As I wrote in my previous post Join me to my first goal of $1 000 000, I was searching for my first investment to reach my main goal of $1 000 000 in equity. I am going to invest at least 10% of my monthly income in a low risk but high yield opportunity. I have done a lot of research on stocks, commodities, index funds, and even cryptocurrencies, but that’s not what I ended up with.
Some of the comments in the previous post gave me some great investment ideas, like Lithium (used in batteries, that has seen an incredible growth), cryptocurrencies like Ethereum and Bitcoin, gold and especially silver (because of the gold/silver ratio), medical marijuana companies, and energy stocks (renewable tech). Since I’m based in Norway, I’ve also looked at Norwegian stocks. However, I’ve not invested in any of these ideas.
Why did I not invest in the proposed ideas?
All of the ideas are great, but they have different risk/reward ratio. And most important, my knowledge of the different suggestions are varying.
Lithium: I could invest in Lithium or Lithium companies in Chile/Australia, but I do not know the market well enough. And one of the most important rules of investing is to know what you are investing in. Lithium has increased drastically over the last years as you can see from the graph below, but you should never invest in something that might be at their peak. Then you’ll just lose money. Lithium is a scarce resource and might see a higher price development, but I do not feel comfortable investing in Lithium at this point. And there are alternatives to Lithium batteries, and if a replacement took over, Lithium price would plunge.
Lithium Price Development
I’ve been in the cryptocurrency space since early 2013, and I’ve made some good money on Bitcoin and other cryptocurrencies. At this point, I’m totally out of cryptocurrencies based on a few factors. First off, it’s high risk. Not only can the code be vulnerable, but the exchanges are exposed to hackers that are constantly trying to drain them. I had a lot of money in Bitstamp when they were hacked in 2015, and all accounts were frozen for a while. At that point, I thought that my money was lost (you’ve heard of Mt. Gox right?). Including the high risk of investing in cryptocurrencies, you must comply with the laws in your country. In Norway we have to provide details of all investments, and what we have gained or lost during the year. This is not very hard to do, but the system is not customized for cryptocurrency trading.
Currently, I do not want to invest in cryptocurrencies due to the high risk involved. Even though some claim that a bitcoin will be worth $500 000 in a few years.
Also read: Never lose money
Gold or silver
I’m very positive about gold, and I believe gold is a safe bet. However, due to uncertainties with Donald Trump and the current market conditions (record highs), I do not feel overly comfortable in investing in gold or silver, just yet. But gold at the current prices as a long term investment won’t go wrong, at least in my opinion.
Medical marijuana companies and renewable energy stocks
I’ll make it short here; I do not know the market well enough to feel secure in investing in a medical marijuana company or a renewable energy stock. I have to do more research on these potential candidates.
My first investment
I looked at investing in an index fund. But due to the record highs, I feel insecure of whether or not an investment at this point would be a good choice. I feel a recession is lurking on the horizon and I would rather wait and invest my money in something that is more rigid. That’s why I turned my focus towards money market funds and bond funds. They tend to be less risky than investing in index funds, or stocks in general.
Also read: Trading vs. Investing
There are mainly four different options:
Federal Government Bond Funds are considered to be the safest choice, but with the lowest ROI. Next comes Municipal Bond Funds. Money Market Funds are as safe or even safer than Federal Government Bonds, but they should only be used for short term investment as they give low ROI (could be a great opportunity for storing cash during recessions). And then you have Taxable Corporate Bond Funds which has a higher risk than the other three options, but the greatest ROI opportunity.
Since Taxable Corporate Bond Funds are considered safer than index funds and stock funds, even during a recession, that has been my first investment choice. Today I made a buy order of 10 000 NOK in a Corporate Bond Fund called Deutsche Invest I Eu Hi Yld Corp LC that has a 5-star rating on Morningstar. Last year it had a 10% increase (included the fund’s fee). That means, if the fund continues in the same pace, I will have 11 000 NOK next year based on my initial investment.
Deutsche Invest I Eu Hi Yld Corp LC
What do you think of my initial investment?
|Date||Investment in NOK||Invested in||Name||Current Value|
|27.04.2017||10 000||Corporate Bond Fund||Deutsche Invest I Eu Hi Yld Corp LC||10 000|
Read more about bond funds here.