A lot of my friends ask me what they need to do when they get a financial windfall or save enough money. With all the uncertainty in the markets and the highs and lows of cryptocurrency, it’s no wonder many of us are feeling hesitation with investments.
Before all this, there’s one important factor that you must consider before you get your feet wet.
Determine Your Goals
First and foremost, determine what your goals are. For example, if your goal is to save for retirement, target your 401(k) or IRA. Or, if you want to save for a house, consider your time horizon and determine what investments are suitable for your goals.
Mutual funds provide an easy, passive way of investing your assets. You could pay for a broker to create a portfolio that has your interest in mind, but that would likely come with added fees and expenses. Mutual funds allow you have someone manage your fund or have a specific fund mimic an index. This gives you the benefits of passive investment without the worries.
Mutual Funds come in all shape and sizes and they can contribute to diversifying your assets. Funds can be comprised of assets such as stocks, bonds and cash reserve or a combination of the three main assets. If you’re fine with risk, think about stock mutual funds as a good way to invest for the long term. For someone with moderate risk, bonds can give you income and less risk than stocks. And, of course, cash funds like money markets are fantastic for someone who wishes to preserve their assets and gain a small interest.
How do you buy mutual funds? There are plenty of mutual fund companies to choose from. They include firms such as The Vanguard Group, Fidelity Investments, and T Rowe Price. Like brokers, they allow investors to buy into shares of a mutual fund through their firm.
Before you buy, make sure that you research the mutual fund. Consider sources like Morningstar.com or Kiplingers.com where you can find metrics and comparison data.
For the more daring and investment knowledgeable, individual stocks can provide some good returns. The major risk is the downside if the underlying company does not do so well.
Remember an investment in a stock represents an ownership in a company. Companies do fail and there’s always the possibility that you can completely lose your investments. Most stock investors do not buy one stock, but they rather buy various stocks in different industries. This helps mitigate risks and allow a balanced portfolio.
If you have the stomach to ups and downs of the stock market, consider discount brokerage firms like Charles Schwab and Etrade. Some of the large brokerage firms have commissions as low as $4.95.
Your investments don’t have to be tied to stocks and mutual funds. In fact, more investors are looking for yield and real estate provides this more compared to other investments.
With rental units, an investor can obtain a consistent income through rent income. But what most people miss out on in the investment is the appreciation of the house and increase in equity based on mortgage payments. The multiple dimensions of real estate may give you returns over 35% annual if played right.
If you would like a more passive method, consider Real Estate Investment Trusts (REITs). REITs offer diversification on various real estate investments. Instead of owning a property outright, your money is pooled into a fund like a mutual fund. This gives you diversification and risk advantages that you don’t normally find with individual property.
For the investor who is looking for hard, physical assets, commodities can be a viable option. Popular commodities include gold/silver, livestock, agriculture and energy. Commodities do come with risk since prices for these items can fluctuate. But one can simply buy these outright and sell them in an exchange.
A more passive way to indirectly buy commodities is to buy commodity futures. Commodity futures is an arrangement to buy or sell the commodity at a future date. For example, a farmer wants to sell his cattle but some of cattle die due to disease. In order to mitigate risks, the farmer can sell the cow through a future arrangement. The future contract’s owner can now own the cow and the farmer wouldn’t have to incur the risks if anything were to happen.
Sometimes education can go a long way. Weather it’s through college or through special training, your salary can increase by having a background that is valued by companies.
But it doesn’t have to be all about money. Investing in a home gym equipment or a gym membership could go a long way. By becoming healthy, you may have fewer health problems and expand your life. This could be invaluable to anyone who wants to feel better and live healthier lives.
The 5 investment options is a list of just popular investment strategies. Don’t forget that there are plenty of other investments one can make to save money. If you’re interested in investment there are sites like morningstar.com or youtube that can provide a wealth of knowledge to get you started.
Let us know what you think about investing and what are your methods of investing for the long run.