Best Ways to Invest Your Money

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Want to grow your wealth? These are some of the top investment options for your money.

Building wealth is often said to be a long-term journey, not a quick fix. However, it can be challenging to get started when faced with a plethora of information about personal finance and investing. With technology and the internet, there are many options available, from consulting with a financial advisor to using a robo-advisor or self-managing your investments. You can trade individual stocks, invest in index funds or mutual funds, or purchase fractional shares in companies you support.

And then there is cryptocurrency, NFTs, and other digital assets that some consider the best path to increasing your wealth. The question remains: What are the best methods for long-term wealth building?

Ultimately, there are multiple options to form a strong investment portfolio, such as stocks, bonds, mutual funds, and real estate. But the ideal strategy for you will depend on factors like your available funds, risk tolerance, and when you might need to access your money.

How does investing work?

Investing means purchasing financial assets to increase your wealth through appreciation and, in some instances, interest or dividends. You can work with a financial advisor or brokerage firm, or create your own investment account and consider non-traditional options besides standard securities.

Financial advisor and "Stay Wealthy Retirement" podcast host Taylor Schulte highlights investment time horizon as a crucial factor to consider. Schulte says, "10 years may seem long to some, but in the investment world, it's short as anything can occur in a decade."

Schulte uses the example of the decade from January 2000 to December 2009, where the S&P 500 lost 0.95%. He emphasizes that if you have a 10-year investment horizon, diversification is crucial, making it difficult to solely invest in a high-risk asset class, resulting in lower expected returns.

Your risk tolerance is another important factor to consider. US stock market and Bitcoin, both considered long-term investments, have distinct risk profiles. Schulte stresses that understanding the amount of risk you can tolerate without selling in panic, helps you choose a suitable long-term investment.

Read More: How to Invest in Real Estate

How to build wealth with long-term investments

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Creating wealth necessitates diversification, an apt asset distribution, and patience. Here are some top investment methods for lasting wealth building.

Stock ETFs and mutual funds

ETFs and mutual funds consist of a combination of assets like stocks, bonds, commodities, or others. ETFs can be traded on stock exchanges, while mutual funds usually require direct purchase from the managing company. Brian Bruggeman, Director of Financial Planning at Baker Boyer, states that investing in the broad stock market through ETFs and mutual funds is a secure method for long-term wealth building over time.

Bruggeman emphasizes the importance of sticking to a strategy when investing in ETFs and mutual funds. He warns that investors can harm their own success by being inconsistent, and stresses that getting comfortable with market fluctuations is crucial for maintaining a long-term investment plan and allowing wealth to accumulate.

As investors become confident in their portfolio, Bruggeman suggests they may shift towards more focused strategies that have the potential to outperform the market over time. This may involve incorporating concentrated ETFs and mutual funds that have a smaller selection of stocks with greater exposure to each.

However, this type of investing may not be suitable for everyone and requires a strong determination. According to Bruggeman, value and momentum strategies have outperformed the market at different times, but sticking with the strategy requires confidence as there may be periods of underperformance compared to the market.

Low-cost index funds

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Index funds usually have low fees and follow a benchmark, such as the S&P 500. According to Schulte, his preferred long-term investment is a collection of low-cost index funds that invest in the global stock market.

Stark, a senior portfolio manager at MAI Capital Management, suggests that long-term wealth building can be achieved through investing in index mutual funds or ETFs that track indexes like the S&P 500 or S&P 1500. He considers these to be the foundation of a stock portfolio.

Real estate (or REITs)

Schulte highlights real estate as another strong long-term investment option. However, due to low returns after accounting for costs and inflation in a primary home, he prefers investing in publicly traded real estate investment trusts (REITs) for access to this asset class.

REITs consist of a portfolio of income-generating real estate properties, enabling individuals to invest in real estate without direct ownership. Investing in REITs offers the convenience of using a taxable or retirement account without the responsibilities of being a landlord.

According to Schulte, "REITs offer convenient access to global income-generating real estate and have a history of delivering good returns over the long term."

REITs can be purchased through major brokerage firms, or through platforms like Fundrise that offers its own private equity REITs with low fees and minimum investment requirements.

Read More: how to invest in stocks

Short-term investments to keep your money safe

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Aside from long-term investments, there are numerous short-term options available to safely grow your money through compounding.

Keep in mind that the investment world is filled with "get rich quick" schemes, making it crucial to thoroughly research before investing your earned money. Schulte warns to be wary of deceptive promises and to be mindful that there is no such thing as a low-risk, high-return investment as no one can predict the future with certainty.

Consider these short-term investment options for your financial portfolio.

Money market funds

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Financial advisor Michael Mezheritskiy of Milestone Asset Management Group advises individuals who may need access to their cash in a few years to avoid investing these crucial funds in the stock market due to its high volatility. Instead, he recommends considering high-yield money market funds as an alternative.

Money market funds are investments in short-term, easily liquidated assets managed by investment fund companies. Mezheritskiy notes that these funds offer a higher return compared to traditional savings accounts and are fully liquid and insured by the Federal Deposit Insurance Corporation (FDIC).

Online savings accounts

If you require access to your funds in the near future, consider opening a high-yield online savings account. Financial advisor Dallin Cutler of EP Wealth Advisors states that online savings accounts can provide a safe place for your money in the short term, despite the current low interest rate environment.

Online savings accounts often offer competitive interest rates because they have lower overhead costs compared to traditional brick-and-mortar banks. Additionally, most online savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000.

Treasury bills

Financial planner Maggi Keating of FBB Capital Partners suggests Treasury bills as a reliable short-term investment due to their government backing. Keating notes that these investments can be purchased in increments of $1,000 and have maturity options ranging from four weeks to one year. Additionally, the interest earned from Treasury bills is exempt from state taxes.

Certificates of Deposit

Lastly, consider Certificates of Deposit (CDs) for short-term or near-term savings needs. Keating mentions that CDs generally offer higher returns compared to savings accounts, as you are committing your funds for a set term ranging from three months to five years.

CDs can be obtained from a local bank or an online bank and are insured by the Federal Deposit Insurance Corporation (FDIC), providing peace of mind for the safety of your funds.

Building wealth requires time and patience

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Creating wealth is not just about numbers; it is a personal challenge that requires persistence and commitment. There are many options for constructing a stable investment portfolio, but before making any decisions, you should consider your investment goals and your ability to tolerate risk.

However, since time plays a crucial role in accumulating wealth, it's crucial to start investing as soon as possible. Therefore, if you have any funds that are not currently invested in either short-term or long-term assets, take the time to examine your options to ensure that your money is generating returns for you.

Read More: 10 Best Long-Term Investments for 2023

Source: https://edition.cnn.com