Q/A: Where Should I Put My Money?

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March 21, 2014 by Liberty

Crowd_outside_nyseWith the government plopping economic stimulus based on their tea leaves, it can be hard to have faith in any particular financial instrument. The dollars value is being printed away by the minute. Home prices have shown they can collapse. Even gold took a bit of a tumble in the last year. Here’s the relevant part of the question I received:

I just got a inheritance from an uncle of $11000. I’ve been thinking that I should put the money in bitcoin but I’m afraid it’s a little too risky. Should I only put a part of it in bitcoin? What else should I do with it. I don’t want to do something stupid with it. I know if I just let it sit the government is going to just take away the value of it but I never really learned too much about investing. What should I do with it?

To start: There is an old and worn out piece of advice that this reminds me of. Financial advisors repeatedly tell their customers to diversify. Diversifying is the first recommended piece of advice for one fundamental reason: It helps prevent lawsuits. There is more to it and it has its uses but there is a time and a place.

When you understand an investment, you don’t necessarily have to diversify. Bitcoin is a very interesting and very unexplored currency. There is no telling what the future could bring with it. Instantly, that should bring up a little warning bell. You’re on track in suggesting that you should only put part of the money in bitcoins (if any.)

The first thing you need to consider when picking a place to put your money is your current financial situation. You should line up at least enough cash to pay a few months of survival in a bank account (or under your mattress if that’s your thing.)

The next thing you should consider is your own financial knowledge. If you’re a real estate investor, business owner, stock investor, or even bitcoin trader then you probably know what you should do with your money. When you’re an expert in something the best place you can put your money is in whatever you’re an expert at. Most of the time when someone asks this question, they’re not a expert in anything. I imagine that’s why you’re asking.

This isn’t the popular advice and it could come off as mean but it’s meant only to help.

If you’re not an expert in something (or at least a near expert) you shouldn’t be doing anything but the safest things with your money. The first choice for many financial advisors would be the stock market. I hate to say it but the stock market is getting dangerous when you don’t know what you’re doing. I started investing with a little left over cash I made from a fast food job after reading a single book on stocks. I would not recommend that today (maybe not even then.) The markets are being inflated by the fed. If you don’t know the basics of how to protect your money, you shouldn’t put a sizable amount in the market.

The same goes for real estate at this time. It’s just too big of a risk. There will be another safer bull market someday. Today, in 2014, is not it. It could be a good learning experience to put a couple grand down in a market but do not put it all in anyplace until you get some experience and learn more about it.

While the stock market has consistent gains over a century, gold has had a steady price over thousands of years. In the short term, it’s a bit of a bucking bronco but there is no shame in buying it and letting it sit through the ups and downs. If you just want to protect the money for the long term then I would put a sizable portion of the money in gold.

Two_20kr_gold_coins If you’re looking to wait until the right time to invest (when you’re either more of an expert, or in a safer investment environment) then just put it in an account to sit. You can find some good online savings accounts that pay significantly more than a bank in interest.

Technically, your money is going to be dropping in value due to inflation but it’s better than losing all of it because you don’t know what you’re doing.

To simplify all this: I think you have two choices with the majority of your money. You can play with small amounts of money in bitcoin or other investments but focus most of the investment in these.

 

1. Buy gold.

You wont see any real gains but you never have to worry about the dollar lowering in value over the long term.

 

2. Become An Expert

There are hundreds of profitable ways you can use the investment if you’re an expert at something. Stock investors can make money through stocks. Real estate investors make money through real estate. Business people make money through their business. When you have the extra money sitting around and you’re an expert, you don’t have to question what to do with it. Learn something valuable. That will always be the safest investment.

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