What are the smartest things to invest in?

First you have to think for how long do you want to invest your money. If you want your capital to produce constant and safe income for many years to come, then you should definitely rule out any cash / bonds / bank deposits / money market funds etc. for one simple reason - the value of cash is falling down in time.

If you buy the safest investment available - government bonds - they are likely to produce around 4% from your investment anually, if you have $100,000 that's $4,000 a year. Then you would probably also have to pay around 20% tax on the interest received meaning you will get only $3,200 a year from your investment - an equivalent of $267 a month.

Perhaps today you can do weekly shopping with $267, but I can almost guarantee that in 20 years $267 will not be even enough to pay for a good restaurant meal. Cash loses its value in time and in 20 years average people around you will be earning something like $5000 a week while your monthly $267 will never be increased unlike their salaries. In 1988, 20 years ago, how much did a loaf of bread cost? A house? What was the average salary? Once you consider inflation, you will know that putting your money into bonds / fixed income is not the smartest idea.

So what else can you do? Well, there are number of smarter options.

1. The first is... Property. A good buy-to-let property will maintain the value of your principal investment (house value) and will also produce constant income that grows with inflation (rent you receive). Unlike interest from bonds, the rent you charge can be increased every year reflecting the rising rents in the area. And you can be assured that in the long term rents will grow year on year because of inflation.

Perhaps right now is not the best time to buy an investment property in the US, and I would reccommend not to buy at least until the average house will be worth no more than triple average annual salary. But look overseas for some excellent opportunities. East Germany for example - property in Dresden or Berlin is 5 times cheaper than in the US and good quality city centre condos cost there around $50,000-$70,000. German wages are very high, yet their house prices are extremly low! Make sure the apartments you buy are already rented out to solvent tennants for some time and that they produce at least 8% yield per annum, which is easily achievable in Germany. Once you find a few properties there that match the above criteria, you have a sound, long term investment.

2. The second smart investment are company shares. Companies make profits and most of them pay part of those profits to their shareholders as dividends. So do some research and select shares of well estabilished companies that pay large dividends every year. I think 4-5% a year of the share price in dividends is good enough, meaning that if shares of a particular company are priced at $100 and the company pays divident of $4 per share it is the right investment.

But be careful - as with the property, I don't think now is the best time to buy shares in the US... Again, look overseas for fantastic oportunities - for example Hong Kong or Taiwanese companies. Both Hong Kong and Taiwan peg their currencies to US dollar, which means the exchange rate of their currencies (HKD and TWD respectively) to USD is fixed (in Hong Kong the peg is in constitution). The peg requires their governments to maintain similar interest rates to those in the USA. But the economic situation in Hong Kong or Taiwan is completely different to the current situation in America!

Hong Kong is beginning to boom because of cheap credit available there (low interest rates) and cheap Hong Kong dollar (pegged to USD). Inflation in Hong Kong is about 7-8% but people can take 4% loans! It makes no brainer to borrow and buy whatever is available and then return the money later when they are worth less. Therefore solid Hong Kong or Taiwanese companies that pay high dividends are excellent long term investment - they will make large profits so they will pay larger dividends and their price almost certainly will go up because of falling dollar.

3. Another good investment for difficult times are commodities. As you may be well aware prices of food, oil or metals are very high and growing and this long term trend will probably never change as the value of money depreciate. Money is being produced at speed of 12-20% a year, (look at the recent money supply figures) while commodities tend to maintain their value in time (gold is being produced at speed of less than 0.5% a year - total amount of available gold in the world increases at very slow rate because it can't be printed or "pumped" into the banking system like cash). So if you buy commodities such as gold, corn or oil, you will almost certainly preserve the value of your money and hedge it against inflation... But the problem with commodities is that they do not produce any income - gold will not pay you interest!

But if you are smart, there is a method of killing two pigeons with one stone and having exposure to gold prices and still getting income: buy shares of gold mining companies! Share prices of gold mining companies tend to follow prices of gold (capital) but, as mining companies make profit, they also pay dividends every year (interest)!

4. Then there is another interesting investment, perhaps the least safe but potentially most profitable. Forex and carry trade. As you know, different currencies have different interest rates, e.g. in the UK Bank of England set them currently at 5% for British pounds, in the eurozone they are at 4% for euro, in Australia it is 7.25% for Australian dollar and in the USA 2.25% for US dollar.

Two currencies with the lowest interest rates are Japanese Yen (0.5%), US Dollar (2.25%). The currencies with the highest interest rates in the world include Icelandic Krona (15.5%) and Turkish Lira (15.25%). Also New Zealand dollar (8.25%) and South African Rand (10%) are high yielding. How to use those differences to your advantage? Open a forex trading account, best with Oanda (fxtrade.com) as they pay you interest per second, make a deposit and buy Icelandic Krona (ISK) for Japanese Yen (JPY). On the forex platform you can leverage your trade, meaning that you only require a small deposit to perform a large trade. If you play with $10,000 you can buy or sell $100,000 worth of currencies if your leverage is set at 1:10.

So do those simple trades: Buy ISK/JPY, sell USD/TRY, buy NZD/USD, buy AUD/JPY and sell CHF/ZAR.
If you invest $50,000 in those trades (or $10,000 in each) with a conservative, safe leverage of 1:10, you will have trades that will produce around $130 a DAY! Your risk is that the higher yielding currencies will go down in value to the low-yielders, but then they could also go higher, meaning that you will earn extra. From the long term perspective currencies like Krona or Lira are very weak so perhaps it is a great time to buy them. The longer you keep your trades open the less risk there is of losing, after 3 years I can guarantee that you will be earning your $130 or more per day with very little or no risk to your capital. That's $48,000 a year with no tax from the initial investment of $50,000.

So, there they are, my recommended investments. Spread your money between them and you have safe income that will grow with inflation for life.

I hope it helps and I wish you good luck!