Best ways to invest money for financial security
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We always hear that building wealth is a marathon, not a sprint, but it’s easy to get stuck at the beginning when you’re not sure where to start. Thanks to technology and the internet, there is almost too much information about personal finance and investments to digest these days. As well as speaking to a financial advisor, investing with a robo-advisor, or managing your investments all by yourself, you can trade individual stocks, invest in index funds or mutual funds, or buy fractional shares of companies you believe in.
And then there’s cryptocurrency, non-fungible tokens (NFTs), and a world of digital assets that some pundits are touting as the best way to grow your net worth. All of this raises an important question: What are the best ways to build long-term wealth?
Ultimately, there are numerous ways to build a solid investment portfolio across stocks, bonds, mutual funds, real estate, and more. However, the right strategy for you really depends on how much extra money you have, your risk appetite and when you might need to access your money in the future.
Investing is the purchase of financial assets with the aim of increasing your wealth as these assets appreciate in value, in some cases together with the payment of interest or dividends. While you can invest through a financial advisor or with the help of a brokerage firm, you can also set up your own investment account and invest in alternative options outside of traditional securities.
According to financial adviser Taylor Schulte, host of the “Stay wealthy in retirementPodcast is one of the most important factors you should consider before you begin your investment time horizon. “Although 10 years feels like a long time for some people, 10 years is nothing in the investment world,” says Schulte. “Anything can happen in a single decade.”
Schulte cites the example from January 2000 to December 2009, in which the S&P 500 lost as much as 0.95% overall. The adviser says that diversification is very important when you have a 10-year investment horizon and that it might be difficult to focus on a risky asset class. This, in turn, means you are likely to see lower returns.
Another factor to consider is your risk appetite. For example, both the US stock market and Bitcoin are widely referred to as long-term investments, but their risk profiles are very different. Schulte says that knowing how much risk you can take without panicking and selling is a very helpful factor in choosing a smart long-term investment.
Wealth accumulation requires diversification, appropriate asset allocation and a lot of time. Here are some of the best ways to invest so you can build lasting wealth.
Stock ETFs and Mutual Funds
Exchange-traded funds (ETFs) and mutual funds are funds made up of a collection of similar assets such as stocks, bonds, commodities, or other types of assets. ETFs can be bought or sold through an exchange, while mutual funds are usually bought directly from the company that manages the fund.
Brian Bruggeman, who serves as Director of Financial Planning at Baker Boyersays that gaining exposure to the broader stock market over time via ETFs and mutual funds is one of the surest ways to build long-term wealth.
However, when you decide to adopt a strategy like this, it’s important to commit to it. Bruggeman says that investors are often their own worst enemies and that familiarizing yourself with the ups and downs of the markets is important to staying on course and earning a return on your money.
As investors become more comfortable with their investment portfolio, Bruggeman adds, they can begin to take more focused approaches to strategies that have a rationale for outperforming the markets over time. This includes adding concentrated ETFs and mutual funds that hold a smaller number of stocks, each with higher exposure.
However, this investment option is not for everyone and definitely not for the faint of heart. “The value and momentum factors have outperformed the broader market over various time periods, but require a level of conviction to remain invested in the strategy as there will be times when these strategies underperform,” says Bruggeman.
Index funds are typically funds that charge minimal fees and track a benchmark index like the S&P 500. Schulte says his favorite long-term investment is a basket of low-cost index funds that invest in the global stock market.
Financial Advisor Jeff Stark, Senior Portfolio Manager at MAY capital managementsays investors looking to build wealth over the long term should consider index funds (or even ETFs) that invest in indices like the S&P 500 or the S&P 1500. “These can serve as the backbone of your stock portfolio,” he says.
Schulte also points to real estate as another great long-term investment. However, because investing in a primary home typically yields poor returns after accounting for costs and inflation, he prefers investing in publicly traded real estate investment trusts (REITs) for exposure to this asset class.
REITs contain a collection of income-generating properties that allow individuals to invest in real estate without actually owning specific properties. Best of all, REITs allow you to invest in real estate through a taxable account or your retirement account without the hassle and stress that comes with being a landlord.
“REITs offer easy access to high-yield real estate around the world and have historically provided investors with healthy returns over long periods of time,” says Schulte.
While REITs are offered through any major brokerage firm, you could also try investing with a platform like real estate fundraising. This company offers its own private equity REITs with low fees and low minimum accounts.
In addition to long-term investments, there are many short-term investments that can help you keep your money safe while taking advantage of compound interest.
Just remember that get-rich-quick schemes are everywhere in the investment world, so it’s important to do the due diligence before investing your hard-earned money. “Consumers should watch out for misleading information,” says Schulte. “No one has a crystal ball, and there is no such thing as a low-risk, high-return investment.”
Here are some shorter-term investments to consider for your financial portfolio.
Financial Advisor Michael Mezheritskiy from Milestone Asset Management Group says people who may need their money within a few years should avoid investing these essential funds due to their volatility in the stock market. Instead, he suggests looking at high-yield money market funds.
Money market funds are funds that invest in readily liquidable short-term assets and are typically purchased through a mutual fund company. “They typically pay a higher interest rate than cash at the bank and are fully liquid and FDIC-insured,” says Mezheritskiy, referencing the Federal Deposit Insurance Company (FDIC), a government agency that insures certain investments.
If you know you need your money in the short term, also look for bank accounts that you can open online. Financial Advisor to Dallin Cutler EP Wealth Advisor says a high-yield online savings account can help keep your money safe in the short-term, although the expected rate of return is low in today’s interest-rate environment. ”
Online savings accounts tend to be competitive in terms of interest paid because they don’t have the overhead of physical bank locations,” he says. “Plus, most online savings are FDIC insured up to $250,000.”
Financial planner Maggi Keating by FBB Capital Partners points out that Treasury bills are a solid short-term investment as they are backed by the US government. “These investments can be purchased in denominations as low as $1,000 and have maturities of four, eight, 13, 26 and 52 weeks,” she says. In addition, interest earned on your investment is exempt from government tax.
Finally, you should consider certificates of deposit (CDs) for your short-term savings or for savings you may need to access in the years to come. According to Keating, CDs typically offer a higher interest rate than a savings account because you lock up your money for a period of time ranging from three months to five years.
CDs can usually be purchased from your local bank, or in some cases an online bank, and are also FDIC insured so you don’t have to worry about losing your money.
Wealth building is much more than a numbers game; It’s a tournament in itself that requires consistency and dedication. While there are many ways to build an investment portfolio that will work, you should consider your investment horizon and risk tolerance before jumping into it.
But since time is one of the most important factors in building wealth, it’s important to start doing it as soon as possible. So if you have money that isn’t invested in either a short or long-term asset, take some time to evaluate your options so you can make sure your money is working for you.
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