Growing up, I always knew my dad was an ‘investor’, but I had no idea what that meant, other than that he bought and sold stocks as a part of his job. When I became more interested in investing and passive income (around age 21), I learned that there is much more to investing than just putting money in the stock market.

Since then I’ve done a lot of research, and tried out several strategies myself. I plan to be totally financially independent by age 35. I also have a roadmap of strategies that I’m interested in, but have yet to try. Here’s a list of the 7 levels of investing (according to me), the risk/reward of each, and how you could try them out yourself. Now let’s go from noob to expert and grow some wealth!

Level 1 – Saving Money

Okay, this may not deserve a spot of the list, but saving some cash is the first step to having any capital to make a ‘real’ investment. The act of creating a budget, tracking your income and expenses, and putting aside some money every month to be used for investing is invaluable. If you can’t get this down, you’ll never get out of noob investor purgatory. ‘Paycheck to paycheck’ is how life gets when you aren’t able to save money.

Look, life throws different situations at all of us. There may be times when it’s more difficult to cover all the bills and save extra cash. But the first step is being honest with yourself and your situation. In order to grow your portfolio, you’ll need to be able to get past this first step. And once you do, you’ll never look back!

Risk/Reward

The biggest risk of saving money is a real one – opportunity cost. If all your money is sitting in a savings account earning half a percent a year, it may make you feel like you’re progressing, but in reality your money isn’t even keeping up with inflation. Make sure you have an emergency fund – liquid cash to use for unexpected expenses – and then devote all the rest of that saved $$ to a real investment. If you can’t get your money into a legitimate investment, it won’t do a whole lot for you over the long run.

The reward here is that you will have funds ready to jump at opportunities that interest you. You won’t be living paycheck to paycheck and you are taking the first step in making your money work for you.

Level 2 – High-Yield Savings Account (HYSA)

If you don’t feel ready to get into anything too ‘risky’ yet, then this one is for you. In fact, if you don’t take your ‘investing’ money out of a normal checking account earning less than 1% a year and at least transfer it to a HYSA, you messed up. That’s a noob move, because these HYSAs are basically free $$. Many these days are earning 5% or higher per year, and are fairly liquid. If you have an extra 10k sitting in a bank account, move it to one of these and earn an extra $500 a year just for having it in there.

Risk/Reward

The main downside to these HYSAs is that they are slightly less liquid than a checking account. But, honestly, it’s not as big of a deal as it seems. If there’s an emergency expense, you can just pay it with a credit card and then use your HYSA money to pay off the credit card statement later (assuming you actually have the funds to cover the expense).

Personally, my wife and I keep less than 10% of our cash in a checking account, just for normal debit card expenses like groceries or rent. Any other cash, whether it be our emergency fund, real estate fund, or other savings – all go into our HYSA. We even have different HYSA accounts for different categories, but they’re all earning 4-5% a year. We have automatic transfers set up through our checking account, which is what all the income flows through. Every time we get paid, most of the money is whisked away into the HYSA. Besides earning way more interest, this also leaves only a little bit of $$ in the account that we look at most frequently. This has the positive effect of us not feeling like we have loads of money laying around waiting to be spent. So, we end up spending less money.

If you don’t have a HYSA yet, you can open one (or more) easily online. Just look up HYSA online and go with whatever catches your eye. Personally, I look for offerings that include the highest rate of return, and no monthly fees.

Level 3 – Bonds and CD’s

Okay, we’re officially leaving noob territory and getting into some investing that could be considered part of a real portfolio. Although I don’t plan on getting into any bonds in the near future (returns are too low), a government bond was one of my first investments and gave me some good experience.

Government bonds and similar vehicles like CD’s generally work like this: you give your money to a trusted organization for a set amount of time (usually minimum 6 months, all the way up to 10 years or more), and said trusted organization promises to give you a guaranteed rate of return over that time. Usually, you put the whole lump sum in on day one. Then when the period is over, you get the lump sum back, plus interest.

Risk/Reward

I bought a government I-Bond when I was 22 and held it for a year (the minimum time). I did it because the I-Bond rate for that year was pretty high (around 9%) to combat the post-Covid inflation. I put in 10k and made almost $1,000 in interest. It was a great investment for me at the time because I had the extra money sitting around but wasn’t ready to get into something more involved like real estate. The guaranteed return grants peace of mind. However, nowadays the I-Bond rate is similar to a HYSA, and is much less liquid, so I wouldn’t do it now.

In general, bonds and CD’s are seen as very low-risk, semi-low return investments. Rates are generally between 3-6%. So it will certainly make you more money than not investing at all. But if you’re serious about growing your money and can live with a little bit of risk (meaning that you’re young, and can take a long-term approach to building wealth), then other strategies on this list will be much better for you.

Level 4 – Index Funds

Sweet, now we’re getting into some real investments. When people say investing, they are most commonly referring to the stock market. In fact, when I was a kid, I thought that was the definition of investing and the only way to do it.

Investing in index funds is pretty cool. Instead of buying just one company’s stock like Apple or Google (which can go up or down pretty drastically, depending on how business is going), you buy into a fund which represents hundreds of different companies. This gives you diversity and decreases your risk. You’re betting on the fact that the stock market (the conglomeration of all public companies) will continue to grow over time. This is a pretty good bet, because besides relatively short downturns, the overall value of the stock market goes up over the years. If you’re young and have the time to wait it out, putting some money into index funds is a great investment.

Risk/Reward

Over the long term (for me that means 20+ years), you can expect that your index fund investments will give you between a 7-12% return (and even better in some cases). In the short term, you may not gain that much, or even lose money. If the economy isn’t doing so well, the value of your stock may stagnate or even drop. But you can reasonably expect that over periods of years, these companies will continue to find ways to grow and win, and your money will grow as a result.

Personally, I invest in index funds through a Roth IRA. I do this for the tax benefits. After age 59 1/2, I will be able to access all my ‘capital gains’ (the interest that my money generated) without paying tax. If I want to sell my stocks and get my interest before then, I’ll have to pay some tax on it. The good thing is, for me index funds are more of a plan B. I put $500 a month in to max out my Roth IRA (6k max a year), and see it as a security blanket. According to compound interest calculators that you can find online, if I continue putting $500 a month in (and my wife does the same), our index funds investments will be worth around $2.5 million by the time we hit age 60. That’s not bad at all. Also, by having this money automatically transferred into index funds each month, there is literally no work required on my end. I’ll check the growth every so often in my brokerage account (at the time of this writing I have generated an 11% return on my money), but usually don’t think about it. I’m not planning on touching this money anytime soon, but it’s nice to know that even if all my other investments go wrong, I have those funds growing quietly in the background.

Many people stop here

Many FIRE (financially independent retire early) activists swear by index funds. They throw as much money as possible in there each month until they have a large nest egg. Once they feel they have enough, they retire and slowly draw money out of the nest egg each month or year. For example, if I have $1,000,000 in index funds, I can safely withdraw 4% of the money each year to live off of (giving me 40k a year for spending). Because the nest egg continues to grow each year, I would ideally never run out of money.

I think this is a decent strategy, especially because it doesn’t require any effort, and is relatively low-risk. Over the long term, if you can just wait it out, your money will grow in the stock market. However, it certainly isn’t as lucrative as some of the other strategies that I’m interested in. I also like the hands-on nature of some other investment methods, because it lets me feel more in control of my portfolio. As a passive investor in the stock market, I am entirely at the mercy of large corporations to continue growing my money for me. Also, saving up $1,000,000 or more in a stock market account takes a long time for most people. I want to be free by 35. For these reasons and others, I invest the vast majority of my money into the next level: real estate.

Level 5 – Real Esate

Real estate vs. Stocks: this is a highly-debated topic with great points on either side. I recognize the value of both, which is why I put money in both. In a nutshell, index funds take less work, are more reliable, more liquid, and generally make less $$ (sometimes, significantly less). On the other hand, real estate investing is seen as riskier and less predictable, less liquid, but more lucrative than index funds. Also, as a real estate investor, you have a lot more control over your investment. This means that if you know what you’re doing, you can grow more money much more quickly. On top of that, many real estate strategies involve leverage, or using other people’s money to grow your own. This allows you to expand and scale up exponentially more quickly than just throwing money in an index fund.

There is so much to be said about real estate, and so many different ways to get involved. In this post, I’m going to discuss the strategy that I’ve used and had success with, which is purchasing single-family homes to be used as rental properties.

Risk/Reward

Real estate investing is awesome because it introduces something that the stock market doesn’t offer: cashflow. (Dividends don’t count). This means that you have your initial investment – you bought a house. Let’s say it cost 100k. In the stock market, that 100k would grow over time, meaning that if you sold the asset, you would then (and only then) get access to the growth. In real estate, you get all these benefits with appreciation (your home will generally increase in value over time, meaning that when you sell it, you make a profit), but you also get cashflow.

To me, cashflow is a game changer because that’s what is going to pay the bills. Think about it this way – if I have $1M in stocks and withdraw my 40k a year, I’m essentially relying on the fact that the rest of that money will grow fast enough to keep up with my withdrawals. Also, I’m taking away from the future growth potential of that asset. If I have $1M in real estate (let’s say 10 houses, all paid off and generating $800 in cashflow a month), that’s 96k of cashflow in my pocket.

It gets better. Let’s say that instead of taking my $1M and buying 10 houses worth 100k each, I use leverage and only put 20% down on each property. This means that my $1M can actually buy me 50 properties. With a mortgage expense they will each only generate $300 a month, but simply by using leverage I’ve increased my cashflow from 96k a year to 180k a year. And all the while, each of those 50 properties will appreciate AND generate equity (because the rent is paying off the mortgage, increasing the % of the home that I own). So when you start to compare this $1M investment to stocks, the numbers aren’t even close.

Don’t get too excited – there’s a reason most people don’t invest in real estate. It certainly takes work, and scaling up to 50 properties can be treated as a full-time job in and of itself. But this doesn’t worry me. By implementing proper systems, and outsourcing 95% of the work to property managers, even 50 properties isn’t much for you to think about. Having more properties also decreases risk. When you own a home, there is no guarantee that your money will grow over time. If tenants don’t pay rent, or the home is destroyed in a natural disaster, the gains can be negatively affected. You’ll also have to pay for expenses like repairs and maintenance. This is why I plan to acquire a lot of properties – I can diversify my risk. If one property goes bad, I have dozens of others picking up the slack and growing my portfolio.

I spend most of my ‘investing’ time and money on real estate right now, because I like the better returns and more hands-on ownership feel. It’s empowering to be a homeowner, and the consistent cashflow feels good too. My first rental property earned a 10% return in the first year and is projected to give me a lifetime 15% return. The investment property I’m looking at right now pencils out to generate over a 20% return, and this is just the beginning. With the right strategy, it’s possible to acquire property for no money down at all, meaning you are making over a 100% return from day 1.

Level 6 – Owning a Business

Owning a business is another extremely complex topic, and certainly the least passive investment we’ve talked about so far. I don’t yet have a lot of experience with this method of investing and growing wealth, besides starting a Shopify store selling wooden sunglasses when I was 17 years old. However, that will soon change with the launch of my tech startup later this year. I’m going to try it out and see how it goes!

Risk/Reward

Running a business can eventually become as hands-off as real estate investing if you get the right systems in place, but it is regarded as more difficult, less predictable, and potentially much more lucrative. Starting a successful business is hands-down the fastest way to generate wealth when compared to investing in stocks or real estate. If you launch a tech startup that takes off, you could go from 0 to potentially millions of dollars within a few months or years. Of course, with that upside comes a downside – if your business doesn’t take off, all the time and money you invested could give you nothing to show for it. 90% of small businesses fail within the first year. That doesn’t mean you shouldn’t try!

I don’t have enough experience yet to say much more about being an entrepreneur, but I’m excited to try it out this year, and I’ll keep the blog updated with what I learn.

This leads me to the final level of this list, the highest level of investing, and it might surprise you.

Level 7 – Investing in yourself

I know, I know, this one is a little cheesy. But seriously, investing in yourself is by far the most valuable investment you can make. It will have the highest rate of return and make the biggest difference in your life.

This could take the form of education, like gaining skills to make more money, but it can also take the form of improving your physical fitness, deepening your understanding of the world around you, nurturing close and important relationships, or building good habits.

Time and energy invested in yourself should not be underestimated. Be intentional about how you want to grow and develop. Set goals about what skills you want to learn, or aspects of your life that you want to improve. Seek resources and mentors to guide you. When necessary, spend money on the things that are important to your growth, like a gym membership, online courses about topics you’re excited about, a coach to help you interview better, or a trip to Europe because you’ve always wanted to see that part of the world.

Understand that all the value, monetary or otherwise, that you generate and contribute in this life will come as a result of the things you know, the skills you have, the people in your life, and the person that you are.

Honorable mentions (kind of)

Crypto-

Man, if you’re putting a significant amount of money into Bitcoin, I really hope it works out for you. I bought $100 of it myself because I was curious, but I know so little about crypto that it was basically the same thing as a slot machine in a casino. But I know people make a lot of money with this sort of thing. If this is you, I sincerely wish you the best. There are a lot of crypto millionaires walking around these days.

Picking Stocks and Day Trading-

Same boat here. I don’t know stocks well enough to ‘time the market’, but if you absolutely love researching stocks and understanding how all of them are changing, and how the economy is moving as a whole, knock yourself out. I think there are even more ‘day trader’ millionaires than crypto ones.

NFTs, Art, Collector’s Items-

Again, people make a lot of money with this stuff. Certain Pokemon cards could change your life if you opened them in the pack, recognized what it could be worth, and held onto it for 30 years. Same with a certain specialized stamp from the 1940’s, or that Gorilla NFT thing. It’s all above my pay grade but I’m sure you could have a lot of fun investing in these sorts of assets.

Grow your wealth

So what are you waiting for? Let your money work for you. Take one of these methods and start implementing it today. If you have any questions, feel free to leave a comment.