Expanding definitions
Anything done for income is some form of business. A "pure" bank is only in the loan "business." So I have subdivided into publicly available for investment vs private. Separate owning a business in some form from making loans, e.g. bonds and other forms of debt. Make Real Estate a category. And for private investments whether you invest only or participate in management or operations.
9 choices from Nick (see link)
- Stocks
- Bonds
- Income Real Estate aka Investment Property
- REIT
- Farmland
- Small Business / Franchise / Angel Investing
- Peer-to-peer-lending
- Royalties
- Your own products
8 broad categories from Bruce
Stocks - Publicly-traded
Private Business only as investment
Private Business full / partial ownership with at least some management / operations
Real Estate only as investment
Real Estate full / partial ownership with at least some management / operations
Debt - Bonds Publicly Traded
Debt - not publicly traded
All Other eg Natural Resources - Commodities - "Alternatives" - Precious Metals - "Yale Strategy
1. Stocks - Publicly Traded
Ways to own
- Individual stocks, even now "slices" of a stock worth less than 1 share.
- Mutual funds
- ETFs - Exchange-traded funds
Pros & Cons:
- Pros: Returns typically well in excess of inflation and other easily available categories. Easy to own and trade. Low maintenance (i.e. someone else runs the business).
- Cons: High volatility. Valuations can change quickly based on sentiment rather than fundamentals. Possible capital loss if you need to liquidate
2. Private Business - Invest only not manage or operate
Ways to own:
- Private Equity
- Venture Capital
- Buy full or partial ownership from existing owners
- Buy royalties
Pros & Cons:
- Pros: Potential for higher upside than owning diversified stocks
- Cons: Illiquid. Significant capital loss or even business failure potential.
3. Private Business - Manage / operate with at least partial ownership
Ways to own:
- Buy full or partial ownership from existing owners
- Buy a franchise
- Start your own business
- Private Equity / Venture Capital
Pros & Cons:
- Pros: Typically the highest upside
- Cons: Illiquid. Significant loss or even business failure potential. Time-consuming. If full-time or heavy part-time, potential opportunity loss of making more income as a pure employee.
4. Real Estate - Invest only not manage or operate
Ways to own:
- REIT - Publicly Traded
- Mutual Fund or ETF investing in real estate
- Venture Capital / Private Equity
- Buy full or partial ownership from existing owners
Pros & Cons:
- Pros: Potential for good upside. Typically not completely correlated with stocks, so good for diversification
- Cons: Capital loss potential. Income can change with negative business environment. Non-publicly traded will typically be illiquid. Sometimes even publicly-available can be illiquid.
5. Real Estate - Manage / operate with at least partial ownership
Ways to own:
- Buy full or partial ownership from existing owners
- Buy rental income propert(ies) - residential and / or commercial
- Buy Farmland
- Build / develop your own projects.
Pros & Cons:
- Pros: Substantial upside potential. Leverage for real estate potentially available. Income potential and also appreciation potential. Possible tax advantages.
- Cons: Typically illiquid. Capital loss or even business failure potential. Potentially time-consuming. If full-time or heavy part-time, potential opportunity loss of making more income as a pure employee. Your competition probably includes some with years - decades - of real estate experience and expertise.
6. Bonds Publicly Traded
Bonds Publicly Traded
Ways to own:
- Individual bonds
-Passive i.e. bond ladder
-Active. - Mutual funds
- ETFs - Exchange-traded funds
- UIT - Unit Investment Trust
Pros & Cons:
- Pros: Lower volatility. Good for rebalancing. Typically return of principal at maturity for individual bonds. Safety of principal.
- Cons: Potentially lower return potential, especially after inflation. Not great for income in a low-rate environment.
7. Private Debt - Not publicly traded
Ways to own:
- Loan your own money to an individual or business
- Buy mortgage(s) from individuals
- Peer-to-peer lending - using platform
Pros & Cons:
- Pros: Potentially higher return than publicly-traded bonds
- Cons: Potentially lower return potential as well as capital loss potential. Risks with private borrowers might be significantly greater.
8. "All Other" - e.g. Natural Resources - Precious metals - commodities - alternatives - "Yale Strategy"
Ways to own:
- Possibly certain mutual funds and / or ETFs
- Accredited investors might have more choices
- Alternative markets of various sizes, qualities and reputations. ☹
Pros & Cons:
- Pros: Potentially higher return than publicly-traded investments. Potential diversification / lower correlation.
- Cons: Illiquid. More difficult to gather complete facts. Potentially lower return potential as well as capital loss potential.
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