However, folks also hear about the risks involved in chasing those greater potential returns when investing. 2017 Eric Tyson All rights reserved. Unless you have wealthy, benevolent relatives, living within your means and saving money are prerequisites to investing and building wealth. Know the three best wealth-building investments.
People of all economic means make their money grow in ownership assets — stocks, real estate, and small business — where you share in the success and profitability of the asset. If you run a small business, you can earn higher returns and even become a multimillionaire, but years of hard work and insight are required. Don’t invest money in such investments unless you plan to hold them for a minimum of five years, and preferably a decade or longer. Match the time frame to the investment. Selecting good investments for yourself involves matching the time frame you have to the riskiness of the investment.
For example, for money that you expect to use within the next year, focus on safe investments, such as money market funds. Invest your longer-term money mostly in wealth-building investments. Diversification is a powerful investment concept that helps you to reduce the risk of holding more aggressive investments. Diversifying simply means that you should hold a variety of investments that don’t move in tandem in different market environments.
For example, if you invest in stocks, invest worldwide, not just in the U. You can further diversify by investing in real estate. Look at the big picture first. Understand your overall financial situation and how wise investments fit within it.
Before you invest, examine your debt obligations, tax situation, ability to fund retirement accounts, and insurance coverage. Don’t feel mystified by or feel the need to follow the short-term gyrations of the financial markets. Ultimately, the prices of stocks, bonds, and other financial instruments are determined by supply and demand, which are influenced by thousands of external issues and millions of investors’ expectations and fears. How you divvy up or allocate your money among major investments greatly determines your returns. The younger you are and the more money you earmark for the long term, the greater the percentage you should devote to ownership investments. Do your homework before you invest.
You work hard for your money, and buying and selling investments costs you money. Investing isn’t a field where acting first and asking questions later works well. Never buy an investment based on an advertisement or a salesperson’s solicitation of you. Take advantage of tax-deductible retirement accounts and understand the impact of your tax bracket when investing outside tax-sheltered retirement accounts. Consider the value of your time and your investing skills and desires. Investing in stocks and other securities via the best mutual funds and exchange-traded funds is both time-efficient and profitable. Real estate investing and running a small business are the most time-intensive investments.