I will simplify the answer here. As a regular person who may not have much disposable income and probably do not have an Ivy Plus or prestigious work experience background, you really do not have a lot of margins for errors. I highly recommend you utilize the excellent safety net already created for you and tested to work very well via the Western consumerism social contract and get most of your financial exposures and likely will be exposed to stocks, mutual funds and possibly ETFs through the 401(k) or some type of tax advantaged IRA. 401(k) will mostly limit you to large and mega caps not not the penny stocks which I think is ideal for the common, non-Ivy Plus person. To be honest, I would say the 401(k) is probably the most logical case for the regular person. Of course the whole design was for you to work for someone, stay out of trouble and spend. I don’t necessarily think deviating away from the formula will do the common person any good. If you are a student of history, you will probably know what group of people created that system and will choose to live in the geographical locations that will actually honor this system by benefitting those who the system was actually designed for. Of course, I won’t elaborate on this in order to comply with the social contract. I see the 401(k) as almost risk-free as you are entrusting the good faith and capabilities of a certain entity that lead an alliance of entities. In reality, there is no other stabilizing force capable of making this statement for the next half century at minimum. I would not touch the derivatives such as options and futures if I were a common person and especially not the leverages and the margins. I see cryptocurrency currency more as a medium of exchange technology featuring blockchain than an actual viable medium of exchange.
Most governments now either have or are exploring their own digital currencies. When you think about it, a decentralized currency won’t really work in the long-term without the backing of the centralized authorities for very rudimentary reasons. Almost everything that are considered highly liquid like gold and silver are essentially heavily regulated by the central authorities. Cryptocurrency might be a useful tool for those who care about their privacy for whatever reasons. I believe regulations are coming for crypto and it will likely require more streamlined tax reporting which will essentially limit the privacy aspect of the asset class. I personally would not bet on the cryptocurrency market to appreciate greatly in the long-term. Real estate is typically a good investment though many people give too much credit to the tax benefits from paying interest on mortgages. Basically if you have to forgo taking the standard deduction which is approximately 16K for a single filer if you are to deduct mortgage interest. The issue here is a $300K mortgage at approximately 6% for 30 years is less than $20k in interest initially. But interest payment included in the mortgage payment get smaller and smaller over time where more principle payment is made. Of course, itemization can also include certain medical bills, charity donation and property taxes among some other item(s). However, when you realize most people who own real estate also file joint which means they can get 32k in deductions. Property tax is about 1-2% a year based on appraised value of the property. All I’m trying to say is the tax benefits from home ownership is probably overblown versus standard deduction.
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Invest in real estate, collectibles (sports cards, coins, stamps, antiques, arts, Pokemon and other TCG), precious metals like gold and silver, securities (stocks, bonds, mutual fund, ETF, options, futures and other derivatives), cryptocurrency or other alternative assets.
When you own a home and have a mortgage most of the cash flow you get as a common person go to the mortgage with little to invest into anything else. Sure you can rent our rooms or the whole house but regardless you will have maintenance cost to home ownership and a lot of other cost like your time and standard of living. The housing market also have these cycles and is highly linked to the economy, neighborhood well-being, interest rates and treasury. I just think you should only buy a house for non-money reasons as there are much better investments that such up less cash. Real estate is more of a heirloom thing for the mega rich not really how the common person get mega rich. If you think fixing up TLC houses will make you rich because you are a handyman, you may need to think twice because repairing is only a small part of the business. This business requires knowing people and being a people person, lead generation, cash flow financing management, knowing the law and regulations and a very calculating business sense. Most people are mistaken when they say buying is cheaper than renting. Without wasting all of our times with item by item calculations, I will just say most couples do not need four bed rooms and 2,000 square feet and front and back yards to live comfortably. If you are single or in a relationship and do not have kid(s), depending where you are, likely you can get a room for less than $1,000 USD. Owning a house include a lot of additional costs renting do not have such as property tax, mortgage interest, trash fees, mowing lawn fees, repair fees and much higher utility fees. Put it this way, a $300K USD mortgage for 30 years at 6% will cost about over $300K in interest alone in addition to the principal. All the closing cost plus the loan origination fee is probably at least a few thousand extra. Property tax for a $500K house at 2% is about $10K a year. Some people will argue that this amount is actually an investment into the local system that spurs additional investments into the local economy in term increase housing value. There are also special assessments.
The average historical house price is about 4.5% compounded in the US and even more recent appreciate rates which are significantly lower than this which is significantly lower than the average compound return of US stock market at 10%. Yes, there are tax exclusion benefits (250K and 500K on profit exclusion for single and jointly tax filers respectively when you sell your primary residence), however, when you figure the intangible and tangible net benefits versus 401(k) (even considering SDIRA, Solo 401K or borrowing/withdrawal from 401(k)), I think overall is just not worth it. I mean if you significant other pressure you to buy a house even though you don’t want one because you think rationally and not emotionally, perhaps you should reconsider your life’s choices. Plus tying people down with more sink cost and increase their switching cost are mostly tactics used by those who are trying to depose of depreciating asset which you know I for sure won’t elaborate on. I think this generation of people have made a different life choice with increasingly more DINKing, staying single and prenups. You got to learn that anything unpopular is typically due to vested interested preventing it from being popular. Over time, the proof is in the pudding. As long as you don’t feel embarrassed by your own decision making, the clown is the OPP. Being a permanent contrarian will always yield a higher return because all higher returns are made by those who venture into something that no one else is doing that yield huge margins and set them apart. Of course to be a permanent contrarian you have to constantly adapt to changes. Though I consider myself as a third wave vanguard permanent contrarian who contra others actions just before a new industrial revolution. This lowers my cost of contrasting without spending on R&D while seeing the clinical trials of others and study the results. All great revolutionaries rode on the backs of the pioneers. I’m the permanent contrarian equivalent of buying the house just at the edge of Beverly Hills near South Central and Skid Row right after I hear the word regentrification, NIMBY and zoning change but just before everyone else hear those words and can process those words into information and taking investment actions.
I’m a last inning permanent contrarian but a permanent contrarian nonetheless. Is albacore not tuna? When bluefins are effectively off the dinner table, is albacore not the new mainstream tuna? I think this is probably the best balance between risk and reward. Taking calculated risks yes but also earn above average risk per reward. Collectibles when they are easy to store and inexpensive per individual units, to me, are eligible for my alternative assets investment consideration. As I mentioned before, cash flow is very important for the average person because the average person does not have inexpensive ways to obtain a large amount of cheap credit for the medium to long-term. Stamps as a collectible are pretty much out fad and coins, paper money, arts, antiques, gold and silver will cost you a lot of money and takes a lot of expertise to invest right. At this most, the simplest investment to understand for the average Western person to understand are collectible cards. Western people have a lot of free time and many use those free time to watch sports, play sports, watch cartoons/tv shows/movies and play various games including TCGs. Without having to repeat what I have mentioned already in numerous previous posts, collectible cards are probably the best lottery level investments one could make besides 401(k). Most people don’t know how the investments within 401(k) actually work in details including its valuation, however, that doesn’t matter because the system was designed to make the 401(k) system almost risk-free for the average person otherwise the whole full faith system will likely collapse which will destroy the innovation market and wanton consumerism.