Investing is one of the best ways to grow your money in the long run, but it scares many people because of its inherent risks and the perceived difficulty of investing in general. It is true that education and practice can help you invest your money more wisely. But here are five tips anyone can use to start building their fortune today.
1. Choose low cost investments
Investment always carries some costs. It is likely that your broker is always interested in collecting fees. Mutual funds, for example, impose an annual fee called the ratio of expenses to all shareholders. This is usually a percentage of your assets and can deduct your profits over time.
Try to keep your costs as low as possible to maximize profits. The index funds are a great option as they offer immediate diversification and low costs. But unlike ordinary mutual funds, which consist of assets chosen by fund managers that can often change, the index of the funds negatively follows the market index. Due to the limited work done by fund managers, the standard fund expenditure ratios are low and often less than 0.5%.
2. Use appropriate accounts
Retirement accounts are where most people go to make an investment, and the reason here is convincing. The money you contribute to deferred retirement tax accounts reduces the annual taxable income, although you must pay taxes on distributions in retirement.
Both accounts have the ability to save money on your taxes while enabling you to grow your wealth. Deferred tax calculations make more sense if you think you are in a higher tax bracket today than you would be during retirement. These accounts do not offer the same tax benefits as retirement accounts, but still can help you save money. If you hold your investments for more than one year, they are subject to capital gains tax instead of income tax.
3. Diversity in your investments
Diversification is important no matter how much money you invest, but it becomes increasingly important as you invest more. Putting most or all of your money in one stock can be negative, and it may take years to recover what you have lost or never recover. The good idea is to distribute money among many different assets. Mutual funds are a simple way to do this because they are bundles of many stocks and bonds, so a single stock or bond can not have much impact on your portfolio.
You also need to make sure that you invest diversely in many different industries and sectors.
4. Dollar-cost averaging
The dollar cost averaging is a simple strategy where you can invest a dollar amount in assets according to a regular schedule – once a week, once a month and so on. The idea here is that you end up paying a fair price in the long run because sometimes you have to buy when the price is higher and sometimes when it is lower.
5. Assistance from a financial advisor
If you don’t trust yourself to invest your money effectively, consider looking for a financial advisor who can do the work for you. You would need to pay for these services, but it can be worth it in the long run because advisors can choose investments and strategies that will help you grow your money more quickly than if you invest on your own.
Another option is Android Advisors. These are computer programs that invest your money according to a certain algorithm based on the questions you answer when setting up your account. Costs are usually lower than what you pay with a financial advisor.
Thus, if you follow all of the above tips, you should always anticipate a bit of risk when investing — but it is definitely worth it.