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What is an Investment Vehicle?
Before we can dive into the discussion about which investment vehicle is the best, we need to first understand what an investment vehicle is. Your goal as an investor is to go on a journey. You’re going on a trip from point A to point B. Point A is the financial amount that you transfer to your investment account and point B is the amount you have after you invest. To get from point A to point B, just like any other trip, you’ll need a vehicle to get there. This is what an investment vehicle is. An investment vehicle is any type of investment product. Here are some common investment vehicles.
- Annuities
- Stocks
- Options
- Futures
- Bonds
- Mutual funds
- ETFs
- Hedge Funds
- Private Equity Fund / Venture Capital / Angel Investing
- Real Estate Investment Trusts
- Real Estate Syndication
- Real Estate Crowd Funding
- Tax Lien Investing
- Commodities
- Collectibles
- Foreign Exchange
Some people will throw in 3 additional investment vehicles into this list. However, some will say that these are not considered investments, rather they are considered “savings vehicles”. I personally do not care how people label these. I don’t think most people care. However, to make everyone happy, i’ll separate them. What are they?
- Savings Account
- Money Market Account
- Certificate of Deposit
What is the best investment vehicle?
You will hear people arguing all the time about which investments are the best. If you spend any time researching various investment vehicles, you will hear claims that only certain investment vehicles are the best. It’s common to hear that “more millionaires come from real estate than anywhere else.” The claims never end. These claims and debates lead new investors down a rough path. New investors start looking for the investment vehicle that will make millionaires the fastest and easiest. Then they jump from vehicle to vehicle trying to find the secret sauce.
The truth is that there is not a single greatest investment vehicle. They all work and move you from point A to point B. Each is unique and has it’s own pros and cons, but this doesn’t make a single one better than another. Once you realize this, things become a little more clear and you will understand what to do.
Choosing Your Investment Vehicle
Once you understand that there is not a single greatest investment vehicle, you’ll understand why this advice works. Pick an investment vehicle that excites you. One that you like and want to know more about. Commit to learning how to invest with this vehicle. Become very proficient at investing through that investment vehicle. Once you have mastered that vehicle, then you may decide to expand and learn how to invest using additional investment vehicles. However, the trick to becoming a successful investor is by committing to learning a single vehicle first. Stop bouncing around looking for the best, easiest, and fastest. Find something you enjoy, then master it.
After you become very proficient at a single investment vehicle, you may decide that it’s worth learning how to invest with a second investment vehicle. You may decide that you should diversify your portfolio, feel that there is a particular benefit that you would like to have, or find that you enjoy a different form of investing. These are all valid reasons to learn a second investment vehicle, but all of this comes after you are competent with the first.
Now, there is an exception to this. You may find that the investment vehicle that you thought was something you would enjoy is something that you do not enjoy. If you really dislike it, then you can put it aside and learn something else. Why is this important? Because you are most likely to be successful doing something you enjoy, especially when you first begin. So, don’t force yourself to learn how to do something you dislike. There are many various forms of investing, and they can be very different. Do what you enjoy so that you’ll succeed.
Each Investment Vehicle Can be Broken Down Into Investing Styles
Once you determine the investment vehicle you like, then you need to find the investing style that you like. This is a similar process to what we just did. Think about the various styles and determine which style interests you and learn how to do that style. Focus on learning a single style at a time. This way you become an effective investor. Don’t fall into the trap that most people fall in by trying to learn everything. Niche down and learn a single style.
What makes up an investing style? Simply break the vehicle down into it’s various aspects and determine which parts interest you. Here are some of the ways you can break the investment vehicle down.
- Industry
- Specific Asset
- Specific People
- Ethics
- Length of Time
- Colors
- Tax benefits
- Type of Pay
- Place of Origin
This list could be added to indefinitely. Not all of these apply to every investment vehicle and this list is also not comprehensive. However, this should give you a general idea of what we are talking about. Let’s use an example to break this down even more.
The Investing Style Break Down
Break down #1:
Let’s say that you really enjoy the idea of investing in commodities. So you look at all the different investment vehicles that commodities offers you. You choose to invest in the precious metals investment vehicle. Now you need to find your style. To find your style, you begin to break down all the factors involved with precious metals. You come up with the list: color, weight, shape, length of time that you could hold, and function of the metal. You decide that you want to invest in gold because you think the yellow color is pretty. Also, you like gold because it functions as jewelry and you enjoy jewelry. You determine that you will hold it forever so it can be generational wealth. Your style of investing is long term, gold jewelry investing.
Break down #2
You believe that investing in stocks would be fun, so you decide that your investment vehicle will be the stock market. Now, you want to figure out your investing style, so you break all the options down. You determine that these are the factors that influence the stock market: length of investment, industry, tax benefits, ethics, and how you get paid. Then you determine that you want to invest for the short term and that industry, tax benefits, ethics don’t matter to you. You also decide that you want to trade and make capital gains instead of holding the asset for cash flow. You have narrowed your investing style down to short term, capital gains investing.
Conclusion
By understanding your goals, your interest, and learning what you want to invest in, you’ll make the learning process 100X easier. Without this understanding, you’ll constantly be chasing the next shiny object. This will never turn out well. You must know what you enjoy, narrow it down, and commit to becoming excellent at that particular niche. The more specific you are, the better. The more specific you are, the less you’ll need to learn and the sooner you’ll be able to learn how to invest. Learning how to invest with multiple investment vehicles and using multiple styles will take time to develop.
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