Investing is not hard. Classifying it as simple may seem a bit facetious but I promise you that it is not. Investing can even be hands off.
I never want to give the impression that an average doctor cannot invest their own money. Because you can. I’m passionate about investing and personal finance, so I get into the weeds every now and then.
But you don’t have to do that to be a successful investor. Instead, just follow some basic rules, develop some simple habits, and you will be successful.
In my masterclass webinar, I focus these principles.
And in this spirit, I want to elaborate on the ways that you be be successful in hands off investing in stocks and real estate. I chose these two vehicles because they are two of the best and most reliable out there.
Hands off stock investing
Index funds are a collection of stocks designed to mirror an overall “index” of the stock market.
For instance, there are index funds that mirror the entire stock market by including all of the stocks in the U.S. market. Other index funds mirror the S&P 500 index and so on.
Investors should consider adding index funds because it is a way to invest in the overall stock market. And the overall stock market over the long term has been a safe investment.
The pros of index funds are that they are “hands off”
You buy index funds and hold on to them for the long term, regardless of what the market does in the short term. They also have low fees which means more money in your pocket, not the brokerage’s.
The cons of index funds are that their return generally equals the market average
Many advisors will claim to be able to beat this average and use this as a downside to index funds.
However, studies have shown that index funds beat active investing strategies 80% of the time, favoring index funds.
New investors can pick the best index funds to meet their needs by picking the index of the market that they want to mirror. In general, choosing the overall market is the best strategy for beginners.
Then, find an index fund that does a good job of mirroring that index.
For example, the VTSAX fund by Vanguard does an excellent job of mirroring the overall U.S. stock market. That is a great fund for new investors to begin with.
Find more details about stock market investing here.
Hands off real estate investing
There are many ways that someone can invest in real estate without actually directly owning and managing a property.
Active real estate investing helped me create $60,000 in passive income in 1 year. But it is work and is not going to be for everybody.
The simplest is a real estate investment trust or REIT. This is basically the equivalent of a mutual fund for real estate properties. You can do this with just about any brokerage.
You can also invest in real estate syndications or funds. I even sponsor introduce doctors to some real estate funds here. By doing this, you contribute your money along with many other investors to a general partner who runs one or multiple properties. You are completely “hands off.”
Bonus: Most important real estate principles
The first principles that real estate investors need to be familiar with are cash flow and appreciation.
Cash flow forms the basis of your real estate investing strategy and dictates your success regardless of market conditions.
Appreciation is generally misunderstood as people think or market appreciation, which is arbitrary. Forced appreciation, however, is in your control and often is the biggest wealth building tool within real estate.
Someone should consider investing in real estate in the first place because it is a wealth accelerator.
Real estate makes you money via cash flow, appreciation, tax savings, and equity paydown.
My advice for aspiring real estate investors who know nothing about the industry is to educate yourself.
Learn how to screen and evaluate potential properties. This is an in-depth guide that will show you how to do just that. This will help you set your criteria.
Once you establish your criteria, when you find a property that meets it, you buy it. If not, walk away. It becomes that simple.
Become an investor
The bottom line is that you need to invest your money.
The formula for wealth is to create and grow your margin. Your margin is the difference between what you make and what you spend.
But you can have a huge margin and not be wealthy. You need to invest and flip that margin. You need to make your money make money.
These basics will help you to start doing that!
And if you feel little scared or intimidated at the start, don’t worry! I did too! And you can overcome that just like I did here!
What do you think? Do you like hands off investing? How do you invest in stocks and real estate? Any additional advice? Let me know in the comments below!
Hi Jordan,
Any thoughts on whether rem vs vnq for hands off investments in reits?
Thank you.
I think both of those are great options!
Should I put them in retirement account instead of taxable account because of the dividends? Thanks!
Yes definitely better in tax advantaged accounts for exactly that reason!
The expense ratio of rem concerns me (0.48%). VNQ has expenses of only 0.12%.
But i can’t find something similar to REM with lower expenses. The yield of VNQ is a lot lower than REM.
Agreed I usually would choose the lower expense ratio, however if one of the other is your only option in, say, a retirement account, I think either will serve you well!
Thanks for the help!
I’m looking at your FIRE calculator. I have a few questions. Is it an annuity or a perpetuity formula? Do you drawdown your entire retirement savings at the 4% withdrawal rate? What does it assume for lifespan? Thanks!
Hey Tom, it’s based on the Excel FV function which is an annuity formula. Based on the Trinity study, with a 4% drawdown rate you have minimal risk of overdrawing your nest egg. I don’t think there is a lifespan assumption because the longer you live, the more your nest egg grows via compound interest. It’s a good rule of thumb but not a hard set formula!
Thanks!
I have observed that over the course of making a relationship with real estate proprietors, you’ll be able to get them to understand that, in every real estate financial transaction, a payment is paid. In the end, FSBO sellers will not “save” the commission rate. Rather, they fight to earn the commission by simply doing a good agent’s work. In accomplishing this, they devote their money and also time to execute, as best they might, the responsibilities of an broker. Those tasks include revealing the home by way of marketing, introducing the home to prospective buyers, building a sense of buyer emergency in order to make prompt an offer, organizing home inspections, dealing with qualification check ups with the loan company, supervising repairs, and facilitating the closing.