Best Way To Invest Money Introduction
Like many of you, when I desired to learn to invest money I found investing came as a rather uninformed concept that, at least on the surface, presented a highly lucrative and appealing method for retiring quickly while providing a fast route to living the life I always dreamed. But in all honesty I had no idea what would be the best way to invest money.
However, unlike what many of us were taught, the best way to invest money does not necessarily or always mean throwing your hard earned money at some phantom pieces of paper that get waved around by yelling fanatics on the trading floor of Wall Street. In fact, there are dozens, if not hundreds of viable investment routes that each carry with them unique positives and negatives. All of these routes will help you learn to invest money better.
So I will begin this blog entry, about the best way to invest money, with a summary of the more common investment opportunities. Let’s get started with this lesson on the best way to invest money!
Stock Market Investing
The stock market offers a variety of investment strategies and terms that are shrouded in mystique. As this blog progresses I will discuss many of them and hopefully enlighten many as to the reality of what each investment type can do for them and will fit as YOUR best way to invest money.
Here is a brief (and not extensive) list of ways you can invest in the stock market, and a few of the types of investments to help you learn to invest money:
- Buy and Hold – stock market investing in this manner would be to purchase shares of a company with the intent of holding for an extended period of time
- Dividend Investment – buying share that award money to shareholders (quarterly or annually) to create a stream of bonus income from the money invested
- DRP – Dividend reinvestment plan. Buy shares that award a dividend (quarterly or annually) and immediately reinvest that money back into the same company
- Position Trading – buying at a low point, or shorting at a high point, with the intent of holding the stock for less than approximately 6 months. Sometimes positions are held for as little as a week.
- Swing Trading – buying or shorting shares with the intent of holding for a few days to a week.
- Day Trading – buying or shorting shares on intraday periods of time (between the opening and closing bells of the market). Sometimes day trading can refer to holding a stock for upwards of a 24 hour period, but typically refers to holding a stock anywhere from minutes (scalping) to hours only.
- Forex – forex stands for foreign exchange and is the process of buying and trading currencies in the same manner as you would stocks.
- Investing in Mutual Funds – sometimes called ‘fundies’, these are large institutions that invest large quantities at a time. Investors can buy mutual funds and as a form of ‘share’ in the fund and have their money invested alongside the fund (or by the fund)
- Index Funds – these are essentially a way to buy a share of a stock market index. In simplistic terms, what happens when you buy an index fund is that your money is placed into several different company shares across the whole index to give you the ability to ride the index’s ups and downs by averaging together shares that are bought and sold within it.
Real Estate Investing
Investing in Real Estate happens to boast one of the largest populations of self-made millionaires in all the investment groups. The large numbers of wealthy, however, are rather spread across the board and encompass several dozen ways to increase your money.
Here are brief descriptions of the more common avenues of real estate investing that will help you learn to invest money:
- Buy and Hold – similar to the stock market, many find real estate investing easiest to buy a single family residence (SFR) and pay it down while it appreciates. The net affect is that people can supplant rental expenditures with a non liquid form of saving.
- Buying Income Property – a very large section savvy real estate investors make their wealth by purchasing income properties. The real estate investing strategy here is to buy property that not only pays for itself, but can come with excessive rental payments that surpass the debt payments, leaving a positive amount of annual cash simply by taking out a loan to own the stick and mortar.
- Flipping – many entrepreneurs make a very comfortable living by seeking out discounted prices for homes/buildings that need a little bit of repair, then making those repairs and then turning around and selling the property for a much higher price. Discounts are most notably found through distress (foreclosure, inheritance, or liens).
- Tax Liens – although this does not really mean buying property, it can sometimes mean ownership at a severely discounted rate so this still qualifies as real estate investing. When a home defaults on paying property tax, the home government puts a lien on the home. These liens are purchasable from the local government and carry an hefty interest rate that is guaranteed by the government. Realistic interest rates for these liens range from 4-16%. The 50% rate you hear about with these loans are from Michigan are touted heavily by ‘get rich quickers’ but should not be considered normal by any means.
A definite way to invest money is by placing excessive cash with private companies, starting businesses (for tax purposes or extra income), or even by treating businesses like real estate. If you can stop looking at entities and start looking at how entities process money, then you will expedite your journey to learn to invest money.
Here are some explanations of the common ways you can invest in businesses:
- Purchasing – like real estate, businesses are bought and sold regularly. With businesses comes a positive or a negative cash flow. Many wealthy or intelligent investors make huge returns on investment by buying businesses that have a healthy positive cash flow.
- Flipping – some businesses are struggling due to poor marketing, management, or even because the owner has run into personal financial problems. These businesses are ripe for being purchased at a discount, improvements being made, and then being resold for a hefty increase.
- Creating – investing in your own business can be a substantial way to decrease the amount owed for taxes. The government offers many incentives to businesses in order to help the economy. It is not uncommon for people to create businesses that have a net loss every year, and thus remove much or most of the tax liability of the owner.
There are many, many, many ways to invest, and each of them will help you learn to invest money. The stock market is not the best way to invest money as there is no ONE best way to invest money. Learn to invest money in ways that work for you and your risk tolerance. Do not take on an investment strategy that is too risky because someone claims it is the best way to invest money, measure risk and compare it to your lifestyle and acceptance. Learn this, and you will learn to invest money better than you can imagine.
In future posts I will explore each of these methods and show real world examples and figures that will help flush out how viable each pathway to help you find your best way to invest money.