If you're like most people, the thought of investing makes you uneasy. You know that if you don't learn how to properly manage and protect your investments, they will not only lose value over time but could even go down in price quite a bit more than what you originally invested in them.
But there are two ways to look at this fear. One is as an excuse -- why should anyone be expected to understand something so complex? The other perspective is one based on facts: If someone has been able to master investment strategies which have produced such great returns over long periods of time, then shouldn't we take advantage of their expertise and study up ourselves before making our own decisions?
So where does that leave us when we want to start investing money with the goal of growing our assets or income quickly? It turns out that whether you opt to follow a proven method or create your own system from scratch, there are some basic guidelines for success. And while each approach may require different skill sets and strengths, all investors would benefit by following these tips first.
First off, remember that no matter what kind of investor you are, you need to set realistic goals. Your financial future is too important to waste precious energy worrying about things that aren't likely to happen anytime soon. Focus instead on what's right in front of you now. Decide what you really want, and work toward achieving those desires within reason. Then figure out how much time and effort you'll put into it. Investing isn't going anywhere any time soon, so use today wisely.
Next, decide how much risk you're willing to accept. Are you looking for steady growth over several years? Or do you prefer quick results? The answer to this question will help determine both the type of investment vehicle you select and also how actively you plan to participate in managing your portfolio. With many types of mutual funds available, you can build a diverse asset allocation across various market sectors. This helps avoid major losses during bear markets and provides stability in good times. But it might be difficult to achieve rapid growth without taking on more risk.
Finally, consider your timeframe for reaching your goals. Do you have five years until retirement to meet certain needs, or just six months to get rich quick? Depending upon what you hope to accomplish, you may find yourself opting for more aggressive methods of building wealth. For instance, if you're trying to provide security for your family after losing a job, you probably won't want to pay high fees or assume higher risks. On the other hand, if your objective is to develop a large nest egg that you can pass along to children someday, then you'd definitely want to seek out higher-return opportunities.
With this information, you're better prepared to move forward with creating your own personal investment plan. Read on for details.
Let's say you've decided that you want to save for college tuition, a new car, or whatever else you think is important enough to deserve a chunk of your paycheck. Where should you start? As mentioned earlier, you may already have a particular goal in mind, but chances are you still haven't settled on exactly how you intend to reach that dream. So here are three general approaches you can consider using to come up with solutions.
Once you establish your objectives, compare options. Maybe you're saving for a house or college expenses, but you're unsure of how much to allocate toward either. Some experts recommend dividing monthly savings equally between housing and education. Others suggest putting more into housing because interest rates tend to be lower than those associated with school loans. Whichever route you choose, always try to keep your annual contribution below 30 percent of your gross salary (or whatever amount you earn per month). Otherwise, you run the risk of sending too much of your hard-earned cash away unwisely.
Another option is to check around town to see what banks offer free checking accounts. Many institutions grant access to special programs designed specifically for customers who open online banking accounts. These perks usually include debit cards linked directly to the account -- meaning you can spend money that you wouldn't otherwise have access to. In addition, many banks allow you to transfer small amounts of money electronically among multiple accounts whenever you wish.
Finally, if you feel comfortable working with numbers, you may choose to focus exclusively on stocks and bonds. There are numerous discount brokerages offering low commissions and easy trading tools that simplify the process of buying and selling shares. However, if you'd rather forego the extra expense, you may want to explore direct stock purchase plans, commonly referred to as DSPPs. These products give investors ownership stakes in specific companies without paying the brokerage fee typically charged by brokers.
Whether you're looking to increase your net worth steadily or hoping to generate a short-term windfall, choosing the best investment vehicles for your situation comes down to knowing your goals. Let's suppose that you plan to retire early and live off your nest egg, but you're worried that the stock market doesn't offer very attractive return potential. That leaves you with only one real choice: stable alternatives like bank certificates and municipal bond funds. Unfortunately, these instruments aren't known for producing amazing returns year after year. Instead, you may want to consider turning to hedge fund managers. While these firms differ greatly from traditional pension funds, they specialize in finding unique sources of capital and executing trades that enable them to outperform competitors.
Hedge funds are privately held businesses whose shareholders generally contribute part of their profits back to the company via management fees. Because of strict regulations governing transactions, however, these funds typically carry substantial levels of risk. Investors must endure lengthy due diligence procedures and often wait weeks or months to receive statements detailing performance data. Moreover, unlike public offerings, private placements are limited to accredited buyers.
One way to circumvent these hurdles is to buy exchange traded funds (ETFs), which trade publicly on stock exchanges similar to ordinary equities. They represent another popular alternative since they combine elements of managed futures and index funds. Like regular equity ETFs, ETPs consist of baskets of securities representing broad categories of industries and regions. But because they track indexes rather than individual holdings, they are less prone to sudden movements caused by corporate missteps or market factors beyond a manager's control. Also, unlike their namesake counterparts, ETPs are cheaper.
To further reduce costs, you can investigate low-cost index annuities. A policyholder pays a premium annually to guarantee a fixed rate of return for life or a predetermined period. This means that regardless of changing economic conditions, the value of the payout remains constant through inflation adjustments. Since annuity contracts rarely last longer than 10 years, though, you shouldn't expect big gains unless you hit the jackpot. Still, they can prove useful in meeting emergency needs. Plus, depending upon the product, you may qualify for tax deductions related to premiums paid.
As far as active participation goes, you have plenty of choices. Many reputable hedge fund managers operate advisory services, allowing clients to pick their own picks from existing portfolios. Other advisers simply point potential investors toward top performers to maximize efficiency. Whatever approach you choose, be sure to thoroughly research their backgrounds and credentials before signing anything. Finally, if you're interested in getting involved but lack experience, you can hire an independent professional to oversee your portfolio.
In summary, there are lots of ways to make smart choices regarding your money. But given the current state of the economy, you may want to hold off on starting a business until later this decade. Why? Although entrepreneurship offers many benefits, including greater flexibility, freedom, and independence, a lot of obstacles face young entrepreneurs, including inexperience, inadequate financing, poor planning, and unfamiliarity with legal issues. Until those problems are overcome, stick to familiar jobs and established systems.
There are dozens of ways to boost your earnings, but unfortunately, few reliable shortcuts exist for doubling your money overnight. Yet there are still several tried and true techniques that can significantly improve your odds of attaining larger sums of liquid cash. Here are four examples of simple yet effective ways to speed up the accumulation of wealth.
1. Use credit card rewards. Credit cards offer incentives for purchasing items with plastic. Most issuers charge interest on purchases made outside of specified "reward" days. Generally, points accrue according to spending limits determined by tiers. Higher tier memberships afford broader privileges while lowering introductory rates. Even better, reward day bonuses typically range from $5 to $50, sometimes matching the dollar amount of eligible purchases. To claim yours, sign up for automatic bill payments that link your balance to your credit card every couple of billing cycles. When you swipe your card to complete a transaction, you collect points equal to the total amount spent plus 3%. After accumulating 1,000 points, you can request a statement summarizing your activity. Look for cards that list categories of goods that you frequently shop for, such as groceries or gas. Those that do not usually award bonus points for discretionary purchases. Remember, you can redeem your credits for merchandise and travel accommodations, thus maximizing your earning potential.
There are many ways of making extra cash, from selling things at a yard sale or online marketplaces like eBay, Etsy, Craigslist etc., to renting out rooms through Airbnb, to starting an e-commerce business, freelancing, getting a second job, buying stuff used on Facebook marketplace called 'Wish', to investing into stocks and mutual funds, real estate, cryptocurrencies, foreclosures, peer-to-peer lending (P2P), etc.
But which one's best for me? Which method gives me fastest return on investment? And how much time would it take if I lost all this money invested? To find those answers, we need to look at some basic rules of thumb about what makes people successful in their investments, as well as learn more about different types of strategies that work best with our unique financial situation.
We also need to understand why most investors don't succeed in building wealth — they simply fail to plan properly. It's not just lack of knowledge, but rather a combination of ignorance and laziness. After analyzing hundreds of thousands of portfolios over years, we've found there are two main factors that determine success when investing money. These are: 1) understanding where you stand financially now, 2) knowing what kind of returns you want to get from your portfolio.
Let's assume you have $100k saved up and decide to start learning everything you can about investing. You'll probably sign up for free courses on Udemy, Coursera, Khan Academy, YouTube, Google Scholar, Investopedia, Financial Times, Forbes, Bloomberg... There will be tons of information available. But which ones are worth paying attention to? How could you figure out which course is right for you? What skills do you really need before diving into a new subject? In short, which topics are crucial for investing success? Here's what we recommend.
First off, let’s clarify what exactly does “investing” mean here. Most people think of it as putting their money somewhere so that it earns them higher interest rates than banks offer. But this isn't always true. While the latter mostly works by lowering your balance each month, earning lower interest, "actively managed" funds often increase your net worth without reducing your paycheck. They use complex algorithms to pick assets that outperform traditional stock markets, while cutting down trading fees to save you even more money. The trick is picking the right fund manager who has enough experience managing big amounts of money. If he/she doesn't know what they're doing, these managers might end up losing your hard earned capital instead of growing it faster!
So, first step is choosing how long you'd like to keep your money for. Are you looking for quick results? Then you should go for actively managed funds. Do you prefer steady growth? Try index funds. Or maybe you want to see your money grow after retirement? Go with stable account options. Once you've determined the type of accounts you'd like to open, check out asset allocation charts to compare the performance of various investments. This tool helps you visualize whether diversification among multiple categories is working for you or not. For example, you may discover that 80% of your savings goes towards equities and only 20% towards bonds - something that usually happens to us once we reach adulthood. Now imagine losing half of your equity value because you didn't pay proper attention to your portfolio. That wouldn't feel good, would it? So, analyze your current position carefully.
Once you know which category suits you best, it's time to explore particular companies within said group. Start researching potential investments using popular tools such as Morningstar, Motley Fool Stock Tracker, Yahoo Finance, CNBC MoneyCenter, Seeking Alpha, Value Line Investment Survey, Market Watch and TickerTV. Check out company websites, annual reports, news articles, press releases, social media posts, analyst recommendations, competitor analysis, consumer sentiment data, industry trends, and other publicly accessible resources. Don't forget to download relevant apps for mobile devices. Before opening any account, ask yourself whether you believe management team will stick around for several years. If not, consider alternative solutions.
Then you can move forward with research. Find out more about specific industries, products, services, competitors, customers, suppliers, partnerships, mergers, acquisitions, disposals, dividend yields, share buybacks, special dividends, debt offerings, convertible securities, etc. By studying these areas closely, you help yourself gain valuable insights into future prospects, competition, pricing, marketing issues, and other important aspects. When you begin gathering facts, remember to note key points related to earnings per share, revenue, operating margins, balance sheet strength, cost structure, product quality, customer loyalty, innovation, patents, R&D efforts, brand power, competitive threats, environmental impact, employee satisfaction levels, and others. All those details add up to better decisions later on.
Next, familiarize yourself with terms commonly associated with investing such as beta, alpha, hedge ratio, leverage ratio, beta coefficient, liquidity preference, volatility, correlation, beta neutral, beta inverse, fundamental factor, income factor, momentum factor, style factor, sector weightings, tax efficiency, etc. Learn what they actually represent and what they tell you about risks involved in certain situations. With all this knowledge under your belt, you can proceed to setting up a separate bank account specifically dedicated for investing purposes. Use this opportunity to set aside money regularly into a separate account with no access to any source of credit, except for loans from family members. As soon as possible, allocate 10%-20% of your monthly salary to your investment account(s). Even though you won't receive regular updates on its progress, you still have a chance to monitor your portfolio every few months. Make sure to track changes made to your portfolio throughout time.
Now comes the fun part -- finding the right mix of investments that meets your needs. Take advantage of educational material provided by major providers like Stash, Betterment, Wealthfront, Robinhood, E*Trade, Ally, TD Ameritrade, Fidelity Investments, Charles Schwab, Vanguard, etc. Remember, it takes time to build a solid foundation. However, if you follow a proven system, you can significantly speed up the process. If necessary, consult a licensed professional advisor to ensure consistency between advice offered by advisors and actual financial planning requirements. Never stop learning. Keep reading books and magazines to stay updated. Attend seminars, webinars, conferences, workshops, lectures, and meet experts in person whenever possible. Share ideas with friends and colleagues, post questions on forums, read blogs, watch videos, listen to podcasts, and engage in conversations with financial professionals via Twitter, LinkedIn, Quora, Reddit, Instagram, Pinterest, Snapchat, Telegram, TikTok, WhatsApp, Skype, Viber, Discord, Slack, etc.
You have a goal of doubling or tripling your money, but how will you achieve it? There are many ways to grow your wealth, from real estate investments to stocks, bonds, commodities, etc., with varying degrees of risks, timelines, learning curves, etc.
And while there's no one-size-fits-all answer when it comes to making money, we've compiled some great strategies that might help you get started. If you're just starting out as an investor, here's what you need to know about how to become wealthy quickly.
There are two main types of growth strategies: passive and active. Passive means doing things like buying mutual funds (which hold hundreds of different securities) instead of picking individual companies to buy stock in. Active involves actively selecting specific sectors and/or companies to invest in. It typically takes more work than passive because you'll be analyzing markets and researching companies before deciding which ones to target.
When choosing between these options, consider whether you prefer stability over speed. That said, if you want both—a steady stream of income and the ability to take advantage of market dips—you may end up having to combine them. For example, Warren Buffett recommends building his own index fund that holds all kinds of assets, including high-growth small businesses. He also says he'd rather put his energy into finding good deals and growing those businesses than trying to time the market by chasing after hot new firms. So maybe start off slow by putting your money in stable index funds so that you can build long-term gains without worrying about short-term losses. Then once you feel comfortable managing your own portfolio, you can switch to focusing on "momentum" stocks—those that keep rising even though they aren't necessarily any better run than other stocks.
Whatever route you decide to go down, remember this basic rule: Don’t chase returns. Instead, let your money compound over time and reinvest earnings. The key is balance — don't try to beat the benchmark, only earn above it. And never sell shares during bear markets. As much as possible, avoid trading, too. These rules apply equally to both active and passive portfolios.
If you're looking to generate cash flow now, then you should probably stick to low-cost index funds that pay dividends each year. You won't see huge spikes in value, but over time, they tend to stay relatively flat. Dividends provide a consistent source of income, unlike capital appreciation, which fluctuates based on the performance of particular industries, sectors, or companies. Plus, dividend paying stocks usually trade at lower valuations compared to their non-dividend paying counterparts. This makes sense since investors treat such companies' shares less seriously, and therefore prices tend to rise faster. Another perk is that most dividend stocks offer tax advantages for shareholders via annual increases known as "tax deferrals." Finally, check out our list of great dividend ETFs for instant diversification.
But if you want to use dividends as part of a broader asset allocation plan, consider switching to higher yielding blue chips. Blue chips are large, well established companies whose business models are fairly predictable and easy to understand. They generally trade near historical highs, providing plenty of upside potential. High quality dividend payers include Microsoft Corp. MSFT -0.45%, Caterpillar Inc. CAT -1.12%, Johnson & Johnson JNJ +3.06%, and Coca Cola Co. KO XOM 0.92%.
Another way to create immediate income while keeping expenses low is through exchange traded notes. ETNs allow you to purchase shares of a company with little upfront cost. In return, you receive regular interest payments until maturity. Interest rates vary depending on the issuer and the length of the note. Exchange Traded Funds (ETFs), another popular option, give you exposure to certain segments of the economy with minimal fees. But while convenient, these instruments are not suitable for everyone since they often carry additional risks. To learn more about how ETNs and ETFs differ, read our comparison guide.
Here's where you'll really see big bucks. Investing in volatile areas like tech, natural resources, and healthcare could mean major profits within weeks. However, you shouldn't jump into a sector blindly. Research companies thoroughly and make sure they meet your personal criteria for success. Remember, momentum stocks rose during the Great Recession despite significant declines across almost every industry. Therefore, focus on identifying niche opportunities that seem undervalued. Also, always look beyond Wall Street hype. Some companies are worth far more than others simply due to supply and demand economics. Lastly, track your progress using free tools like Morningstar Stock Screener.
As mentioned earlier, don't chase returns. What does that mean exactly? Well, avoid penny stocks. While these sorts of opportunities sound appealing, they come with serious risks. Many people lose fortunes following highly promoted initial public offerings (IPOs). Since IPOs require new investors to pony up millions of dollars, insiders who helped launch the firm benefit significantly more than anyone else. Be cautious with private equity partnerships. Although some of these entities offer solid returns initially, few actually succeed over the long term. With leveraged loans, venture capital, hedge funds, REITs, and commodity futures, you open yourself up to greater financial risk.
To minimize your chances of losing everything, research thoroughly before signing on the dotted line. Make sure you fully understand the terms and conditions, especially when it comes to selling your holdings back to the original lender. When it's necessary, ask questions! Most importantly, don't rush into anything. Take a step back and assess your situation first. If something seems fishy, trust your gut. If you still think it sounds promising, proceed cautiously and follow your instincts.
Lastly, watch out for scams. Keep an eye out for signs that the deal isn't legit. Do background checks on founders and managers. Look for red flags like sudden price hikes, excessive executive compensation packages, poor customer service records, etc. Once you find the right opportunity, however, you should expect results.
It's true that generating massive amounts of money overnight is impossible. Your job is to strategically allocate your savings and gradually increase your net worth over time. By taking action today, you reduce future regrets later. Here are several proven techniques that you can implement immediately to begin making extra cash.
Start thinking ahead. Create a spending budget and cut unnecessary expenses. Save up enough money to cover six months of living costs. Before you spend it, write down three goals. One of these goals should involve increasing your monthly income. Next, figure out how to reach that goal. Decide how much to save per month, and commit to sticking to that amount.
Make strategic purchases. Buy items that last and appreciate steadily. Think clothing, furniture, appliances, cars, electronics, books, CDs, DVDs, etc. Avoid impulse buys and expensive fads. Focus on quality products that retain resale value and add actual utility to your life.
Invest wisely. Start with simple vehicles that produce recurring income streams. Consider annuities, insurance policies, collectibles, rental properties, royalties, franchise rights, and similar arrangements. Use leverage whenever possible.
In addition to these tips, you must also educate yourself. Read books and news stories related to finance, investing, taxes, retirement planning, social media marketing, entrepreneurship, lifestyle design, etc. Learn as much as possible, and share your knowledge with others. Successful entrepreneurs are constantly seeking advice from mentors. Similarly, successful investors seek counsel from experts. Never stop educating yourself.
Just follow our battle-tested guidelines and rake in the profits.