If you’re serious about securing your financial future and building wealth, a great option is to invest your money. When invested wisely, your money works for you and grows at a rate that beats inflation. You can use your investments to supplement your income and build a nest for retirement.
When investing, it’s essential to take a strategic approach. Before deciding on where to invest, spend some time evaluating your finances. Consider all your income, expenses, and debt.
If you have any debt, especially high-interest loans, it makes sense to repay this debt first before you invest your money. This is because the longer you take to pay back your loans, the more interest you’ll be charged. There’s no point in tying your money up in investments while your debt grows as they may cancel each other out, or in some cases, the amount you owe in debt may exceed the value of your investments.
The next consideration is your financial goals, which will guide you into where you should invest your money. For example, are you investing in the hopes of earning quarterly dividends? Do you want to invest for the short term and use the money to fund large purchases in the future, like paying your children’s college fees or purchasing a new car? Are you looking to save for retirement or build generational wealth? Or, like many people, your goal is a combination of these, in which case it’s best to have a diverse portfolio of investments.
If you’re keen on investing but are unsure of what the best options are, consider the following:
Save Money in a High-Interest Savings Account
While not technically an investment, it would be remiss not to cover all financial bases when securing your financial future. Given the economy’s instability, building an emergency fund is necessary. A superb way to do this is to open a high-interest savings account to earn interest on the money you save.
Your emergency fund should ideally have enough money to cover your living expenses for about three to six months. An emergency fund removes the financial burden when faced with an emergency and can be a lifesaver if you lose your job.
To reduce your risk, it’s advisable to have at least a portion of your funds in a savings account. If you use all the money you’ve set aside to invest in buying stocks and a recession hits, the value of the stocks will drop. If you then need the money you invested because you lost your job or can’t keep up with your bills, you’ll likely have to sell your stocks at a loss since their value has dropped.
Another option is to take a loan. Many borrowers apply today and can receive the funds almost immediately, but loans come with interest, and if your financial situation is not stable, you may struggle to repay it. To avoid this, put money into a savings account that is easily accessible in an emergency.
If you’re looking for a safe, low-risk investment, purchasing bonds is a good option. A bond is essentially money that you loan to the government or a company. When purchasing bonds, you sign an agreement that states that you will be repaid the amount you invested plus interest on an agreed-upon date.
This is a great option for folks who want to use the funds from the investment for something specific in the future since they know how much they will receive and when.
While bonds are a safer option, the interest you earn is lower than on other investment vehicles.
Depending on your employer, you can invest in a 401 (K), which is a company-sponsored retirement plan. This account is tax-advantaged, so you don’t pay tax on your contributions, but you will be taxed when you withdraw funds from it.
Investing in a 401 (K) as early as possible allows you to benefit from compound interest, so it’s best to invest as soon as you start working.
Some employers may match your contributions as a perk or part of your compensation package so that you double your investment.
Also called equities, buying stocks gives you a share of ownership in a company. Businesses sell stocks to raise funds used in the company to grow or fund the day-to-day operations.
Some companies may pay their shareholders’ quarterly dividends, while others reinvest the profits into the business. As the company grows and becomes more profitable, its shares value increases. For example, you may have purchased shares in a company at $20 a share, but as the company becomes more profitable, the share price may double. So if you sell your shares, you’ll earn more than what you paid.
Investing in the stock market may seem complex, but as a beginner, there are several investment apps that you can use to make the process easier.
If you don’t have a large sum of money but are keen to invest in the stock market, consider purchasing fractional shares. Fractional shares allow you to diversify your investments since you can buy a portion of stock instead of a full share. This way, you can invest in various industries, which mitigates your risk.
Investing is an excellent way to grow your money and, when done correctly, can help protect you against financial hardship when you retire or when faced with an expensive emergency. Before investing, paying off any high-interest debt and ensuring you have an emergency fund is a good idea. Work towards building a diverse portfolio, as this reduces your risk.