To help you invest money, there are a few things you will need to know… 1. Don’t Invest Money You Can’t Afford to Lose 2. Don’t Invest Money You Don’t Understand 3. Don’t Invest Money You Don’t Understand with the Only Advice You Know 4. Don’t Invest Money You Don’t Understand with the Only Advice You Know that Says You Should 5. Don’t Invest Money You Don’t Understand with the Only Advice You Know that Says You Should Only Follow
It’s been a while since I’ve written a blog post (as you can see I have lots of ideas!), I figured it was time to bring back the “Best Ways to Invest Money” series. The series itself will be updated regularly, and I’m looking forward to bringing you more content in the future.
The amount of money you can make from investing depends on what you invest in, when you invest, and if you can handle the risk. This blog post will go into best ways to invest money in 2021.. Read more about best investments for 2021 for beginners and let us know what you think.
Don’t make the mistake of believing that investing is just for the wealthy.
Although having more money makes investing easier and less dangerous, anybody with a good savings account and enough income to put away a few dollars each month may invest. So, rather of debating whether or not you should become engaged, attempt to find out how to best spend your money.
There isn’t an easy solution to that issue, unfortunately. We all have very varied financial objectives and attitudes; one person’s failsafe strategy may be another’s prescription for catastrophe. I’ll detail the most important things to consider before beginning your investing journey, as well as the best methods for various circumstances, in the advise that follows.
What to Think About First
Most individuals want to go right to work figuring out the hottest new investment option, assuming that if they choose the newest up-and-coming cryptocurrency or stock, they’ll make a handsome profit.
But this is the incorrect strategy; you should think about how you want to invest before you think about what you want to invest in.
Lost? I’ll break things down for you into five questions to consider:
- What financial objectives do you have in mind?
- How long do you plan to invest?
- What level of risk are you willing to take?
- Do you want to make your own investing decisions?
- Which account type is best for you?
Let’s take a look at each one separately.
Financial Objectives
We’d all want to have a little extra cash. But for what purpose are you looking for it, and how much would you require? The basis for developing a good financial plan is knowing the answers to these two questions.
While investing your savings rather than keeping them in a checking account is nearly always a good idea, it will be less successful if you don’t have a clear concept of where you’re going.
The following are examples of common financial objectives:
- Tuition for college (or the college tuition of your children)
- Retirement
- Getting a mortgage paid off
- Putting a down payment on a home
As you may have observed, all of the goals listed above are long-term goals that need significant savings over many years (if not multiple decades).
Although some individuals save for short-term goals such as a wedding or vacation, investing is usually only advised if you’re willing to put your money aside for at least five years. I’m going to assume that the majority of individuals reading this fall into that group.
Then you’ll need to work out how much money you’ll need to reach your objective (s).
If you’re saving for retirement, for example, figure out how much yearly income you’ll need to live comfortably. The 4 percent rule is recommended by many in the financial independence movement (multiplying your annual income by 25).
Other objectives, like mortgages and college tuition, are simpler to quantify – but don’t forget to factor in inflation. Expect college tuition to be a bit more costly in 10 years if it is now $20,000 a year.
Timeframe
Once you’ve established your financial objectives, determining the length of time you should invest should be quite simple.
If you’re saving for your children’s college education and the oldest is four years old, you’re looking at a 14-year time period. Alternatively, if you’re 30 years old and saving for retirement, you should plan on a 35-year horizon (assuming you intend to retire at the “average” age).
That’s the essence of it.
Risk
One of the most important factors in determining how much risk you should accept is the period you choose. Investing $100 in Bitcoin or Tesla shares, for example, is hazardous if you know you’ll need the money in two weeks – maybe the market will be suffering a downturn at that time, causing you to lose money.
You can see how unpredictable prices may be in the near term by looking at the price chart of any stock, cryptocurrency, or currency pair.
You may be fairly sure that your assets will increase in value by the time you withdraw them if you know you’re in it for the long haul and won’t need the money for a few decades.
Naturally, there’s always the possibility that a business may fail or lose value; this is where diversification, research, and consideration of your risk tolerance come into play.
If you put all of your money into a single business or asset, the risk is far higher than if you spread it out across many companies or assets.
Then there are assets that are riskier than others by definition. Pouring your money into a brand-new business or a new asset class like cryptocurrency, for example, carries much greater risk than placing your faith in a “safe pair of hands” like Google or Amazon.
Anything having intrinsic worth, like as real estate in a desired location, is also a good choice.
Risky investments aren’t always a bad idea; you just have to be sure you’re aware of and willing to accept the risks.
Choosing an Investment
You may be wondering, but didn’t I just discuss investment selection in the previous paragraph? Not exactly – investment selection is all about choosing whether you want to choose your investments yourself or delegate the task to someone else.
If you’re new to investing, the notion of hiring a professional to assist you choose your assets may appeal to you more than doing it all yourself. While this is a viable alternative, it does come with a cost: portfolio managers charge a management fee, which reduces your returns, particularly if you’re just investing a little amount.
But if you’ve never invested before, you’re probably unaware of what you don’t know – how can you possibly choose the appropriate platform, much alone the correct assets and products?
There is, however, a third option: hiring a robo-advisor. Many platforms and apps have developed specific software and apps to assist investors in portfolio selection and management. The advanced algorithms provide recommendations that are on par with those made by professional asset managers.
Some may ask questions about risk tolerance, financial objectives, and other topics, while others will offer tools for automated investment and rounding up leftover coins to make investing simple.
Type of account
Knowing what you want to invest in is just the first step; you also need to determine how you’ll go about doing it. Or, to put it another way, the account type and platform you’ll use.
The following are examples of popular investment accounts in the United States:
- 401(k): A tax-advantaged retirement plan that allows workers to set aside a portion of their salary, typically with employer matching contributions.
- Traditional IRA: An account that allows you to deposit after-tax funds and then take them tax-free (together with any further profits) when you reach retirement age.
- Roth IRA: A Roth IRA is a kind of retirement account that allows you to contribute pre-tax money and pay taxes on it when you remove it at retirement age.
Many other nations offer tax-effective investment accounts and pension plans, although they are likely to have different names and follow somewhat different regulations. Individual savings accounts (ISAs) are available in the United Kingdom, for example, and enable people to save up to a certain amount each year and then withdraw the money tax-free.
You may also want to look into accounts for particular savings objectives, such as a college savings account (also known as a 529 account in the United States) – these might come with additional benefits.
In 2021, the best investments are
You’ve given the above-mentioned questions a lot of consideration. It’s time to get to the meat of the article: choosing appropriate investments.
Because the appropriate investments for you will depend on your responses to the questions mentioned above, there is no single correct answer. That’s why I’ve emphasized who each of the investment kinds below is most suited for. Let’s get started!
Stocks
Longer periods and greater risks for better returns are ideal.
When you purchase a stock, you effectively become a shareholder (or owner) of that firm, which means that if the company’s value rises, so will your investment.
It’s easy to understand how lucrative this may be just looking at how much some of the most successful stocks have risen over the past several decades. For example, if you had purchased Google shares in July 2016, its value would have increased by approximately 259.2 percent, from $719.85 to $2585.72.
That’s a whole lot better than stowing it away in your savings account and even better than investing in the S&P 500 (which achieved a return of around 100% over the same period).
https://finance.yahoo.com/quote/GOOG/ Source: https://finance.yahoo.com/quote/GOOG/
However, although stocks may lead to enticing profits, they can also lead to heartbreak. If you buy stock in a business that goes bankrupt, you will lose your whole investment. Even if a company does not go out of business completely, it may lose a significant portion of its value over time – industry changes, technology, and consumer opinion may all make a successful company less attractive.
With a company as powerful as Google, this seems unlikely, but there’s no way of knowing what may happen tomorrow.
Fortunately, there is a remedy.
Fortunately, there is a remedy.
Longer durations and lesser risk are ideal.
If you enjoy the sound of the rewards and liquidity that stocks may provide but not the high risk or the necessity to select and choose your assets, I have good news for you: you can invest in a fund instead. Funds allow you to invest in a variety of different business equities, increasing your diversification.
They don’t always provide the same high returns as the best-performing companies, but they’re much less hazardous.
While it’s possible that a single business may encounter issues, it’s much less probable that thousands of enterprises will face the same problems (other than during recessions, but these are a natural part of the economic cycle and nothing to be scared of).
Any fund will have some high-performers and some low-performers (or non-performers), but you’ll still receive excellent investment returns on average. That is, if you are prepared to invest for a lengthy period of time.
The following are the most common kinds of funds accessible to investors:
- Mutual funds are collections of bonds, equities, and other assets (such as real estate or commodities) chosen by asset managers and pooled with the money of other participants. At the end of the day, it’s traded.
- Index funds: Contain an index, like the S&P 500 or the FTSE 100, and are traded throughout the day (just like stocks).
- ETFs: ETFs are similar to mutual funds in that they include an index but are exchanged at the end of the day.
The distinctions between these are minor, but they are worth noticing.
Bonds
Shorter periods and lesser risk are ideal.
Despite the fact that I said that I would concentrate on investing methods for longer durations and objectives, a post about the greatest investments would be incomplete without including a top short-term investment option: bonds.
Bonds are basically loans, with the government or big corporations as the borrowers. Bonds have a minimal risk because of who you’re lending to, but this also means that the returns are smaller than other kinds of investments.
The precise returns you may anticipate vary depending on the bond type and who the borrowers are – some bonds couldn’t even beat inflation, while others can yield up to 5%.
Bonds are often employed in funds to mitigate risk since they are less influenced by stock market fluctuations.
If you wish to invest for a longer length of time, however, the advantages of bonds are widely acknowledged to be modest. If you know you won’t need your money for a few years, the disadvantages of poor returns will exceed the advantages of greater security.
Investing in real estate
Best for: Diversification of your portfolio and consistent results.
I’d want to speak with you about something right now. Although I just said that real estate provides consistent profits, this isn’t always the case. Because people will always require a place to live, properties have intrinsic worth, and their values will usually rise over time.
However, real estate returns may not necessarily equal those of other investments such as stocks, and if you pick the incorrect property location, you may not get much of a return at all. However, as a strong supporter, I wanted to illustrate why it may be a fantastic choice.
For one thing, if you pick the appropriate location, the returns may outperform the stock market. Take a look at how much the cost of real estate in London has risen in recent decades!
www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/january2021
It may also be a wonderful way to create income and make your money work for you if you buy a property and then rent it out to others. You can utilize your investment to fund even further investments by putting rent payments toward a future down payment.
Even yet, real estate investments are less liquid than stock market investments. It involves a lot of risk; for example, you may have problems with renters or have to pay for costly upkeep.
Cryptocurrencies
Best for: High-risk, high-reward situations.
Finally, there are cryptocurrencies. This isn’t for the faint of heart – it’s no secret that the crypto market is volatile, and you’ll need a solid plan to deal with the price fluctuations. Take a look at how much Bitcoin’s value has changed in the past year.
https://finance.yahoo.com/quote/BTC-USD/chart/ Source: https://finance.yahoo.com/quote/BTC-USD/chart/
However, if you’re willing to take on some risk in exchange for greater profits — sometimes even more than you’d get from investing in stocks — then crypto is the way to go. For example, if you had invested in Bitcoin five years ago, you would have received a 5144.33 percent return by now, despite the fact that the currency is now trading far below its all-time high.
Just know that you’ll need to conduct some significant research before you buy in this one. Following the herd may lead you to purchase into a bubble at the wrong moment, while purchasing specialized coins at random may lead to a fraud (the crypto world is unregulated for the most part).
Beware!
It’s time to make a choice.
As you should know by now, choose which investment vehicle(s) is ideal for you is a personal choice. Some individuals, for example, are willing to take on a considerable amount of risk by investing in particular stocks or cryptocurrencies. Others, on the other hand, would rather sleep well at night knowing their money is (relatively) secure in index funds or real estate.
I’d suggest trying a combination of all of the above. Having a large amount of liquid cash on hand is excellent personal finance practice, and investing the balance of your money across a variety of assets or investment kinds is the safest option. Why not put the majority of your money into something safer like an index fund while putting a smaller portion of it into something riskier with a greater potential return, like crypto or individual stocks?
Whether that notion makes you feel bored, scared, or excited will reveal a lot about your risk tolerance and what you should do next.
This article was first published on Your Money Geek.
The world of investing has changed, and it’s no longer just people who invest their money. Instead, you can invest in a wide range of things from stocks to real estate, to cryptocurrencies, and even social media platforms.. Read more about what to invest in 2021 and let us know what you think.
Frequently Asked Questions
Where should I invest my money in 2021?
I recommend investing in the stock market.
Where should I invest money to get good returns?
I am not a financial advisor, but I would recommend investing in stocks.
What should I invest in 2021 Australia?
The best investment for 2021 Australia is to invest in gold. Gold has a long history of being a great investment, and its expected to be the same in 2021.
Related Tags
This article broadly covered the following related topics:
- best investments
- how to invest money
- where to invest money to get good returns
- best investments 2019
- best way to invest money short term
