If you put $1000 under your bed today it would be the same $1000 ten years from now. In fact, it would probably be worthless due to inflation. If, however, you decided to invest your money in the stock market, a pensions fund, a 401K, a house, or a savings account, that money under your bed would have grown. How much it grows depends on what type of person you are and your investment choices.
Regardless of your age, there are always ways to benefit from the changing economy by investing your money. There are some risk-averse ways to use the stock market and some smart pension contribution ideas. In this article, we take a look at some of the best ways to grow your money.
The Stock Market
Perhaps the first thing you think of when thinking about investing in the Stock Market, but it can be off-putting. We all know what it looks like and sounds like, but can it work for you?
The reality is that The Stock Market is one of the most direct and reliable ways to invest your money. If you have a private pension, for instance, your pension company will be investing your contributions on your behalf – that is how the pension pot grows.
So why not try it for yourself. When you buy stock in a company, you will own a portion of that company. If the company is smart and reinvests its shares wisely, then its share price will rise, increasing your return. If the share price remains stable for a long time, you can still benefit from the investment with an annual dividend from the company – that’s a sort of goodwill payment.
If you don’t want to invest in the stock market, perhaps because you think it’s too risky, then an Investment Bond could be the answer. An Investment Bond is a loan of money to a company or government. The US offers investment bonds, but so do many other governments, and you are free to invest in those too.
In return for your investment, you will receive interest on the bond over its lifetime. It works a little bit like a bank loan but in reverse. The good thing about this type of investment is that it carries relatively little risk. The interest on a bond can accumulate over time and give you a sense of security or an extra retirement fund. If your bond price is unusually high, you can sell it and profit.
A Self-Directed 401K
If you’re an employee, you might have heard of a 401K plan. It’sIt’s a retirement fund organized by your employer in conjunction with the US Internal Revenue. In a 401K plan, you make pension contributions in your account through automatic payroll withholding. Your employer is then able to match some or all of those contributions. There is a tax advantage on these earnings meaning that they are not taxed until the employee withdraws the funds.
With a Self-Directed 401K, You can set yourself up as the company and organize your own 401K plan. It is also known as a self-employed 401K. You will be the manager of the company and can act as the Trustee for the funds. In this way, you can self-direct your investments, giving you more autonomy over how the money is invested. You could invest in real estate, other companies, or your own C-corp.
If you’re a very risk-averse type of person, then the safest and easiest way to invest your money is in a savings account. The interest rate is low but can accumulate over time. It’s useful to shop around to see which banks are offering the best interest rates. Some accounts even provide tax-incentives.
Although a savings account generally offers a very low-interest rate, it is also essentially risk-free, not something you often hear when thinking about investing. The extra money earned in a savings account, while not much, can be used to support other investments or used in emergencies.
Investing in the stock market can be risky, especially if you invest in individual stocks. A safer and more conservative approach is to use Balanced Funds. These are a combination of stocks and bonds that balance risk across the investment to increase earnings and minimize losses. It can be a better way to invest in the stock market over the long-term. Because the fund is balanced between fixed-income bonds and free-floating stocks, you get the best of both worlds.