying the blues about putting a significant amount of money into Bitcoins when it was around $18,000 per coin, and then it subsequently dropped below $5,000. You could probably point to others who bought the hottest stock or commodity.

This strategy is what is known as “following the herd.” There’s an old story about the native Americans who hunted buffalo. All they had was a bow and arrows. The buffalos hide was so thick if you didn’t hit it in a vital area with a lot of strength, the arrow was likely to bounce off.

The hunters figured out if they could move the herd close to a cliff and then cause a stampede by making noise, many would just follow the others over the edge and break their necks.

When you invest, don’t follow the herd and break your neck!

#2 — “Putting All Your Eggs in One Basket”

You’ve probably heard this a thousand times — there’s a reason for that. This strategy will make you broke quickly. It could also include putting all your equity in a savings account drawing .01% interest.

However, you should have an emergency savings account, and if it is only a few hundred, that might be the best you can do. But once you let it grow a little, you should at least move it to a Certificate of Deposit (CD) where you can earn one or two percent if you agree to leave there for a specific period.

#3 — Equities with Large Surrender Charges

The problem with buying equities with a significant surrender charge is when there is an emergency, and invariably there are reasons you must sell, you could lose a substantial portion of your investment. When you or a family member gets hospitalized, you need to move, or get divorced and forced to split assets are prime examples.

#4 — Investments with Substantial Upfront Commissions

There are two reasons to stay away from investments that charge a large upfront commission, one is, of course, you are giving up a chunk of your capital, and the other is the manager has little incentive to make your investment stronger as they already got paid.

#5 — Overly Complex Investments

If you don’t understand how it works, and the seller can’t explain it to you — it’s probably best to leave it alone. Although you don’t need to know everything about how an investment works, you need to understand the basics.

So, there you have it. Whether you adopt any of the five smart strategies or choose just one. Get started saving and investing now.

About Me:

Stephen Dalton is a retired US Army First Sergeant with a degree in journalism from the University of Maryland and a Certified US English Chicago Manual of Style Editor. He is a freelance journalist currently living in the Philippines.

You can see his portfolio here. Email [email protected]

Website | Facebook | Twitter | Instagram | Reddit

There are no affiliate links in this article.

This article is for informational and entertainment purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.