Best Ways to Invest

The stock market is an exchange where you can buy and sell businesses. Businesses are sold in units called shares.

The price of these shares changes throughout the day depending on a wide range of factors like recent news, available shares, and company profits. Investors look for opportunities to buy into businesses that will profit over the long term so their money can grow.

The stock market exchange dates back to 13th century Venice when money lenders sold debts to investors. It was a way for business owners to grow their businesses without the help of traditional banks.

Today, the stock market provides a similar benefit to companies looking for ways to raise capital. A company that goes ‘public,’ or begins selling shares on the stock market, can raise money by allowing anyone to purchase its stock.

Anything that offers you an opportunity to earn a profit on your money is an investment. Here are a few of the most common ways to invest your money:

Stock Market

One of the most common ways to invest your money for retirement is in the stock market. Stock prices range from just a few dollars to hundreds of thousands per share.

The price of a stock depends heavily on what happens on Wall Street day-to-day, but expect your investment to fluctuate over time.

Bond Market

The bond market is another way to make money. It’s an option to buy IOUs from companies instead of shares.

Bonds come with fixed interest rates so you know how much you’ll make in advance. There are risky bonds and conservative bonds available, depending on your investing goals.

Real Estate

Buying and selling property for a profit is called real estate investing. Real estate investors specialize in property types ranging from commercial to residential.

People make money investing in real estate in the following ways:

• Renting or leasing properties
• Flipping properties
• Wholesaling properties
• Real estate development

The type of real estate investment you choose should be based on your level of expertise and financial resources. If you have millions to invest, you’ll look at different investment strategies than someone with only $500.

Many real estate investors start by networking with other local investors to learn about the market and hear about property deals. Attend a local Real Estate Investors Association meeting to hear about the local real estate market and what it takes to get involved.

Angel Investing

Starting your own business or investing in someone else’s business is a form of investing. You are considered an investor as long as there is a plan in place that allows you to earn a profit on the money you contribute.

Individual investors who contribute to startups are called Angel Investors. Angel Investors often have an area they specialize in based on personal or career interests.

You can become an Angel Investor by deciding the type of businesses you want to invest in and your risk tolerance. Your risk tolerance is the amount you feel comfortable losing.

There are no guarantees when putting your money into someone else’s business. In some situations, you might have to be an accredited investor before you can participate in a business opportunity.

This protects you and the business owner from future legal problems. To become an accredited investor, you must earn more than $200,000 per year or have a net worth of at least $1 million.

High-Performance Savings

A savings account that offers an interest rate is a type of investment. Though the return is small compared to other investment vehicles, savings accounts can bring decent returns as long as the interest rate is more than the average rate of inflation.

Certificates of Deposit (CDs)

A certificate of deposit is a savings product that works similar to a savings account. You put money aside for a set amount of time and gain interest on the balance.

You’re technically investing as soon as you put money into a bank account that pays you interest. But this amount of money won’t mean much for your overall investment portfolio.

To get started, you need an investment strategy that helps you reach your financial goals. One of the top reasons people invest is to save money for retirement.

Often, your employer gives you a retirement account like a 401(k) or annuity with your benefits package. Employers might also contribute to the 401(k) by matching your contribution or simply putting money into the retirement account each pay period.

With these accounts, you have control over how the money gets invested. Typically, the employer gives you the option to decide how much of your earnings you want to contribute.

Are you required to use your employer’s retirement account option? Usually, the answer is no.

You can skip a 401(k) if your tax benefits are better elsewhere. It’s important to do your research to learn which retirement accounts offer the best tax advantages for you.

Most people enroll in a 401(k) through an employer. This type of retirement plan is named after a section of the U.S. Internal Revenue Code.

Each year, you can contribute up to $19,500 if you’re under the age of 50. If you’re over 50, you can add as much as $26,000 to your 401(k) plan from your taxable income.

The money you earn on your investment in a 401(k) is tax-deferred which means you don’t owe any taxes on your profits until after start withdrawing money. You’ll have to pay penalty fees if you try to withdraw money from a 401(k) before you retire.

You are responsible for choosing the specific types of investments in your 401(k) accounts. For example, you can choose to put most of your money in federal government bonds or low-risk mutual funds if you are a conservative investor.

The 403(b) retirement plan is similar to a 401(k) except its only for employees of the public sector and some nonprofits. If you work for any of the following organizations, you might be eligible to grow your money using a 403(b):

• public education organizations
• some non-profit employers
• cooperative hospital service organizations
• self-employed ministers

Traditional IRAs are individual retirement accounts available to anyone who earns income. You can’t contribute more than the amount of income you earn in a year.

You receive a tax deduction for any money you put into an IRA. Once you start withdrawing money from this account, you have to start paying income taxes on the amount.

You’re required to start taking distributions after you turn 70 1/2.

You pay taxes on the amount you contribute to an IRA, but it grows tax-free. Once you retire and begin taking out money, you don’t owe any income taxes on withdrawals.

Roth IRAs are a good investment because you can keep adding money to the account as long as you have earned income even after age 70. There is no required distribution age with a Roth IRA.

The only downside to trading individual stocks is that the burden of research falls on you. With a mutual fund, you get a mix of stocks that represent a certain category of companies.

For example, the S&P 500 tracks the top 500 companies on the stock market. You don’t have to choose which businesses you think will be successful because an index fund that tracks the S&P 500 gives you access to the profits of 500 businesses.

Millennials are helping to grow a new category of investing called social impact investing. This is an investment approach that factors in how a business impacts the environment and social issues in addition to its profitability.

If you’re interested in making sure you earn money while giving back to society, you should consider impact or ESG investing. ESG stands for environmental, social and governance issues.

Companies in the ESG category usually only meet one or two of the criteria. For example, Nike stock is considered an ESG investment because they meet the environmental impact requirements.

Nike has an executive team dedicated to making sure the company makes sustainable choices. These are the types of forward-thinking decisions social impact investors look for when choosing where to put their money.

A good financial advisor can be a major help you first start investing. Meeting with an advisor for a consultation will help you learn the basics of opening accounts and how to set retirement goals.

But be careful when choosing a financial advisor. Some professionals who call themselves advisors are salesmen for a specific investment product.

This could mean working with someone who doesn’t necessarily have your best interest in mind. Look for a certified, fee-only financial advisor once you decide to start investing.

These advisors won’t receive a commission on any of the products they recommend and should put your needs before their own.