Real estate
/After you have enough money saved for a down payment, and you're planning to stay put for at least 2 years, then you should seriously think about buying a house or condo.
Assuming you're in a good city/neighborhood economically, you're crazy not to. In almost all cases it's a better investment than the stock market*.
UPDATE in 2022 - I feel like I didn’t emphasize this enough the first time. Building wealth/assets begins with your first home. I bought my first house when I was 22 for $109.000 in a run-down but close-in neighborhood in Boise, ID (pardon the flexy tone here - the purpose is you CAN do this in your early 20s). I had one to two roommates that helped pay the mortgage. Remember there are always great deals for first-time-home-buyers - MUCH lower down payment requirements (3.5% even) and lower rates too.
Remember that the interest portion of your mortgage is tax deductible! This is HUGE! When you rent, you are flushing your money down the toilet - no investment, no appreciation and no help with taxes. Renting should be done only if you have to, or, I guess, if living in the moment is more important that financial freedom in your 40s. Hey, you do you, but at least know the rules of the game.
So in the above case in Boise when I was 22. I’m getting rent money from my roomies (which wan’t taxable income), all the interest on my loan was tax deductible and when you account for appreciation I was living rent free.
One last point I feel I have to make. Do I think the rules of real estate keeps poor people poor? - yeah, I kinda do. If you rent for years on end because you can’t afford to buy (trouble saving enough for a down pmt) or, more commonly, you were never coached or taught about the value of buying a home, then after 10, 20 or 50 years you can easily find yourself with little or no assets. Renting can contribute to generational poverty. Buying at a relatively young age (in a good town**) basically guarantees upward mobility.
When buying, the 3 rules are of course location, location, location; it's the first thing your realtor tells you. But location really should be 85% of your buy decision (i.e. buy the worst home in the best neighborhood; don’t buy on a busy/loud street, don’t buy in a dead-end town). The main reason for this isn't appreciation, it’s risk. In a recession good neighborhoods may get bruised but not beaten. And if you are forced to sell quick (you just got a huge promotion in another city that you can’t refuse) you will be able to sell soon if you’re in a stable neighborhood.
Another thing to remember while shopping: Never fall in love with a home - there's lots of fish in the sea so shop judiciously.
There's lots more to tell about real estate but that's the basics.
Random thoughts:
In cities: Buying a home on a lot is a smarter investment than a condo because condos/high rises can always be built (developers can always make more relatively easily) but close in homes on land can’t be replicated. “Buy land, they're not making it anymore”. - Will Rogers
* Note that a “financial advisor” won’t tell you that. That’s because financial advisors only get paid to manage financial instruments (i.e. stocks, mutual funds, etc). But that’s only 1 of the 2 major investment vehicles. Appreciating real estate always beats appreciating stocks because you only need 20% or less cash down. All that said, don’t go all-in on real estate. Diversity is good and so is liquidity which real estate does not have.
** I define a “good town” as a place with good jobs and more coming. If industry is flat (say rural Kansas) or decaying (West Virginia coal country) then buying is of no value. But in almost every mid-size city and up you have stable, growing employers. Why is that? Well, not to state the obvious, but it’s because house value is based solely on the town’s collective buying power - which is based on what employees, on average, are paid in that town. Higher wages = higher loan approvals = which drives ever higher home prices. Post covid, it looks like small to mid-size towns are the place to be.