It’s a question in most people’s minds. How do you become rich? For ordinary employees who depend on monthly income, becoming rich seems like an elusive dream. It’s true what they say; money does not grow from trees. Earning is one thing to gain some dollars; investing is another.
Investing can help you grow your money. It’s not just for those wearing business suits on Wall Street. Even an average American can benefit from investments. The key is learning and educating oneself first before entering any form of investment.
Forms of Investments
Investments can take different forms. It can be for different reasons as well. Let’s take a look at some investments one can make.
Retirement
The best way to start investing is by getting a 401(k). A 401(k) is a retirement account usually offered by employers to employees. But it’s still up to you how much you want to invest.
When getting a 401(k), an employee informs their employer how much they want to invest in the retirement plan. Sometimes, the employer may match the amount of savings one puts into a plan. The money you put into a 401(k) can only be withdrawn once you reach the age of 60. When withdrawing it earlier, you may have to pay a 10% withdrawal penalty.
You can also invest in a retirement plan on your own. You can do this through an individual retirement arrangement (IRA) account. With IRAs, your investment is tax-free similar to 401(k)s.
Short-term investments
Short-term investments are investments that mature within a year. This form of investment comes in the form of bonds and stocks; these can be cashed in quickly. In financial terms, this is called a liquid asset.
Samples of short-term investments are money markets, savings accounts, government bonds, and treasury bills. Money markets happen between companies and institutions for large sums. Individuals can invest small amounts in money markets.
Savings accounts are low-risk investments proving small interest. Government bonds are also low-risk. In treasury bills, on the other hand, the US government owes the purchaser. The longer a person invests in a treasury bill, the more earning they can get.
Long-term investments
Retirement plans are long-term investments. But there are other forms of long-term investment a person can venture into. Examples of long-term investments are growth stocks, stock funds, bond funds, and dividend stocks.
Growth stocks deliver high investment returns but with high risks. Investors may pay a lot of money for growth stocks, but they may depreciate in value quickly when a recession arrives. But over time, it has been observed that growth stocks perform well.
On the other hand, stock funds are often in the form of a mutual fund; it’s less volatile than growth stocks. A mutual fund is a pool of money from several investors; it is operated by money managers. Money managers allocate funds to gain income.
Bonds are mutual funds as well. According to the Insider, bond funds offer less volatile stocks and are therefore low risk. However, they also offer low returns.
Private Equity
An individual invests in private equity due to its great performance; private equities reap high rewards. The Economist defines private equity as an investment fund that involves buying unlisted private companies. Private equity firms employ private equity marketing agencies to help them expand.
According to Harvard Business Review, the success of private equity is in its strategy of buying to sell; this is something rarely employed by public companies. People usually invest in private equities because they give high returns.
Investing in real estate
Another way to put your money to good use is through investing in real estate. Investing in an apartment, a building, or a home can be a good decision. Most real estate properties appreciate over time; for apartments, a steady cash flow can come from tenants to owners.
Investing for fun
Investing does not always have to be about money. Although it involves money, you can invest for fun. It’s like making a bet with some spare money you have.
Nowadays, it’s easier to trade money for fun. Trading fees have been eliminated, and buying stocks is now more accessible. For example, when buying a stock worth $500 in the past, you may be charged a $5 commission. Currently, this is eliminated.
The best strategy when investing is that you don’t take the stocks soon. The more you invest it longer, the higher the chances to earn more returns. When investing for fun, make sure to invest the spare money you have. The smartest amount of money you can invest is around 5 to 10 percent of your income. This makes sure that if ever you get some losses, you still make sure that all things are covered when it comes to essential financial expenses.
