Have $1,000,000 burning a hole in your pocket? Sounds unbelievable, but things happen: you sold some expensive property or business assets, got an inheritance or simply worked for several years as some random doctor and have managed to save up to $100 000 or more. What you’ll do with it? Spend for some luxury car you always wanted to buy? Or make sure to create another channel of income?
People get more free money that they can use either for buying some staff or investing in their future. What would you do with those? That’s the problem almost everyone face—they have no clue of where to invest the available funds. Although the possibilities are overwhelming!
It so happens that the more options people have the more paralyzed they feel. They are seeking the best options and are afraid of taking risks which results in postponing decision-making and never investing at all. At some point, money got consumed by unexpected expenses or decreased in value by inflation. Are you among those who experience this? Let’s break the tradition!
What is investing?
Investing involves getting interest from the saved money once you use the free funds for some venture. People get really rich once they start investing. All that is required is to decide on getting the so-called passive income. For some people, it might take lots of efforts. But you’re not like them, right?
There are many ways to get started. The simplest one is to keep money in a savings account, although the interest, in this case, is very low. Stocks or mutual funds can bring much higher returns.
Surely stock market along with other options carry risks: it fluctuates and sometimes investors might lose the investment funds instead of earning profits. So the options should be considered carefully.
And if you do think all the details thoroughly eventually your investments will give even more money than you can contribute with your 9-to-5 job. That’s the sign that you’ve made the right choice.
How much you lose by not investing?
People often ask: when to start investing? Evidence suggests—the sooner the better. You can’t work forever. Most people neglect this fact by not investing in their future. They let the fear of losing money take over. One of the most widespread excuses people have is they don’t have enough money.
There are others who dare…
Heard of the Business Insider story where one guy started buying stocks with small amounts of money as a teenager and evaluates to become a millionaire before retirement? He designed the life reducing the wasteful spending like buying the expensive car, latest electronics, or designer clothes. Instead, he spent money only on the most important experiences.
When he turned 25 years old his bank account balance has grown up to $100,000. 3 years later his net worth hit $250,000. That’s to say, the guy never earned too much money himself—just an average US wage. More to that, the investments were put into the lowest-fee and the broadly diversified index funds possible.
If the guy stops investing more money and simply continues with what he has already put there, with 6% return per year that stock market usually offers the already invested money will turn into more than $1,5 mln by the time he turns 60. With 7% that figure will be more than $2 mln. That’s the modest possible calculations after subtracting inflation.
What prospects are there for you?
If you only save $100 per month. This will result in $1200 at the end of the year. In 25 years you’ll have $30,000 on your bank account.
Let’s assume you want to try investing $1,200 at the end of each year with 7% yearly returns. Within just 10 years your total interest will be $5,740 and the ending balance of $18,940. Within 25 years you’ll get a total interest of $51,212 and the ending balance of $82,412.
If you change just one variable in this calculation like adding to the investment funds $100 each month instead of $1200 once a year—your total interest will change to $53,617 ending with a balance of $84,817 within 25 years.
What if your starting balance is way more? Let’s say $250,000. Even if you stop contributing to that sum and simply leave it for 25 years at 6% per year, you’ll get the ending balance of $1,072,968. At 7% per year, you’ll receive $1,356,858. Just 1 percent makes a noticeable difference!
What if your contributions will be much bigger and more often? What if the return rate is much higher? Are you ready to lose that much?
While you’re waiting—you’re losing. So stop it. Instead, start earning by putting your money to work for you!
What should you invest in?
To make the most of the extra cash you have to invest it immediately. Your options are immense. Make sure to analyze all of them to find the best match for you and simply act.
Let me acquaint you with the best ways to invest available funds in 2019!
#1. The Stock Market
Some investors get generous returns on the stock markets while some lose everything. That directly depends on the situation on the stock market: it might go down or the opposite. Let’s see what benefits and risks this investment option brings.
Benefits of stock market investing
- Stocks grow with the growing economy. The higher economic growth—the more jobs created, the more income earned, the more sales take place. It all leads to the stocks value growth.
- Ahead of inflation. The average annual return from stocks is 10 percent. The average annual inflation rate is around 3%.
- Easy to buy. With a setup account, you can buy stocks in minutes. It’s easy to do either with a broker’s help or online.
- Individual buying/selling strategy. Some investors buy stocks when their price is low and sell them when the price is high. The others prefer to buy the stocks of companies that pay dividends. You are free to choose your own strategy.
- Easy to sell. You can sell the stocks any minute you think it’s worth it or simply when you suddenly need the cash.
Risks that stock market holds
- Possible to lose the whole investment. When the situation around the company gets worse and the stock price drops immensely you will lose the initial money invested.
- Stockholders get paid last if the company goes bankrupt. You better diversify your portfolio. Another way to keep safe is to be the preferred stockholder or bondholder/creditor who usually gets paid first.
- Takes time. It requires lots of analysis before you choose the most profitable company and buy their stocks. And even later you shouldn’t miss the best time to sell those stocks if annual reports/financial statements start pointing at the possible price crash.
- Emotionally tough. Stock price changes every second. It takes boldness not to buy when the price is high or sell when the price is low. Although regular monitoring is essential.
- Professionals are all around. You will compete with people that have a solid knowledge and experience trading stocks. Make yourself prepared for this.
Having a well-diversified portfolio along with a mix of stocks, bonds, and commodities means fewer risks and higher benefits. Owning different types of stocks of globally located companies provides more possibilities for your wealth growth.
Some might make use of mutual funds allowing you to have lots of stock chosen by the mutual fund manager. This is a less vulnerable option. Another beneficial way is using index funds or ETFs.
In general, which way to go on the stock market depends on your financial goals.
#2. Peer-to-Peer Lending
This type of investments will give you a chance to invest in other people and their goals via special peer-to-peer lending platforms.
P2P lending benefits
- Higher returns. Some platforms offer rates of up to 36%.
- Risk diversification. Your funds can be spread among multiple borrowers. Which means that if some of your, let’s say, 100 loans defaulted you will lose only that part but not the whole amount.
- Possible to choose. You can choose the most reliable lenders that have some property or business as security.
- Get funds back instantly. Each platform offers an opportunity for investors to get their money back once they need without waiting for the loan end.
- People involved. It’s comforting to know that you can influence people’s lives in a good way by helping them resolve their issues or making their dreams come true.
P2P lending risks
- Money loss. Possible funds losses are not covered by any guaranteed program, although some platforms might offer some help.
- Tax included. Any earning should be declared on your annual tax return.
- Takes time before funds are lent. Accordingly, you won’t earn any interest while there are no lenders for your funds. Although the platform itself is interested in deploying the funds as fast as possible.
- Time involved. Before you choose the lenders it might take lots of time while you analyze the options.
Some analysts suggest that P2P lending is a great alternative to the stock market investing. As they make the starting process easy and fast. The safer loans offer 5-7% interests, the riskier ones—up until 36%. More to that, the starting capital begins from $1,000.
#3. Real Estate
Certainly, not anyone is ready to be a landlord. Although in this category there are options besides actually buying a physical property. One of them is investing in real estate notes: when some person or special platforms buy a bunch of properties and anyone can invest money in the project. From that point, the project owner manages the whole property and investors receive dividends. For example, Fundrise requires only $1,000 to get started with returns around 8% to 12,5%.
Some “rocks down the road”
- Large investment sum. That’s when you’re buying the whole property. Although with real-estate platforms the investments are not so high.
- Low liquidity. It takes time to sell real estate with a good profit. On the other hand, if you’re in a hurry, you may even lose.
- Management and maintenance. Once bought it should be properly managed and maintained as over time if the property stays empty you will have to pay additional costs for taxes, insurance, repairment, etc. Although in the case of real estate notes all of it is done by managers.
- Inefficiency. Some investors purchase property unseen at auction. Certain unpleasant surprises may arise while inspecting it.
The benefits are more attractive
- Understandable. In real life, everyone certainly deals with property. So compared to other investment types it is easier to understand.
- Improvable. With real estate, you have a chance to improve its value and gain good profits afterward.
- Hedge against inflation. The property value and rental costs go up once the inflation gets higher.
- Market Inefficiency. Due to the lack of transparency in property value experienced real estate investors may gain really big profits.
#4. Your Business
It’s the best investment anyone can make, although it might sound frightening and uncertain. It’s like investing in yourself which always pays off.
Disadvantages of investing in your own business
- Financial risks. If your business doesn’t do well you may need extra funds to overcome certain challenges, in some cases – there’s even the risk to lose your real estate property or other personal assets.
- Stress. Even if at some point you hire a manager, final decisions about everything—from competitors to equipment breakdowns—are your call.
- Time-consuming. Your business doesn’t go anywhere even if there are non-working hours. It is always with you. You are responsible for everything.
- A broad range of objectives. To really succeed you need to build connections in the business sphere and beyond. More to that, you need to perform a wide range of tasks, sometimes not so pleasant as firing people or so.
Individually people can list more risks that each business can bring. But if you take a look at the benefits—it’s definitely worth a try!
- The highest returns. Properly harnessed, your potential profits are unlimited.
- Full control and independence. You are the one in charge. Apart from the potential risks it brings, you are the one who rules and decides on your business future.
- Flexibility. You can pursue any dream you have. You can choose any business model you like or hit any sphere you are most fond of. Your options are unlimited.
- Tax benefits. Each country cares about business owners trying to create the best environment for businesses. Accordingly, taxes are lower for them.
- Self-improvement. Being engaged in all processes largely contributes to your personal growth.
That’s just a basic list of the benefits that investing in your own business can bring you personally. If you take a closer look, each disadvantage can be turned into a benefit.
If you turn to the business success stories, you’ll find out that some of the lucky ones got billions of US dollars’ profits per just a couple of years. Amazing, isn’t it? Why waste the opportunities of starting early?
Investing in your own business offers a wider range of positive outcome than any other investment types. For many business owners may be counter-intuitive, nervous but rewarding. After all, how many investors do you see in your location? What about the number of business owners? They know something!
If you’re about to make the decision of your life, check out our next article that will give you the retrospective of the most profitable today’s businesses and the best ways to invest different sums of money.
Choose smart investments!