How to invest your money, have you struggled with how to invest your money? Does investing sound too intimidating or complicated? Investing your money wisely doesn’t have to be a complicated process, all you really need is a little basic knowledge, some patience and sage advice to make your investments grow exponentially over the course of your life.
How to invest your money
Be patient with your investments
Remember that investing is a marathon, not a sprint. It is completely normal for the value of your investments to go up and down over time, but over time, their value will almost always go up, so be patient if your investments aren’t doing well at the moment.
Don’t think about your investments in terms of their performance today, the past six months, or the past year. Think of your investments in time periods of 20-30 years or more.
Explore investment options. There are many different types of investment options. However, since this article focuses on the stock market, there are three primary ways to gain exposure to the stock market.
Consider an index fund ETF. An exchange-traded fund is a passive portfolio of stocks and/or bonds intended to achieve a set of goals. Often this goal is to track some of the broader indicators (such as the S&P 500 or the NASDAQ). If you buy an ETF that tracks the S&P 500 index for example, you are literally buying shares in 500 companies, which offers tremendous diversification. One of the advantages of ETFs is their low fees. The management of these funds is minimal, so the client does not pay much for his services.
Consider an actively managed mutual fund. An actively managed mutual fund is a pool of money from a group of investors that is used to purchase a pool of stocks or bonds, according to some strategy or objective. One benefit of mutual funds is professional management. These funds are supervised by professional investors who invest your money in a diversified manner and respond to changes in the market (as mentioned above). This is the main difference between mutual funds and ETFs – mutual funds have managers actively selecting stocks according to a strategy, while an ETF tracks an index. One downside is that it tends to be more expensive than owning an ETF, because you pay extra for the more active management service.
Consider investing in individual stocks. If you have the time, knowledge, and interest in stock research, it can provide a significant return. Please be aware that unlike mutual funds or ETFs that are highly diversified, your individual portfolio will likely be less diversified and therefore riskier. To reduce this risk, refrain from investing more than 20% of your portfolio in one stock. This provides some of the diversification benefits that mutual funds or ETFs provide.
Automated Investment Services
One of the most interesting ways to invest money without spending a lot of time or money is a relatively new option: automated investing services. Services like Betterment are very similar to target-date funds in that they attempt to match your holdings to your financial goals and time horizon. However, they tend to have two advantages. First, automated investing services typically collect a variety of information about you before allocating your money. By contrast, the only information that the target date fund collects is the date you want to withdraw the funds. Second, automated investment services often have fees lower than target-date funds. For example, Betterment charges only 0.25% per year if you invest $10,000 – $100,000, and 0.15% if you invest more than that. (If you invested less than $10,000, the maximum you will pay is $36 per year.) However, like all ETFs and index funds, funds invested by Betterment charge their own – and usually modest – fees on top of their optimization fees.