10 Ways to Invest Your Money Wisely
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What you do now with your money will impact your lifestyle later in life, so invest your money wisely. And I want my latter years to be golden, shiny, and secure. I’m sure that’s what you want, too, right?
So, what are the best ways to invest your money strategically to achieve the most consistent results? There are some basic rules for investing in the long term. While everyone has a different style for how aggressive they want to be, the two most important factors are age and income.
How to Invest Money Wisely
Here are some investment opportunities to consider if you are looking to invest $1,000, $10,000, or even $20,000. Take a look at the following ways to invest your money wisely. If you have many detailed questions, it’s best to consult a certified financial advisor.
1. Online savings account
This investment strategy aligns with short-term goals, but it’s crucial to your finances. These days, there are consumer-friendly online banks that are free to open and offer competitive rates. If you’re saving diligently, you might as well earn some interest on that, right?
Online savings accounts are great for saving liquid cash for a specific goal, such as an emergency fund, a trip, holiday presents, or a car. Having some money that’s easily accessible gives you comfort and helps ease stress.
Everyone needs this kind of cushion, and the best place to save that money is in an online savings account. CIT Bank offers a competitive high-yield savings account with a competitive interest rate.
2. Crowdfunding Investments
Thanks to tech companies like Fundrise, you can invest in real estate with as little as $10. Real estate crowdfunding insiders say you can expect 8 to 12 percent annual returns. However, they can be much higher.
However, as with anything money-related, some naysayers have reservations and caution investors to fully research and talk to a financial advisor before purchasing.
While crowdfunding may be an investment consideration, be sure to have your foundation set before you start investing in alternative assets. Your priorities should be actively contributing to your 401(k) or IRA first.
3. Focus on long-term
Sometimes, playing the stock market and putting your money in individual stocks can be fun. But in the end, it’s not a consistent way to build a foundation for your retirement.
Investing for the long haul means understanding that the value of your investments will go up and down over time. Vanguard founder Jack Bogle often discusses this and stresses the importance of the long term, low fees, and index funds.
Similarly, billionaire Warren Buffett plays it safe and believes an index portfolio of 90 percent S&P 500 and 10 percent Treasurys is probably the best bet for most investors. Both have advised keeping it simple and going for index funds, which generate the highest returns for the lowest risk.
Use Time to Your Advantage
Let’s say you were smart enough to start saving in college, invest with just $100, and contribute $200 each month.
At a 7 percent rate of return, in 30 years, you’d have $227,467. Of course, the goal would be to pay more than just $200 each month, but this is just an example of the power of compound interest.
There’s a helpful calculator on Investor.gov that can show detailed results and the difference between how much you’d earn with and without interest (I included a screenshot for you to see).
Investor Tip: Avoid buying individual stocks as they can be risky and very volatile.
Buying individual stocks and hoping that you’ll strike it rich is a huge gamble for your retirement and goes against all the mantras of wise investing.
Let’s say you buy shares for a hot tech company that happens to tank, goes bankrupt, or even experiences a bad quarter. You can lose your hard-earned money pretty much overnight.
4. Traditional 401(k)
When I used to work at a personal finance company, I was shocked to find out that only 2 percent of their employees had enrolled in the 401(k) program. Two percent — and this is a company full of employees who are supposed to be helping others learn about money!
Does your employer offer a 401(k)? If so, you need to sign up pronto. I can’t stress this enough. A 401(k) is a savings plan offered by your employer that allows you to take a portion of your paycheck and invest it while deferring income taxes on the saved money until you withdraw it at retirement.
The best way to invest in a 401(k) is to make sure you’re contributing enough to get your employer match. Employer matches can vary widely, from a few percentages to 100 percent.
Let’s say your employer offers a 50 percent match for your contribution of up to 6 percent. If you contribute 6 percent of your annual pay, your employer will contribute 3 percent. This is free money!
5. Roth IRA
In addition to a 401(k), you can open a Roth IRA. A Roth IRA is an individual retirement account in which you can save after-tax income of $7,000 per year. If you’re over 50, you can contribute $8,000.
If you have a 401(k) and Roth IRA, you can save up to $27,000 each year or $28,000 if you’re over 50. The earnings on a Roth IRA are tax-free, and withdrawals are tax-free as long as you make the withdrawals after 59 ½. You can open an account using a low-fee online brokerage like Vanguard.
6. Traditional IRA
A Traditional IRA is slightly different than a Roth IRA since your contributions may qualify for a deduction on your tax return. Your earnings may grow tax-deferred until you take them out when you retire.
The difference between a Roth IRA and a Traditional IRA is that many investors believe they’ll be in a lower tax bracket upon retirement. So, paying taxes on the Traditional IRA after they retire may cost less than paying when they are earning them. Again, it depends on your lifestyle and work situation.
7. Mutual Funds
A mutual fund is a pool of money created by other investors, companies, and organizations. It is like a portfolio of stocks and bonds. Like other investment vehicles, you’ll need to adopt a long-term strategy and invest in a broader portfolio of stocks and bonds.
Mutual funds are considered great long-term investments because they’re diversified funds. A professional investment manager handles all the research and trading for you. The funds can be purchased through a brokerage account, but you can save on trade commissions using a company like Vanguard or Fidelity.
8. ETFs
Exchange-traded funds, or ETFs, are a group of securities that can be purchased or sold through a brokerage firm on a stock exchange. This makes buying an ETF similar to buying an individual stock.
The nice thing about ETFs is that you can access many markets and industries from around the world. You can invest according to your goals and how much risk you’re willing to take.
You can purchase all kinds of different ETFs, and unlike mutual funds, there are no sales load fees. Instead, they charge a brokerage commission. ETFs were designed for individual investors, but remember that trading fees add up when you invest frequently.
9. CDs
A CD is a certificate of deposit and typically offers a higher interest rate on your money. But, unlike an online savings account, you can’t withdraw the money whenever you feel like it. If you do, you’ll be penalized with fees, which defeats the whole purpose of investing.
A CD has a fixed interest rate and a target date, also called the maturity date, when you can withdraw your money. The length of time that you want the CD to mature is up to you, and there are a variety of options, from three months to a decade.
CDs are great if you don’t need the liquid cash. Let’s say you opened a five-year CD with a deposit of $5,000 and an interest rate of 2.5 percent to give you an idea of how much you’d earn. That money would earn you around $625. CDs are low-risk and often have no monthly fees to open one.
10. Invest 15 Percent of Your Income
Set a goal to invest 15 percent of your income consistently. Max out your 401(k) and IRA each month. This way, you can let compound interest work its magic and exponentially grow your wealth.
Summary
As the saying goes, time is money. So, the sooner you start investing, the longer your money will have to grow. Yes, investing can be overwhelming, but keep it simple and start with a 401(k) and IRA.
If you already have those accounts, increase your monthly contributions until you can max them out. After that, use any number of investments, like crowdfunding or a CD.
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