If you’ve ever wondered how to invest money: this article is for you.
Whether you want to invest 1000 USD or 1,000,000 USD, the goal is the same: making more money. The ways to earn them vary, however, depending on how much money you have and how you want to invest. When investing efficiently, you can make as much money as you can with your investment.
How To Invest Money:
1. Create an emergency fund.
If you do not have an emergency fund yet, you should try to save your expenses for 3-6 months in an emergency. You should not invest this money. You should have them stored if needed. Each month, you can split the money between the emergency fund and the investment fund. You should not invest all your extra money unless you have an emergency fund. If anything happened (loss of employment, sickness, injury), you should not have a living.
2. Pay all your debts.
If you have a loan or a high-interest credit card (more than 15%), it makes no sense to invest your hard earned money. What you will receive by investing (mostly less than 15%) will not help you because you will still have to repay interest on your debts. First, pay off the debts with the highest interest so you can get all the money you earn by investing. Otherwise, only investors who have borrowed money at high interest rates will gain you.
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3. Write your investment goals.
During debt repayment and emergency fund building, you should think about why you want to invest. How much money do you want to earn and how long? Your goals will affect the type of your investment. If you’re going to go back to school and study in three years, you should invest wisely and safely. If you are trying to make money for your retirement and you are 30 years old, you can afford a somewhat risky investment. Every investor has other goals that affect his strategy. Do you want to keep money that is above the inflation line? Do you want to have money for ten years to get a mortgage? Want to save money for retirement? Do you want to make money for studying for your children?
4. Decide if you want a financial advisor.
A financial advisor is a person who knows about investing. He will tell you how to spend correctly in certain situations and what you can expect. There is no need to use financial advisory services, but when you find someone who knows the market trends, is familiar with investment strategies and will help you diversify your portfolio, you will have a better chance of success. A financial adviser will pay 1-3% of all the money he/she will manage for you. So, if you start with $ 100,000, you will pay $ 5,000 a year for financial advisors. Some consultants only work with clients who want to invest more than a million crowns. Does it seem like a lot of money for your advice? When you realise that a good consultant will help you make money, you will not feel overwhelmed. When an adviser charges 3% of your 100,000 USD, but it will help you earn 7%, you will still get high earnings.
5. The riskier the investment, the higher the potential profits.
Investors demand higher earnings for higher risks. Nearly risk-free investments such as bonds or deposit certificates do not usually have a very high return. The best investments are the riskiest, for example, stocks or commodities. In short, high-risk investments can bring you high earnings, but more conservative and safer investments will provide you with a lower risk of losing money.
6. Diversify your portfolio.
When investing, you always risk that you will lose your money. The goal is to keep your investments active long enough to have time to grow. A diversified portfolio will make sure that your investment will make you time to earn real money. Professional investors share their investments among stocks, bonds, index funds, and in these categories they also choose the sectors they invest in. Take the investment as follows: if you only have one share, your fate will depend on how well it will be doing. When stocks grow, you will be well. But when stocks fall, you will be uploaded. With 150 stocks, 20 bonds and 45 commodities, you’ll have a better chance of success – if ten stocks fail or if all commodities suddenly lose all their worth, you would still be doing well.
7. Buy, sell and invest for apparent reasons.
Before you decide to invest money, determine the reasons. It is not enough to feel that the last three months of the stock have risen. This is gambling and not spending – instead of a clearly defined strategy, you would rely on luck. The most successful investors always have prepared theories of their investments, even in cases where the future is unclear. Why, for example, do you want to invest in an index fund such as Dow Jones? Betting on this fund is a bet on the US economy. Why is it so good? As the US economy recovers from a significant recession and all the leading indicators, look promising.
8. Invest in stocks, especially in the long run.
Many people think that they will make a lot of money on the stock exchange for a short time. While it is possible to obtain a large amount of money, it is unlikely. Everyone who earns a lot of money on the stock exchange has 99 people behind them who will make a lot of money. When you pump money into investment only for a short time, and you hope you will make a lot of money, it will be just speculation. It will only be a matter of time before you lose all the money. Why is day trading on the stock market, not a good strategy? Because the market is unpredictable and because trading is money. The market is variable in the short run. Planning for purchases and sales of shares is impossible. Even the most prominent companies with the best forecasts have their weaker days. Long-term investments have the advantage of being more predictable. Historically, all stocks have a return in the long run of about 10%. In daily trading, you can never be sure that you can earn 10%, so there is no point in risking it. Every purchase or sale also costs you taxes and fees. Investors who buy and sell shares every day eventually pay much more money for expenses than investors investing in the long run. These fees are deducted from the salary you could earn.
9. Invest in companies and sectors you understand.
Invest in something you know enough about because you will only be able to see how these companies are doing. As the famous American investor Warren Buffett said: “… buy shares of companies that are so great that they can manage even a total idiot. Because it will happen once. ”
10. Prepare a backup plan.
These plans are designed to reduce losses by investing in stocks that should weaken. It sounds a little counterproductive to bet against the surge in stocks, but when you think about it, it dramatically reduces your risks. Shares are one way to prepare for losses.
11. Shop for little.
Try to buy all the shares at a time when there is little money, at a time when no one else buys them. For example, in the real estate market, you should buy at a time when selling a lot of real estate in proportion to potential buyers. When people sell out of despair, you can negotiate with them. It is always good to have an idea of how your investment will go. An alternative to buying a little (because you never know what is small) is to buy at reasonable prices and sell a groove. When stocks are cheap (for example, 80% or less of their annual value), it has a reason. Share prices do not drop, like home prices. Shares usually fall due to a problem in the company, while home prices are declining not because of issues with the houses themselves but because of lower demand. When the entire market falls, it is possible to find stocks that have only declined due to the overall decline. If you want to see them, you need to evaluate the entire market. Buy stocks at a low price when they are lower than the value given by the company.
12. Learn to overcome problems.
For more risky investments, you will sometimes want to give up. When the value of your investment drops, it can easily scare you. But if you know what you are going to do, you will be able to prepare for market fluctuations. When your stocks fall, find out what’s going on. If you believe your stock, leave it, or even buy more. But if you do not think your stock and something has changed on the market, sell it. But keep in mind that when you trade in fear, you will sell at a time when everyone else sells you, and you probably do it.
13. Sell for more.
If the market returns to balance, sell your investment. Earn money to invest in other stocks or commodities at better prices, and try to do it, so you do not have to pay taxes. When you spend your earnings, you will not have to pay taxes.
14. Invest in savings accounts.
Savings accounts are not traditional investments but offer you a minimal risk. They are liquid so that you can choose your money at any time, but they also have their limitations. The interest rate is mostly low (much lower than inflation) and predictable. You will not lose money with these accounts, but you will not even make much money for them.
15. Try the Money Market account.
These accounts have higher minimum deposit requirements, but they will help you earn up to double your interest when compared to traditional savings accounts. These accounts are liquid, but also have access to money. Interest rates are mostly in line with current market interest rates.
16. Start saving with deposit confirmation.
Investors put their money for confirmation for several years, usually for 1, 2, 5, 10 or 25 years. During this time they will not have access to their money. The longer the deposit period, the higher the interest. Confirmation of deposit is offered by banks, but also by independent brokers. They do not have high risks but have minimal liquidity. It fits as a backup plan in the case of inflation, especially if you have money that you fall idle. Invest in bonds. Bonds are issued by the government or the company and are essentially debts that will be subsequently repaid with interest. Bonds are “fixed income” securities because their yields are unchanged regardless of market conditions. You will need to know the borrowed amount, the coupon rate (interest rate), and the end time (when the debt and the interest must be paid). The safest is to buy government bonds.
17. Invest in stocks.
Shares are mostly purchased through brokers. It is proportional ownership of companies, which will usually give you some influence on decision-making (mostly when choosing a board of directors). You can also get a particular portion of the dividends you pay. There are also dividend plans and direct share purchase plans, with buyers bypassing brokers (and their fees) and buying directly from companies. More than 2,000 major corporations offer these plans. Beginners in stock trading can invest, for example, only 500-1000USD per month and purchase share shares. Are investments in stocks safe? If you follow our advice and invest in preferred stocks and the long run, they are very reliable and profitable. When you shop in the morning and sell in the evening, your investments will be much riskier. If you want to invest safely, try the mutual funds. Collective funds are a collection of shares compiled by fund management. These managers are not insured, they are diversified, and some of the funds have low limits for initial purchases, and you have to pay annual management fees.
18. Invest in real estate.
Investing in real estate is riskier for a few things. First, the value of real estate is cyclical, and many people spend at a time when their cost is rising. When you buy a property at this time, you can end up with an expensive property (taxes, fees to real estate agents, etc.). Secondly, real estate investments “swallow” money, which means that when you buy real estate, you will not have the chance to get your money back quickly. Finding buyers takes months or even years.
19. Invest in real estate trusts.
They are mostly common funds for investment. Instead of buying bundles of shares or bonds, you can buy real estate bonds, often in the form of mortgages or mortgage-backed securities.
20. Invest in currency.
Currencies are risky because they reflect the state of the economy that uses them. The only problem is that the relationship between the economy itself and the factors that affect it (labour market, interest rates, stock exchange and laws) is not always straightforward and can easily be changed. Investing in foreign currency is still a bet on the relationship of another money and that currency as the coins are exchanged. These components make currency investments even more complicated.
21. Invest in precious metals.
If you own some gold or silver, it’s a great way to have some money in reserve and keep up with inflation, but it is possible to trade in precious metals and cash. Check out how the value of gold has grown since 1910 and compare it with the stock growth since 1910. Shares have a relatively apparent trend, but gold does not apply. Many people think that investing in gold and silver will pay off in the long run. Precious metals are not subject to taxes, they are easy to store and are highly liquid (you can quickly sell and buy them).
22. Invest in commodities.
Commodities such as oranges or pork are a great way to diversify your portfolio if you have it wide enough. Why? Commodities do not accrue interest, pay dividends, and mostly resist inflation. Commodities sit, and their price varies considerably depending on the season and other cyclical factors. However, the correct timing of commodities is very complicated. For example, if you only have $ 300,000 you can invest in, hold stocks, bonds, and common funds.