Cash Flow,  Financial Freedom,  Making Money

10 Valuable Assets To Buy In Your 20s

My person definition of “investing” is the acquisition of cash flowing assets. This definition doesn’t fit everyone, but it’s how I’ve come to frame my investing decisions.

Regardless of whether cash flow is at the top of your list, acquiring assets throughout your life is a recipe for a financially free future.

I define “asset” as anything that returns more monetary value than you spent to acquire it. And I have here a list of 10 assets that anyone in their 20s should be looking to invest in.

1. Dividend Stocks

Benefits

  • Regular payouts in cash
  • Very passive
  • Big gains can be realized over long periods of time

Drawbacks

  • Very low cash on cash return
  • Very average overall return on investment
  • Meaningful growth takes a long time

Dividend stocks are my top asset pick for someone in their 20s. The typical twenty something is either going to be in school or very early in their professional career.

With a dividend yielding stock, you get a combination of benefits that no other investment type can match (though index funds are close). They are very passive, pay out cash dividends, and will grow significantly long run.

You get an asset that grows in value over time, beating inflation, which is an absolute must for any asset a person buys early in life.

And if you’ve read this blog much, you know that I highly value cash payouts in an investment. Cash payouts equal flexibility. The cash can be reinvested, but it can also be treated as income. And dividend yields are taxed much lower than normal income.

It’s often this time in life when a person hasn’t yet figured out their direction. It’s nice to be able to invest in something that works for you behind the scenes while also kicking some cash your way.

2. Real Estate

Benefits

  • Own an asset that keeps pace with inflation
  • Leverage your money for better return on investment (often over 20%)
  • Create good cash flow for your money

Drawbacks

  • Requires large lump sum up front
  • Relatively active investment
  • Acquiring debt can be a risk, particularly in your 20s

The bulk of my net worth is held in real estate (I’m in my 30s), and so I have a bit of a bias towards real estate as an excellent asset.

The reason I love real estate is that is creates more cash flow than stocks, while still being reasonably passive. However, compared with owning stocks, real estate is a lot of work, particularly if you choose to go the short term rental route like I have.

The real power of real estate is the power of leverage. If you spend $20,000 to buy an asset worth $100,000 and that asset appreciates in value 3% each year (about right for real estate), then you’re getting 15% ROI on your $20,000.

Add cash flow from rent and various tax benefits and you’re looking at an overall ROI that crushes stocks.

However, owning real estate is also considered by many to be riskier. When you acquire debt, if the investment starts to go in the red, then you can end up with a difficult, and potentially money-losing situation.

I’ve thus far only had great results with real estate, but I’ve certainly heard of others who ended up in difficult situations.

3. Online Business

Benefits

  • Highest cash on cash returns for your money
  • Can leverage your money for ROI that can’t be found elsewhere

Drawbacks

  • Incredibly active investment
  • Bigger swings in asset value
  • Debt acquired is not backed by a hard asset
  • Success of investment is determined by your choices (could also be a benefit)

About a year ago I was in line to buy a $850,000 online business. The deal ended up falling through when the owner took the business off the market at the last minute. I learned a lot during the negotiations and the process of getting the loan approved.

Since then I chose to buy a much smaller business without a loan that has thus far been a good, not great investment. But when I think back on that deal I remember all the money I expected to make if I had closed on the business.

I was putting around $80,000 down on the purchase, and even after the loan payments, I expected to earn between $10,000-$15,000 per month from the business. That’s a ridiculous 150%+ return on investment in the first year!

You simply can’t realize those kind of gains with any other form of investment.

But obviously there are several caveats that come along with ROIs like that. It can easily become a full time job managing a business that size, and taking on hundreds of thousands of dollars in debt is a huge burden to carry. If anything were to happen to the earnings, your finances could go down in flames with the business.

If you’re a confident investor who is ready to take your earnings to the next level in a very short amount of time, then a business investment is probably your best bet at any age.

4. Index Funds

Benefits

  • Very passive
  • Regular payouts in cash
  • Diversified investment

Drawbacks

  • You won’t beat the market
  • Very low cash on cash return
  • Takes a long time to earn a meaningful amount of money

Index funds are very similar to a dividend stock portfolio. The big difference is that an index fund is a huge list of individual company stocks that is compiled into one “index.” You get the benefit of the diversification of the index fund without having to spend a ridiculous amount of money to buy stock in each company.

Some of the business in the fund will pay dividends, but your dividend yield is likely to be 1-2% where a dividend stock portfolio can easily have a 4-5% dividend yield.

Index funds are probably safer because of their diversification, but your potential gains generally have a lower ceiling. This is a great option if you don’t want to bother picking out your own stocks.

5. Retirement Funds

Benefits

  • Potential company matching
  • Escape gains taxes

Drawbacks

  • Money is unavailable to you without penalty for a very long time
  • Money goes into a black box
  • Fees detract from earning potential

Now a lot of people would put retirement funds at the top of the list of assets one should buy in their 20s, but not me.

Why?

Well, I plan to retire decades before the age restriction on withdrawing money from retirement funds without penalty (sometime after 60 years old). I don’t want all my money rotting away in a retirement fund when I plan to retire before the age of 45.

Now I do contribute to my 401k because my employer matches a certain amount. I actually treat my 401k as an emergency fund because I know that I can give myself a loan if the need arises.

Sure, when you reach retirement age and get access to your retirement fund you get to withdraw that money without paying capital gains taxes. That’s great!

But for me the money isn’t useful if I plan to be financially free long before that time.

If you plan to wait until your 60s to retire, then retirement funds should probably be much higher than #5 on your list. Otherwise, don’t put all your money in retirement funds.

6. Offline Business

Benefits

  • Great cash on cash return
  • Often comes with real estate or real assets
  • Leverage your money for very high ROI

Drawbacks

  • Incredibly active investment that operates in a single location
  • Bigger swings in asset value
  • Debt acquired is a risk
  • Success of investment is determined by your choices (could also be a benefit)

Offline businesses are another lucrative investment in terms of overall ROI, especially if you leverage your money. This type of investment is very much like an online investment.

The differences are that offline businesses often come with real estate and hard assets (like machinery) that help back up your loan. This is great in terms of risk analysis, though it’s still going to come with more risk than real estate and stocks.

However, offline businesses are rooted in one place. Your blood, sweat and tears will require you to have boots on the ground. This shouldn’t appeal to anyone who wants more freedom and ability to operate their business remotely.

Offline business can be a great investment, no doubt. Perhaps even slightly less risky than an online business, but also roots you down to a location.

7. Books

Benefits

  • Low cost of entry
  • Knowledge and mindset are powerful assets

Drawbacks

  • No monetary value in this investment
  • Lessons taken from books require action to pay off

I invest in books every year. And I’ve been doing so for some time. If you want to get into any type of investing, you will see better results when you learn from others who have done it before you.

A person with strong knowledge, determination and a powerful mindset can accomplish just about anything.

I buy books about real estate investing, books about cultivating a winning mindset, books about creating valuable habits and books about blogging (yes this website is an asset). And in doing so I have increased my capacity for success.

Every year the lesson I learn from reading get spliced into my life and make me better at what I do. Books are absolutely an asset when used properly.

8. Education/Degree

Benefits

  • Open up employment opportunities

Drawbacks

  • Hard to measure return on investment
  • Debt acquired
  • A job is an asset with a ceiling

In order to invest in any of these things, you need money. And if you don’t have a rich uncle who died and left you a large sum, you’ll have to earn some for yourself first.

You can absolutely get great jobs without a degree, but it’s no secret that having a degree makes it easier to get your foot in the door.

It’s reasonable to consider your formal education/diploma to be an asset, and as such you can use it to create recurring income for yourself. But for the long game, regular employment has a money ceiling. Your earning potential is capped by how much time you spend working.

9. Coaching

Benefits

  • Education catered to your specific skills and needs
  • You are held accountable
  • Coaches will push you to do the things necessary to succeed

Drawbacks

  • Expensive
  • No tangible/monetary value

I put coaching low on the list because 1. It’s usually best for those who pursue very active investment opportunities and 2. I’ve yet to actually use a coach.

I’ve heard a lot of stories from very successful people who have hired a coach for a ridiculous fee (10’s of thousands of dollars) and ultimately felt that the investment paid huge dividends.

When you invest that kind of money into something you expect to get a big payout, and that expectation can often push people to do extraordinary things (and make tons of money).

Jury is out on coaching for me, but I absolutely plan to invest in a coach in the next 2-3 years.

10. Certifications

Benefits

  • Open up employment opportunities
  • Increase earning potential

Drawbacks

  • No direct monetary value

Certifications are like diet diplomas. They show employers evidence of your ability to do certain things.

In some situations they can open the door to a new employment opportunity, and in others they can be a way to negotiate a higher salary with your current employer. Both of these things clearly result in some kind of return on investment.

Conclusion

All 10 of these assets are valuable in your 20s (and later in life). When you invest in growing assets early in life, you are setting yourself up for a graceful transition into retirement.

And given the right mixture of assets, that transition could happen very early in life.

I'm living the path to financial success and sharing everything I learn in this blog. I believe in the power of cash flowing investments, due diligence and time. This is my journey so far.

I learned everything I know from books, podcasts, conversations with friends and family and of course through real world experience as a cash flow investor. And I'm always pushing to learn more.

To see my investing timeline, check out our about page

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