Smartest and Fruitful ways to invest your money and watch it grow in 2019
“Rich people believe “I create my life”. Poor people believe “Life happens to me”- T. Harv Eker. This quote shows the mind-set differences between the poor and the rich. If you want a shot at accumulating wealthy, you need to do more than simply earn money.
Most importantly, you need to hold onto the money you earn. And then, you need to grow your money. In order to grow your money, you need to learn how to invest. Let’s take a look for example folks like Dan Lok
A world-celebrated business magnet, a poor Chinese boy who came to the United States of America with nothing. So what did he do? He invested. When you become an investor, you’ll be using your money to acquire things that offer the potential for profitable returns through one or more of the following:
- Interest and dividends from savings or dividend-paying stocks and bonds
- Cash flow from businesses or real estate
- Appreciation of value from a stock portfolio, real estate, or other assets.
As you learn to become an investor, you will begin to devote your limited resources to the things with the largest potential for returns. That may be paying down debt, going back to school, or fixing up a two-family house. Of course, it may also mean buying stocks and bonds, or at least mutual funds or exchange-traded funds.
Thanks to advances in technology, you can start to invest with as little as $5 a month and a smartphone. It’s my job to help you filter out the noise, learn the basics, and make good investment decisions from the start. With no fees on accounts with low balances and easy automatic investing, Wealthfront is my top pick for a best all-around investment account. So here are the basics of how to invest—wisely. In this article, the following topics are covered:
- Why invest?
- Say you start investing when you’re barely 18 years…
- When should you invest?
- What do you invest in?
- Advanced investing strategies
- Bottom-line advice
- Should you DIY or get help with your investments?
Why should you invest?
Investing allows you to significantly grow your money over time thanks to the power of compound returns. Compounding can be called the Eighth Wonder of the World. Thanks to the power of compounding, a single penny could grow into millions of dollars, given enough time. You may not live that long, but consider the following examples.
Say you start investing when you’re barely 18 years…As unrealistic as it may sound to start investing that young, say you got a small inheritance and you decided to invest it—if you put $5,000 in an account with an interest rate of 7 percent and contribute an extra $200 a month, after 30 years you’ll have a little over $284,000.
Let’s use a more realistic example, say you start investing when you’re 21 and above, right after graduation…
You start out just putting $50 a month into your 401k, with a 50 percent company match. If you raise contributions by the same amount as any pay raises, you’ll have more than $1 million by age 65. That assumes annual raises of 3.5 percent and an 8.5 percent return on 401(k) investments.
While there are many factors to consider—a simple example like this demonstrates the power of compound interest if everything goes right. So if you want to start saving now, you could even have a whole year’s salary saved by the time you’re 30.
This brings us to the question, when should you invest? Now that you know why you should invest, how about when to invest? The answer to that is pretty simple. The right time is now.
Investing sounds more intimidating that it is. Yes, there’s always a potential risk for loss, but there’s an even bigger potential for serious gain. Doing anything for the first time can be terrifying, especially when it involves your hard earned cash. But here’s some advice for first time investors.
Investing for the first time
Investing is like religion—people have some strong opinions and may even belong to one of many sects or schools of thought. Here are a few that come to mind:
The Doomsday Preppers – these people are convinced our financial system will collapse, so they stick all their money in gold and real estate.
The Gambling Day-Traders – these are most often the people you see in movies, with their desks or walls covered in monitors and TVs, watching every second of the day and seeing how the stock market changes.
The Indexers – these are people who simply invest in everything in order to take advantage of the slow and steady increase in the overall value of the markets.
If you already belong strongly to one of the above camps, you may not find the investing resources on Money under 30 useful. If, however, you have an open mind and are interested in learning simple strategies for successful lifelong investing—without any gimmicks—then read on.
If you’re on the fence about where and when you should invest, make sure you’re taking advantage of guaranteed interest rates. High yield online savings accounts are currently offering over 2% with FDIC insurance (which means your money is insured by the federal government).
A good place to getting started is with Marcus and here is how:Marcus has always offered strong interest rates on their deposit accounts and they current sport a 2.00% APY on all balances for their online savings account. If you’re OK with putting your money away for a CD Term, they also have APY’s in the mid 2% range for terms of four and five years. Marcus can also offer you a loan if you’re in the market for one.
Risk vs. reward
It’s true: Investing involves risk. We’ve all heard stories about investors who lost half of their fortunes in the Great Depression or even more recently in the Great Recession. We’ve heard about the Bernie Madoff’s of the world and investors who lost everything to a scam. Although you can never eliminate risk entirely, you can significantly reduce risk if you invest wisely.
The great thing about investing young, is you’re likely investing in longer-term investments—like your retirement account. These investments are less risky than quick-fix stock trading by people who really don’t understand what they’re doing. While investing can be risky, it’s best to just deal with that risk, because not investing can cost you a lot more money than losing a little of money on a bad investment.
I talked about compound interest above, and the key rule to that is—the sooner you start to save the more your money will earn over time. Take a look here to see the big difference between someone who started investing at 25 versus 35. You could be missing out on hundreds of thousands of dollars if you start saving later. Again this brings us to the question, what do you invest in?
The smartest philosophy is to keep investing as simple as possible as follows:
Create broad diversification through a mix of low-cost mutual funds and ETFs, while keeping it fun by holding individual stocks with up to 10 percent of your assets. The most important factor in being a successful investor is not the stocks and funds you pick. Successful investing depends on:
1. Choosing proper asset allocation – the overall mix of bonds, stocks, and cash you hold in your portfolio.
2. Making and sticking with an automatic investment plan – this way you avoid making terrible, emotionally-charged decisions—like selling at the bottom of a market crash.
The investing information on Money under 30 barely scratches the surface of all the knowledge out there about investing, but that’s OK. I'm not trying to train the next class of hedge fund generations so much as give the average person enough knowledge and confidence to begin investing on your own.
Mutual funds
A mutual fund is a type of professionally managed investment that pools your money with other investors. The fund’s managers then use the pooled money to buy securities for the group.
It’s best to start out investing in mutual funds or exchange-traded funds rather than individual stocks and bonds until you get your feet wet. These types of funds enable you to invest in a broad portfolio of stocks and bonds in one transaction rather than trading them all yourself.
They’re not only safer investments (because they’re diversified), but it’s often far less expensive to invest this way. You’ll either pay just one trading commission or nothing at all (in the event you buy a mutual fund directly from the fund company), as opposed to paying trading commissions to buy a dozen or more different stocks.
Although mutual funds can be purchased through any brokerage account, you’ll save money on trade commissions by buying funds direct through a mutual fund company like Fidelity or Charles Schwab.
Bonds
Whether it’s corporate, municipal or treasury, bonds are a great way to leverage your investment against the success of other entities. Bonds are a debt security which raise capital for others. They finance new companies, local projects and even the US Government. While no investment is risk-free, government bonds (T-Bonds) are just about as close as you can get.
You might also want to consider investing in Worthy Bonds. Worthy Bonds are $10 each, and offer a fixed rate of return of 5%. Each bond has a 36-month term and interest is paid weekly. Cash in the bond any-time you’d like (even before maturity) and you’ll never pay a penalty.
The money you invest in Worthy Bonds is used to fund American businesses and worthy is very picky about which businesses to lend to. They only invest in companies whose liquid assets far exceed the amount of the loan; making the risk low for a terrific 5% return. Accredited and non-accredited investors are welcome and you can buy as many $10 bonds as you’d like.
Retirement accounts
An IRA provides certain tax advantages as an incentive to save for retirement. The downside is there are limits on how much you can contribute to the account each year and when you can withdraw the money.
401(k)
A 401(k) with an “employer match” might be the ultimate investing vehicle, period. That “match” is key, though – many employers will fund your account dollar for dollar, matching any contributions you make yourself.
If you’ve got most of your investment money in a 401(k) account, I recommend giving blooom a spin. They’re a robo adviser that’s totally dedicated to managing 401(k) s – that is, unlike other robo advisors, they won’t touch money you have in an IRA or other retirement vehicles.You can get a free 401(k) analysis with blooom, and if you decide to move ahead with them they’ll charge you a reasonable $10 a month to manage your account on an ongoing basis.
Traditional IRA
With this type of account, your contributions may qualify for a deduction on your tax return. In addition, there’s the potential that your earnings can grow tax-deferred until the time you need to withdraw them at retirement age. The primary argument with a Traditional IRA (vs. a Roth IRA) is that most feel they’ll be in a lower tax bracket when they retire, so paying taxes on this money at stage will be cheaper than paying them when they’re earned (considering the up-front deduction).
Roth IRA
With a Roth IRA, your contributions are after-tax and the money can potentially grow tax-free while you save. The big benefit here is that withdrawals at retirement time are tax-free, assuming you meet the required conditions. This is my number-one recommended retirement account for most people.
Rollover IRA
This is an account that’s created by rolling over another account, such as a company-sponsored 401(k). For example, if you have a 401(k) with an employer who you leave, you can roll that money over into a Rollover IRA.
If you’re new to investing and want to begin putting money to work for the long-term, an IRA is where to start. Read more about the best places to open an IRA here.
Now here is a question to ponder, should you DIY or get help with your investments?
It’s important to know when it’s best to have a financial advisor and when it’s best to opt for a different investing platform. If you’re looking for real financial advice and you have quite a bit of money to handle, a face-to-face advisor will be much better at explaining things to you than any electronic form of advisor.
Some people may choose to invest with a financial advisor because they want face-to-face interaction, professional advice, and don’t mind paying a premium for someone handling their money. Oftentimes, people with large sums of money to invest will hand it over to a financial advisor so they don’t have to do the work.
So how do you find a financial advisor? It’s relatively easy to do as long as you know the right questions to ask. If you’re a millennial and are looking for a financial advisor (although, make sure you really need one)
Robo-advisors
If you are trying to really get started as a first-time investor, one option for you is to go the robo-advisor route. The easiest way to understand the nuts and bolts of robo-advisors is that they are financial advisors that use algorithms to provide you with the very best advice about financial investments.
Robo-advisors are extremely popular at this point because they make investing accessible for everyone. These easy-to-use apps are more convenient, more affordable, and they have lower investment minimums than standard financial advisors.
Plus, there’s no investment broker and the costs are lower as compared to traditional management firms.
There are a bunch of great robo advisors out there, but as is true with absolutely everything, not every robo-advisor is right for every investor.
Betterment
With Betterment, there is no initial investment that you need to open up an account. There is an annual fee that is relatively low when comparing rob-advisor fees overall; the management of your entire account is only 0.25% each year.
You can invest in stocks and ETFs across thousands of companies both in the US and international markets. You’ll have a customized portfolio based on your preferences and risk tolerance, and your account is fully managed.
Wealthfront
Here’s the great part about Wealthfront: if you’ve got $500 to invest, you can open an account with Wealthfront. And until your investment reaches a grand total of $10,000, there are no fees that you’ll have to pay at all.
This means that if you’re a new investor, the deal may very well be exactly the best enticement to get started. And if you’ve invested $10,000 or more, Wealthfront’s fee is quite competitive at 0.25% a year.
M1 Finance
If you’ve got $100, you can start investing with the M1 Finance which is a kind of combination of using a robo-advisor and a traditional brokerage, and the platform is super user-friendly.
M1 Finance makes it easy for new investors to get started because they are willing to chip in to help you buy stocks that may cost $200 even if you have $100. And there are no fees at all for either opening an account or trading.
Online stock brokers
If you want to DIY your investing, there are a lot of great brokerages for you to consider. You can typically do everything without ever having to speak to a person, which is nice for some people.
Online brokers are also often much cheaper than a traditional brick and mortar broker where you’d meet face-to-face with a person.
TD Ameritrade
For young investors, TD Ameritrade is an option because there no minimum investment whatsoever to even open up an account. So you don’t have to wait to get started.
TD Ameritrade has an impressive number of tools available to use to do research about strategic ways to invest. You can also access a whole array of third-party platforms for free that will help you stay updated about trading and investing.
E*TRADE
One of the favorite online brokers is E*TRADE – their pricing is a bit high at $6.95 per trade along with $.75 per contract, but their trading platform is top-notch and they offer a ton of commission-free ETFs and mutual funds.
Keep in mind that they are a first-rate investment brokerage firm offering you the opportunity to invest in stocks, bonds, mutual funds, ETFs, as well as futures and FOREX trading. And if you end up making a minimum of 30 trades per quarter, you get a discounted rate of $4.95 with $.50 per contract.
Ally Invest
If you’re one of those people who want to be a little bit more hands-on with your investments, Ally Invest is going to be a great option for you. You’ll also save money per trade: $4.95 stock and ETF trades it’s one of the cheapest around.
Note that you’ll need to meet a $500 minimum funding requirement to open an account. But with new accounts, you get $1000 in free trade commission’s making this a nice added bonus.
Let’s windup by a warming quote from Warren Buffett
A giant investor and business magnet who said “What an investor needs is the ability to correctly evaluate selected businesses. Note that word ‘selected’: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital”