Money does not grow on trees but it can grow once you start saving and investing wisely. In this guide, we will talk about the easy ways to invest money so you can reach your financial aspirations. Note: this is a guide for beginners to investment.
1. Remember the three keys of financial success
The three most important plans of financial success are
- Right planning
- Paying off debts on time
- Investing as soon as you have paid off debts
2. Consider things you are saving for
Saving is prerequisite to investing. Most people save for buying a home, a car, for their wedding, kids education, elderly health care, medical and other emergencies. Likewise, make a list of the things you are saving for –this can help you start with your investment planning process. Give yourself a timeline until which you plan to save that amount.
3. Assess your current situation
Take a look at your current financial situation. Calculate the total current value of all your assets. Then list your liabilities (mortgage, credit card, student loans etc). Now subtract your liabilities from the assets. If this number is negative you have a negative net worth; but do not be discouraged by this. If you follow a wise investment plan, you can soon correct the situation.
4. Participate in employer sponsored retirement plans
These plans (401K, 403 B etc) give you tax benefits and also automatically deduct money each month from your paycheck to help save for your retirement.
5. Small savings add up
Even if you save $1 each day, you will save $365 per year. Do you have any habits that may be costing you money? May be you buy coffee everyday which costs a dollar. Just by taking a homemade cup of coffee to work can help you save $365 per year! So, start by taking a look at your spending and very soon those nickels and dimes will add up.
6. Study the best investments
Stocks, real estate and small businesses are some of the best ways to make your money grow and also the easiest ways to invest. You share the success and profitability of these assets. Talk to an investment consultant who can guide you further.
7. Spread your investments
Investments come with risks-so, instead of putting all your eggs in one basket, spread them evenly across portfolios. The riskiest investments often have the highest potential rewards but you must use caution when using them. A diversified portfolio may not save your money in case of a market crash but it will certainly improve your chances that you won’t lose all your money.
8. Have time on your hands? Take a little risk!
If you are 35 years of age and are investing for your retirement, you have time on your hands to invest in riskier schemes. If however, you are saving for your kids’ college education in, say, 2 years time, then you might want to invest in safer schemes which can be sold earlier on for a profit.
9. Be realistic and patient
This is the key mantra of investing money. You need to be realistic and also patient. Just make sure to avoid mistakes like putting away money you will not need for a long time in investments that give low returns. In general a good investment will have the following features:
- The company performs better than its competitors
- Other investors seem to like the company. They are willing to buy from you when you want to sell.
- The company is making adequate money so it can give interest to bond-holders and dividends to stockholders.
10. Understand difference between stocks and bonds
- Stocks- If the company you invest in makes profit, you will be paid dividends. You often make more money in stocks than bonds. The risk here is that, if the company does poorly, you lose your money.
- Bonds-The Company returns your money plus an interest. The risk here is that if the company goes bankrupt, you lose your money but if there is money left, you will be paid before stockholders.
11. Consider investing in mutual funds
Often, investors like you do not have time to investigate a company before investing in them. This is where mutual funds can help. Mutual funds are pool of money run by an investment adviser. You can read about the basics on mutual funds here.
12. Do not bail when things look bad
The hardest time is to hold on to your investments when the market is down. Do not sell when there is a sale going on-in fact; you should buy when things are looking down.
13. Trade less
Trading actually leads to more mistakes. So try and trade less. Trading also imposes higher transaction costs and higher taxes.
14. Hire advisers carefully
Do your homework-this is the easiest way to invest money. Evaluate the competence of those you choose to work with.
Finally, take care of your health. Do not stress about your investments. After all, the best portfolio you build will give priority to your health and loved ones. This is the most important piece of advice if you want to invest money.