It’s the question everyone’s asking: How do I grow my money and earn passive income? We all have financial goals that we’re constantly working to reach, however, you can get yourself there a little quicker by learning how to invest money effectively.
Fortunately, investing has never been easier, but of course, if making money by investing was easy and simple, we’d all be rich. This isn’t meant to scare you off, but to acknowledge that successful investing takes time, research, and the desire to continuously learn and adapt.
In this post, I’ll give you a broad overview of investing and some suggestions for getting started. Even if you don’t have a huge amount of money, you can still start playing the game and get your money working for you.
What is Investing?
Investing is the process of allocating money or assets with the expectation of generating a profit. Simply put, you give money hoping to get more back.
While this definition could apply to many different things, like gambling, loan sharking, or buying scratch-off lottery tickets, obviously, these aren’t the sort of investments you want to focus on. Instead, you should put your energy toward finding sustainably profitable opportunities.
How can I get started investing?
There are limitless ways to get started, and here you’ll learn a bit about the best entry-level investments to consider. If there’s one rule to take away from this article, it’s this: Do not invest more than you can afford to lose, ever.
5 Ways to Invest Money
Here are five types of investments that you can get started with right now.
High-Yield Bank Accounts
You’re probably already investing without realizing it if you have a savings account. Most savings accounts come with an interest rate, expressed as an Annual Percentage Yield (APY). This means that you’re earning interest on whatever balance you’re holding in that account.
However, if you have a traditional account, you’re likely missing out on money with a low APY. To maximize the interest you can earn, you want to look for a high-yield savings account, checking account, or money market account. These accounts are most often available with online-only financial institutions and are usually fee-free.
Are high-yield bank accounts worth it?
The benefit of an interest-bearing bank account for beginners is that there’s zero risk. Literally, you’ll never lose money.
That said, the trade-off is that the return isn’t enough to truly build wealth. Even the best APYs have very limited earning potential, so you’ll have to look elsewhere for higher returns. With this in mind, think of your high yield account as a safe place to store your down payment and emergency funds rather than a long-term investment.
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Stock Market
When most people think of investing, they think of the US stock market. It’s the epicenter of the investing world and the most common avenue for generating wealth. Fortunately, you don’t need to be the Wolf of Wall Street to get involved.
In recent years, the stock market has been somewhat democratized. Online brokerage accounts have popped up everywhere, along with the ability to make low-cost investments on fractional shares.
The market itself is complex and offers many different ways to navigate it. However, as a beginner, there are three main ways that you’ll probably approach it. Let’s take a look at each one.
Individual Stocks
Purchasing shares of an individual, publicly-traded company is the simplest stock market investment option. If the company does well, the value of your shares goes up, and you make money. If it does poorly, that value goes down.
Ideally, this approach is based on research or data rather than a gut feeling. While buying low on a stock that happens to skyrocket is the quickest way to make money, you’re also at risk of losing everything if it plummets.
To get started, you can open a free investment account with easy-to-use platforms like Robinhood or WeBull.
Mutual Funds & ETFs
This type of stock market investing comes down to one word: Diversification.
Rather than putting all of your eggs into a single basket, you’re spreading it out between various stocks, corporate bonds, or other assets. The result is a steadier, more stable investment for the long haul.
You can invest in diversified funds with most brokerage accounts or robo-advisor platforms like Acorns.
Retirement Accounts
With a diversified retirement account, you’re investing in your future. If you’re young, it might feel painful to set aside money that you can’t touch till you’re 65 — I get that. But trust me, the closer you get to retirement, the more grateful you’ll feel that you started early.
There are several different types of retirement plans, and each one comes with different benefits. For example, your company might offer a 401(k) retirement plan. With a 401(k), you can allocate tax-free funds from your paycheck toward the account. Plus, most employers offer some level of contribution matching.
If you leave that job, the company will no longer match your contributions. Therefore, your best bet is to roll that money into an Individual Retirement Account (IRA).
There are two main types of IRAs: Traditional IRAs and Roth IRAs. With a Traditional IRA, like a 401(k), you pay taxes on your contributions when you withdraw the money at 65. With a Roth, you pay taxes upfront and withdraw your full amount when you retire.
Cryptocurrency
Cryptocurrency is the most volatile investment opportunity that I’ll cover here. At the moment, crypto is considered a high-risk, high reward investment for a simple reason: No one knows where it’s headed (even your buddy who has a new “sure thing” coin for you every week).
This isn’t to say that crypto is an inherently bad investment. Plenty of people have made a killing with it, and plenty more will continue to do so. It simply means that these markets are less stable than more established ones.
As time goes on and crypto becomes more and more established, the long-term picture will start to clear up. Until then, just know that you’re entering a market that comes with an elevated risk of losing what you put into it.
That said, there are ways to curb those risks. First, you can focus on the most-established coins available, like Bitcoin (BTC), Ethereum (ETH), or Litecoin (LTC). While all of these options are still volatile, they don’t pose the same risks as coins that are brand new to the market.
How can I start investing in crypto?
To get involved, you can open an account with a beginner-friendly platform like Coinbase. It’s easy-to-use, and it also comes with helpful tools to educate yourself on the crypto market.
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Real Estate
Real estate is generally considered a low-risk, low-volatility investment, and you can expect consistent returns over the long term.
However, historically speaking, the biggest roadblock to getting into real estate investing is upfront capital. Generally, real estate costs a lot of money. Of course, this isn’t a problem if you have money to burn, but what if you don’t?
Of course, the internet has come up with solutions. For example, with popular apps like Fundrise or AcreTrader, you can buy small pieces of land or property with significantly less capital.
These platforms function through crowdsourcing. So rather than an individual or small group of investors buying an investment property, you have a large group of micro-investors banding together.
Is real estate crowdfunding a good way to invest?
The main thing to consider here is that real estate investments are not for the short term. Real estate is considered an illiquid asset, meaning that it cannot be converted to cash quickly if you need it.
With that in mind, you should only consider real estate investments if you’re prepared to wait for your return.
Collectibles
An area of investing that you may not have considered is the collectibles market. This is a broad type of investment and includes everything from rare objects to precious metals and one-of-a-kind pieces. This wide variety of collectibles also means that the level of risk involved will vary depending on the collectible itself.
By definition, a collectible is anything that’s worth more than its original price. One benefit here is that you can focus on investing in something that you’re interested in.
Whether it’s Pokemon cards, antiques, or comic books — whatever your thing is — you could make money with it. Plus, you can even take it to the modern age with digital collectibles known as Non-Fungible Tokens (NFTs).
What collectibles should I invest in?
The key is to identify a collectible market on the rise. For example, in the last 10 years or so, vinyl records have made a massive comeback in popularity. From an investment standpoint, this means that highly sought-after records have shot up in value.
The tricky thing here is figuring out how to predict how any market will shift. Some highly-collectible items, like Beanie Babies, could be part of a passing fad, and the opportunity to cash in could be brief. Others, like diamonds or other stones, could have a lot more staying power.
Overall, you should think of collectible investing as equal parts hobby and hustle. It’s unlikely to become your main source of investment returns, but you could make money trading in something that you’re highly interested in.
How To Invest Money FAQs
What is the best way to invest my money?
There is no all-around best investment that’s superior to all others, all the time. So rather than thinking about the best avenue, think about building the best possible investment strategy.
This means market research, diversification, and realistic expectations. If you have a sound investment plan, you’ll come out on top more often than not.
How can I grow my money fast?
If you want to grow your net worth quickly, you need to focus on high-risk, high-reward opportunities. But, unfortunately, this would be the same answer if you asked how to lose money fast.
Again, there are very few absolutes in investing. Get-rich-quick schemes are rarely legit, and most avenues that could make money fast take a bit of luck.
While I know it can be tough to be patient, you’re much better off focusing on your long-term goals.
What investment has the highest return?
Historically speaking, the US stock market is generally known as the investment that comes with the highest returns.
However, this completely depends on how you invest. Poor financial planning will lead to a poor return, no matter how you allocate your money.
Start Setting Personal Investment Goals
Overall, in a super-simplified sense, personal finance comes down to two main things: Spending less than you earn and growing whatever is leftover.
The first part is simple — don’t pile up credit card debt, avoid indulgent purchases, and generally live beneath your means.
The second part is a little more difficult. If you’re diligent with your budget, your savings will grow over time. But, if you aren’t investing that money, it might not grow at a rate that’ll help you get where you want to be.
This is where setting personal investment goals comes into play. With a solid, diversified investment portfolio, those goals will be significantly more within your reach.
Now that the wheels are turning and you have an idea of where to start, don’t stop here. Instead, continue to do your research, and talk to a financial advisor. This will help to clearly define your goals and figure out the best way to conquer them.
Once you know what you’re looking for, the path will make itself more clear. Investing might not be easy, but with the right approach, you’re more than capable of turning what you have into something more.
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