If you look at the stress and the demands of a 9 to 5 job, or even the hard work that comes with running your own business, it is simply not feasible to keep it up all the way until old age. Which is why investing the money we earn in our most productive years and turning into our future nest egg is most ideal. The question is how do we achieve this when it is so much easier to just spend it on short-term pleasures? Here’s how.
Know your investing style.
First of all, you need to determine one thing: do you want to be hands-on with investing your money, or do you want someone else to do it for you? If it’s the former, then you have plenty to learn. You will need to take the time to read up on the hows and wheres of being your own financial advisor.
On the other hand, the latter is more often than not the path of least resistance. You can hire a financial advisor to manage your portfolio for you. There is also the option of employing a robo-advisor, which is basically an automated software designed to take care of your investments for you. The main benefit of this computerized option is lower fees, which is important if you really want to make the most out of your money.
Have a goal for your money.
Another thing you need to determine before you take the plunge and invest your money is your investing goals. Essentially, this means figuring out what you want to achieve by investing your money.
Are you thinking long-term? More often than not, this pertains to retirement. However, this may also encompass other goals such a college fund for your children, or even a down payment for your dream beach house.
On the other hand, you may also have short-term goals. This could be anything from an emergency fund to your next vacation’s fund.
It goes without saying that long-term goals are a lot more important than short-term ones, so it is imperative that you focus more on these when investing your money.
Know where to invest.
When you are finally ready to invest, you now have to make the decision of where to invest. This is because there are several investment options to choose from, each with its own set of pros and cons. Here are some of the most foolproof ones:
• Stocks. With stocks, you purchase shares from companies which would increase in value over time, in an ideal scenario. This is why you must always choose to invest in companies that you believe in. You can do this by doing your homework and finding out if the company is healthy enough, or even if it has a long-term future. The downside here is your investment may periodically suffer from fluctuations due to circumstances beyond your control, which can be quite stressful.
• Bonds. Bonds can be classified under fixed-income investments in such that investors receive regular payments from the interest they earn. Basically, a bond allows the government or a company to borrow money from you, which they can use to refinance debt or fund a project. A maturity date is often set on which the investor gets the principal back.
• Funds. This can be mutual funds, exchange-traded funds, or index funds. In a nutshell, various investors pool their money into these funds, which are then used to purchase bonds or stock. These funds are often managed by a professional fund manager who is responsible for selecting investments to use them in.
The perfect investment option for you large depends on how you can stomach the ups and downs of the market. If you are able to endure volatility and are able to withstand high risk for the chance of larger gains, you will do well with a mostly stock portfolio. However, if you prefer more stability despite a more modest amount of growth, then bonds are the safer option.
At the end of the day, it is best to keep a close eye on your long-term goals and spread out your assets across a wide range of investment options to achieve the highest possible returns. After all, nothing good ever comes out of putting your eggs in one basket.