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When it comes to investing, I ALWAYS think to myself: where can I get the MOST opportunity, long term. What is going to give me the highest return, with the LEAST amount of risk? And also, how much risk do I need to take, how hard do I need to work for that, and what’s going to get me the best value?
Here’s my thoughts when it comes to what I want to do in 2019:
First, I’m planning to use about 60% of my income this year to diversify and strengthen my stock market portfolio. This is something I pretty much see as a lower risk, lower time commitment, and yes…lower return investment. I think a more beefed-up well balanced portfolio would insulate me from anything outside my control and give me a little more liquidity, in the event I ever needed it. This move is really about spreading out my risk and also taking a more passive approach when it comes to investing this year – just for the sake of rounding out my investments.
So when it comes to doing this, because everyone just wants specific information, I’ll likely be investing a significant portion of my income between three funds – this strategy is also known as the “Three Fund Portfolio”:
First, I’ll be investing about 70% in Vanguard’s Total Stock Market Index – VTSAX.
Second, I’ll throw about 20% in Vanguard’s International Stock Market Index – VTIAX.
Lastly, I’ll just throw 10% remaining in the Vanguard Bond Market – VBTLX.
This strategy is more about investing in something completely hands off, zero work, just set it and forget about it…and this way, I’ll have the peace of mind knowing that I’m investing in something I consider 100% passive income.
Now my SECOND investment will be back to real estate…in previous years, this was my priority…but this year, it’s taking the back seat, but it’ll be a fun one. About 30% of my income this year will be saved up, cash, in high interest savings accounts earning about 2.2% or so. I’ve been somewhat casually looking at real estate to buy this year, but I just can’t find anything that’s worth getting…
And when I look at real estate, I look for VALUE…I buy places I’m 100% sure I can make money on…and from the properties I’ve seen so far, I just can’t find anything that’s a sure thing. So instead, here’s where I’m starting to realize there’s a lot of opportunity: DEVELOPMENT. This is where my cash is going to come in handy.
For instance, I have one unit where once the tenant moves out, I can spend about $60,000 fixing it up, and I’d be able to make an extra $1100 per month in rent. This is over a 20% CASH RETURN ON MY MONEY.
Also, like I mentioned a few months ago when I did the house tour of the new place I just bought, I’d eventually like to spend about $200,000 and create what’s called an ADU on the property – this is an Accessory Dwelling Unit, and this is just a fancy term for a guest house. Basically, I can build a $200,000 guest house and rent that out for about $1600 per month. That works out to be nearly a 10% cash return on my money – pretty much risk free, especially if I paid for this in cash.
So right there, with about $260,000 spent…I can make a guaranteed $2700 per month EXTRA with no additional debt, and no risk. To me, that’s the IDEAL scenario, and I can’t imagine any other investment I could possibly make right now that would give me those numbers.
So between those, that’s pretty much where most of my money is going this year. Balanced Index funds and save up cash for some development to increase existing cashflow…I see this as lower risk, more diversification, while still increasing value at the same time.
Hope that makes sense – this move is all about more diversification, spreading out my money a little more, focusing on investments that might be slightly more passive, and trying to be a little less heavy in real estate – just because that would be the smart thing ANY investor should do.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com
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