10 Best Compound Interest Investments In 2021
what is going on you guys welcome back to the channel so in this video today we are going to be talking about compound interest as well as the top 10 investments out there that can enable you to begin earning compound interest so for those of who are not familiar with compound interest one of my favorite sayings out there related to this comes from albert einstein and what he said in regards to compound interest is that he who understands it earns it and he who does not pays it and that right there is pretty much the biggest truth surrounding compound interest out there is the fact that those who understand how it works and how to deploy it can use compound interest to build massive amounts of wealth or even generational wealth for their family members on the other hand those who do not understand how it works actually have compound interest working against them through compounding debt so at the end of the day you can have your money working for you where your money is growing into more money and you're earning interest on interest the definition of compound interest that is how you should have compound interest working for you but on the other hand a lot of people have compounding debt where they never pay down their interest or their principal on their loan they're accruing interest on interest year after year and they're essentially somebody else's form of passive income and compound interest but they're making that money for you know the big banks and that's just not an ideal situation so i'm gonna be covering with you guys how to use compound interest in the right way also how to avoid compounding debt and some ideas of what you may want to do if you're currently in that situation i also love talking about compound interest because in my opinion guys this is one of the most fair and equal opportunities out there because at the end of the day we unfortunately still live in a world where based on the way that you look or the way your voice sounds or your gender and different things there is some unequal treatment in this world however when it comes down to compound interest assuming that you are you know in a country where you're able to participate in the global financial markets it does not matter who you are what your name is what your past is doesn't matter anybody out there has the same opportunity when it comes to compound interest so that is why it is one of my favorite lessons out there and i can remember when i was younger the first time i came across this was when my dad you know showed me a compound interest calculator at about 11 or 12 years old and while a lot of people have had lessons like that early on there's a far majority of people who may have never heard of this before and so basically it's just not to you know beat a dead horse here or you know overly go into this introduction too much but i just want to instill this in you here guys that if you follow you know these ideas of how to earn compound interest and you were to do this for the rest of your life this video right here literally has the potential to make you a millionaire and change the path of your entire family for generations going forward now that being said just to be respectful of your time here let me tell you what we're going to be covering in this video first of all we're going to be talking about why investors should be making compound interest a top priority we're going to discuss how the rich have been leveraging these types of investment vehicles for thousands of years to build their wealth and carry on wealth from generation to generation we're going to cover the key tax benefits offered by compound interest investments as well as the 10 top investment opportunities that could allow you to earn compound interest in 2021. we're going to cover the crucial steps you need to follow when researching and potentially purchasing these assets as well as the biggest mistakes to watch out for when buying compound interest investments so we're gonna cover a lot here as a result i do have a few small asks from you first of all if you are watching this on your phone that's totally fine but if you're on your computer uh you know maybe put your phone on silence or just put it away for now uh don't get distracted halfway through here guys we're gonna unpack a lot of information and you're not gonna have to jump around to like 15 or 20 videos or something like that it's gonna all be right in this video like a mini college lecture so i would appreciate it if you guys could you know invest your time since i've invested mine in this video and just try to minimize those distractions you might also want to grab you know something to write with and a pad of paper as well as a beverage and real quick here guys for my lawyer a couple of quick disclaimers number one i am not a financial advisor and this is not any kind of financial advice you should always do your own research and due diligence before investing in anything out there and this video here is for entertainment purposes only there are no sponsors for this video here guys uh just to throw that out there and also keep an eye out down below in the comments there have been a lot of spam and scam comments so if you see anybody down there saying hey you know if they're pretending to be me and saying send me money to invest in crypto or anything like that that's 100 a scam i'm never gonna contact you on like whatsapp or anything like that or ask you to send me money so be careful watch out for scams down below so that being said let's jump right into the very first topic here with a quick explanation on what exactly is compound interest well at the end of the day compound interest is similar to building a snowman as a child and if you guys were anything like me you were probably terribly impatient with that initial snowball and then you're on your knees rolling it around in the snow not seeing any progress and you're kind of wondering hey you know is all of this effort for naught that is typically you know what the first couple of months if not years can be like as an investor you're putting a lot of effort in you're putting money in you're packing up that ball of snow but you're starting off with such a small amount that you know the the incremental small differences are just difficult for you to notice however once that ball of snow becomes larger there's actually a greater surface area for that ball to then pick up more snow so it's one of those scenarios where the larger that ball of snow becomes the more snow that ball can pick up and as a result the larger that ball becomes so that is what compound interest is like starting off with a simple snowball building it into this gigantic ball of snow and then many many years later or for people who are very well off the way i describe it is it's like you took this ball of snow and then you rolled it down the side of a snowy mountain and then you're standing there at the top of this mountain watching that ball of snow just building and building picking up more and more snow as the further it travels and you're just standing back there in awe at what you created that is pretty much what compound interest is in the most you know simple uh analogy out there that i could come up with and just to mention guys i did not come up with this analogy here guys i may have explained it a little bit differently but hundreds of people have called compound interest the snowball effect uh there may have even been a warren buffett quote to be honest with you there i've got a lot of different tidbits of information i don't always remember the sources here guys but i just wanted to clarify i am not saying that i came up with that idea here but i always did like that comparison and it really does help with first-timers to grasp the concept of compound interest so with compound interest there's two ingredients to this recipe that you have control over number one is the amount of time that you invest your money for which is the biggest factor that you have control of and number two is the amount of money that you invest which in most cases we have very little or almost no control over that depending on our situation but the good news is i promise you i'm not just saying this the number one factor that is most important is not how much money you invest it is how often you do it and how long you do that for so if you're younger you should be glad because the most important ingredient to this recipe which is time is on your side and you can honestly set yourself up for massive success financially later on in life with very minimal effort unfortunately if you're in your 30s 40s or 50s you know you don't have nearly as much time to allow that money to grow so that is not you know the same advantage that a younger person might have however at the end of the day don't get discouraged because the best day to begin investing is right now assuming you are financially ready to do so so even if you are older in life and maybe you made some mistakes in your 20s 30s or even your 40s don't be discouraged if you're starting off later in life there is still a lot that can be done now as far as what to look for in compound interest investments here are the different criteria that i pay attention to number one is consistent cash flow this is the most important factor here in my opinion because in order to earn compound interest most effectively you want to have an investment that spits off some cash that way you can put that cash back into the original investment while growth stocks do show compounding returns you know for example the s p 500 it's a little bit different um because you're not earning any you know dividends off of that investment you're solely relying on you know that underlying asset appreciation so that is why the majority of my entire net worth is invested in blue chip dividend stocks and personally that is my favorite form of you know truly passive compound interest income so that's why cash flow is so important to me for things like you know rental properties or dividend stocks these investments got to be thrown off some cash uh that can be reinvested back into the original investment uh to earn in my opinion the most effective form of compound interest beyond that of course you want to look at the track record of an investment uh if you're earning compound interest this could be a 25 50 year investment here so you want to make sure you're investing in durable time tested assets beyond that consider the risk profile uh you you may also want to you know look into creating a well-rounded investment portfolio and figuring out your individual risk tolerance i have a full one hour crash course on investment portfolios for beginners i'll throw that up in the corner there guys if you want to check that out at the end of this video and then lastly you do want to consider the liquidity in case you need to get your money out of this investment if you were to need it so just to give you guys an example from my own portfolio i have a lot of my money in blue chip dividend stocks but i also have some money in crowdfunded real estate both of those investments earn me quarterly dividends and both have dividend reinvestment in order to earn compound interest however if i needed to liquidate my stocks i could do that in basically one day as long as the market was open and have that transferred to my bank account by the end of the week on the other hand with my crowdfunded real estate investment which is fundrise i'll put an affiliate link for them down below that is an investment where you know there's only a quarterly redemption period and they don't always guarantee redemptions because your money is going into actual real estate investments so that is why you have to keep in mind the liquidity aspect associated with each of these investments and just make sure that that meshes in and fits well with your overall financial plan i always like to have a good mix of very easy to liquidate assets as well as you know a mix of these illiquid investments that may have other benefits that these you know more common publicly traded investments do not so right off the bat guys as mentioned the number one source for me for compound interest income is my m1 finance dividend stock portfolio i've been growing that over the last two years and documenting it monthly on my channel here and i will also put a card up in the corner with that full series and there's a link down below if you wanted to sign up for m1 finance it is an affiliate link so i may earn a commission in the process it's honestly a fantastic brokerage platform no trading commissions automatic dividend reinvestment and portfolio rebalancing that is why i like it for dividend investing and i also have a completely free 30 minute free video training walking you through step by step how to get started with m1 finance how to build a portfolio and earn compound interest from those dividend stocks so that's completely free guys regardless of whether or not you use my affiliate link just to show my appreciation to you so that being said that's my number one source but talking about other avenues for compound interest we'll discuss dividends later starting off with number 10 here in no particular order we have high yield bank accounts so this unfortunately is like the worst way to earn compound interest because even though you know bank accounts are compounded returns it's a very very low rate of return in a savings account so most people out there are going to tell you that it's nearly impossible to save your way to a million dollars and with the returns that you earn from a high yield bank account honestly guys it's just a very negligible amount of money and when you factor in inflation you're going to be losing money every single year so that is a lousy way to earn compound interest but it is one nonetheless and right now the average savings accounts are at around 0.05 percent apy so that doesn't matter too too much here guys you may want to maximize you know how much you're earning with an online savings account or shameless plug here guys i want to talk quickly about a startup i invested in called yada savings it's basically a prize linked online savings account where every single week based on how much you deposit you get a set number of tickets into a weekly lottery and in that lottery you can actually win up to 10 million dollars so if you're kind of bored of traditional bank accounts where you're earning next to nothing and you think that might be a little bit more exciting i actually find it super helpful in motivating people to save more money because as you deposit more money you earn more weekly tickets and it's fully fdic insured as well it's a legit bank and it's kind of a cool take on old school boring banking so you know bank accounts are not a great source of compound interest however it is technically speaking compound interest you may want to pursue an online savings account to maximize the amount of interest you're earning or you may want to check out yada if you want to check out this company that i have invested in as an angel investor my referral link is down in the description below so number nine is another sort of lousy investment that has largely gone out of style in recent years and that is something called a mutual fund so a mutual fund is an actively managed portfolio of assets typically stocks and bonds and the goal of a mutual fund is to beat the overall stock market and the typical benchmark they follow is the snp 500. well what has been found out over the years is that most of these expert stock pickers and money managers are not even beating the s p 500 and by the time you count or factor in their expensive active management costs there's really no benefit here to having that active portfolio management so while you can technically speaking earn compound interest from mutual funds it's becoming less and less popular and honestly something i don't personally invest in i have exactly zero dollars in mutual funds and i don't know that i will ever change that number eight is a better option for most people if you're looking to eliminate investment fees and that is simply investing in index funds so what happens with an index fund is that it's basically a basket of a ton of different stocks giving you built-in diversification so if we take for example an s p 500 etf something like voo that is going to be a small piece of the 500 largest publicly traded companies in the united states now the interesting thing about that is across the entire s p 500 some of these companies pay dividends and others do not and if you guys don't know a lot about dividends i've got another mega video i'll put up in the corner dividend investing for beginners it covers everything that you probably ever would need to know about dividends but i like to geek out on certain stuff guys so that is an interesting topic for me but nonetheless here guys what happens with that is you own a small piece of all those companies some of them pay dividends some of them don't all of the collective dividends that are earned are actually paid out in a quarterly uh distribution from the actual fund so with an index fund you typically get a quarterly dividend which you can absolutely reinvest through your brokerage platform in order to earn dividends from those dividends so obviously guys if you want to maximize the amount of compound interest that you're earning you're going to want to make sure that any distributions or dividends or cash that your investments spit off get reinvested back into the original positions if you take your money and run you're not going to be earning new dividends from that amount of money and essentially you'll be slowing down how long it's going to take to build whatever goal you have in mind in terms of how much wealth you want so that right there is probably the easiest strategy for earning a compound interest and just not worrying about your investments is building a passive index fund portfolio and another shameless plug here guys for m1 finance one of the reasons why i like them a lot is that they have completely free expert built portfolios of index funds so if you simply wanted to passively invest money into index funds in a pre-built portfolio that was automatically being adjusted as you go that way you don't have to worry about allocations or picking individual funds you can do that absolutely free over on m1 finance with a 100 dollar minimum investment or just 500 for a retirement account and if you're investing for retirement they also have target date retirement funds where you simply put in the year that you're looking to retire or be drawing from that account and then they'll give you a pre-built portfolio that's going to be adjusted over time for those specific goals so coming in at number seven here is looking at a sector specific etf so what we were talking about before with general index funds is a broad market fund this is a type of investment that is tracking or following a benchmark of hundreds of different companies in all different areas of the economy so for example in the s p 500 you have health care companies you have construction companies everything under the sun that's giving you diversified exposure to the entire stock market however if there was one particular part of the economy or one you know industry or segment that you were very you know uh bullish of which means you think that it's going to do really well you could also purchase a sector-specific etf in order to earn compound interest from dividends or more so asset appreciation so typically speaking when somebody rotates into a sector-specific etf they're doing so more so on a asset appreciation standpoint where they expect the underlying share price to go up quite a bit in the near future or you may you know pick one industry in particular that you like that you want to invest in long term and just you know reinvest those dividends so over on vanguard there's a couple dozen different ones they have like a semiconductor specific etf um one of the ones that i owned uh last year was called jets it was an airline etf and then a friend of mine is big into the vanguard financials etf so there's all kinds of different ones out there guys just be aware of the fact that if there is like one individual particular area of the economy one sector or industry that you want to invest in you could theoretically earn compound interest through a sector specific etf so number six is publicly traded reits and to be fully transparent guys this is something i have exactly zero dollars invested into personally i'm not a huge fan of publicly traded reits as mentioned earlier i invest in physical real estate as well as crowdfunded real estate and we're gonna discuss that a little bit more later on but as far as publicly traded reits go here guys this is essentially a uh public company that owns a bunch of real estate and then all of the money earned from the operations of that real estate at least 90 of it must be paid out to the shareholders in the form of distributions in order to be classified as a reit now while they do sound like a nifty investment one of the problems with them is that because they do trade on the same exchanges as you know stocks uh they tend to have these same exact movements that the stocks do so when the stock market sells off reits typically sell off as well and one of the goals that um many including myself look to achieve with a investment portfolio is to have your money doing different things at different times so because reits have a very high level of correlation to the stock market it's something i just personally do not have in my portfolio but if it is something you want to explore more it can be a pretty decent source for dividends and you can even find some monthly dividend payers i just did a whole video talking about the best monthly dividend paying stocks i'll toss it up in the corner but the number one uh one on that list there was called oh is the symbol it's called the uh realty income corp and this is pretty much the most popular monthly dividend paying stock out there so that is one of the cool things about reits you can find monthly dividend payers but in all honesty here guys there's no true benefit to having a monthly versus a quarterly dividend as long as you're reinvesting them it depends on the underlying asset not so much the frequency of that distribution or dividend so don't worry too much about that or think that a monthly dividend is somehow a lot better than a quarterly or you know a semi-annual dividend or something like that so coming in at number five is another boring one but oddly enough something i actually just added to my portfolio and that is a bond etf so up until this point we've talked about real estate we've talked about stocks which most people would refer to as equities if we're being fancy now we're going to be talking about bonds bonds are different because equities are ownership stakes in real companies whereas bonds are simply debt obligations where you're essentially acting as a bank now bonds used to be a method for preserving your wealth or even having small amounts of growth without much downside risk but because of this ultra low interest rate environment we are in bonds are really no longer a profitable investment so most people these days only purchase bonds if they're looking for more downside risk protection and not having as much downside exposure not necessarily as a way to actually make money but the fund that i bought in particular is like a jp morgan ultra short-term bond um and i believe it's gonna make me less than point two percent um as the return there annually in terms of the distribution there so that's obviously guys not going to be inflation which sits at around two percent i'll probably be losing you know around 1.8 percent
a year if i keep the money in this bond fund but it's actually just a very short-term thing here where i set some money aside uh just because i'm actually getting involved in a lawsuit related to my second home that i bought actually which is now my full-time residence in florida so for those reasons i put a little bit of my money into that bond fund to take off some risk just in case i need it later on this year but most likely i'll just be reallocating that money back into my dividend stocks at some point in the fall uh once i have more certainty surrounding the real estate situation so bonds tend to be a lot less volatile than stocks they're a highly liquid investment but i kind of put them in the same category as the bank you know your online savings account or your bank account where technically speaking it is compound interest it's just not a very good source of one and you're not going to hear of a lot of people you know making millions of dollars with bonds uh you know it's possible but there's just simply put better options available and bonds today are not the same thing as bonds were 20 30 40 years ago so number four is crowdfunded real estate as mentioned this is one of my components to my portfolio as well i've been investing in a platform called fundrise since around 2018 and i have about 25 grand uh in total invested in crowdfunded real estate now the way that that works is investors from all over the united states are pulling together money and that money goes into portfolios of physical real estate all over the country some of these are properties that are rented out some of these are properties that are actively being flipped and so they make money from a couple of different methods it could be buying buildings for you know positive cash flow or it could be purchasing something and then remodeling it and then renting it out for a period of time and then selling it later on and making money from that asset appreciation so i've had a pretty solid experience with fundrise it's kind of a boring investment uh it hasn't held up as well as the stock market in the last few years in terms of the returns i've made from stocks versus crowdfunded real estate but i really like being diversified guys and i have my quarterly dividends automatically being reinvested and i'm honestly just going to leave that there forever i may add more money to it at some point or i'll just leave it there and see what happens but that to me is kind of a cool separate 25 000 investment and hopefully you know 20 30 40 years from now that's going to be a massive component you know to my overall wealth and overall investment portfolio so the cool thing about crowdfunded real estate is that it's typically a lot cheaper than buying a real property if you're looking to get into like a rental property for example these days you probably need to have about a hundred grand to put towards buying it closing costs etc most people simply put just do not have that kicking around with fundrise which is the platform that i use the minimum is just 500 bucks so if you guys want to check it out there is an affiliate link down below for fundrise um and so your use of that link obviously guys totally up to you but i certainly do appreciate it as that is a way for you guys to basically give back to me at no additional cost to you for putting this video together so number three on the list here is my number one source of compound interest and that is dividend stocks pretty self-explanatory here guys these are well-established more durable time-tested companies that have been earning revenues for decades in most cases and so what they do is they take a portion of their profits and they pass that along to the shareholders typically in a quarterly dividend as a means of rewarding them and giving them a reason to stick around so i have about 20 different dividend stocks in my m1 finance portfolio and like i said i've been tracking that portfolio here on youtube for the last two years and that is where i have the majority of my money so if you guys want to check that out there's a link down below for m1 finance as well as that completely free 30 minute video training where i walk you through step by step how to build a dividend portfolio to earn compound interest from scratch so coming in at number two on my list here is farmland and i'm guessing that's kind of a weird one but i'm going to throw you another loop here that you may be totally unaware of but i actually have a completely separate business related to farmland no i'm not a farmer guys you can see my nails here there's no dirt under these nails here but what i have is a farmland um investing blog that i launched back in november of 2020 called farmland riches so if you guys want to check it out i'll link it up down below or it's farmlandriches.com but it's pretty much a great online resource that talks about ways to invest in farmland why people are doing it and how it's actually a fantastic hedge against inflation and a source of compound interest also guys bill gates is a huge fan of farmland he's actually the largest private owner of u.s farmland in the entire world so historically farmland has actually beat the s p 500 over impressively long periods of time depending on what you look at it's sort of been this asset that's been heavily slept on nobody really thought about it and then all of a sudden tons of people like bill gates started buying it so the premise behind investing in farmland comes down to this all over in the united states we are building high-rise apartments and multi-family housing or just single-family housing on top of existing farmland well it doesn't take a genius to figure out that eventually when we gotta feed all of those people where are we gonna grow the food uh so that's pretty much the premise behind farmland investing we are destroying we're not destroying but we're repurposing so much farmland every single day and i don't know if you guys have been noticing you know the food shortage issues but especially myself being down in miami here guys every time i do a grocery order about 25 of the items i'm trying to buy i can't even get them so i i would imagine this has something to do with you know the farmland and the whole food production system which we're still as we are moving forward today continuing to reallocate farmland into apartments without thinking about how we're gonna need all this to feed everybody so i'm super bullish on farmland i don't own any of it yet myself guys but i do have that whole farmland riches blog uh where you guys can learn about this investment and pretty much how this works overall so the main platform that i recommend is called acre trader i am affiliated with them but it's basically a platform where you buy individual shares of farmland and you own a piece of an actual working farm so if you guys want to check either the blog out or acre trader i'll put links down below and if you do check out the link for acre trader you'll be able to view live investment offerings right now for potential farmland investments now the last one on my list here guys is sort of a more complicated investment vehicle it's not something i personally own myself but it's called a mlp or master limited partnership and when it comes to investments that allow you to earn compound interest mlps are actually one of the best ones out there so this is actually a type of business structure that is a cross between a partnership and a corporation it is limited to natural resources and real estate sectors and it's typically involved in things like pipeline construction as well as oil and gas or energy transportation companies the profits pass through directly to the shareholders of the mlp and this can often lead to dividend yields of 10 or more from certain investments like this another unique characteristic is there is a significant tax benefit to mlp owners and that is the fact that you have access to the 25 qualified business income deduction and so distributions are treated as a return of capital basically it subtracts from the basis the cost basis and then the gains are deferred until you sell so it gets a bit complicated there for the scope of this video but if you are looking to learn more about interesting investments mlps are interesting i don't personally own any just yet but there is a favorable tax situation and the potential for outsized or higher dividend yields however again just be careful don't solely go after high dividend investments because that dividend could be changed or cut entirely at any point in time so that covers the top 10 investments here guys there are more than this list but this these are the ones that i felt would be the most important and relevant to you the last thing i want to cover here is the key mistakes to watch out for when looking for compound interest investments so number one solely looking at the average returns and not paying attention to risk levels and again that's just comes down to not fully understanding the investment if you're just looking at the returns that is a bad strategy number two not taking liquidity into account when deciding where to invest so for example with fundrise if i put my life savings in there and didn't realize about the quarterly redemptions that were not always guaranteed i could have ended up in a bad situation however i'm totally fine with that 25 grand being illiquid because i find there's other benefits to that illiquidity that you don't have with other you know more liquid publicly traded markets beyond that dumping all of your assets in one place don't put all of your eggs in one basket watch my video on portfolio diversification to learn more about that not looking into the underlying trends and risk factors so in particular let's pick on mlps i would say be very careful of long-term investments in energy because that is a rapidly changing industry i don't have a single penny in oil and gas companies i do own utility companies but they're more on the distribution side not the actual you know extraction of fossil fuels or the generation of electricity also failing to consider tax treatment or tax consequences is another big risk and then lastly watch out for businesses that are not adopting to current trends or changes in overall behavior so anyways guys that is going to wrap up this video those are in my opinion 10 of the best sources out there for compound interest and as i had said earlier you really have to be careful with this because if you're earning compound interest from your investments you have compound interest working for you but if you get behind and you get loaded up with credit card debt and then you have your um credit card interest payments accruing more interest you have the exact opposite working against you and it can be a very slippery slope just like you could have that gigantic snowball of assets building more assets you can just as easily if not even easier build a gigantic snowball of debt that keeps on building and getting more and more out of control so do bear that in mind guys understand that compound interest is a very fair and equal opportunity for most people but it does work in both ways and it can work for or against you so anyways guys that is going to wrap up this video i hope you enjoyed it if you did make sure you drop a like subscribe and hit that bell for future notifications also guys if there's any topics in general that you want me to cover on this channel or some video ideas i'd love to hear what you guys think so feel free to leave me a comment down below as mentioned there's all those links down in the description if you want to check out yada savings for that prize linked lottery savings account m1 finance for dividend investing acre trader for farmland investing or potentially fundrise for crowdfunded real estate but thank you guys so much for watching and as always i hope to see you in the next video
2021-06-28 17:31
