What should I invest in?

Do you have money burning a hole in your pocket?

A few weekends ago, I was at a summer party. A friend came up and asked what I thought were good investments to park some money in. I didn’t give him a good answer at the time, but I’ve done a bit of research and have some answers.

401K. If your employer has a matching component to your company’s 401K program. Invest immediately. Its FREE money. An employer matching program is where your employer matches a portion of your salary (usually 4% or 5%) and puts it in your 401K yearly. The reality is that an employer can put in any matching amount they so please, with certain overall limitations. If your employer offers this and you are not taking advantage of it, start now.

Index funds. These funds are usually EFT’s (Exchange Traded Funds) which track and attempt to match the returns of segments of the stock market. An EFT is a fund with very low fees, which are automatically managed via computer. One of the best known is the stock symbol SPDR S&P 500 ETF (SPY). This fund automatically follows the S&P 500. The fees for SPY are 0.0945%. The Vanguard S&P 500 ETF fees are even lower at 0.0400%. This is a good way to receive normal market returns. And as we all know, it's hard to beat the market.

Peer to peer lending. Personal lenders, like Prosper or Lending Club, fund most of their loans through investors. You invest a small amount in other people’s personal unsecured loans and earn a return on your investments. For example, if someone wants to take out a $1,000 personal loan. You and 9 other investors would pony up $100 a piece and receive your principle back with interest over a time period. The average rate of return for these types of investor loans is in the 6%-8% range. The average length of the loans are approximately 3 years. If you invest in a diversified portfolio of their loans, you can minimize the effect of any bad debt or charge offs. You may experience some bad loans and associated fees, but if your loan portfolio is diverse enough you should see a return substantially above what your checking, savings, money market, or CD accounts are giving you.

Dividend stocks. You can invest in groups of stocks that not only appreciate, but pay dividends as well. This can be a nice passive income stream. Start ups and small to medium size companies, normally do not pay dividends. This is reserved for the big boys. Investopedia call this the Dividend Aristocrats. These are companies that have ever increasing dividends. In 2018 there were only 57 companies that were Dividend Aristocrats. Here are a few that have paid dividends year over year over year.

• Cintas

• Air Products

• AbbVie (Abbot Labs)

• AT&T

• Caterpillar

• Cardinal Health

Here is another Dividend yielding EFT with low expenses you can invest in SPDR Portfolio S&P 500 High Dividend ETF. This usually increases your overall return a percentage point or two, but may be offset by less diversity.

Real Estate Investment Trusts. REIT’s. Have you ever wanted to own some storage units or maybe a commercial building or two and don’t have the financial wherewithal? Now you can own a portion of these properties through a REIT. What is a REIT? It’s an investment where you own a fractional share of a property or many properties. With a REIT, investors get most of the money paid to the property, whether that is in the form of leases, rents or operating expense charges. Some examples are Public Storage (PSA) if you want to own a portion of self-storage units, or CareTrust REIT, Inc. (CTRE) if you want to own a fraction of a bunch of nursing home facilities. REIT’s can be a good way to get into real estate investing without massive amounts of capital or debt.

All this being said, I am not an investment advisor and anything you invest in is done at a risk (possibly a substantial risk) to your capital. The stocks, dividends, and REIT's in this article are in no way an endorsement by me or a recommendation. I am giving you tools and food for thought to go out and do your own research to determine the best passive investments for you.

Have a great week.