If investment jargon blows over your head, then you’re not alone. Terms like diversification, equity, price-earnings ration, index stocks, and risk tolerance are all words that could send you running. But before you don your jogging shoes and hide your small amount of money in the coffee tin, read this article. It may shine some light on how you can manage your personal finance in a responsible and forward-thinking way. Investing money can seem intimidating, but what a financial adviser will tell you is that it’s best to invest your cash sooner rather than later.
Top 9 Ways To Invest Your Cash In 2020
Here is a helpful guide for new investors. Whether you have little money or truckloads, investment options don’t have to be complicated. Get started by reading up on the choices below.
1. Savings Account
Savings accounts are accessible to almost anyone. This is a good start for beginners or youngsters. Savings accounts are the first step to earning a profit from what you can put aside from your income. They are easy to open with your local or online bank, and you can get started with small amounts of money. It’s simple to transfer funds from your checking account for your bank account balance to grow.
However, profit margins are low with a savings account, running from about 0.50% to around 3.00%. On the plus side, savings accounts are risk-free investments as FDIC-backed bank accounts will be protected. Savings accounts are an excellent place to start, and once a person has a better understanding of their finances, they can move on to more advanced investment options. Look for a high yield savings account to get the most bang for your buck.
2. Real Estate Investment Trusts
Real estate investments that don’t require owning physical property. There are numerous types of real estate investments. Here we will focus on two low-cost options.
Real Estate Investment Trusts or REITs are companies that own commercial real estate and allow you to invest in their shares. Hotels, apartments, offices, and malls are the property types that you’ll invest in, without being responsible for the risks that come with owning a vast property of that caliber. Investors who put their money in REITS can receive attractive dividends as the IRS standards require REITs to return a minimum of 90% of their taxable income in the form of shareholder dividends each year.
To get started with a REIT investment, all you need to do is go through a brokerage account.
3. Real Estate Crowdfunding
Another way to invest small amounts in real estate is through crowdfunding. Crowdfunding real estate is a new method that “utilizes crowdfunding to raise capital for real estate investments.” This means that many investors pool their money together to invest in various properties without the headaches of owning it personally.
Real estate crowdfunding offers high returns but also significant risk. Connect with Diversyfund, Fundrise, Crowdstreet, and more to begin your real estate crowdfunding. The combined assets are put to work in commercial estate. Over time, the value of the property increases through the management and general operations. Profits are gained and shared among investors from rental income and property sale or appreciation.
4. Robo Advisor
If you want to start investing with little money, then Robo advisors are an excellent place to start. Robo advisors are “digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision.” The artificial intelligent platforms collect information from their investors about future goals, risk tolerance, and current finances. Gathered data gives the Robo advisor the ability to offer advice and automatically invest assets.
Easy account setup, comprehensive education, and low fees make this an attractive option for first-time investors. Betterment is the original Robo advisor for small investors. Generally, how it works is that after a thorough evaluation, a portfolio is created for you with an allocation that considers and includes several different exchange-traded funds (ETFs). All you have to do is make sure you put money into your Betterment account so that it can grow. The larger your account balance, the cheaper the management fee.
5. Retirement Accounts
A retirement plan is one of the best investments that you can make into your future. Talk about long term gain! You can opt to have a traditional IRA (individual retirement account) or a Roth IRA. Almost all banks, investment companies, and brokerage firms offer a Roth IRA. Roth and traditional IRAs are similar; however, there is one large distinction: how they are taxed.
- Roth IRAs are funded with taxed dollars. Contributions that you receive during your retirement are not tax-deductible. This is favorable if you consider that taxes will be higher in retirement than when you start to invest them.
- Traditional IRAs are usually funded with pretax dollars. You will usually get a tax deduction on your contribution and pay income tax when you withdraw the money from the account.
- 401(k) Plansare “a company-sponsored retirement account that employees can contribute to. Employers may also make matching contributions.” Workers can contribute to their 401(k) accounts through an automatic deduction of their salary. The earnings during retirement are only tax-free if they’re a Roth 401(k) plan.
6. Peer-to-Peer Lending
Peer-to-peer Lending websites are also known as “social lending” or “crowdlending.” Just as the name implies, P2P lending websites connect borrowers directly to investors. These lending websites set rates, terms, and manage transactions.
Prosper, Lending Club, Peerform, and Upstart are among the most common P2P Lending sites out there. The way it works is that you can sign up and invest any amount of money. Your social investment can then be split into various investment portfolios. Borrowers request a loan, and once approved, they will receive it. They pay it off by making monthly payments of both principal and interest. Investors can enjoy attractive returns on investment.
P2P Lending can be risky. But with a split investment account, chances are you’ll still make a profit. With some P2P Lending sites, there is a minimum investment required. By cutting out banking, you can have the ability to invest in people’s lives and help provide the money for their individual needs.
7. Mutual Funds
A mutual fund is an investment vehicle that includes a diversified portfolio in the stock market, bonds, and other ETFs. They are managed by a financial advisor, who is responsible for allocating funds to produce capital. If you are a beginner to the stock market, then mutual fund companies are a good place to start as they do not require you to have stock trading experience or dedicate a lot of time to your investments.
However, you will need a large initial deposit to start your investment. With many mutual funds, the starting balance required is $500 – $2,000. If you’re a high earner, then mutual funds can work for you as you continue to put your hard-earned cash into your portfolio. It’s a good idea to set up a monthly debit order from your debit card. An index fund is a type of mutual fund or ETF. Index funds are constructed to mirror the financial market index and can run passively, with little input. A financial advisor can explain this type of portfolio.
Vanguard, E*Trade, and Fidelity are among the many financial companies that help investors strive toward their investment goals. As with most financial companies, there is a management fee charged for their helpful service, but it is mostly an unnoticeable expense. Contact them for financial advice for your desired investment strategy.
Income on your investment is earned from interest on bonds and stock dividends held in the fund’s portfolio. A dividend is a profit distribution to shareholders from the company you’ve invested in. Most of the time, the best thing to do with earnings is to reinvest those funds for more shares. With a diversified portfolio and patience to allow your nest egg to grow, you can increase your riches.
8. Investing Apps
There are many investing apps out there, making it easy for anyone to make decisions and grow their spare change. A survey by Stach found that “41 percent of millennials feel they don’t have enough money to invest in the stock market at this time, they believe it takes a lot to start. Seventy percent of millennials think they need at least $100 to start investing in the stock market, while 38 percent think they need at least $1,000.”
Investment apps have entered the market to simplify investing, allowing people to start with a minimum deposit. With investing apps, viewing your earning is simple, and if you commit to making a monthly contribution, some apps can even project your earnings. Talk about good motivation!
- Stash is a company that allows everyone to invest and bank in one space. With an easy-to-use app, anyone can invest small amounts of money into ETFs and individual stocks. With Stash, you can invest in giants like Amazon and Apple. Investors can receive financial education and learn as they go, setting them up for a profitable future. With as little as $1 a month, investors can open a personal investment account with Stash. With the app, users can track their spending, pay bills, and save. Once a user has allocated funds for investments, money is put into fractional shares of thousands of ETFs and stocks.
- Acornsmakes it easy to invest small amounts of your money. With the Acorns app, you link your debit card (not credit card), and with every purchase you make, the remaining change is deposited into your Acorns account. Small initial investments grow over time and are deposited into a portfolio based on your financial situation, age, and long-term goals. A mix of ETFs and index shares are invested in creating a diversified portfolio. You can sign up and create an account from $1 per month.
- Robinhood: Another great app for buying and selling shares of stocks and ETFs is Robinhood. If you’ve ever wanted to throw your cash into the money pool of cryptocurrencies, then Robinhood will allow you to do that, with no commission fees. Another bonus is that there is no minimum account balance requirement. You get to decide how risky you’d like to be on the investment options. Robinhood is a “company that leverages technology to encourage everyone to participate in the financial system.”
- M1Finance is a Robo-advisor app that allows investors to open an account with no fees and no minimum balance. Once you’ve funded your account, M1Financers can invest in a “pie” of investments. Each slice is a symbol of an individual stock or STF. With intelligent Robo algorithms, your portfolio is adjusted to make the best investment choice for your unique needs. Clients rave about M1Finance’s flexibility, convenience, speed, and ultra-low interest rate.
9. Invest Your Money Into A Good Cause
Investing in people may not be a way to grow your personal finances, but it sure feels good to give to others and know that it’s making a difference. Roundupsis a website that securely integrates with your checking account or credit card provider. When you spend, a roundup is made on your purchase. A donation of your spare change is given to the cause of your choice. On the Roundups app, you can monitor the amount that you’ve donated and receive the good news of how your small change is making a big difference. You don’t need a lot of money to make an impact in the lives of others.
Some Words of Warning
You can make sound financial decisions for your future, but you can also make bad ones. Investing in unverified and untrustworthy companies that offer get-rich-quick schemes are usually shady and too good to be true. Choose a company or app with good online reviews and do your homework before rushing into anything that is after your money.
Gambling is another untrustworthy, addictive pastime that is risky, and as quickly as you can make thousands, you can lose them. The appeal of short-term gain is a warning sign. A prosperous financial future is one that takes patience, time, and careful consideration. Make sure that you understand where your money is and what it is doing. A good financial advisor or investment company will lay all the facts out for you and provide you with the layman’s terms to make understanding straight-forward.
The Bottom Line
While the wise, the rich, the hoarder, and the humble will all have different ways to save and grow their money, everyone will agree that saving money is a good idea. American investor Warren Buffett once said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.” So while investing money might seem like taking that first step in the dark, you never know where it might lead. Making positive and wise financial investments that may not see an immediate gain will lead to change and growth.
A useful skill for financial reformation is saving without expecting a short-term gain. If investing your money becomes a habitual pattern in your life, no matter how small you start, you will be in a much more stable financial position later in your life.
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