Learn where to invest your money, how to do it and the perfect low-risk, high-return strategy.
Hey Bow Tie Nation, Joseph Hogue here with the Let’s Talk Money Channel and this one is coming straight out of a question from our Facebook Group, Let’s Talk Money Together. Thomas says he’s 67-years old, no debt and needs to invest $250,000 and where should he put it. And it’s a great question, not just as an opportunity to talk about where to invest money but also the risk-return tradeoff!
The market lately has been all return and no risk, straight up and to the moon…but that’s not always how investments work.
Look at any ten or 20-year period of the market and it’s as jagged as the Himalayas with peaks and crashes everywhere.
7 Ways to Invest for Different Risk Levels
So today I wanted to give you a countdown of seven ways to invest for different levels of risk and return, a way to fine-tune your portfolio depending on how much return you need and how much risk you can stomach.
We’ll countdown from lowest risk to highest return, showing you exactly where to invest your money, how to do it and what kind of return you can expect on each. Stick around because towards the end of the video, I’ll reveal how to put it all together for the perfect low-risk, high-return strategy!
Number 7, Series I Bonds, and ironically the lowest return on the list is the one I’m most excited to talk about!
Nation, I Bonds have been called the market’s best kept secret. You won’t hear about them from a financial advisor because they don’t earn any commissions or kickbacks from it. You can invest in these for free straight from TreasuryDirect.gov and it’s the best risk-free return you’ll ever get!
Now the 10-year Treasury Bond has been called the ‘risk-free’ asset because the government can always print more money so there is zero-percent chance of not getting paid back…but the ten-year only pays a 1.5% interest rate which is less than you lose each year to inflation!
But there’s a better option. In fact, not only is this investment totally risk-free but it pays twice that return and gives you a tax break!
The Series I Savings Bond was introduced in 1998 to help small investors earn a return and fight inflation. The bond earns interest at a fixed rate plus an inflation kicker that is adjusted every six months.
I Bonds are currently paying 3.54% which is the highest since 2011 and that’s bound to increase as inflation heats up.
Nation, I know this isn’t as sexy as talking growth stocks or the potential to double your money but to a money nerd like myself…this is like Christmas, July 4th and my birthday all in one!
You can invest as little as $25 with no costs directly from TreasuryDirect.gov and each I Bond pays interest for 30 years. That’s a guaranteed return plus inflation protection for three decades!
Now as we say here on the channel, it’s not all rainbows and unicorns. You have to hold your I Bonds for at least 12 months and you give up three months’ of interest if you sell within five years but that’s pretty nominal.
The average savings account pays just 0.04% right now. This is a way to get that same risk-free protection on your emergency savings but make 88-times the interest rate!
Where to Invest Money to Double Your Investment
Number six on our list of where to invest money, a way to get twice that return on your cash!
BlockFi is a cryptocurrency platform but also offers a way to earn more than 8% on your cash and still keep it safe for when you need it. I earn interest on my bitcoin and Ethereum but if you scroll down on the rates here, you earn 8.6% on USDC, GUSD and PAX coins.
These are called stablecoins because they hold their value with the dollar. For example, the USD Coin is valued at $1 each and is backed by a reserve of dollars so the digital token stays at exactly that amount. It’s essentially a digital savings account.
So depositing money into your BlockFi account, you convert it to these stablecoins and it’s just like having another savings account but one with an interest rate more than 200-times you’d get at a bank!
BlockFi can offer those higher rates because it lends out the stablecoins in its vault and there is a huge demand for liquidity right now from institutions, investment funds and money managers.
Now that’s not saying that 8.6% interest rate is without risk. While these stablecoins keep their value with the dollar, the account isn’t FDIC insured like savings in a bank account. BlockFi is regulated by the New York Department of Financial Services but it’s not a bank.
Just like with any savings account, you can withdraw your money any time. BlockFi allows one withdrawal a month with no fees and then it’s just $10 if you need more than one a month. I know it’s a new idea for most people so I’ll leave a link in the video description to find out more.
We’ve still got five more ways to invest and here we’re getting into the riskier investments so I want to get your opinion on this. Which of these investments are the right level of risk to you? So watch through the list and let me know in the comments, how much risk do you want in your portfolio and which of these do you like best?
Number five on our list is a great way to get higher dividends on your stocks with preferred shares!
Preferred shares are a special type of stock with rights that go beyond the normal shares. Preferred shares have a set dividend yield and a payment that must be paid before regular stockholders get any of their dividends. These investments usually offer a much higher dividend as well. For example, Bank of America issues preferred shares paying between six- to seven-percent dividends while its common stock pays a dividend yield under three-percent.
Preferred shares are also higher up on the list of liquidation, so if a company files bankruptcy, preferred shareholders get paid before common stockholders but after creditors.
Best of all though is that preferred shares enjoy some of the growth benefits of regular stocks. Most preferred stock is convertible into regular stock if the share price reaches a certain point. Basically the company is saying, Here enjoy this high dividend yield if the stock price goes nowhere and a potentially higher return if the shares take off!
Just like with bonds, you can buy preferred shares on any investing platform but the best strategy is through funds holding a portfolio of preferred shares. You get instant diversification across the preferred shares of hundreds of companies along with the high dividend yield. Examples include the iShares Preferred and Income Securities ETF, ticker PFF, which pays a 4.6% dividend yield and a total return around 6% annually.
Investing in Asset Classes with Real Estate
Next on our list of where to invest, one of my favorite asset classes with real estate platforms.
All you out there in the Nation know how much I love real estate investing. It’s where I got my start as a commercial property analyst, I’ve managed my own rentals and no other asset class has produced as much long-term wealth. According to a Bankrate survey, Americans have more in real estate than any other investment.
And we’ve talked about real estate stocks on the channel but another alternative is property platforms like Fundrise and Streitwise. I really like these alternatives because it gives you the opportunity for those high real estate returns but without the big down payment you need to buy property. These are professionally-managed funds that own the properties and pay out those dividends, just like REITs. The only difference is they aren’t publicly traded on the exchanges and the funds tend to hold fewer properties.
One example here is Fundrise which I’ve been using since late 2019. I started with $1,000 and have collected $84 in dividends and $85 in appreciation, so a 10.7% annual return on my money. What I really like about Fundrise is the transparency. You get updates on all the properties, the platform shows you which investments are debt and which are equity. You can even click through to get a full description of each property including a market analysis and the financials.
And because these are smaller portfolios of properties, the managers can focus on only the best returns. I own several REITs in my stock portfolio and my Fundrise account beats most of them with that double-digit return.
Fundrise has different property portfolios you can choose from, some focused on higher dividends while others target price appreciation. The platform has a new program, it’s 90-day guarantee. Get started with as little as $500 and try it out for 90-days. If you don’t like it, Fundrise will give you a full refund.
It’s a great way to try it out risk-free and start building that real estate portfolio!
We’ve still got three more investments to highlight plus that special strategy but I want to personally invite you to get The Daily Bow Tie, our daily market newsletter sharing the most important news, strategies and tips straight to your inbox. It’s totally free, just something I like to do for all you out there in the Nation, so look for the free signup link in the description below.
Third on our ways to invest is in that real estate theme but with higher return and lower risk in property tax liens!
Not only are tax liens a high-return investment but also one of my favorite passive income sources.
So anyone that owns their home knows the county collects taxes on every property in the district. If those taxes aren’t paid, a lien is put on the property and it can’t be sold until everything’s caught up.
Well the county needs cash to fix that pothole on Elm so it’s going to sell the lien to an investor at an auction. The investor buys the lien and collects an interest rate plus the lien amount over a period of years.
What’s great about these is that the county collects those back taxes and passes the amount owed on the lien directly to the investor. If the lien isn’t paid, you might pick up the property for pennies on the dollar.
Twenty-nine states sell tax liens while others sell the deed outright and some to a mix approach. We’ll look at the process for liens because that’s the lowest risk and a great investment.
Understand also that you don’t need to be a resident of that state to buy tax liens. In fact, I used to go to Cook County in Chicago and Fulton in Georgia all the time to buy liens.
The interest rate you collect on liens ranges from 10% to as high as 36% in some states and the time owners have to redeem the liens can go as long as four years. That means you could lock in that interest rate for years.
Tax liens work in a couple of different ways depending on the county. If a property owner falls behind on taxes, the county puts the lien on the property and puts it on the list for an annual auction. Now you have to register for these auctions and grab a list of properties, sometimes months in advance so make sure you’re planning ahead.
Pros of tax lien investing are the high rates you collect, I’ve earned as much as 24% on some of these liens. It’s also almost completely passive since 90% of these things get paid off by either the homeowner or the bank.
Cons though are that it takes some research time to sort through all the properties and you might have to travel to different counties or states to find enough to invest all your money. Some of these liens are in the thousands of dollars and you’ll need to keep up with subsequent taxes.
How to Invest Your Money in Value Stocks
Two more high-return investments before that special strategy and next on our list is value stocks.
And I wanted to include value stocks here because while they offer the upside return of stocks, they’re lower risk than other types like growth stocks.
Value stocks are those with lower price multiples like a price-to-earnings ratio or price-to-sales, it’s stocks of companies selling at a discount compared to others in the same sector or industry.
And that last point is more important than most investors realize. While sectors like financials and healthcare tend to have stocks with lower PE ratios, so selling for a lower price on their earnings, you can find value stocks in any sector of the economy including tech stocks!
Just remember, always compare stocks against those in the same industry. So if you compared shares of Facebook with its price of 30-times earnings against say, shares of Bank of America with a 17-times PE, then yeah Facebook seems wildly expensive. But comparing Facebook against other stocks in its industry, so maybe Google-parent Alphabet with a 33-times price-to-earnings or Amazon with its 65-times price-to-earnings; Facebook is actually the value play in that sector.
So you can still be a value investor, looking for those discounts, and also invest in tech stocks or growth areas.
And while everyone likes to talk growth stocks, value has actually beaten it on long-term returns. Growth has done well over the last few years but value stocks have beaten it by 4.5% over more than 80 years!
Finding value stocks is as easy as just comparing two numbers. You can go here to Yahoo Finance or any investing platform, look for the price-to-earnings, price-to-sales or price-to-book values and compare stocks across each industry to find the best deals.
Pros of Investing in Penny Stocks
And our #1 way to invest for the highest returns, penny stocks with an annualized 27% return.
Penny stocks are generally any company with a market cap under $500 million, so you’re looking for small, fast-growing companies that can someday be the next Tesla at a $660 million market cap or an Apple at over $2.2 trillion!
Pros of investing in penny stocks are the opportunity to get in on the next big thing before it’s $2 trillion Apple or before the 4,000% return on shares of Netflix over the last decade.
Investors also like the excitement of investing in penny stocks and the fact that you’re supporting smaller companies as they grow.
There are some downsides to penny stocks as well. First is the volatility in these and the other side of those big returns. Even on those solid returns over the last year, seven of those 17 penny stocks are in the red as much as eighteen and 23%.
This was the bulk of my job as a venture capital analyst and for private wealth. Finding these small pre-IPO companies or new penny stocks and digging into the financial statements to separate out the best and make recommendations.
But that extra work pays off. The average annual return on venture capital and angel portfolios is around 27%, nearly three-times the market average, and even small cap stocks in general tend to beat the market with the Vanguard Small-Cap Growth fund beating the S&P 500 by over 43% over the last decade.
And penny stocks can make you rich. That outperformance on the small cap fund would turn $200 a month into $187,000 over 20 years, eighty-grand more than investing in the broader stock market…but investing in penny stocks, the smallest of the small-cap companies, could grow the portfolio to over a million dollars in the same amount of time!
We’ve got lots of penny stocks videos here on the channel but you can screen for these on any investment app. First look for stocks of companies under $500 million market cap for that small company flexibility. I also like filtering for companies growing sales by at least 20% a year for that faster growth and a strong balance sheet with more cash than debt. That’s important because these small companies need that cash stability to survive.
OK, so that was a lot to take in and I see a few eyes glazing over out there but don’t feel like you have to pick just one way to invest. In fact, the best strategy…the one that will give you the highest return with the lowest risk is to pick a few of these to combine.
What you want to do is find your tolerance for risk in the list of ways to invest, where’s that investment that isn’t too much risk or not enough but juuuusssst right? Then, use it and the two or three investments around it to build a portfolio that will not only give you a great return but also smooths out the risks in each investment.
This works because many of these investments react differently to the economy and don’t rise or fall with each other. In fancy investing jargon we say they’re uncorrelated. So investing across three or four of them is going to smooth out the ups and downs in your money because some will keep rising even as others fall. It’s a great way to lower your risk but keep the return!
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.