Products and services get more expensive over time. A gallon of gas or a quart of milk costs much more today than in the 1960s. This is the result of inflation. However, you can fight inflation by investing your money now. Investments compound over time, giving you more money to spend on goods in the future.
Before you invest, there are a few things you should keep in mind. The stock market can be volatile, so your investments can quickly increase or decrease in value. While you can reduce your risk by diversifying your portfolio, investments may not be the right choice for you if you cannot afford to lose any money.
Investments also usually take years to build up their maximum value. If you need money right away, you should look for another solution.
Still, if you want to earn money over an extended period of time, and you have a decent amount of risk tolerance, investments are a great option. Here are six ways to invest your money.
1. Retirement Plans
The easiest way to get started in investing is to take advantage of your employer’s 401(k) plan. Unfortunately, money in these accounts frequently gets left behind, especially when people change jobs. Research shows that 2.8M 401(k) accounts are left behind every year.
These accounts are easy to manage. Just tell your employer to put a portion of your paycheck into the fund each month. Most employers match a portion of your contribution, guaranteeing you some return on your investment. In 2019, the average 401(k) match by an employer reached a record-high 4.7 percent.
If taking a big swing on the stock market scares you, you can buy bonds from the government instead. Bonds have lengthy terms and have a higher return on investment compared to savings accounts.
A robo-advisor does all of the work for you. It uses a computer algorithm to manage all of your investment. While you can also use a human investment manager, a robo-advisor is much cheaper. The latter usually charges you just 0.25 to 0.50 percent of your annual balance. Some robo-advisors even give you tools and educational content that you can use to learn about the stock market as your investments grow.
4. Real Estate
When you think about real estate investing, you probably picture landlords fielding calls from residents at 3 a.m. However, new platforms now let you invest in real estate without having to work as a landlord. This process is relatively inexpensive, as well.
5. Target-Date Mutual Funds
A mutual fund lets you invest in multiple holdings at once. A target-date mutual fund, in particular, invests your money based on your estimated retirement date. If you do not plan to retire for several decades, the fund will likely start out with stocks. That is because stocks grow over time. As you get closer to retirement, the fund will shift to the less risky bonds. After all, you do not want to lose all of your hard-earned money right as you prepare to stop working.
6. Index and Exchange-Traded Funds
Two other types of funds are index and exchange-traded ones. An index fund tracks and mirrors a specific market index, such as the S&P 500. An index fund thus lets you invest in multiple assets as a mutual fund does, but the index fund features a lower expense ratio.
Some index funds do require a minimum investment. However, some firms let you invest in an index fund for just $100.
Exchange-traded funds are similar to index funds. They track market indexes and charge lower fees than mutual funds do. However, they do not require a minimum investment. Instead, you trade them throughout the day for a fluctuating share price. While brokers used to charge commission on these ETFs, most no longer do so.
Becoming an investor does not have to be overwhelming. Whether you are a beginner or a stock market pro, you can use any of the above strategies to grow your portfolio.