In this fast paced age, I’ve found it often pays to periodically take stock of how you do things and ensure you’re making the most of current technology. Investing is a great example of this. Until recently, many of the most lucrative investment opportunities and strategies were only available to the super-rich, but now technology has put much of this within reach of the general public.
So I’ve investigated the best investment opportunities available in 2023. My idea of smart investment includes: Great return on investment / Good security of capital / Doesn’t create stress in your life / Doesn’t tie you down to a specific location / Leaves your time and energy free for your own projects and enjoyment. If that sounds good to you, read on!
I’ll run though each type of investment in the sections below. Each section is broken-down into the following parts:
The essential points you need to know to understand this type investment.
Important questions to ask when evaluating potential choices for this type of investment.
Specific info and head to head (vs) comparison of the most popular options.
At the end, I include my conclusions regarding what I think about each type of investment together with my specific investment strategy.
High Interest Savings Accounts (HISA)
- The “High Interest” label comes from the fact that these accounts offer a better Return on Investment (ROI) than standard, current accounts.
- They have the lowest potential interest rate (Approximately 0.2 – 2%) of all the investments featured here. This is because they are also the most secure.
- Make sure you choose an account that allows you to manage the money with no delays and no commissions. For example: Transfers in/out and account maintenance: The ability to access this money quickly and without charges is the reason you put it in this kind of account!
- Make sure your account is with a real bank – that is covered by the standard banking insurance applicable in your country.
If you’re looking to invest for real, you’ll have a relatively low balance in your HISA, compared to your other investments. So, I don’t think it’s worth the time and effort to change banks for the sake of a slightly better deal: I suggest getting the best “High Interest Saving Account” you can with your current bank.
Stocks & Bonds
- The S&P 500 (US) stock market has averaged just over 10% returns since it began.
- Conventional Investing on the Stock Market:
- Day-Trading – Most day traders perform worse than the market due to the many factors working against them: Commissions on every trade, trading vs fast automated algorithmic trading and full-time professional traders, insufficient research, poor individual stock picks, emotional trading… Also, day-trading can be a huge drain on your time and energy.
- Managed Funds – Most managed stock market funds perform worse than the market as they are subject to many of the same negative factors and they charge an additional fee to manage the fund.
- Smart Investing on the Stock Market:
- Index Investing – Fortunately there is a smart solution which allows the general public to enter the stock market with a strategy that can virtually match the overall market performance: Index investing using Exchange Traded Funds (ETF)
- An ETF is a fund that is set up to closely match the performance of a particular asset type: For example the “US Stock Market”, the “US Bond Market” and even commodities such as Gold.
- ETFs are also very convenient: They can be bought and sold just like stocks. Many brokers offer a range of about 50-300 ETFs to choose from.
- So ETFs are a great way to have a diversified portfolio without having to purchase hundreds of different assets.
- Your capital is at risk in the stock market although you can eliminate much of the risk by understanding that the market as a whole has always trended up over time. So be prepared to play the long game. In particular:
- Invest in the market as a whole, using ETFs, rather than in individual companies. Particular companies could get wiped out but the market as a whole has always bounced back!
- Don’t sell in a dip!
- Liquidity: Common stocks and bonds (including ETFs) can be sold instantly and the money should be available to you in cash within a day or two.
- Invest in ETFs rather than individual stocks, so that you are well diversified.
- Check the “Expense Ratio” of the ETF: This is how much they charge to run the fund. It tends to be much lower that “human managed” funds.
- How long has the Online Broker been in business?
- Where is the Online Broker based?
- What financial insurance applies to your investments?
- What is the minimum balance for the Online Broker account?
- What are the fees? (Trades, Account Maintenance, Inactivity, Account Closing/Withdrawal).
- Make sure the broker trades the specific ETFs that you’re interested in.
- Look out for brokers that offer commission free trading of ETFs.
- Does the broker offer a sign-up bonus?
Platform | Charles Schwab | Ameritrade | Fidelity | ETrade |
|---|---|---|---|---|
| Established: | 1971 | 1971 | 1946 | 1982 |
| Based In: | US | US | US | US |
| Capital Insurance: | Up to $500,000 by SIPC | Up to $500,000 by SIPC | Up to $500,000 by SIPC | Up to $500,000 by SIPC |
| Account Minimum: | $1,000 | $0 | $2,500 | $500 |
| Fees: | Trades: $4.95 Account Maintenance & Inactivity: Free Acc Close / Transfer: Up to $50 | Trades: $6.95 Account Maintenance & Inactivity: Free Outgoing Transfer: $75 | Trades: $4.95 Account Maintenance & Inactivity: Free Account Close: $50 | Trades: $6.95 Account Maintenance & Inactivity: Free Acc Close / Transfer: Up to $75 |
| ETFs: | 200+ ETFs Available Commission Free Trades | 300+ ETFs Available Commission Free Trades | 90+ ETFs Available Commission Free Trades | 150+ ETFs Available Commission Free Trades |
| Sign-Up Bonus: | $100 Sign up bonus (Account minimum $1,000) | $100 Sign up bonus (Account minimum $25,000) | 300 commission-free trades (Account minimum $50,000) | 60 days commission-free trades (Acc minimum $10,000) |
| More Info / Get Started: |
Comparison of US Online brokers: Charles Schwab vs Ameritrade vs Fidelity vs ETrade
Platform | Degiro | ING Broker |
|---|---|---|
| Established: | 2008 | 1971 |
| Based In: | Europe (Netherlands) | Europe (Netherlands) |
| Capital Insurance: | Up to €20,000 | Up to €20,000 |
| Account Minimum: | €0.01 | 0 |
| Fees: (Trades: US Stocks) | Trades: €0.50 + $0.004 per share Account Maintenance & Inactivity: Free Acc Close / Transfer: Free | Trades: $20 Account Maintenance & Inactivity: Free Acc Close / Transfer: Free |
| ETFs: | 700+ ETFs Available Trades: Free (Selected ETFs) | 100+ ETFs Available Trades: $20 |
| Sign-Up Bonus: | €20 Commissions Credit | |
| More Info / Get Started: |
Comparison of European Online Brokers: Degiro vs Ing Broker Naranja
So which ETFs should you buy? A good starting point is Ray Dalio’s asset allocation:
- 30% Stocks
- 55% US Bonds
- 15% Commodities (7.5% Gold)*
* However, I agree with Warren Buffet that holding commodities such as gold over the long term is not a good idea as they do not inherently produce an income: In fact, they cost money to store and protect. So my suggestion is to replace the commodities allocation with Real Estate (more info below). This could add some volatility to your portfolio but that shouldn’t matter as you don’t have to keep external investors happy: You just need to hold on in any dips that come along! Note: Make sure you have enough “runway” money in your HISA to ensure that you wouldn’t be forced to sell your stocks/bonds during a dip in the market.
- Stocks
- Bonds
- Real Estate
Smart Asset Allocation
Here’s a shortlist of ETFs to consider for this strategy:
- Vanguard Total Stock Market ETF (VTI) – Diversification across virtually all the US stock markets.
- Vanguard Total World Stock ETF (VT) – Maximum diversification in stocks!
- Vanguard Long Term Bond ETF (BLV) – Long term US Government debt.
- Vanguard Total International Bond ETF (BNDX) – The global bond market excluding US.
Real Estate Investing (REIT)
- Real Estate Investing can be very profitable because the assets tend to both earn an income and increase in value.
- Conventional Real Estate Investment: Being the 100% owner of property results in poor diversification for most people as it would mean that most of their money is invested into one type of asset in one (or few) locations.
- Smart Real Estate Investment: REITs give you the opportunity to own part of a fund that owns multiple properties. So it’s a good way to have a diversified investment in real estate. REIT stands for Real Estate Investment Trust.
- Particular REITs can be focused on a particular type of property. For example: Residential, Offices or Healthcare.
- Your capital is at risk. You can mitigate this by making sure that the REIT is well diversified and focused on property uses that will maintain a strong demand (see below).
- Liquidity: You can purchase ETFs of some REITs. These REIT ETFs can be bought and sold just like stocks.
So a smart way to benefit from the high returns of real estate but without getting tied into a huge, non-diversified commitment is to invest in a Real Estate Investment Trust (REIT). This is a fund set up to manage a portfolio of properties and/or property investments, with a share of the profits passed on to the investors. You can buy REIT ETFs just like stocks.
- Make sure it has a reasonable Market Cap (eg over $1B). The bigger REITs will tend to have better diversification of assets.
- Review its historical performance: You’ll get an idea of the volatility, general trend of the fund and the dividend history (how much they’ve paid out to investors).
- Property uses: Avoid funds that have a lot of exposure to property types that are seeing a decline in usage, such as traditional shopping malls. By the same token, look out for REITs in growth areas, such as properties for senior citizen businesses.
- Review the Yield: What you can expect to get in return for your investment.
Vanguard’s also offers a REIT ETF which is definitely worth considering:
- Vanguard Real Estate ETF (NYSEARCA: VNQ) – $30+B Market Cap / Tracks US Housing Market / Yield 4+%
Real Estate Investing (eREIT)
- eREIT is just a broad “umbrella” term for private companies that offer Real Estate investment opportunities online. There are many variations on how these opportunities are structured – see below.
- The type of investment available will depend on the platform you choose. The two main types are:
- Loan: You lend money to receive interest payments.
- Equity Purchase: You part own the property. This entitles you to receive the corresponding share of the rental and capital gains of the property/properties.
- Diversification is handled differently by the platforms. For example:
- Automatically: The platform may automatically diversify your investment across various projects
- Manually: You may be asked to choose the particular projects that you want to invest in.
- Your capital is at risk. The best way to insure against this risk is through picking the right projects and good diversification (location, property usage…).
- Collateral: eREITs have the benefits of being backed by property but it’s not usually a simple case of you owning a share of the property. Each platform handles this differently. For example:
- Fundrise: Creates a fund that manages the properties.
- Housers: Creates a new company for each project. Investors own a fraction of that company, which in turn loans the money or buys the property.
- According to Fundrise: eREITs have some inherent advantages over publicly traded REITs which enable them to achieve higher ROIs for investors.
- Liquidity: The process for exiting your investment varies by platform: See examples below.
So eREITs can be a good option if you want to squeeze the maximum returns out of the Real Estate portion of your portfolio: Just make sure you pick a reputable platform with a solid track record of both ROI performance and customer service.
- How long has the eREIT platform been in business?
- Where is the eREIT platform based?
- From which countries do they accept investors?
- Which countries/regions does the eREIT platform invest in?
- What is the historical ROI of the eREIT?
- What is the minimum investment amount?
- How is diversification handled?
- What are the fees? (Fund Management, Withdrawal)
- What kind of investments are available (Loan and/or Equity)
- Liquidity: What is the typical investment duration? What are your options if you want to exit the investment early?
- What financial body does the eREIT declare its accounts to?
- Check 3rd party reviews
- Check if there’s a sign up bonus.
Platform | Fundrise | Housers |
|---|---|---|
| Established: | 2010 | 2015 |
| Based in: | US | Europe (Spain) |
| For Investors in: | US | Europe (+ Additional Countries) |
| Platform Invests in: | Residential Real Estate Throughout the US | Residential & Commercial Real Estate in Europe (Spain, Portugal & Italy) |
| Historical ROI: | Historical Returns (2017): 11.44% Net of Fees | Historical Returns: 12.78% / 13.29% |
| Minimum Investment: | $500 | €50 |
| Diversification: | Diversification is handled automatically by Fundrise | You diversify manually by choosing how much you want to invest in each project |
| Fees: | Asset Management: 0.85% / yr Investment Advisory: 0.15% / yr (optional) | 10% of profits |
| What Type of Investments: | Equity in a portfolio of properties | A. Equity (Buy to Sell) B. Equity (Buy to Let) C. Loans (Property Development) |
| Liquidity: | Typical investments are for 5 years. You can exit the investment early subject to a 60 day waiting period & conditions. | Typical investments are for 12 months. Some are ongoing (buy to let). You can exit the investment early by selling your investment to other investors on the secondary market hosted on Housers, subject to finding a buyer. |
| Registered at: | SEC | CNMV |
| 3rd Party Reviews: | 9.6 / 10 (226 Reviews) | 7.1 / 10 (26 Reviews) |
| Sign-Up Bonus: | 90 Days Without Fees | €25 Bonus with your first investment |
| Get Started: | Get a 25€ Bonus when you sign up at Housers with this link & invest €50 or more! |
Comparison of eREIT sites Fundrise (US) vs Housers (Europe)
Note: I’ve included where they are based but they are also open to investors outside those countries
- Privalore (Spain) – Crowdfunded Real Estate platform with a reputation for quality and environmentally friendly construction together with good investor relations.
- CrowdProperty (UK) – Specialize in Crowdfunded Real Estate Loans for UK properties. So far, as indicated on their site, they have achieved 8% Returns for investors with a 100% Payback rate. (CrowdProperty Reviews).
- Property Partner (UK) – Crowdfunded Equity investments where you can diversify across various property types including residential, student and commercial. Total returns since inception in 2015 have been 7.1%. ISA compatible. (Property Partner Reviews).
- The House Crowd (UK) – Offer a variety of Real Estate Investment opportunities including P2P Loans for existing properties and Property Development Investments for new properties. The House Crowd has a great reputation for transparency together with clear and fair customer service. ISA compatible. (The House Crowd Reviews).
Peer to Peer Loans (P2P Investment)
- Peer to Peer (P2P) Lending simply means lending from one person to another, rather than lending from a financial institution to a person.
- P2P loans are usually facilitated by online platforms.
- The P2P platform also usually manages the screening of borrowers and the collection of payments.
- ROIs can be high (eg 5 – 15%) but risk tends to be higher as well. For example: Some P2P loans are backed by collateral, such as a business but some are not backed by any collateral.
It’s worth noting that the two leading platforms in the US (Prosper & LendingClub) have received quite a few poor reviews (Prosper Reviews & LendingClub Reviews) while the two leading platforms in Europe (Bondora & Zopa) have received mainly positive reviews (Bondora Reviews & Zopa Reviews).
- How long has the P2P Lending platform been in business?
- Where is the P2P Lending platform based?
- From which countries do they accept investors?
- What is the minimum investment amount?
- What is the advertised ROI?
- What kind of loans do they offer? Are they backed by collateral? Which regions do they invest in?
- How is diversification handled? Is your investment diversified across many borrowers?
- Liquidity: What is the typical investment duration? What are your options if you want to exit the investment early?
- What are the fees? (Fund Management, Withdrawal)
- Check 3rd party reviews
- Check if there’s a sign up bonus.
Platform | Bondora | Zopa |
|---|---|---|
| Established: | 2009 | 2005 |
| Based in: | Estonia | UK |
| For Investors in: | Europe (+ other countries including US for accredited investors) | UK |
| Minimum Investment: | €50 | £1,000 |
| Advertised ROI: | 9% | 4 – 4.6% |
| Loan Types: | Personal Loans in Estonia, Finland and Spain Not backed by collateral | Personal Loans in UK Not backed by collateral |
| Diversification: | You have the choice of automatic or manual diversification | Diversification is managed automatically by Zopa |
| Liquidity: | The typical investment horizon is 5 years You can withdraw funds early by selling your investments on the secondary market provided by Bondora, subject to finding a buyer. | The typical investment horizon is 5 years You can withdraw funds early by selling your investments on the secondary market provided by Zopa, subject to finding a buyer. |
| Fees: | The profit in excess of the 9% investor return | The profit in excess of the 4-4.6% investor return |
| 3rd Party Reviews: | 9 / 10 (600 Reviews) | 9.2 / 10 (2,821 Reviews) |
| Sign-Up Bonus: | €5 | £50 (Minimum investment: £2,000) |
| More Info / Get Started: |
Comparison of P2P Lending sites: Bondora vs Zopa
- Funding Circle - P2P Lending to small businesses. Based in the UK and services both the US and Europe. Established in 2010. Funding Circle Reviews.
- Rate Setter - P2P Lending to individual and companies. Rates are determined by supply and demand in their marketplace. Based in the UK. Also services Australia. Established in 2009. Rate Setter Reviews.
Robo-Advisors (Automated Investments)
- Robo-Advisors are online platforms that use a simple questionnaire to identify what your financial profile is, particularly regarding risk. They then choose and manage the specific investments for you (often including ETFs).
- Diversification is managed automatically by the Robo-Advisor.
- Robo-Advisors typically create an account in your name so you own your investments at all times. This has the advantage that your investments are separate from the Robo-Advisor’s finances as a company.
- Their “Value Add” is that they use automated technology to implement advanced trading strategies such as portfolio re-balancing and tax loss harvesting, to improve the return on your investment.
- Their fee is typically around 0.25-0.75% of your capital per year. This is charged in addition to the expense ratio of the ETFs so the fees are higher than if you were to invest in ETFs directly. Having said that, the fees of Robo-Advisors tend to be lower than a “human” money manager.
- Your capital is at risk because it is invested in the stock-market.
- Liquidity: Typically you can access your funds within a week.
- How long has the Robo-Advisor platform been in business?
- Where is the Robo-Advisor platform based?
- From which countries do they accept investors?
- What is the minimum investment amount?
- Review the Robo-Advisor’s historical performance
- How is diversification handled?
- What are the fees? (Fund Management, Withdrawal)
- What financial insurance applies to your investments?
- Liquidity: How do you exit the investment and how long does it take?
- Check 3rd party reviews
- You might want to try investing the same amount with one of these services as you have invested in ETFs and let it run for a year to see how they stack up.
- Check if there’s a sign up bonus.
Platform | Betterment | Wealthfront | Nutmeg | Indexa Capital |
|---|---|---|---|---|
| Established: | 2008 | 2008 | 2011 | 2014 |
| Based in: | US | US | UK | Europe |
| Minimum Investment: | 0 | $500 | £100 | €1,000 |
| Historical Returns: | Historical Returns | Historical Returns | Historical Returns | Historical Returns |
| Liquidity: | You can withdraw your funds at any time with no penalty fees. It takes 4-5 days to process | You can withdraw your funds at any time with no penalty fees. It takes 4-5 days to process | You can withdraw your funds at any time with no penalty fees | You can withdraw your funds at any time with no penalty fees. It takes 6-8 days to process |
| Fees: | 0.25% of Capital | 0.25% of Capital | 0.75% of Capital 0.35% on Capital above 100K | 0.45% of Capital (Lower on balances above 100k) |
| Insured by: | SIPC (Up to $500,000) | SIPC (Up to $500,000) | FSCS (Up to £50,000) | FGD (Up to €100,000) |
| Sign-Up Bonus: | 1-12 months of no fees | Your first $5,000 managed for free | 3 months of no fees or 2,500 Avios (Minimum investment: £1,100) | €10,000 managed for free for 12 months |
| More Info / Get Started: |
- Finizens – European Robo-Advisor, based in Spain. It was founded in 2015 and has developed a solid reputation.
- Wealthify – Another popular UK based Robo-Advisor. Founded in 2014.
- ETFmatic – RoboAdvisor based in the UK, servicing all major European countries and providing customer accounts in GBP, EUR and USD. Regulated by the FCA with FSCS financial insurance. Founded in 2015, they aim to provide access to all major ETFs + RoboAdvisor services for total fees under 0.48%.
Conclusions
Here’s what I think of each type of investment:
High Interest Savings Account
This is a good place to have a buffer of money that you can access quickly and free from penalty costs. Typically this could be the equivalent of 3-12 months of living expenses: Your “runway” money. The exact amount you put in a HISA will depend on two main factors:
- How reliable is your day-job?
- How aggressively do you want to invest? (If you want to invest more aggressively, you want to put more money into the following investments)
Stocks & Bonds
This is still a smart way to invest, especially now that we have access to ETFs which provide awesome diversification and have very low purchase and maintenance costs. Just make sure you’re well diversified and are not forced to sell in a dip!
Real Estate (REITs & eREITs)
With REITs & eREITs it’s now possible to have diversified real estate investments, instead of having to commit to buying entire properties. They also do all the property management for you. So this is a great way to include Real Estate in your investments at the proportion that makes sense for you whilst keeping your time free for your other projects. If you want to play it safe, go for an established high market cap REIT such as Vanguard VNQ. If you want to try to squeeze a few more percentage points return, go for a more specialized REIT or eREIT.
P2P Investing
This is the investment type I’m least convinced by in 2023: In fact, I haven’t found a P2P lending platform that I feel like trying yet. This is because they are unsecured loans so the risk is by far the highest of any of these options. However, the expected return is very similar to the eREITs. This doesn’t make sense to me because the eREITs are backed by an asset (the property) that has inherent value and the potential to generate income. Also, the P2P personal loan terms tend to be long (about 5 years), but this increase in commitment doesn’t seem to get translated into higher returns for the investor, which is what I would expect. So the bottom line for me is that P2P loan ROIs are just too low to justify that level of risk and commitment.
If you’re in the US you might want to hold off until they’ve ironed out the kinks. If you’re in Europe, perhaps you could give it a try if you want to diversify away from the traditional investments. In any case, I think the smart thing to do at this stage is to limit your investments in P2P loans to 10% of your total investments.
Robo-Advisors
The thinking here is that the optimization strategies that the Robo-Advisors provide, such as tax loss harvesting & portfolio rebalancing, will save you more money than their service costs, resulting in a net gain for you. I think this could be a good option once you reach the point when you have $50k or more that you want to invest in the stock/bond market, although it’s important to keep an eye on their fees, which have been creeping up in recent years, as these services have become more popular. A smart strategy is to try them after you’ve established a portfolio of ETFs directly yourself and compare them side by side. Robo-Advisors can also be suited to people who want to delegate choosing and managing specific investments to free up their time.
The Best Way to Invest 5 / 10 / 20k
So what’s the best way to invest 5,000, 10,000, 20,000 dollars/euros etc? It’s worth reviewing at this point the risk/reward and liquidity profiles of each type of investment. Here’s a simple summary:
Asset Class | Risk: | Reward: | Liquidity: |
|---|---|---|---|
| Saving Account (HISA) | Banking Insurance + (Usually!) Your Government | 0.2-2% | Instant |
| Stocks (eg S&P 500) | The 500 biggest companies in America combined | 10% | 1-2 Days |
| Bonds (eg US Gov) | The US Government | 2-4.5% | 1-2 Days |
| REITs | A portfolio of properties | 2-10% | 1-2 Days |
| eREITs | One or more properties | 4-14% | Typical Term: 1-2 years You may be able to exit early, subject to conditions |
| P2P Loans | The promise of a private individuals or companies | 4-14% | Typical Term: 5 years You may be able to exit early, subject to conditions |
Here’s my strategy
- Invest the first block of money ($1,000-$5,000) in a High Interest Savings Account. This is your “runway” money, that you can access quickly and easily if there’s an interruption to your income. You’ll want this buffer so you’re not forced to liquidate any of your other investments with unfavorable terms (eg incurring an early cash-out penalty or selling stocks in a dip). The exact amount depends on how much you can rely on your regular income.
- Invest the next $10,000 – $20,000 in diversified stocks and bonds. These are solid investments because of the long positive track record (100+ years!) of the underlying assets. For example: The biggest companies in the US and the US Government.
- Subsequent blocks of $10,000: Add the newer investment types in this order: REITs, eREITs and Robo-Advisors, together with more blocks of traditional Stocks & Bonds. This is a great way to diversify away from the traditional financial system and potentially increase your investment returns.
Here’s a simple outline, together with the reasoning:
Amount to Invest | Where to Invest | Why |
|---|---|---|
| First $1000-$5000 | High Interest Savings Account | You should have your minimum “runway” money in an account where the capital is not at risk. You should have this buffer of money available to you instantly and without any kind of penalty charges. |
| Next $10,000-$20,000 | Stocks & Bonds | Solid returns (approx. 6-8%), good diversification and reasonable capital protection. |
| Subsequent blocks of $10,000: |
| Potentially higher returns (approx. 6-15%) and further diversification: Away from the traditional financial markets. |
I hope this has been helpful! Good luck on your personal finance journey and let me know if you have any ideas to add or comments!
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