Finding a reputable review about how to Invest Money, local or worldwide can be a difficult process, especially finding a complete list from a trustworthy reputable source.
Our quick guide on how to invest money:
- ✔️Why should you consider investing your money?
- ✔️Important Basic Principles to Invest Wisely
- ✔️How to start investing
- How to start investing in the Stock Market
- Alternative investment options
Below is an in-depth review regarding how to Invest Money to help you make an informed decision before trading
The simplest definition of ‘investing’ is that it concerns the act of putting assets, such as real money, to work for the growth in value of the asset. Money is used when purchasing an asset such as real estate, stocks, coins, loans, businesses, or anything else which has value, expecting a return that will be larger than the money initially invested.
Why should you consider investing your money?
The one characteristic, and downfall, of money, is that, over time, it loses value as a result of inflation. As the years go on, the money will have less buying power. However, when investing money and growing it at a rate that is greater than inflation, it is possible to end up with a larger sum than originally invested.
Investing is a popular way through which wealth can be built and there is a vast variety of ways in which to invest.
Important Basic Principles to Invest Wisely
Before exploring the options that there are in which you can invest your money, there are some basic principles that must be understood so that wise investment decisions can be made. Wealth can only be built successfully when you make the right choices and avoid traps that can scuttle investments over the long term.
Keep investments simple
There is a wide variety of investment strategies that can be followed. A vast number are promoted by people who tell new investors that their unique strategies are foolproof and will bring the investor millions.
However, this is often an inherent characteristic of a scam and must be avoided. Complicated strategies often do not work, and should they work, they will not be over the long term.
The best investment strategies are those that seem quite mundane and boring. The simplest and easiest way to invest in stocks is to buy shares of index funds that match the returns of the market.
Another simple, yet successful, strategy is to invest equal amounts in mutual funds which cover the following four categories:
- Growth and Income
- International, and
- Aggressive Growth
Always ensure that you fully explore a strategy and learn all that you can before you move on to the next. The more complicated the strategy, the more likely the chance that you will not understand how it works, which could result in substantial losses.
Make sure that you understand your investment
If you cannot explain your investment to a friend, family member, or anyone else so that they can clearly understand it, then you should not be investing in it. You should have a clear and concise goal in mind with your investment, understand what you are putting towards it and what your return will be.
This is one of the most crucial concepts and in a modern world where there is an excessive cost of living, it is not always possible. When you have less debt, you can put more towards investing and growing your wealth instead of constantly battling the bondage associated with debt.
Those who are indebted must first take control over their finances and work towards reducing their debt while increasing what they can invest, to allow for a greater return.
Aim to invest 15% of your income
Although this is not always possible for each new investor, it is a goal to work towards. By consistently taking 15% of your income and investing this, it instills self-discipline, and one of the best ways to ensure that this amount goes to investing, you can set up an automatic deduction from your bank account.
Keep emotions and investments separate
The media has the habit of painting the picture of investing as an exciting game of hot stock tips as well as constantly buying and selling. Even though some short-term investors take to such strategies, depending on the investor’s goal, investing can often be as exciting as watching paint dry.
There will always be fluctuations in the market, with the prices on stocks moving up and down. Some days, you will make money and other days, you may lose. However, investors, especially beginners, must not let these fluctuations play on their emotions.
Investments may suffer over the long term should the investor allow emotions to direct their investment strategies and decisions. Try not to check on your investments daily, if you decide to invest over the long-term, check them every month, or every quarter.
Try not to be too conservative
Take care in avoiding being too conservative with investments. Keeping most of your money in Certificates of Deposit (CDs), for instance, or a money market is not an advisable strategy. A lot of investors make this mistake thinking that it is a sound investment as there is no chance of losing money.
Investments such as these may be safe and investors do not lose the money invested, however, such investments have an extremely low return on investment. Returns such as these do not necessarily keep up with inflation, meaning that you stand a chance to lose more money as buying power will eventually be lost with an increase in inflation.
Learn to be patient
Having a short-term mentality towards investment increases risks substantially and could end up in a loss of funds. Investing is commonly seen as a marathon, not a sprint. It is completely normal for the value of an investment to fluctuate over time.
However, as time passes, your portfolio will increase in value. Learn to be patient if your investments are not performing very well presented. Try not to think about your investment in terms of their performance today, or even the last six months. Think about your investment in time spans of around 20-30 years or more.
By taking a long-term view, it will help you see and keep things in perspective and prevent you from becoming too emotionally invested.
Seek wise counsel
One of the best things that a new investor can do, is to seek professional advice, especially where investment is concerned. The best counsel will come from a financial advisor or a planner. Seek someone who charges a flat fee or an hourly fee.
By hiring a professional who takes a percentage of the money that you invest as compensation, it will place a substantial dent in investment returns. The 1% that you pay someone may not seem like a lot, but it costs tens of thousands over the investment’s lifetime.
Understand the fees
There are fees that new investors need to be aware of that may eat into earnings over time. High fees can cost a substantial amount over time not only due to the fees themselves but also diminished investment returns. Some common fees that new investors must take note of are:
- Annual Fees – which are charged every year when you own shares of a mutual fund. They can range from 0.2% and even up to as high as 5-6%.
- Front End Loads – some mutual funds, especially, will subject the investor to 5-6% of their total investment merely for the privilege of purchasing the funds.
- Transaction fees – these are normally low and are charged every time that shares are either bought or sold.
Before making any investment decision, ensure that you thoroughly explore the fees and even consult a financial advisor to explain them to you should anything seem unclear.
Always opt for a Tax-Free investment and invest pre-tax money first
- Tax-free Money – money which is invested into certain accounts is taxed like regular income. However, should you retire and take money from your account, you will not pay taxes on the withdrawal.
- Pre-tax Money – money invested in certain accounts, such as IRA, is not taxed as income. This means that you will save money on taxes in the same year that you invested the money. However, when you start withdrawing funds from the account at retirement, you will be taxed on the withdrawals.
- Free Money – Investors who have employers that match contributions to retirement accounts can take advantage of this option.
How to start investing
What types of investment options do I have?
There is a variety of ways in which you can invest money and it is important to choose the right one which will fit your needs and goals. It is imperative to explore each type of investment before you decide to put money towards it.
- Mutual Funds
- Exchange-Traded Funds (ETFs)
- Certificates of Deposit (CDs)
- Retirement Plans
Where can I open an investment account?
There are a lot of options when it comes to investing. One of the most popular ways through which you can invest is through an online broker. There are also banking institutions that have their own accounts and facilities for investment, which make it easier for investors to transfer funds into their investment and keep an eye on their progress.
How does an investment account work?
Once an investment account has been opened, there are often two types of accounts within the investment account, these are:
- Settlement account – this is also known as a holding account where the money is deposited then the investor transfers it from their banking account. It can be used to purchase stocks, bonds, mutual funds, ETFs, or anything else offered by the broker or bank. When investments are sold, the money goes into this account after the sale is finalized.
- Investment account – when purchasing an investment, it is held in the investment account. This is where the investor can see the investments that they own, how many shares they have, and how much there are worth.
How to start investing in the Stock Market
Numerous people invest at least a portion of their money in the stock market. It is one of the most popular options for investing and whether you buy individual stocks, mutual funds, or ETFs, stock market investing is one of the best ways to invest your money and make it grow substantially.
For this reason, it is imperative to explore the different concepts involved with buying stocks.
When buying individual stocks, the investor becomes a part-owner of the company whose stock they are buying. The value of the stock rises and falls, often very quickly, as the company either makes or loses money.
Individual stocks are often riskier as the investor has the potential to lose all their money should the company go out of business.
These tend to be less risky than investing in individual stocks. A mutual fund is a basket of different stocks of individual companies which are grouped into one investment. One characteristic that mutual funds have is that they each have a theme such as health care, retail, income, and numerous others.
Unlike stocks, the price of a mutual fund is settled at the end of the trading day instead of being traded throughout the day.
Exchange-traded funds are like mutual funds as they are a basket containing stocks that are grouped in one package. The difference between the two investments is that ETFs can be traded throughout the day like stocks.
ETF fees are lower than with mutual funds and there is a variety of options depending on how the investor would like to invest. Some ETFs are conservative while others are riskier and have greater potential for substantial returns.
Alternative investment options
There are hundreds of diverse ways in which money can be invested. Each investment has its own set of rules, fees, risks, and returns. One important thing to remember when investing is to keep a diversified portfolio.
This ensures that should one investment perform badly, there will be others that can cover or make up for any losses experienced.
Real estate is another way to invest money wisely. There are a lot of ways in which it can be done, and it can be an extremely profitable investment if done correctly. Ways in which money can be invested in real estate include:
- Rental houses
- Fixing and ‘flipping’ houses
- Multi-unit rentals
- Raw land
- Real estate crowdfunding
- Vacation rentals, and more.
Cryptocurrencies have been around for quite some time yet not a lot of people realize the investment potential that they hold. The two most popular cryptocurrencies are Bitcoin and Ethereum, with hundreds of others available.
It is extremely risky to invest in cryptocurrency as it is unregulated. However, despite the risks, there is immense potential for returns, and investors who are interested in investing in these digital currencies, are advised to only invest a small portion of their portfolio.
Gold falls at the other end of the spectrum as it is a much less risky proposition. Gold prices are steady, which is one of the reasons why people use it as a store of wealth without expecting large returns.
Gold prices increase during poor economic times and it can be used as a hedge to protect money should stock prices be dropping.