Not sure what to do with your money? We know investing grows our wealth, but we often need to figure out how to get started. The good news is that there are many options for investing your money.
While investing in the stock market is arguably the best way to invest money long-term, it is not for everyone. Here are seven additional investment ideas for you to consider, each with varying degrees of risk and return, allowing you to find the right solution for your needs.
#1. Savings Accounts
The best place for people who need to put their money away for a short time and don't want to take on any risk is with a bank account. But not just any bank account, a high-yield savings account. Most online banks currently offer interest rates between 3-4% so that you will get a decent return on your savings.
The downside to this option is that while you are not at risk of losing money, you risk losing purchasing power thanks to inflation. However, this is an excellent short-term option for those who are risk-averse.
#2. Bonds
While stocks are equity investments, bonds are debt investments. You can invest in government or corporate debt and earn a return on your money.
The less risky the bond, the lower the interest you will earn. This doesn't mean you won't earn competitive interest. Many government treasury bonds currently pay between 3-5%, and many corporate debt options are in this range or higher.
If you go this route, know that a bond's yield and price work opposite each other. If the price of a bond increases, its yield will decrease, and vice versa. Also, bonds tend to move the opposite of stocks. Bonds tend to fall when stocks move higher since people think stocks will offer a greater return.
But when there is fear, investors will flee stocks and buy bonds for safety. So while bond prices can go down and you can lose money, they are much less volatile than stocks, meaning they will not gain or lose as much, making them a better investment for risk-averse investors.
#3. Stock Options
Instead of investing directly into stocks by owning shares, you could trade stock options. This investment strategy allows you to invest with much less money and potentially earn a more significant return. However, you could also suffer a much larger loss.
Options allow you to buy or sell a stock at a predetermined price and by a specific date.
Options trading examples make this process clearer. The good news is that many brokers who offer options trading allow you to open a paper trading account. This is a play account where you can trade options in live time as the market moves without risking any money. You simply are practicing as you learn the ropes. It is a great way to get the feel of this fast-moving investment strategy.
Another way to learn about options is to take an options trading course. For a small fee, you will learn the basics and some popular trading strategies to be successful over the long term.
#4. Real Estate
Real estate investing is a popular alternative to the stock market. A bonus is there are multiple investment strategies when it comes to real estate for you to earn a return. You could flip houses, dip your toes in rental real estate, invest in tax liens, or invest in real estate investment trusts (REITs).
The biggest drawbacks to this option are knowledge and money. The real estate market is unique in that what is happening in one area of the country could be completely different in another location. This means you must understand what is happening in the areas you want to invest in.
The other issue is money. Buying a property to rent or flip takes a lot of money. There are ways to get around this hurdle, but they can be risky, especially for first-time investors. One solution that is gaining popularity is real estate crowdfunding. Here, you and hundreds of other investors pool money in a property and split the income and eventually gain from the sale according to your ownership percentage. This can be a great way to start in real estate for beginners.
#5. Peer-to-Peer Lending
Peer-to-peer lending allows you to act like a bank. With a traditional loan, the bank lends money to the borrower and collects interest along with the money they loaned. Peer-to-peer lending has people put their money together to fund a loan for another person and then get their money back over time, along with interest.
Why would people take out loans and invest in this manner? Some have poor credit and can get a lower interest rate this way. Others don't like banks and would instead work directly with people.
Multiple sites allow this type of investing, with Prosper being the biggest. Once you register, you can see the loans you can invest in, why the person needs the money, your credit score, and the loan terms. Most terms have a five-year payback.
While there is the risk of not getting your money back, if you invest in higher-quality loans, this risk is minimal.
#6. Precious Metals
Precious metals are tricky because they are more of a store of value than they are an investment. People who invest in gold, silver, platinum, and others want to protect their money. Precious metals safeguard your principal and purchasing power, protecting you from inflation.
The downside to this investment type is you need to own the physical metal. If you invest in a mutual fund or ETF, you do not own the metal, just shares in a company that owns the physical asset. Few people have room to store gold bars, so when investing in this asset, they must also pay a third party to store it.
You can get around this by purchasing coins, but this takes work as gold shops mark up prices, so you need to know what you are doing to ensure you are not overpaying, or worse, paying a premium price for a coin that has less gold content than advertised.
#7. Mutual Funds and Exchange Traded Funds (ETFs)
Building an investment portfolio of individual stocks can be costly and time-consuming. Not only do you need to research each company, but you need to pay attention to the market in case news breaks that result in you requiring action.
A more straightforward choice is to invest in mutual funds or ETFs. These are baskets of individual stocks, allowing you to own thousands of companies for a reasonable price. And since you have a diversified portfolio, it is far less risky than owning one or two stocks.
Even better, there are many sectors to invest in, from the entire market to only small-cap stocks. For beginners, the best choice is simple index funds that track the market, like the S&P 500 Index.
The final benefit is you can take advantage of dollar cost averaging by setting up a recurring investment at no additional cost. Of course, the downside is most charge investment fees. But with some research, you can find mutual funds and ETFs that charge a very low fee, making the investment worthwhile. You can even invest in government or corporate bonds, real estate, international companies, and more.
Invest in Yourself
No matter where you fall on this list, the first thing you should work on is getting comfortable with the stock market. This is because, over the long term, it is an excellent way to build wealth.
So how do you get comfortable investing in the market?
For starters, you need to educate yourself, which can be done by reading the best books on investing. From there, you need to learn the basics of how the market moves. This will help you handle wild swings in the market that happen from time to time.
You also need to have an investment plan. This plan will outline what you are investing in, why, and how long you plan to invest. The benefit here is to stop your emotions from making investment decisions for you.
When the market is racing higher, you might want to pour everything you have into stocks. But this is an emotional response to the potential of gaining more. The same is true on the other side too, when the market is falling. You might want to sell everything to avoid losses, but this could be your emotions trying to convince you to act.
Finally, you need to understand your risk tolerance. Knowing how much risk you can handle and still sleep at night is critical to long-term investing success. It will help you to pick the asset classes that make the most sense for your goals.
What's The Best Way To Invest Money?
The best way to invest depends on your risk tolerance and how long you plan to invest. Additionally, when considering which investment options are the best for achieving your financial goals, weighing the risks and rewards that each one brings is crucial.
With a little effort, you can figure out the best strategy for your money while, at the same time, educating yourself about the stock market so you are comfortable using this wealth-building tool to grow your wealth.
This article originally appeared on Wealth of Geeks.
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