Investing 101: How to Make Your Money Work for You
Are you looking to learn more about investing? Do you want to find a means to bring in a passive income? No matter if you are a beginner or experienced investor, it can be difficult to choose the best method of investing for yourself. Here are several ways you can invest your money and make your money work for you.
If you are interested in investing in stocks it is important you understand how the stock market works before getting started. If you have little to no knowledge of stocks, you should first determine your financial goals. Doing so will allow you to determine which stocks you want to invest in and how much money you are willing to allocate to each.
The next step in your stock journey is to plan out your investing strategy, which will then help determine the type of stock that will work best for you. Some strategies that you may fall under are passive, active, growth investing, and value investing. Each strategy offers ways to work through the stock market and can help you decide if you want to invest in the following:
- Individual stocks
- Index funds
- Exchange-traded Funds (ETFs)
- Mutual funds
A Roth IRA is a retirement account that can grow your money tax-free. Once you turn a certain age, you can withdraw from this account tax, penalty-free, as long as the account has been open for at least five years. While similar to a traditional IRA, Roth IRAs are funded with after-tax dollars. It is important to note that Roth IRAs are less restrictive than other types of accounts. For example, there are no required minimum distributions, and you can maintain this account indefinitely.
To open a Roth IRA, it must be established within an institution with IRS approval. Institutions with approval are banks, brokerage companies, federally insured credit unions, and savings and loans associations. Once you decide on your preferred institution, you will most likely speak with a broker. Ultimately, investing in a Roth IRA will depend on your current age, mainly because you cannot access the money until you are 59½. Keep this in mind when deciding on where you want to invest your money.
401(k) and 403(b)
If your company offers a 401(k) or 403(b) plan, you should consider investing in one of these programs. These are programs tax-advantaged vehicles offered by employers. It is important to note that there is a difference between a 401(k) plan and a 403(b) plan. 401(k) plans are offered by a private for-profit company, whereas 403(b) plans are offered by nonprofit organizations and government employers.
While a 401(k) plan is a retirement plan, it is still an excellent way to invest your money. Employers that offer this can make matching or non-elective contributions if you are an eligible employee. Your earnings with this plan will accrue on a tax-deferred basis. You can easily withdraw and enjoy your money when you want, however, you will experience tax consequences. 403(b) plans invest in either annuities or mutual funds and can allow immediate vesting of funds.
While of course purchasing your own home is a good form of investing, there are other ways you can start your investment journey in the field of real estate. One of the main ways individuals find success in real estate investing is by becoming a landlord of a rental property. As a landlord you are responsible for:
- Paying the mortgage
- Property taxes
- Maintaining the property
- Finding tenants
- Solving any one-off problems
Even with these responsibilities, you will make your money back by collecting rent. However, you can also make a portion of your earnings through appreciation. When it comes time to sell, you can possibly make your money back and most likely more. If being a landlord does not sound like something of interest to you, you can also flip homes for a profit instead. With flipping, you can either repair and update the home or hold and resell the property. If done properly you can reap the benefits and make a lucrative profit.
U.S. savings bonds can be an excellent way to invest long-term. With this method of investing, it is important to note that there can be some risk associated with it. Additionally, there are four main types of bonds: treasury bonds (t-bonds), savings bonds, municipal bonds, and corporate bonds. Each type of bond is issued by a different establishment. Treasury and savings are issued by the federal government, municipals are issued by cities, regions, and states, and corporate bonds are issued by public or private companies.
If you choose to invest with savings bonds, know that they are backed by the credit of the United States government, so there is low risk. Where you will see money with savings bonds is within 20 years, as by then they are worth twice the amount that was paid for them. Keep in mind that there is a maximum investment limit with savings bonds of $10,000, per year.
There are several ways you can invest in gold to make a profit, such as gold jewelry, gold bullion, or even gold mining stocks. Gold jewelry is the most common with investors and can offer several benefits including the following:
- Large resale market
- Passed on to loved ones
- It is covered under most homeowner insurance policies
Gold jewelry may not always be the best option of investment due to the difference in scrap and retail prices, however, in terms of popularity, gold bullion is the most popular form of investing. You can most commonly acquire bullion in bars of ten ounces. Since gold bars are so expensive, it is imperative that you stay informed on current gold prices so you can find the best time to buy.
If you want exposure to the market without buying gold directly, such as jewelry or bullion, gold mining stocks are an excellent option. The return on this investment is tied to more than the price of gold, and because of this, there are a few things to keep in mind. Some stocks may pay dividends, gold mining stocks tend not to fluctuate as dramatically as gold, and you can lose your investment if the performance of the company you are investing in fails.
Recently, a more popular way to invest your money is cryptocurrency. Cryptocurrency is digital money that uses blockchain technology, which is considered very secure. There are thousands of cryptocurrencies you could choose to invest in. Some of the more popular currencies are Bitcoin, Ethereum, and Solana. Some key factors to consider when investing in crypto are:
- Crypto investing comes in many forms (from buying to directly investing)
- You can purchase crypto through an exchange or a broker
- Investing can be risky
There are also several ways that you can invest in cryptocurrency: buy crypto directly, or invest in crypto companies, crypto-focused funds, crypto IRA, and become a crypto miner or validator. Before you move forward and begin investing in crypto using one of these methods, there are some things you should know to help you make your decision. Aside from the fact of how risky investing in crypto is considered, it is also constantly and rapidly evolving. Due to this, it is crucial that you do not invest more money than you can afford to lose.
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One final way you can consider investing your money is venture capital. Venture capital involves loaning money to start-ups to help kick off their business. Venture capital financing is not always provided at the start of a business and can be provided at different stages of its evolution. Like most investing opportunities, there is a bit of risk involved in this venture, even with the potential for an above-average return.
To truly understand venture capital, it is important you know that large ownership parts of a company are sold to a handful of investors through limited partnerships (a partnership made up of two or more partners). Venture capital focuses on emerging companies that need funds for the first time, and if seen as a potential success will be invested in.
However you decide to invest, it is important you understand the method of your investing beforehand. Each type of investment has its pros and cons, as well as risks and rewards. So, knowing what you are getting into, whether you take a conservative or a more aggressive approach in your investments, can help you decide where to best place your money.