The Smart & Simple Places To Invest Your Money
When it comes to building wealth there are several ways to achieve it. Open up the toolbox of investment sources to garner a successful portfolio. A portfolio can consist of any type of investment, not just stocks. Actually it is wiser to create a collection of investment vehicles that grow together over time. Ultimately, the goal is to amass as many appreciating assets as possible.
The optimistic would say there is no wrong way to invest your money, but let’s be honest, there is. Putting money into a fund that you have not researched or read up on can result in mediocre performance or lost opportunities. Just because your employer has a sponsored employee plan doesn’t mean you should leave your money in its standard investment plan. Read up on what comprises each fund or how you can fully benefit from having your cash in that account.
Spread the wealth, they say, (whoever they are) to never put all your eggs in one basket. The only argument for that is if you are highly skilled in a particular area. It’s okay to pour all your attention and investable income into one source if that is where you excel the most. Diversification is generalized in the sense that every portfolio should include multiple sources of investments, which isn’t necessarily successful. During economic shifts, certain assets will lower in value while others gain. So, having a wide mix of assets can potentially balance out to mediocre returns.
For others, keeping it diversified might be the smart play. With a 401(k), including a matching contribution from an employer, a rental property, and a stock portfolio, the likelihood of building wealth is far greater. It’s all about maximizing the opportunities to build your wealth. Paying attention to your net worth is incredibly important. The higher your net worth, the lower your debt will most likely be. And acquiring and increasing your collection of assets can be done through four major investment vehicles.
Stock investing requires a long-term orientation to see its true value. High frequency trading can be used, but it comes with commissions and normal tax implications. With a long-term investment approach we can avoid being required to pay normal income tax rates, as long as the stock has been held for at least a year. The tax rate will be lowered when the stock is eventually sold. Also, when dividend income is earned, the investor will have a reduced tax burden.
The strategies are broad for stocks, whether you choose a diversified or sector focused portfolio. Pulling together a group of blue chip companies from different sectors, such as Coca-Cola, Microsoft, Johnson & Johnson, Nike, and Wells Fargo will certainly create strong long-term returns for your portfolio. Over the past 20 years the S&P 500 has returned an annualized rate of 8.6% to investors. And those 5 companies are marquee players in their market. Not to mention the abundance of dividend income one can create over the years from those stocks.
Mutual Funds / ETFs
For those who do not have the time to pick their own individual stocks, mutual or exchange traded funds (ETF) give investors the opportunity to own a group of stocks created by a fund manager. There are endless mutual funds on the market to choose from. Some categories are growth funds, value, emerging markets, fixed income, sector or industry specific, etc. Also, there are small, mid, and large cap funds available. The pro of mutual funds is the wide variety of investment options, while the con is the fees to buy into or sell out of a mutual fund can be high.
Exchange traded funds (ETF) are also a great investment vehicle to choose to gain a similar ownership of great stocks as mutual funds offer. The difference with ETFs is the ability to move in price throughout the day just as individual stocks do. Also, ETFs issue dividends, while mutual funds disburse profits. Instead of buying stock in Amazon.com, Home Depot, Walt Disney, McDonald’s, and Starbucks, you can simply buy the Consumer Discretionary SPDR ETF (symbol XLY) and have action on all 5 companies at once.
Sponsored Employee Plan (SEP) / 401(K)
Is there an easier way to generate guaranteed returns than through an employer investment fund? Where this occurs is the matching contribution availability. If an employer is willing to match your income contributions for your work investment account, then by all means sign up. It’ll be the easiest way to compound your returns. If you are contributing $100 per paycheck and your employer matches the $100, then right there you have doubled your investment.
Even though most employee retirement plans have age restrictions for when a person can withdraw income without penalty, you do not lose the money when you depart from the company. Most allow you to leave your account untouched in the event you leave the company before retirement. Meaning, you can refrain from making a full withdrawal and instead let the account continue to grow over the years, despite no longer being employed by the company. Also, these plans allow for pretax contributions, which allow individuals to invest more, while lowering their taxable income.
Some may argue real estate has the highest potential investment return than any other asset. However, the people arguing this point are real estate investors against stock investors, who believe stocks have greater returns. Numbers don’t lie. But this debate usually has skewed numbers to support each respective side. What we do know is real estate has both short and long-term opportunities. Flipping homes has grown into a massive approach to profit off weak properties.in stable or rising markets. Developing renovated properties in credible markets typically return solid profits.
Everybody cheers about dividend income from market securities, but there’s nothing like steady rental property income. Besides it being a great source for supplemental income, it allows for accumulating enough for reinvestment into other property opportunities. Owning a property for a long period of time will come with maintenance issues, but more than likely its value will appreciate, as long as it sees its upgrades when needed. Whether residential or commercial, real estate investing can certainly be a strong vehicle to building a sizable net worth.
How Do You Invest Your Money?
We all want to accumulate enough money to retire at a reasonable age. Some people want more money, some want to retire at a younger age. Regardless of either desire, it’s going to take investing in various forms to reach that point. Honestly, it doesn’t matter which of the above four investment tools you use, it matters how well those assets you choose are growing. It’s better to be patient and methodical throughout your investment journey, than it is to just pour loads of money into any investment. All four will give you the ability to reach your goals, but there are no guarantees in any market. It may be helpful to remember to stick with the investments that fit your style. If you already invest, where do you invest? If you aren’t investing yet, where will you invest your money?