Increasing our savings remains a top priority for just about everyone. Investing money can be a great way to do just that, but it also can be confusing and a bit scary. After all, you don’t want to lose your money in a risky venture. However, there are several ways to start investing that can help you reach your financial goals. With a good investment strategy, you can start small. Once you get comfortable with the process, you can expand your investments to create a diversified portfolio that helps you achieve your goals.
Here are the best ways to invest money, even if you have little to invest.
1. Mutual funds
are a collection of stocks, bonds, or other investments you and other investors pool your money to invest in together. Overseen by a professional manager, the goal is to increase the value of the fund over time, which makes this a good choice for investing for retirement. It’s also a great choice for savers if you’re new to investing because it doesn’t take a lot of money to get started. You already may be invested in a mutual fund. If you have a 401(k) account at work, you are investing in a mutual fund.
There are four different types of mutual funds.
Growth and income
Considered a low-risk investment for the long term, growth and income mutual funds contain stocks from large companies valued at more than $10 billion. Because these are well-established, successful companies, their stock is seen as stable, making them a good choice for increasing your investment.
These mutual funds contain stocks from companies that have proven their success, but still have room to grow. Although their stock market value may fluctuate with the economy more often than growth and income mutual funds, growth mutual funds generally earn higher returns on your investment.
If you’re looking for a more high-risk, high-reward investment, aggressive growth funds could be the right choice. These funds contain stocks from companies viewed as having great potential for growth that could result in huge returns. This option is typically more short-term – make your money and go, which is why it may experience more volatility and may not be the best investment option for everyone.
As the name suggests, these mutual funds contain stocks from foreign-owned businesses. As such their growth and success depends on how they fare around the globe.
Although not the same, stocks and exchange-traded funds (ETFs) are similar types of investments. Stocks are ownership shares of companies, while ETFs are professionally managed funds similar to mutual funds that contain a mix of stocks, bonds, commodities, and other securities. Both are traded on the stock market every day, but ETFs can be less risky because they’re not dependent on one individual company for its success.
3. Real estate
Because property values tend to do well over time, investing in real estate has always been seen as a good investment choice if your risk tolerance is low. In the past, investing in real estate has been viewed as an expensive choice because you need a lot of cash or access to funds to buy property. Today, there are several options for investing in real estate that go beyond purchasing just property, therefore reducing the need for a lot of capital.
If you have the resources, you can purchase homes to rent out to others. While this can be a great way to bring in extra money for your savings account, it’s not as simple as buying a house and finding a renter. In addition to the usual costs of homeownership — mortgage, insurance, maintenance, property taxes — you’ll need insurance specifically for landlords and be prepared to answer the call when your tenant reaches out with a potential problem.
If you prefer, you can hire a management company or property manager to deal with renters and handle the maintenance, but be prepared to deduct that expense from your revenue.
Thanks to the many home improvement cable shows, purchasing, repairing, and flipping houses
have become big business. If you have the time and experience to find and repair or renovate a home you can sell at a profit, this could be a great investment strategy within your retirement plan.
However, flipping houses usually turns out to be a bit more difficult for many investors. If you plan to move forward with this approach, you should find someone who is highly qualified in the areas you are not. For instance, if you have the time to search out and buy homes as well as the time and skills to market that home for sale once it’s ready but you don’t have the skills to do the home improvements, partner with a good contractor who can take on or manage the work. This could save you headaches and money in the long run.
Real estate investment trusts (REIT)
If you like the idea of investing in real estate but don’t want to deal with the actual property, a REIT could be right for you. Similar to mutual funds, REITs are comprised of commercial real estate ranging from shopping centers to office buildings to apartment buildings, among other holdings. Investors receive dividends from the funds that you can either re-invest to continue growing or pocket in your savings account.
4. Retirement accounts
Retirement accounts provide a great avenue for adding diversification to your investments with a low-risk tolerance. Set up at a financial institution, the most common retirement accounts are traditional individual retirement accounts (IRAs) and Roth IRAs
. Contributions to each IRA are limited by the Internal Revenue Service each year based on age. Currently, you can contribute up to $6,000 per year unless you are age 50 or older, in which case you can contribute up to $7,000.
Contributions to this account may be tax-deductible, and any earnings may grow tax-free until you are ready to withdraw them. Once you start to withdraw the funds, you will have to pay taxes on them, but you may do so at a lower tax rate.
Contributions to this account are made after you’ve paid the taxes, so your earnings and withdrawals will be tax-free in retirement as long as you meet certain requirements. Also, unlike a traditional IRA, there are income limitations for contributing to a Roth IRA that should be reviewed when deciding which IRA is right for you.
Simplified employee pension (SEP) IRAs work similarly to traditional IRAs but are for self-employed individuals and small-business owners. Unlike traditional IRAs, though, the contribution limits are higher. According to the IRS, these limits must be the lesser of 25% of your compensation or $57,000 for 2020 and $58,000 for 2021. Business owners can set up SEP IRAs for their employees, but employees cannot contribute to their accounts. When employees withdraw funds from their accounts, these funds will be treated as income and taxed by the IRS accordingly.
The SIMPLE IRA, or “savings incentive match plan for employees” IRA, works like a SEP IRA except employees can contribute to their accounts in addition to the required employer contributions, with all contributions tax-deductible. Per the IRS, employee contributions from their salary cannot exceed $13,500. Employers can choose to match the employee contributions or choose to make contributions of 2% of the employee’s compensation.
How to know which investment is best for you
There’s no one right choice for each person looking to invest their money. While some options may be better than others, a better solution is usually a combination of two or more investment products for a diversified portfolio. To find the ones best for you and your financial goals, speak to a financial advisor about the risks, returns, and associated fees of each investment and how they would benefit you.
When searching for a financial advisor, look for a fee-only financial advisor. These financial advisors charge an hourly rate, retainer, or flat fee to provide advice. Because they are not working on a commission from specific investment products, they are likely to put your financial interests above their own.
Best online brokers for investing
Investment brokers are people or institutions who conduct your investment transactions for you. In the past, you would have to meet with a financial advisor or broker to discuss and decide how and where to invest your money. Today, there are numerous investment advisors and online brokers, some using robo advisors, to help you make investments. Before choosing one, it’s important to review the services and fees of each one to find one that offers the investment products you want at a price you can afford.
With a brokerage account with TD Ameritrade
, you can see how your investments are performing, research potential investments, and place trades. For online trades for U.S. exchange-listed stocks, ETFs and options, there are no commission fees. For options trades, there is a $0.65 per contract fee, and a $6.95 commission applies to online trades of over-the-counter stocks. If you initiate trades using the interactive voice response phone system, the fee is $5; that goes up to $25 if a broker assists you.
helps you build your diversified portfolio by making recommendations that fit your goals and then handling the trading and management for you. The company’s Digital plan has an annual fee of $0.25% per year on your balance, with no minimum balance to open or operate your account. If your account starts to grow and you need more in-depth advice, you can upgrade to the Premium account, which has an annual fee of $0.40% per year on your balance and gives you more personal finance assistance.
Great for those new to investing, Fidelity’s Fidelity Go is a robo advisor that suggests investment strategies, manages your investments, and tracks your progress. Investment products include a mix of mutual funds, and you can get started with just $10. You also won’t pay any advisory fees until your account reaches more than $10,000, at which time you’ll pay $3 per month. If your account reaches more than $50,000, your fees convert to 0.35% of your account balance per year.
offers several ways to start investing at low or no cost to you. For instance, you can conduct online stock and ETF trades with no commission fees. You can access your account, do research, and perform trades online or using mobile trading platforms. When needed, you can receive support from financial planners to help you make the right decision.
One of the most popular online brokers, E*TRADE
offers easy-to-use tools including an advanced mobile app to help you monitor your account, research potential investments, and make trades. You don’t need a minimum deposit to get started, and there are no fees for stock, ETF, and options trades. For new investors, you can take online investing courses, watch webinars, and attend in-person events at E*TRADE branches. You’ll also have 24/7 access to customer support via phone, email, and chat. It's a great start for low-cost investments.
The bottom line
Investing money offers a great way to increase your savings and plan for retirement. With options that include mutual funds, stocks, ETFs, real estate, and retirement accounts, there are many ways to invest to help you achieve your financial goals. To find the ones that best serve your needs, it’s important to research each type of investment product, including fees, risk level, and potential returns. You should never blindly start investing without knowing where your money is going.
To help you create an investment strategy that works for you, you can talk with a fee-only financial advisor who will find out your financial goals and risk tolerance to help recommend ways to start investing. Once you have an investment plan, you can utilize the services of online investment brokers to assist you with your investments. With some research and guidance, you’ll be on your way to achieving your financial goals.