Have you been wondering where to invest money? Do you want a stable and comfortable future? If so, investing money will be the most important step you will need to take. The world is changing fast and inflation is making the cost of living very expensive. Soon or later, your income will no longer be enough to cover your expenses.
Investing your money is the only way you can keep up with the cost of living and achieve your financial independence. That is having your money work for you.
What is investing?
Investing is a term used when a person or institution allocates money in assets and other securities hoping to receive future returns. A good investment will make you money whereas a bad one will lose you money.
Successful investors focus on assets that generate the highest returns while minimizing risks. The risk tolerance varies from one investor to another. People with a lot of disposable income tolerate risks better than the ones who have a limited income.
Whether you are investing for retirement, financial independence, college funds, travel, etc., you will still follow winning investment practices. And if you invest wisely, you will be able to achieve your dreams very fast.
The main question is where should you invest your money.
There are a lot of investment options out there. Most of these investments are confusing and don’t offer good returns. So, how do you choose the best investment that works for you?
Before you learn about where to invest money, it is a good idea you learn how to invest money. The following article can walk you through the proper investing steps you need to take.
>>MORE: How To Invest Money: An Investment Guide
In this article, I will give you the top 10 ways you can invest your money.
1. Invest money in the Stock Market
The stock market is one of the best investment options you can consider. It is easy to get started in the stock market. The following are steps you will need to take when investing in the stock market.
- Decide why you need to invest in the stock market
- Learn as much as you can. It is very important to know how to analyze economic conditions, companies, their competitors, and their sectors. Besides, you will need to know the most used stock market terminologies. Depending on your investment style, you can focus either on fundamental analysis, technical analysis, or both.
- Investing style: (1) day trading, (2) swing trading, or (3) long-term. You can also use a combination of these methods
- Save some money you will start with
- Choose a broker: There are a ton of brokers out there and some of them are suited for long-term, short-term, or both.
- Create a brokerage account
- Fund your brokerage account
- And finally, buy and stocks
Stocks come in many forms, sizes, and qualities. The reason you have decided to invest in the stock market will help you pick the right stocks.
You need to know the answer to this question: Are you interested in income or growth? If you are interested in collecting income from your stocks, you will need to focus on stocks that offer the highest amount of dividends possible.
On the other hand, if you are interested in growth, you will focus on growth stocks.
- Dividends stocks: These stocks will give you dividends on every earning season. Most companies report earnings and offer dividends every quarter. Keep in mind that corporations can increase or cut dividends depending on their financial situation.
- Growth stocks: These stocks belong to companies that focus on growth, product development, and expansions. Some of their characteristics involve strong earnings and steady growth of their share prices.
The following articles have a lot of resources that can help you get started in the stock market.
- How To Buy A Stock Step-By-Step
- 14 Reasons People Lose Money In Stock Market
- How To Grow A Small Trading Account?
2. Invest money in Exchange Traded Funds (ETFs)
Investing in the stock market can be a little risky. A single stock can double or triple in value or cut in half in a single day. Individual stocks are usually sensitive to the news in the market.
Large-cap stocks are less volatile compared to penny stocks. As an investor, you should know your risk tolerance. A risk tolerance determines how much risk you can handle without affecting you financially or psychologically.
What if you don’t want to trust any single stock with your money? There is a solution to this problem.
You can invest in exchange-traded funds or ETFs for short. ETFs are funds that bundle a lot of stocks under a single entity. Instead of buying a single stock, investors can buy all those stocks in that fund and minimize their risks.
ETFs are listed on stock exchanges such as the New York Stock Exchange and you can trade them like stocks. That is you can buy and sell ETFs anytime as long as markets are open. As noted by SmartAsset, the stock market’s normal hours are 9:30 AM to 4:00 PM EST.
To learn more about ETFs, use the following article.
>>MORE: What Is Exchange Traded Fund(ETF)?
4. Where to Invest money: invest in Real Estate
Real estate is a sector with a lot of investment options. The following are some of the many ways you can invest in real estate.
- REITs: Real estate investment trusts are businesses that own other income-generating real estate. Most REITs own, manage, and operate apartment complexes and office buildings. Some REITs are publicly traded and you can buy their shares on major stock exchanges such as the New York Stock Exchange. If you like real estate and don’t want to buy a physical building, REIT could be good for you. You will never worry about tenants. Keep in mind that REIT prices experience volatility like stocks which will affect your portfolio based on the performance of REITs you hold.
- Rental properties: If you have good customer service, are responsible, and feel like you can handle stress from tenants, you can make money in rental properties. You just need to buy rental properties and have tenants living in them. The key is to start small and learn your way up. Your portfolio can have condos, townhouses, single-family houses, or multifamily properties. Multifamily properties tend to be more profitable and cash flows faster than other forms of rental properties. However, they tend to be expensive for small investors. Most people start with single-family homes and then upgrade to properties with more units later.
Related: What rental property should you buy? An analysis of renal property types
- Flipping houses: Flipping a house is buying and selling a house quickly for a profit. To succeed as a house flipper, you will need to focus on fixer-uppers. These are houses that require some kind of renovation before you put them back on the market. That is by adding value to the house, you will sell it faster and at a higher price.
- Rent out a room: Do you have a house with an extra room? If so, you can make money by having a tenant living it. Most people are not comfortable living in a house with strangers. If you are one of these people, consider having a person you know already, and see how things will play out.
- Buy your own home: Did you know that buying a house is an investment? Through amortization, the house becomes yours over time and you enjoy complete privacy that you cannot have when renting. Besides, you can benefit through appreciation if you bought the house at the right time and price.
The following article can help you get started with investing in real estate.
MORE: How To Invest In Real Estate?
5. Where to Invest money: invest in Bonds
A common way companies use to raise money is by issuing bonds. Buying a bond from a company means that you are giving it a loan. In exchange, you receive a payment of your face value (principal) at the maturity day plus interest. As noted by Vanguard, most companies pay interest on issued bonds twice a year.
Unlike stocks, a bondholder does not have ownership in a company that offered them. This limits the benefits investors receive on bonds compared to stocks. For example, a person who owns stocks in a company will gain if the stock goes up and lose if the opposite happens. In addition, a stockholder has ownership of the company’s assets. A bondholder, however, will not gain or lose the principal regardless of the share price fluctuations.
The following are common types of bonds you can purchase.
- Corporate bonds: Corporate bonds are issued by corporations to raise money for investments, expansions, etc.
- Government bonds: Government bonds are issued by the government and return on average 5% to 6% historically, according to CNN Money. Although the returns are not that great, you would have the safety of your money and protection from inflation.
- Municipal bonds: These bonds are issued by local governments to fund public projects such as building hospitals, schools, roads, etc.
- Agency bonds: These are bonds issued by government-supported agencies such as Fannie Mae or Freddie Mac.
Other common bonds include foreign government bonds, convertible bonds, etc. As an investor, you should do enough research and know which ones best fit your investment style.
6. Invest in Mutual funds
Mutual funds are a type of investment that allows investors to pool their money together to purchase investments that were otherwise difficult to achieve for individual investors.
Most assets considered by mutual funds for investments are bonds and stocks. However, other investment options are considered depending on the fund missions and the risk they are willing to take. All assets held by a mutual fund form a portfolio.
Mutual funds are professionally managed. For this reason, all investors pay fees and other charges that support the fund’s operations. These charges are usually a percentage of the investors’ account values.
You should know that it might be difficult to beat the market or have a meaningful return on investment since a percentage of your money will go to the fund management team. According to the balance, a good long-term stocks mutual fund returns an average between 8%-10%. On the other hand, good long-term bond mutual funds return only 4%-5% on average.
If good funds return only these percentages, it is a good indication that most funds never make meaningful returns for their clients. Always keep this in mind before you put your money into a mutual fund.
Another form of mutual fund is a closed-end fund. These funds raise extra money through initial public offerings (IPO). For this reason, closed-end funds are like mutual funds that are traded to the public.
>>MORE: Details on Mutual Funds?
>>MORE: Details on Closed-End Funds(CEFs)
7. Where to Invest money: Invest in a Savings Account
Savings accounts are one of the safest investments available on the market. Banks, credit unions, and other investment institutions offer these accounts.
These accounts offer a small return which is better than keeping your money in checking accounts. Owners can transfer their money from savings accounts to checking accounts and vice-versa.
The national average interest for a savings account is about 0.05% which is not enough to even beat the inflation. Unless you have a huge amount in a savings account, you will not gain much in terms of return. However, your account will be secure compared to other forms of investments.
To use the money from a savings account, you must transfer it into your checking account. The bad news is that the number of withdrawals or deposits is limited to six per month.
To benefit from a savings account, you must do your homework and invest in high-return savings accounts.
Another form of investment account is the money market account. These accounts are between a savings account and a checking account. Their returns depend on the account values and the lender can reduce their rates after some time. In addition, there are limitations to the number of withdrawals and deposits per month. Furthermore, most institutions require a minimum balance in the account.
The following two articles will guide you through savings and checking accounts.
>>MORE: Details on Savings Account
>>MORE: Details on Checking Account
8. Invest money in Certificate of Deposits
Just like a savings account, a certificate of deposit(CD) is a form of investment account. Banks, credit unions, and other investment institutions sell CDs to investors.
The Certificate of deposits comes with a fixed interest rate and has a maturity date. CDs can mature in a short term such as 3 months or as long as 5 years.
The return on a CD depends on your lender, principal, and maturity date. For example, the average 5-year CD rate is 0.36% whereas a 1-year average CD rate is 0.21%, according to Bankrate.
Some investors use CD ladders to maximize their returns on investments but also have access to their funds at different periods. That is a CD ladder that lets you divide your money into different parts and invest each one with a different maturity date.
For example, let’s assume that you have $4,000 and want to create a CD ladder with $2,000 each. If you want the maximum maturity date to be two years, the first group will have a 1-year maturity date and the second will mature in 2 years.
At the end of the first year, your first investment will mature and you will renew it as a 2-year CD. Your 2-year CD will mature the following year (at the end of the second year). You will then renew it as a 2-year CD as well. This process will continue and ensure that you have access to half of your funds every year.
>>MORE: What Is A Certificate Of Deposit (CD)?
9. Invest money in Commodities
If you like tangible assets, commodities can be a great choice for you. Commodities are assets that can be interchanged into goods of the same type. Commodities include but are not limited to oil, gas, grain, gold, etc.
One of the most common investment strategies is diversification. So, investors protect their accounts by diversifying their funds in all kinds of assets including commodities.
Commodities’ prices fluctuate based on the economic conditions which affect their supply and demand. For this reason, investors use them to offset losses from market crashes such as a recession.
>>MORE: Details on Commodities
10. Where to invest money: Invest in Retirement Accounts
Did you know that retirement accounts can be safe and save you money on taxes?
One of the greatest ways to invest your money in retirement is to take advantage of the 401k through your employers. Most employers match your contribution by a certain percentage.
For example, an employer can match your contribution up to 3% which is like free money.
What if you are self-employed or don’t have 401K benefits with your current employer? You can still invest in retirement through an individual retirement account or IRA for short.
An IRA is nothing other than an individual retirement savings account.
For both 401k and IRA, you will choose periodic contributions which can be adjusted based on your financial situation.
All these accounts offer a lot of tax bracket benefits and they are considered secure in most cases.
Getting your money in a retirement account is the first step. Growing the account is another story. You must find a way to make your money grow through investments.
So, how do you make your retirement money grow?
Investment is one of the best ways to grow your retirement accounts.
Some retirement firms offer you a choice of how much you want to invest and where to invest it.
For example, an individual can choose to invest in stocks, bonds, or both.
Your investment preferences will depend on your risk tolerance and how close you are to retirement.
If you are about to retire, you need to focus on investments that offer maximum returns with the lowest risks possible. In other words, you should avoid putting most of your money in highly volatile securities such as stocks.
On the contrary, people who are in their twenties, for example, should worry less about risk. Instead, they should focus on investments that generate high returns while managing their risks.
Diversification plays a key role when it comes to retirement. Whether you have a 401K or an IRA, the assets you invest in will determine your rate of return and risk. An account that has 80% in stocks and 20% in bonds will be more volatile than one with 10% stocks, 60% bonds, and 30% gold.
