Savings accounts, while safe, fail to grow your cash. The tiny interest rates attached to savings accounts by banks generate just a fraction of what a more aggressive investing approach can generate and what you need to retire. The smartest way to make your money grow without exposing it to too much risk is through the buying and holding of stocks and other financial instruments that, over time, accrue in capital gains and pay dividend yields. That being said, a lot of people remain oblivious as to how they can consistently extract profits from their investment portfolio. Here are six tips on how to invest and grow your money the smart way.
Avoid Short-Term Trades
Scalping and day trading are popular styles of investing because of the promise of quick profits. With a $1,000 account, you can make anywhere between $100 to $200 per day, depending on how active or volatile the market is. Yet while short-term trades are a legitimate investment to add to your portfolio, it's a zero sum game over the long haul. The more trades or positions you hold, the higher the inherent risk is to your capital. Once you start losing money, this can lead to overtrading and revenge trading. At this point, logic is dismissed and emotions control your investment decisions.
Navigate Between Safe and Risky Assets
Proper asset allocation is achieved through planning and market research. Traditionally, investors and financial advisers have advocated an equal distribution between stocks and bonds. Nowadays, however, there are a lot of financial instruments that you can park your capital in, from penny stocks to cryptocurrencies. For safe investment options, consider investing in a gold IRA account. Be wary of scams, however, and only work with a Gold IRA company that has positive reviews and testimonials.
Invest in What You Know
Do as Warren Buffett does in that he only invests in companies he knows and understands. Everyone has a niche or industry that they are experts in. Whether it's healthcare, technology, finances, or consumer goods, identify the markets you are good in and focus on finding promising stocks. Check out the company's website. If you can't understand what the company does after a minute of reading their website, you probably shouldn't buy their stock yet.
Consider Lending Investments
Offering your friends, neighbors, or coworkers a loan that must be repaid with interest is a good way to grow your money. Peer-to-peer lending has become increasingly popular nowadays, with a handful of online platforms bridging lenders and borrowers. The interest rates in P2P lending are usually higher than the usual.
Buy Real Estate
Perhaps the safest investment you can make is a property. Buying a residential property and renting it out can earn you passive income in the form of your tenant's rent. If you have the budget, look into commercial real estate. These can be leased to farmers, industrial companies, and other big players. REITs, or real estate investment trusts, are also a good way to invest in real estate for those with limited capital. Through REITs, you can get involved in larger real estate deals, such as strip malls, resorts, apartment buildings, etc. Real estate will forever be in high demand, even more so in the next decade or two as the human population further increases and space becomes a limited resource.
Focus on Where It's Headed
Not where you get in. The price where you enter the market is not as important as where the instrument's price is headed in the future. For instance, if the company has solid finances and a competent management team backing it up, it doesn't matter if you pay $5, $10, or even $100 more per share if it's about to skyrocket to ten times it's current price in the next year or two.
Making your money grow while protecting it from huge losses isn't merely about being technically proficient or book smart. You don't have to be attending an Ivy League school or mentoring under Warren Buffet or Peter Lynch to make it in this business. Keep your investment style simple and focus on what really matters - value of the financial instrument.