Learn why it is important to invest in a wise manner as you build wealth…
In the current economy consumers are bombarded with investment options on a daily if not hourly basis.
Many have no approach or a wrong approach when it comes to investing and this discussion is designed to clear up some misconceptions that you and possibly others may have about investing and building wealth in the current economy—or any economy.
It is important that you do all you can during your working years to invest in a wise manner and in a manner that is more beneficial for you and your family. You must have a basic understanding of how investments work so that you can build wealth more efficiently.
In the following paragraphs TheWealthIncreaser.com will discuss investment options and what you need to be aware of investment wise–at the various stages in your life.
An annuity is a stream of income that you receive throughout your life based on your contributions–in a lump sum or over time.
There are immediate annuities (you contribute a lump sum and begin to receive payments immediately) and the type where you invest at set intervals and receive payments later.
Social Security is a form of an annuity (although not in the traditional sense) and will be discussed later.
Investing in bonds and bond funds may be an important component of your wealth building efforts. I-bonds, municipal bonds, treasury securities, corporate bonds and the like can play an important role in your portfolio.
Certificates of Deposit
CD’s and savings accounts can be used for investing and are particularly effective inside of an emergency fund or short-term savings plan. Many super conservative investors will even use CD’s (laddering approach) for long-term investing due to its relative safety and their low tolerance for risk.
A cryptocurrency is a digital currency, which is an alternative form of payment created using encryption algorithms and they don’t need banks or any other third party to regulate them and they are normally uninsured and can be hard to convert into a form of tangible currency (such as US dollars or euros).
- A cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities.
- The word “cryptocurrency” is derived from the encryption techniques which are used to secure the network.
- Blockchains, which are organizational methods for ensuring the integrity of transactional data, are an essential component of many cryptocurrencies.
- Many experts believe that blockchain and related technology will disrupt many industries, including finance and law.
- Cryptocurrencies face criticism for a number of reasons, including their use for illegal activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them. However, they also have been praised for their portability, divisibility, inflation resistance, and transparency.
Cryptocurrencies are systems that allow for secure payments online which are denominated in terms of virtual “tokens,” which are represented by ledger entries internal to the system. “Crypto” refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.
Currency investing is somewhat more advanced investing and should be entered into with caution. Those who are skilled normally have good returns. There are many foreign exchange companies that offer services for the novice to advanced investors.
An Exchange Traded Fund often called ETF’s is a group of securities that track an index.
A well-known example would be the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index.
ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. An ETF is a marketable security, meaning it has an associated price that allows it to be easily bought and sold and is considered more liquid than a mutual fund.
Gold and Other Commodities
If you wanted to invest in gold and other precious metals you could do so through mutual funds, individual gold stocks, exchange-traded funds (ETFs), buying stock in gold mines and associated companies, and the buying of a physical gold or other precious metal product.
Most gold investors have a high net worth and see gold as a diversifying investment!
Gold has historically served as an investment that can add a diversifying component to your portfolio, regardless of whether you are worried about inflation, a declining U.S. dollar, or even protecting your wealth.
If your focus is simply diversification, gold is not correlated to stocks, bonds, and real estate and could be what you are looking for if you are properly prepared to invest successfully at this time.
Many consumers invest through various whole life insurance products. Whether it is wise or the best thing to do is a personal decision and has been up for debate for years.
It is the opinion of TheWealthIncreaser.com that insurance products primarily should be used for insurance purposes!
Use caution if you are using insurance products for investment purposes.
Money Market Accounts and Money Market Mutual Funds
Normally provides a better rate of return than a savings account and could be more beneficial inside of a properly funded emergency fund than a regular savings account.
Money Market accounts could also be a great place to “park” your money during volatile market activity or as a transfer portal when you transfer funds from your retirement accounts.
Mutual funds pool money from the investing public and use that money to buy other securities, usually stocks and bonds. The value of the mutual fund company depends on the performance of the securities it decides to buy, therefore effective management is key.
When you buy a unit or share of a mutual fund realize that it is not the same as investing in shares of stock, you are buying the performance of its portfolio or, more precisely, a part of the portfolio’s value and as a holder you “would not” have any voting rights.
A share of a mutual fund represents investments in many different stocks (or other securities) instead of just one holding. That’s why the price of a mutual fund share is referred to as the net asset value (NAV) per share, sometimes expressed as NAVPS.
A fund’s NAV is derived by dividing the total value of the securities in the portfolio by the total amount of shares outstanding. Outstanding shares are those held by all shareholders, institutional investors, and company officers or insiders at the company.
If you buy 10 shares in a Mutual Fund with a NAV of $111.00 for $1110.00 on Monday November 21st and the NAV goes to $141.00 per share on December 1st of the following year–you would have a long-term gain of $300.00 and would be taxed at your capital gains rate if held outside of your retirement accounts.
Mutual fund shares can typically be purchased or redeemed as needed at the fund’s current NAV, which—unlike a stock price—doesn’t fluctuate during market hours, but it is settled (updated) at the end of each trading day.
There are funds for nearly every type of investor or investment approach and common types of mutual funds include money market funds, sector funds, alternative funds, smart-beta funds, target-date funds, socially conscious funds, growth funds, aggressive growth funds, growth and income funds, income funds, international funds and even mutual funds that buy shares of other mutual funds–among others.
Options & Futures
Options and futures investing is somewhat more advanced investing and should be entered into with caution.
Options trading is the trading of instruments that give you the right to buy or sell a specific security on a specific date at a specific price.
An option is a contract that’s linked to an underlying asset, e.g., a stock or another security and you have the right to exercise your option or you can choose to not exercise your option.
Real Estate Investments
When it comes to investing in real estate there are many options. You can invest in single family homes, multi-family homes, apartments, commercial, industrial, REIT’s, land and other areas as well.
Your risk tolerance level, real estate knowledge base and financial position at this time is the key to successful real estate investing!
Whether you desire to purchase and hold to refinance or sell later, rent out for income or purchase and quick turn for a profit–real estate investing can potentially provide good returns if done right.
Real Estate Investment Trusts could allow you to take a “hands off approach” to real estate investing as you do not have to directly own and manage the property.
The REIT’s that are now on the market come in several varieties including publicly traded, public and non-traded, private and Exchange Traded Funds–giving you ample options to invest in various real estate sectors if you desire to avoid the headaches of directly owning and managing real estate.
Retirement investing consists of investing for your future during your working years so that your retirement years are more enjoyable and rewarding. Retirement investing is so important that it deserves a discussion in great depth and will be covered in detail in a future discussion.
For now, realize that you must invest in a wise manner with the goal to live comfortably during your retirement years as your primary focus. In addition, the avoidance and/or reduction of your taxes during your retirement years are also a major concern and that too will be discussed in great depth in a future discussion.
Social Security & Medicare
If you live and work in the United States you would pay into a social network plan called social security and during your retirement years you would be entitled to a monthly stipend–with the amount determined by your work history.
Each pay period during your working years a portion of your earnings would go towards Social Security and Medicare. In a real sense by contributing to social security and Medicare during your working years–you are investing in your future and you would receive annuity payments once you reached a certain age and elected to receive the benefits.
A stock (also known as equity) is a security that represents the ownership of a fraction of a corporation.
This would entitle you if you were the owner of the stock to a proportion of the corporation’s assets and profits equal to how much stock you own.
Units of stock are called “shares” and are bought and sold predominantly on stock exchanges, though there can be private sales as well, and effective stock purchases are the foundation of many individual investors’ portfolios.
Stock transactions have to conform to “government regulations” which are meant to protect investors from fraudulent practices. Stocks have historically outperformed most other investments over the long run and can be purchased from most online stock brokers–including many that you may already be familiar with.
Many other commodities and investment vehicles are available and being created each year that allows you to invest. Many are novel and unusual such as sneaker investment, cryptocurrency, oil and gas exploration and mining among others. Be sure you understand your financial position and how you handle risk and always remember that generally speaking:
Less Risk Less Reward—More Risk More Reward
1 – – 2 — 3 – – 4 — 5
Selling real estate (including your personal home)–particularly can bring you a financial windfall. If done properly you can sell and avoid taxation on all or a portion of the gain.
Be sure to keep all records in regard to your home purchase, including improvements that you make to your home as that could be beneficial when you sell your home.
At this time limited housing is pushing home prices up and now may be a great time to sell.
Refinancing, a home equity loan or a home line of credit (HELOC) could be right for you as interest rates are at historical lows (around 3% at this time) and if you wanted to pay off other debt, improve your home prior to selling or retiring and pursue other goals that you may have–now may be the time to do so.
If you sell your home, always realize that you will need a place to stay. Be sure you know the costs associated with your move and the age, location, area, taxes, closing costs, utility costs, transportation costs etcetera in the area of the home or apartment you plan on moving into.
You definitely want to know the cost of your new home, your intended down payment, monthly payment and a rough estimate of your utility payments. You can then put an interim plan (now until retirement) and post retirement plan in place so that you don’t have any unwanted surprises down the road.
When it comes to investing you want to minimize your risks, minimize unpleasant surprises and maximize your ability to succeed so that you can achieve more.
By gaining a basic understanding of investing you can put yourself and your family on a more prosperous path toward wealth building in any economic environment.
Investing must be balanced against your current cash flow and plans for your and your family’s future.
You must know your risk tolerance level, diversify appropriately, invest intelligently and have a comprehensive overview of your finances so that you know how to invest in a winning style.
By doing so you can avoid being in an adverse position that makes your life more challenging–and not rewarding!
Furthermore, you must know the Goals that you seek, know your Risk tolerance level, know your Income level and know your Personal situation at this time. Or another way of looking at it is–you must get a real GRIP on your wealth building activities at this time so that you can reach your highest potential.
Proper wealth building and investing for those who are “in tune” is like music of the mind transmitted from your brain–and if done right is one of a kind–that has the real potential to roll like a train.
Your goals are unique and so is the success that you now seek.
Make the choice today to do your wealth building in a better way!
When it comes to investing you want to minimize your risks, minimize unpleasant surprises and maximize good decisions so your net worth rises!
By doing so you can sincerely get on a continuous path–that ensures that your net worth rises–because you have done the math.
You must have an unstoppable feeling on the inside–along with a view of what you plan to do–to make your wealth building dreams come true!
Now is the time that you invest at a level that allows you to past any test.
All the best toward your investment and wealth building success…
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