The game of money often seems simple to those just starting out in the workforce. We as people understand the idea of getting paid per hour and having the government take out taxes for roads, infrastructure, military, etc. That seems fair however, taxes are so high it can be impossible to progress financially in life.
This is why we need to learn about how to properly use money and make it work for us. You most likely learned how to use money improperly and think that income is there to cover only expenses. This is way wrong and too many people live this way.
The problem with investing is that people want a sure thing. Too many of us hold tightly onto our finances and are too afraid to invest or simply do not know what to invest in. People would rather gamble their income away at a casino hoping to win a million dollars instead of making their initial investment steadily grow.
Patience is something we all need more of. With the proper knowledge and the right investments, you could easily have your money work for you instead of constantly chasing after a paycheck.
Investing can be overwhelming and the terminology alone can be discouraging. This by itself is why many people just ignore it and continue working for money as opposed to the other way around.
Imagine money as a multi-tool with a blade, wrench, screwdriver, pliers, scissors, etc. but you only know how to use one function and stick with it forever. You are very capable of using the entire multi-tool and just need proper instructions.
Just like money, you need the proper instructions and know-how to unleash all the potential that money has to offer. Start your investing journey today by getting started with the basics.
Focus On Your Goals
Knowing the very basics of where to invest your money is great because it gives you plenty of options. Choosing which investment is best for you will depend on your financial goals. Do not just limit yourself to one investment.
The best way to do this would be with a financial advisor who has their own assets and investments. Make sure they have their own investments and are not just spreading knowledge you could easily find online.
No reason to be flustered or worried when speaking to a financial advisor, especially if you only want to obtain simple information. Go to multiple advisors and compare what each has to say. You are shopping for the best financial advisor possible so keep looking until you find exactly who you need to succeed.
Avoid anybody handling your finances if you suspect they are not trustworthy.
Investing involves risks and it is important to research these risks before investing. Make a wise decision about where your money should be invested once you have established the risks, terms, and requirements. Decide on what your financial goals need to be and go from there.
“Money is a great servant, but a bad master.”
– Francis Bacon
Never lose focus on your ultimate goal, but be prepared to adapt along the way. There will be plenty of hurdles to go through which is why you should stay patient and never give up.
Your money needs to be invested wisely so always be on the lookout for opportunities. Research is vital to ensure you will make a decent return on investment. Read everything you can on finances, take classes or seminars, and follow the top gurus in the business.
The more you learn, the more comfortable you will become. Stay in control of your money and where it goes because it could go further than you expect.
Reasons to Invest
There are multiple reasons to consider when investing money. If spending your hard-earned money on an investment seems too risky, then this is not for you. For the rest of us out there who love taking risks, you will love the benefits that investing can provide.
Investing will help you achieve financial goals, whether it is buying a house, funding education, or planning for retirement. It provides a means to grow your capital and reach these milestones. Once you become more familiar with investing, you will be able to grow your wealth to unimaginable levels.
Keeping money in a savings account may not keep up with inflation. Investments often yield higher returns, which can counter the effects of inflation, preserving your purchasing power. This allows you to earn returns that outpace inflation, therefore increasing your wealth.
Certain investments, like dividend-paying stocks or rental properties, can generate passive income, providing you with a steady stream of money without active work.
Investing in a variety of assets can spread risk and affect diversification. If one investment underperforms, others may offset those losses causing a reduction in the overall risk in your portfolio; another reason to consider multiple avenues to invest in.
Building a robust investment portfolio is crucial for retirement planning. Investment returns offer an opportunity to accumulate a significant nest egg that can sustain you during retirement. There is even the chance of early retirement provided you follow basic guidelines.
Consider growing your money over time through various investment opportunities like stocks, bonds, real estate, or mutual funds. These are the most common types of investments people love to use.
Stocks vs Bonds
There are many reasons to consider investing in stocks and bonds. Some of the benefits include the potential for high returns, as well as helping to diversify your investment portfolio, which can help to reduce your risk.
Remember, that over time inflation can erode the purchasing power of your money. Stocks and bonds can help to protect your money from inflation.
There is no guarantee that you will make money when you invest in stocks and bonds. You could lose some or all of your investment. The prices of stocks and bonds can fluctuate significantly over time. This can be stressful, especially for new investors.
Stocks and bonds are not as liquid as some other types of investments, such as savings accounts. This means that it can be more difficult to sell them quickly.
Stocks
A stock is a share of ownership in a company. When you buy a stock, you become a shareholder of the company thus having a claim on its assets and earnings. The value of a stock is determined by supply and demand, which means that it can fluctuate significantly over time.
Stocks are traded on exchanges, such as the New York Stock Exchange (NYSE) and the Nasdaq. This can be a good way to grow your wealth over the long term, but can also be riskier than other types of investments.
There are two ways to make money with stocks, capital appreciation and dividends.
Capital appreciation is when the price of the stock goes up and you can sell it for a profit. This can be a good way to build enough money to invest in something much bigger. Quite a popular choice however, be aware of capital gains tax because that will eat into your profits.
A dividend is a portion of the profits a company makes and is distributed to shareholders. Dividends are normally distributed quarterly and may be paid in the form of cash or reinvestment in additional stock.
Bonds
A bond is a loan that you make to a company or government. When you buy a bond, you are essentially lending money to the issuer of the bond. The issuer of the bond promises to pay you back the principal amount of the loan, plus interest, over a set period.
Government bonds can be purchased through regular investment accounts at many financial institutions. If your bank or brokerage firm does not offer this service, you can buy them directly from the government.
Bonds are paid out in interest payments where the issuer of the bond pays you interest on the principal amount of the loan. Another way a bond can be paid out is from capital appreciation, similar to stocks.
Mutual Funds vs ETFs
A mutual fund is a collective investment scheme where numerous individuals pool their funds to acquire a diverse range of securities, such as stocks, bonds, or other assets. A skilled portfolio manager oversees the fund and decides which investments to buy and sell.
An exchange-traded fund (ETF) is a type of investment fund that tracks an underlying index, sector, commodity, or other asset. ETFs trade on stock exchanges just like stocks, and their price fluctuates throughout the day based on supply and demand.
This makes them more liquid than mutual funds, which are only traded once a day at the end of the trading day.
Mutual funds and ETFs are both investment options that allow you to diversify your holdings and gain exposure to various assets. While they share similar goals, they differ in their trading, management, fees, and tax implications.
- Trading. Mutual funds are traded at the end of the day based on their net asset value (NAV), while ETFs trade like stocks on exchanges throughout the day. This makes ETFs more flexible for frequent trading.
- Management. Mutual funds are typically actively managed by a portfolio manager who selects investments, while ETFs passively track a specific index or sector. This simpler approach generally makes ETFs cheaper.
- Fees. Both types of funds have fees, including expense ratios, management fees, and sales loads. ETFs typically have lower expense ratios due to their passive strategy.
- Taxes. ETFs are generally considered more tax-efficient as they distribute capital gains less frequently, which can be beneficial for taxable accounts.
In summary, ETFs offer more flexibility, lower fees, and potentially better tax efficiency compared to mutual funds.
Rentals vs REITs
Investing in rental property and REITs (real estate investment trusts) are great ways to gain exposure to the real estate market. However, there are some key differences between the two approaches that investors should be aware of.
Investing in rental property involves buying property and renting it out to tenants. This can be a good way to generate income, but it also comes with a lot of responsibility. Landlords are responsible for finding and screening tenants, maintaining the property, and collecting rent. They are also at risk of vacancies and evictions.
REITs are companies that own and operate income-producing real estate. They are traded on major stock exchanges, and they are required to distribute at least 90% of their taxable income to shareholders as dividends.
REITs offer investors a way to gain exposure to the real estate market without the hassles and responsibilities of owning and managing property.
| Feature | Rental Property | REITs |
|---|---|---|
| Upfront Investment | Can be very high | Relatively low |
| Liquidity | Illiquid | Liquid |
| Control | Can be very high | Less control over the property |
| Responsibility | Responsible for property maintenance, tenant screening, and rent collection | Not responsible for property maintenance, tenant screening, or rent collection |
| Return Potential | High | Can be lower than rental property |
| Risk | High | Generally less risk |
Resources:
- Investopedia
- Nareit
- Featured Image Courtesy of Free Stock photos by Vecteezy