How to Invest Your Money to Become Rich
When it comes to money, we all want more of it. Not just for a nicer home, flashier car and finer clothes — but enough savings to live out our twilight years in comfort.
We all know that investing your money is the key to riches. But how do you invest and where?
Money is never a finite resource; there’s always somewhere new to put your cash. There are lots of options when it comes to investing your money — from high-interest savings accounts to riskier venture capital investments — but with so many opportunities, which are the right ones for you?
How to invest your money: What are your options?
Before you start investing, you need to know which investment options are out there. There are three broad categories that most investment vehicles fit into:
- Savings accounts: These are what they sound like — low-risk, low-return accounts where you store your cash. While the interest rates on savings accounts may be low, they’re generally safe.
- Mutual funds: A mutual fund is a collection of stocks, bonds or other assets. Mutual funds pool many investors’ money together and invest in stocks, bonds and other assets so that the fund can make enough money to pay out everyone’s funds. Mutual funds offer the benefits of diversification, so if one company goes under, it won’t take your investment down with it. But mutual funds also have high fees.
- Exchange Traded Funds (ETFs): These funds are a hybrid between mutual funds and stocks. They can be traded regularly like stocks, and you can also buy into an entire index, like the S&P 500, through a single ETF.
Savings accounts are the most basic type of investment. They’re safe, low-risk and low-return. You can open a savings account at your bank, and you can expect to earn a 0.1% return on average.
Savings accounts are liquid, so you can withdraw your money at any time without penalty. But because they’re so low-risk, they also have lower interest rates than riskier investments like stocks.
Savings accounts are great if you’re saving for something specific like a house or a car in the near future. You can put money away for a short-term goal and then withdraw it easily when you need it.
Mutual funds are investment pools that allow people to pool their money together to invest in stocks, bonds or other assets. Mutual funds offer the benefits of diversification, so if one company goes under, it won’t take your investment down with it. Mutual funds also have high fees.
Mutual funds are best for long-term investing. You don’t need to worry about constantly monitoring your investment and making changes. Instead, you can set up a monthly contribution and leave it alone.
If you’re investing for retirement, a mutual fund is a good choice. Mutual funds are considered diversified, and you can take advantage of professional fund managers who have many years of experience.
Exchange Traded Funds (ETFs)
These funds are a hybrid between mutual funds and stocks. They can be traded regularly like stocks, and you can also buy into an entire index, like the S&P 500, through a single ETF.
Most ETFs are low-risk, and they’re tax-efficient. But some ETFs are riskier than others. You can find ETFs that invest in almost anything, from gold to soybeans. Most ETFs track the S&P 500, so they can be a good way to invest in the stock market without taking on too much risk.
ETFs are best for long-term investing. You can set up a recurring investment in an ETF every month and leave it alone.
Real Estate Investment Trust (REIT)
REITs invest in commercial real estate, like office buildings and shopping malls. You can buy shares in a company that invests in real estate, or you can buy shares in a mutual fund that invests in REITs. REITs are low-risk, and they offer a reliable dividend.
REITs are best for long-term investing. You can set up a recurring investment in an REIT every month and leave it alone. REITs are also a good option if you’re looking for a low-risk, low-return investment.
Hedge funds are pools of money that are managed by experts. These funds are generally only available to high-net-worth investors. If you’re investing in a hedge fund, you may have to be invited to invest by another investor.
Hedge funds are riskier than mutual funds and other investments because they’re not regulated and they’re not transparent. The fund manager doesn’t have to tell you what they’re doing with your money.
Hedge funds are best for investors who want to take a lot of risk and are willing to accept the high volatility that comes with it.
Commodities are raw materials like gold, oil and soybeans. Commodities are generally riskier than stocks, but they offer a chance for high returns. If you’re investing in commodities, you’re betting on the price of a commodity going up.
Commodities like gold can be a good option for investors who want to take a lot of risk. But commodities are generally too risky for most investors.
Robo-Advisors and Online Wealth Managers
You’ve probably heard about robo-advisors like Wealthsimple and Betterment. Robo-advisors are online wealth managers that manage your investments for you. They’re automated investment tools that are managed by algorithms.
With a robo-advisor, you set up an account and answer a few questions about your financial goals and risk tolerance. Robo-advisors will then recommend an investment portfolio that they manage for you.
Online wealth managers are similar to robo-advisors. These tools, like Wealthfront and Financial Engines, allow you to manage your investments online. With an online wealth manager, you can set up an account and tell the tool how much you want to save and where you want to invest your money.
There are many different ways to invest your money. The key is to pick the best option for your risk tolerance and savings goals. You can start investing your money by picking one of these options.
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