Have you ever wondered why the rich get richer? Also, what are the best ways to invest your money?
I use to.
You see, I grew up and attended inner-city schools in Detroit. All I saw were gangs, violence, poverty, and an overall lack of morale.
By the time I was an 8th grader, my mom had moved us out of Detroit into a much more beautiful city called Oxford. It was an upper-class area.
It was in Oxford that I began to develop my ideas about life and what I wanted MY life to look like.
Let me explain…
It’s not that we ever lacked the essentials growing up. In fact, my mom did an excellent job making sure we had everything we needed and more.
But something clicked in me when I started making friends in Oxford.
I would go over their houses to hang out and pull up to their beautiful homes with perfectly groomed lawns.
Walkthrough their large front door and be greeted by a smiling mother offering me sandwiches and snacks.
I’m not so shallow as to believe that having nice things are what makes a person happy. But what I experienced while living in Oxford was much different than that.
There was high morale. A sense of peace and love. A sense of hope and prosperity. All things I never experienced while living in Detroit.
So why am I saying this? And how is it relevant to the best ways to invest your money?
I’m saying it because I hope that if you’re reading this article, that you can imagine a situation in your life where you felt similar feelings. And if not, that you can at least empathize.
While living in Oxford, I decided that I wanted my life to be filled with abundance, peace, and joy.
I wanted to build up wealth so that my kids could enjoy prosperity, and my kid’s kids could do the same.
I wanted to be financially free so that I wouldn’t have to be stuck working a 9-5 my entire life.
What do you want YOUR life to look like?
I don’t want you to read this article, say, “oh, that was nice”, leave the website, and forget you ever read the article 5 minutes later.
Instead, I want you to read the article, take it to heart, and understand that if you have goals and ambitions to improve to your finances, that it’s up to you to take action.
All the advice in this article comes from people who made their fortune by working hard because they had a dream.
Do you have a dream? If so, the only person stopping you from achieving it is yourself. I know that’s mega cliche, but it’s true.
So, with all of that being said.
In this post, I want to discuss the 5 best ways to invest your money according to millionaires and billionaires. Bookmark this article. Come back and read it from time to time so that you can keep this advice at the top of your mind at all times.
1. Grant Cardone: “Invest in yourself”
I have a friend who is a pilot and flight instructor at a flight school.
I have a question to ask you—say someone wants to become a pilot and flight commercial jets that carry tens of thousands of people across the sky every day.
On their first day of pilot school, do you think they are flying real airplanes?
The answer is a big N-O.
In fact, according to my friend, it takes months of specialty training—reading books and sitting through courses. They’re investing in themselves.
Then, after that, the pilots have to go through years of training using simulated flighting programs before they even get to fly a real jet! Again, they’re investing in themselves.
After all that, it takes even more time practicing flying a real jet before they can officially be qualified to operate a commercial plane with people in it.
So why am I saying this?
Your life and your financial freedom are not much different.
You must invest in yourself. In fact, it’s one of the absolute best ways to invest your money.
Take Grant Cardone, for example.
If you’re not familiar with Mr. Cardone, he is a real estate investor who owns hundreds of millions of dollars worth of real estate.
When Cardone was 25 years old, he was addicted to drugs and going nowhere in life.
It was only when he had an epiphany to invest his money into himself that his life changed forever.
“When I was 25, I spent my last $3,000 on an audio program, and I can honestly say the investment and commitment to go “all in” are the reasons for my success today. Before that, I was addicted to drugs and obsessed with all the wrong things. One single investment changed the whole course of my life.”Grant Cardone
Cardone’s example is just one out of a thousand cases of why investing in yourself is one of the best ways to invest your money.
You can read many stories of millionaires who read a single book or heard advice from a single person that changed their life forever.
Today, thanks to the internet, you have more than enough resources to gain information. And much of it is free. Take these resources, for example:
Honestly, you no longer have an excuse not to be successful if you really push yourself.
2. Warren Buffett: “Index funds”
Have you ever dreamed of owning stocks on the stock market?
If you’re anything like me, the answer is YES!
What if I told you that it was possible to own stocks in Apple, Amazon, Nike, Google, Facebook, and hundreds of other notable brands that you’re probably familiar with?
Meet index funds.
Index funds are powerful investment funds that allow you to purchase stocks of every company in an entire index.
An index is used to measure a subset of the stock market.
Instead of looking at how each individual company is performing, investors use indices (plural for index) to measure a group of them together.
This gives investors a better idea of how the market is performing as a whole.
There are hundreds of indices, but only a few of them you may have seen on the news or heard your uncle talking about, those include:
- S&P 500
- Dow Jones Industrial Average
- Nasdaq Composite
Index funds are one of the best ways to invest your money if you want an investment that’s a little more passive.
I’m personally going to begin adding index funds to my investment strategy to help diversify my portfolio.
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Why are index funds good
I like index funds because they are a low barrier of entry into the stock market.
I can remember growing up and seeing pictures of Wall Street and the New York Stock Exchange. It was always so mesmerizing to me, but at the same time, it felt so unrealistic that I would ever be able to trade on the stock market.
I’m here to tell you that with the advent of index funds, this can be a reality.
You can buy entire indices such as the S&P 500 and Dow Jones for as little as $200 and own stocks in major companies.
“By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals,”Warren Buffett
Where can I buy index funds?
Index funds are very easy to buy. In fact, you can buy them online and own stocks in major companies in a matter of minutes.
The most common way to invest in index funds are directly through a fund owner such as Vanguard or Fidelity.
Keep in mind that some index funds do require a minimum investment, such as the more popular Vanguard S&P 500 index fund.
It’s also important that you take into account the expense ratio of each index fund. An expense ratio is an amount the fund charges you each year.
If you invest in an index fund with a 0.04% expense ratio, you’ll pay the fund $40 per year for every $1,000 invested.
I know I’m getting sort of meta on you with the details, but all of this stuff is important for you to know!
With that said, here are some common index funds:
|Fund||Minimum investment||Expense ratio|
|Vanguard S&P 500 Index fund||$3,000||0.04%|
|Schwab S&P 500 Index Fund||No minimum||0.02%|
|Fidelity 500 Index Fund||No minimum||0.015%|
|Fidelity Zero Large Cap Index||No minimum||0.0%|
Courtney and I personally buy Vanguard S&P 500 index funds to add to our investment portfolio.
This index fund has often outperformed many private hedge funds, even Warren Buffett’s company Berkshire Hathaway.
It’s a perfect buy-and-hold index fund that will give you a sweet return for many years to come.
It’s also possible to invest in index funds through a retirement account, such as a Roth IRA or 401(k).
The advantage of using retirement accounts to invest in index funds is that your gains are not taxed.
Nonetheless, if you are looking for a more hands-off investment, then index funds are one of the best ways to invest your money.
If you want a more in-depth guide on investing, read my ultimate investing guide for beginners.
3. Brandon Turner: “Rental real estate”
Want to know an interesting fact?
90% of all millionaires and billionaires own real estate.
And that doesn’t mean they own a house that they live in. No. It means they are investing in real estate.
They own rental properties. Multifamily homes. Apartment complexes. Hotels. You name it.
“But Joshua, why would so many wealthy people want to own real estate? What are the advantages?”
Fantastic question. Here are a few of the advantages of investing in real estate:
- Passive income through cash flow
- Wealth building through property value appreciation
- Huge tax benefits
- The ability to leverage capital to build wealth
Real estate investing may not make you wealthy overnight, but it can add zeros to your net worth in a shorter timeframe than many other traditional investments.Brandon Turner
Investing in real estate is another one of the best ways to invest your money.
However, getting started can seem impossible. You may be asking yourself these questions:
- Where can I learn more about real estate investing?
- Do I need a lot of money to start?
- Do I need some type of license to invest in real estate?
- Do I have to manage the property myself, or can someone else do it?
These are all valid questions. I will provide resources for you shortly, such as books and podcasts that I would recommend you start with.
I want to invest in real estate, where do I start?
“Give me six hours to chop down a tree, and I will spend the first four sharpening the ax.” – Abraham Lincoln
If you want to start investing in real estate, you first need to spend time learning about it.
Listen, I’m all for the “jump now, look later” approach where you don’t waste any time learning but instead just jump straight into doing.
This is great.
But it’s equally as important to make sure you at least understand the fundamentals.
For example, do you know what kind of investing you want to do?
With real estate investing, it’s not enough to just go buy any home on the market and expect to become a millionaire tomorrow.
There are many different strategies, and you need to find the one that works best for your personality and risk tolerance.
Here are a few examples of the different type of real estate investing you can do:
- Buy and hold (rentals)
- Fix and flip
- BRRRR method
- Vacation rentals
- Real Estate Investment Trusts
Whether you are buying and holding real estate for rental income, buying houses low and selling them high for big profits, or using the BRRRR strategy to leverage your money, you have to make sure that you know what you are getting yourself into.
Nonetheless, real estate investing is one of the best ways to invest your money.
Where can I learn about real estate investing?
There are several books and podcasts that I would recommend.
Best books on real estate investing
- How to Invest in Real Estate: The Ultimate Beginner’s Guide to Getting Started
- The ABCs of Real Estate Investing
- The Book on Rental Property Investing
- Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple
- Rich Dad Poor Dad
Best podcasts on real estate investing
The BiggerPockets podcast is the only real estate investing podcast I’ve personally ever listened to.
I’m sure there are other great podcasts out there, but BiggerPockets is the best.
Do I need a lot of money to invest in real estate?
The answer to that question is a big N-O.
In fact, many real estate investors started with close to nothing.
“Joshua, how can I invest in real estate with no money?”
Welcome to the power of leveraging.
I’m going to borrow this definition from Investopedia. Leverage is the use of various financial instruments or borrowed capital—in other words, debt—to increase the potential return of an investment
You can get started in real estate by leveraging other people’s money. It could be the bank’s money. A private lender. A family member or friend.
There are dozens of different strategies that you can use to leverage money to build your wealth. This is commonly known as good debt.
Good debt is a type of debt that is used to grow or generate income.
Real estate investing is one of the best ways to invest your money for many reasons.
Courtney and I personally plan on adding rental properties to our portfolio to generate passive income.
We will, of course, document our journey when that time comes.
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4. Chris Hogan (of Dave Ramsey): “Roth IRA”
There are only two things in life you can’t avoid—death and taxes.
That is unless you have a Roth IRA.
“…a Roth IRA isn’t just a nice thing to have. It’s essential. Bottom line: If you qualify for a Roth IRA, you need one!“Chris Hogan
A Roth IRA is a type of individual retirement account that allows tax-free growth and tax-free withdrawals in retirement.
You are allowed to make yearly contributions up to $6,000 ($7,000 if you are 50 or older).
I do want to point out that depending on your situation, a different retirement account might be better for you, such as a 401(k), a traditional IRA, a SEP IRA, or a self-directed IRA.
Also, understand that although each retirement account has slightly different rules and benefits, many of the concepts we will talk about will be similar for any retirement account.
For example, Roth IRAs have income limits.
If you make over a certain amount of money each year, then you are no longer eligible to make contributions.
I suppose the IRS doesn’t want to lose out on any of your high taxable income ?.
In this case, a traditional IRA may be better for you, or if you are a business owner, a SEP IRA.
Make sense? Moving on!
How do you make money in a Roth IRA?
Think of a Roth IRA (or any retirement account) as a taco shell.
Yes, you read that right… a taco shell. ???
Hang with me here for a second, I promise this will all make sense in the end!
Now, no one—I hope—eats tacos with just empty taco shells. You’ve got to put stuff in it!
What do you put in a taco shell? Meat ?. Cheese ?. Diced tomatoes ?. Sour cream. Taco sauce ?. Lettuce ?. You know, taco stuff.
You see, a Roth IRA is just an empty taco shell. If you want to really see your Roth IRA explode, you have to add investments into it.
Index funds (meat). ETFs (cheese). Stocks (diced tomatoes). Bonds (sour cream). And other investments (taco sauce).
You are making yearly contributions to your Roth IRA. And within your Roth IRA, you have various investments that are growing, working for you, and earning you that sweet, sweet money ?.
This means by the time you are retirement age, depending on when you started making contributions and investing in your Roth IRA, you could potentially have millions of dollars saved although you only contributes a few hundred thousand.
This explosive growth is because your investments were growing and working for you. This growth can also be attributed to the power of compounding.
And the best part of it all? When it comes time for you to make withdrawals from your account, none of it will be taxed.
Okay, so other than potentially making you want tacos for dinner tonight, do you understand?
Let’s do a quick recap.
- A Roth IRA is not an investment in itself.
- Instead, it acts as a container that holds your investments and allows you to receive tax-free gains on your investments within your Roth IRA.
Where can I open a Roth IRA?
The answer to this question can change depending on how you want your retirement account managed.
Do you want to manage the account and the investments you make?
Then you should probably open a Roth IRA with a broker such as:
- Fidelity IRA
- Charles Schwab IRA
- Ally Invest IRA
- E*TRADE IRA.
Do you want some else to manage the account and the investments?
Then a robo-advisor will be ideal for you. A robo-advisor is an account that is managed by intelligent computer algorithms. You can open such an account at:
- Fidelity Go
- Schwab Intelligent Portfolios®
- TD Ameritrade Essential Portfolios.
Of course, there are plenty of other options. Just make sure you do your research to figure out which broker or robo-advisor will be better for your situation.
5. Jeff Bezos: “Start a business”
This one may seem obvious.
It’s important that it makes this list of the best ways to invest your money because this one has the potential to make you the most money.
In fact, starting a successful business is the way many millionaires and billionaires earn their fortune.
Then, they use other investment vehicles like the stock market and real estate to further grow their fortune for generations to come.
Take Jeff Bezos for example. You know, the founder of Amazon.
Amazon is almost worth one trillion dollars.
ONE. TRILLION. DOLLARS.
In number form, one trillion dollars looks like this: 1,000,000,000,000.
Bezos’ started Amazon 25 years ago in his garage.
To give you some perspective on how much more money you can make starting a business than any other way, Bezos’ personal net worth is over 100 billion dollars.
Do you think you can build a 100 billion dollar net worth in 25 years investing your money into a mutual fund or CD at your local bank? Never.
This type of growth is only possible if you are the founder of a successful business.
I’m not saying that you have to start a business that is worth 1 trillion dollars in the next 25 years (or maybe I am? Go for it, seriously!)
Perhaps you just want to earn an extra $300k per year by starting a blog or selling an ebook.
$300k/year is certainly not a small sum and would drastically change how your life looks, right? Go do it!
Deciding what type of business you want to start
“…pick something you’re passionate about. That’s the number one piece of advice that I’d give to someone that wants to start a company or start a new endeavor…”Jeff Bezos
There is no right answer to this.
Deciding what type of business you want to start is completely up to you.
But I can help by giving you a framework.
First, answer this question: What do I spend the most time thinking/talking about?
If your answer is nothing, then I urge you to think a little harder.
Whatever you decide, make sure you do something that you have a passion for.
Passion is the driving force behind success.
If you don’t have the passion it will be easy to give up on your business when the times get tough. And times will get tough.
Next, decide what type of lifestyle you’d like to have.
- Do you want to be able to travel and work on your business from anywhere in the world?
- Do you see yourself having an office with employees?
Deciding on your desired lifestyle will help you decide the type of business you want to start.
If you want to be able to sit on the beach with your laptop and work on your business, then you’d likely want to start an internet company.
The final question I want you to ask yourself when deciding on what kind of business to start is: what would I be willing to do for free?
Because if you’re willing to do it for free, that means you really have a passion for it. And since you have a passion for it, starting a business around that passion will much easier than starting a business around something that you aren’t passionate about.