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How to Invest Money

By Charlotte

Investment is one of the best ways for one to create wealth and become financially independent. Basically which is mainly the use of money to make more money can be classified into; fixed income expenditure viz. bonds, fixed deposits and preference shares and variable income investment such as business ownership, or property ownership. Investment is the use of money with the hope of making more money. The best ways to invest money is to adopt a method of investing which is slow but steady. For you to carry out any meaningful investment, you first of all need to know what you are investing for, then you decide on your stand point and reason, also learn how to choose your investments and finally, pick the best scheme under which to invest depending on the amount of money you have.  So to begin this article on how to invest money, we shall first start by knowing and setting goals for investing money.

Setting goals for investing money

Before you can start investing money, it is important to first know your bounds and remain within those borders. Also, it means you must know the opportunities you have at your disposal. It also means carrying out a feasibility study and coming out with a business plan to know your risks and ensure you are comfortable with them before diving into any investments. It equally means defining your set goals and focus on the reasons why you started investing money in the very first place. Simply put, knowing the best ways to invest money.

What am I investing For?

You need to clearly define the reasons why you are investing your money. This is because if you do not know why you are investing, you might not be motivated to do so. So it will be intelligent to have a specific purpose before you start investing your money. Some of the most popular bank accounts are savings, money market, certificate of deposit. Some accounts offer tax advantages such as retirement or college accounts. Once money has been deposited in these accounts, it must mature before you are allowed to remove the money. If the money does not mature and you have to pull it out, you might be penalized. 

Here are some of the most popular investing accounts

1.   Retirement Accounts

  • Most employers deduct retirement benefits from their employees pay package before giving them the rest.  
  • Self-employed retirement account. These are accounts that permit self-employed workers to save more wisely and equally set up a retirement fund for employees it is a good investment measure for workers.

2.   College savings accounts

  • 529 plan. This plan permits you to invest for college expenses and get tax deductions for doing so and is offered by the state so each one will not need to choose his or her own plan.
  • Coverdell education savings account.This is an account where you can save for elementary and secondary education expenses. But the 529 plan is the best way to invest money for college education. This Coverdell account can be opened at some credit establishments, banks or online through an online broker.

3.   General investment

  • Non retirement or taxable accounts.These are elastic investment accounts not allocated for any particular purpose. These accounts, as distinct from retirement accounts, there are no rules on contribution amounts and money can be taken out of it at any time. There is no specific tax advantage on them and you can even open one at an online broker.  

What are you investing money in?

The best way to invest money and for one to reach his or her long-term financial goals and minimize risk, is to diversify your investments and set your money across a variety of assets as this will help you spread risks. It is not advisable to invest all your money in just one thing. There are several ways to diversify investments. So we will examine some.

Best ways of investing money

1.   Opening a Savings Accounts

A savings account is a good and safe investment method which guarantees your investments by holding money which you do not need immediately, and it offers a risk-free return on your investment. With this account, you are able to cash-out your money at any time without having to bear too much expenses. Nowadays, one has the possibility of opening it in person over the bank counter, over the phone or online. There are various types of accounts such as that for children’s fees, for minors or even those to meet short as well as long term goals of the investor. This account is the best way to invest money as it generates interest for the investor.

Merits of this method of investing money

-       It is a safe investment for investing money as one is sure of getting back his savings.

-       There is the presence of the Federal Deposit Insurance Corporation (FDIC) which acts as an insurer of money deposited up to $250,000 for each account. This fund is there to assist those whose money could not be provided for by the bank.

-       There is easy access to your money and it is equally flexible as one is permitted to deposit large amounts of money and withdraw it at any time when need arises.

-       These are the best ways to invest money for emergency situations and unforeseen circumstances.

-       With the online saving account, one is permitted to make withdrawals 6 times per month, making it a good investment option.

Demerits of the saving accounts

-       There is always this saying “No Loss, no gain”. This is just to tell you that you should expect some loss when investing money in any adventure. So in this case, the interest rates generated are always very minimal and can even be lower than inflation rates.

-       Also, the interests from the savings account is subjected to income taxes except the savings are done in an Individual Retirement Account (IRA).

2.    Certificate of Deposits (CD)

A certificate of deposit is one of the negotiable instruments existing. These certificates are bought and it allows depositors to be investing money for a specified duration due to the fact that they have specific maturity dates. CD is a safe investment for one to carry out especially for those who are not ready to bear much risk. It is a good investment because the banks offer a wide range of terms to depositors from 3 months and 5 years. The best certificate of deposit for each investor depends on the length of your investment and your timeline. So the longer the investment term and you being able to wait for the maturity date of the CD, the higher yields you will make.

Merits of CD’s as one of the best ways to invest money

-       CD’s unlike saving accounts, the investor has the possibility of owning CD’s in many banks and just like the FDIC insures up to $250,000 for every account, so too does it insure the CD’s.

-       Higher interest rates are paid especially for those who keep their investing money till maturity, and this high interest can be seen as compensation for them.

-       Since many banks deal with CD’s, there is a higher possibility to buy or sell it directly from the bank.

Demerits of CD’s

-       It is not flexible as one cannot freely remove money from it at any time.

-       Can be very costly to withdraw money when the maturity date has not been reached.

3.   Fixed Annuities

This is a form of good investment as you give money to an insurance company and they promise to pay you a certain amount back for a given period of time. Fixed annuities are insurance contracts where an investor gives them money to manage for him and at the end, a guarantee or interest is paid in return and this interest is tax-deferred. It is a safe investment because fixed annuities are usually not liquid in nature and there is no possibility of you getting easy access to funds investing money here.

What are the benefits?

-       Depending on the financial situation of the insurance company, annuities are good investments because they have a higher return rate than even a CD.

-       Large amounts of money are expected to be kept in case of anything by the insurance company, since they are monitored by the state insurance commissioner.

-       Since insurance companies are regulated by the state, one can carry out his or her safe investment without much stress as the state will step in to support them if they are going bankrupt.

Demerits

-       The bad thing with safe investments is that their returns will not hang on to inflation.

4.   Bonds 

Companies or governments do give out bonds which are debt instruments. Bonds are safe investments because they will be backed by credits from the government. Bonds as safe investments can be bought by opening an account with the treasury and investing money no matter the amount. Bonds are not as stable as money markets but do offer an opportunity to earn an interest. The government or company borrow this money from you in order to fund a project or to refinance a debt. Bonds are investments of fixed-income and usually, interest on a regular basis is made to investors. The initial amount of the loan will then be paid back on the maturity date.

Merits of Bonds

-       Long standing experience in paying back money investment in securities and bonds by the US government makes one to get involved with this way of investing money. Also given the fact that the government is viable and the dollar fluctuates in a reasonable way, will push many people to invest in bonds.

-       Availability of a market for the U.S. government bonds, people always want to go in for this bond. It is a very safe investment method as one gets a fair price after sales once the maturity date has been attained.

-       Interest on treasury securities is subject to Federal income tax but exempted from local as well as state taxes thereby making it a good investment method.

Demerits

-       Low return on the security.

-       Inflation greatly affects government bonds.

5.   Money Market Accounts

In a money market, interest is paid each month for your money by a brokerage company. Money market funds are effective tools used in the management of cash. They are safe investments for people but not compared to opening a savings account or a CD’s.

 Merits of this mode of safe investment

-       It is very suitable for the management of short-term investments.

-      The funds objective is short-term and as such, investors have the possibility to put in money and get it back out at any time.

Demerits of this fund

-       Usually, safe investments lack the capacity to compete with long term inflation rates.

-       Money market fund is not as secured as the savings account and C.D because it lacks insurance cover.

-       Difficulty in producing better income yield for her investors because of the high cost of running of the fund, especially when interest rates are high.

6.   Stocks

Buying individual shares from companies which will increase in value over time and as such, you benefit from the increased value.

7.   Cash Back Rewards Offers

Investing money in credit card rewards can be a good investment strategy to use as you will not need so much effort in order to get a return. The credit card offers bonuses which can be very lucrative to those investing money in it. But the irony with this method is that your earnings will depend on your spending habit and not your investment habit.

8.   Pay Off High Interest Debt

In order to get into a sustainable investment or good investment, it will be wise for you to pay off all debts you have. This is important because you will be able to save money for future cost and by so doing improving on your overall financial situation. In the case where you are unable to pay these high debts, you can transfer the remaining high interest balance to an APR balance transfer card which is 0%, for them to speed up the settlement procedure thereby reducing the rate of your indebtedness.

9.   Peer to Peer Lending

There are some websites which are peer-to-peer and it permits investors to widen their investments opportunities and reduce risk. These websites act as areas to connect investors to clients in need of loans. So this makes the investors become the bank and provide a small number from a vast number of borrowers loans. Investors purchase notes and get income monthly in the form of loan repayment and interest.  

Where to start investing?

When you already know how to start investing money, you equally need to know where to start the investments so that you don’t find yourself leaving business shortly after you have just started. You might decide to start from any of our choices discussed below;

-     Online brokers: this is one who allows management of your account into your hands. With this, you can buy and sell so many investments such as bonds, stocks or funds.

-       Robo-advisor: Unlike online brokers, the Robo-advisors does everything for you, starting from building to managing a good investment which takes your goals, vision and risk in to consideration. And management fees for this service are paid on an annual basis.

When you have money and are already educated on the investment basics, knowledge on good investments or safe investments as seen above are vital for one to know in order that you don’t just jump in and out of business.

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