As inflation kicks in and the standard of living gets higher, parking your money in your savings account alone is not enough to lead a comfortable life and provide for your family of five. As such, many are now realizing the importance of investing your money, in order for your wealth to grow significantly. With the proliferation of information on the types of investments, how to invest, and what is the best investment in our digital age, the information can be too overwhelming and intense. Therefore, to make it much simpler for you, especially if you are a novice, here is an article that gives you a comprehensive guide on how to make your wealth grow. If you are thinking of trying your hand at investing, now is the perfect time for you to start.
How to Invest Money
When you decide to start investing, it is best to go back to the basics. Setting the goal for your investments, determining where to invest the money in, and deciding for yourself how much you can fork out is crucial in making the best decision according to your own needs. When you invest money, you are essentially either buying a share of a company or a commodity, believing that the value will increase over time, providing you with high returns.
However, you need to understand that investments are not a hard-fast rule of becoming rich overnight — there are still a lot of risks involved that could cause you to lose money, and it is a way of consistently letting your money grow over time.
Where to Invest Money?
When it comes to investing, there is a myriad of options available for you.
1. The Stock Market
The most common and controversially most beneficial place to park your money would be the stock market. If you buy a stock, you are owning a small portion of the company that you have bought into. When the company profits over time, they will give you a portion of the profits known as dividends, based on the number of stocks that you own. As the company grows, the prices of the shares that you own will grow as well, translating into profits if you decide to sell them at a later date.
2. Investment Bonds
When you purchase a bond, what you are doing is that you are loaning a sum of money to either a company or the government. The government or company selling you the bond will then pay you interest in terms of the sum of money that you put in, over the period of time of your bond’s lifecycle. Though they are much more stable than stocks, their returns are much lower, thus resulting in lower profits for you.
3. Mutual Funds
Instead of purchasing a single stock, mutual funds allow you to purchase a whole basket of stocks in one purchase, and these stocks are usually managed and chosen by a mutual fund manager, rather than yourself. However, they earn a percentage based fee from the mutual funds that you purchase. More often than not, this fee makes it difficult for the investor to beat the market when they purchase mutual funds.
4. Savings Account
The easiest but most ineffective way of growing your wealth would be to park your money into a savings account and let the interest do its work for you. Though it is the safest way to ensure that you do not lose any money, the interest rates are usually extremely low, which means low returns for you. Despite this, this is a risk-free way to lock in your cash for rainy days, making sure that your money is safely kept.
5. Physical Commodities
These commodities are physically owned by investors themselves and usually come in the form of gold or silver. They play a vital role in locking in money, making sure that you are able to tide over hard economic times. In particular, gold has been an increasingly popular option, and mineweb has listed the top gold IRA companies for those of you considering investing in gold to save up for your retirement.
How to get good returns?
For small return investments, the best way that is almost fail-proof would be to either put it in a savings account or invest money in treasury bonds that can guarantee about 2 to 3% annual returns on your investments. However, this is hardly enough for individuals especially if you are planning for your retirement fund. As such, it is vital to look out for investments with higher returns.
1. Stock Market
By far, one of the best things to do is to buy stocks from a company that you think is going to continue succeeding in the next few years. If you find a company that you think is able to withstand challenges and remain relevant in the market, you should get a hold of their stocks as they can bring you average annual returns of more than 15%.
2. Index Investing
Another alternative is to go into index investing. Over the last 90 years, S&P500 has been able to deliver an average of 9.8% of annual returns. S&P500 makes up 500 of the biggest companies in the US and is doing considerably well in the stock market. Investing in S&P500 has been relatively popular in recent times, and analysts say that you can make about three to four more times more money than investing in bonds, and more than 10 times of the savings made from saving accounts.
Investing in a 401(k) is another way to delve into the stock market. The real value of a 401(k) comes if your employer is willing to match a portion of your investments to earn higher profits. Essentially, this will help to double your profits regardless of the market’s performance, and it is extremely profitable. However, if you have reached the maximum amount of money that your employer is willing to fork out and match your contributions, this investment will become less desirable.
These are some ways in which you can let your money grow. While they seem rather simple and risk-free, a crucial tip is to do a lot of research before delving into it. Read extensively and talk to people who are more well-versed with investments. It is important not to get too carried away with the perks to the point that you forget about the associated risks involved. Plan your strategy and decide on your own needs before making a decision. As long as you have a game plan and know your risks, the money will eventually come rolling in.