Investing can help you build wealth beyond what you can get from your regular income. Stocks are one of the most accessible and popular ways to invest. With the right strategies, such as buying and holding or buying the dip, you can make profits while investing.
There are other ways to invest, including mutual funds, bonds, futures, precious metals, cryptocurrency, and real estate. These alternatives to stocks may be good investments, depending on your budget, risk tolerance, and other factors.
All good investments should serve your overall financial health and fit with your overall goals. Here is a look at the best investments and how to assess if they fit with your financial plans.
Why Is Investment Important for Financial Health?
Most people focus on dollar amounts when investing. However, stocks, funds, and other assets should contribute to your overall financial health, not just add to your bank account.
Here is how good investments can help you stay financially healthy and prepare for retirement.
- A good investment will allow you to accumulate wealth by growing at a rate that is higher than inflation. If you do not beat inflation, the value of your investment will go down.
- You can have a diverse range of investments, but you should consider long-lasting assets, such as precious metals and real estate, and also have accessible funds to use during emergencies. These steps lead to better financial health because they help you secure the gains that you have already made.
- You can also ensure financial health by preparing for taxes. Some investments can help you minimize your tax liabilities, allowing you to keep more of your profits.
Financial health is about ensuring stability, protecting the wealth you have already accumulated, and making certain your goals remain on track, particularly when it comes to major events, like retirement.
The Basics of Investing
A realistic approach is best when you start investing. There are three important things to consider before you purchase your first stock, cryptocurrency, or property.
The first step in any financial activity is to create a realistic budget. An investment spending plan shows how much disposable income you have to purchase new assets. You always want to avoid using money budgeted for necessities like food, mortgage, and education payments.
Overspending on investments will put unnecessary stress on your finances. When you choose an asset, you should always ensure that you can purchase it using the money earmarked for investments without dipping into other funds.
You can also make a plan to add to your investment account regularly by using some of your income to make bi-weekly or monthly contributions.
Risk tolerance refers to how much you can afford to lose if an investment moves against you. Often, more dangerous investments come with the chance of bigger gains. All investments carry some risk, but in most cases, the bigger the possible upside, the greater the potential downside.
Some highly rated government bonds, for example, have modest returns, but they give you a very small chance of failure.
In general, younger investors can risk more because they have time to make back their losses. Older people approaching retirement generally have lower risk tolerance because they want to preserve their wealth.
Working With a Broker vs. Self-Managing
You can opt to build wealth yourself via a self-directed brokerage account or get a managed account where a professional handles the investments for you.
With a self-directed account, you control the buying and selling decisions. This takes time and could lead to stress, but you are in charge of your assets.
Managed accounts might be more convenient, but you have no control over the investments. If the traders who oversee the account do not make moves that match your goals and risk tolerance, you may not achieve your desired level of financial health.
You need to decide whether you want the responsibility of managing your investments or if you would like to hand those duties off to a professional.
You can also opt to put some of your money in a specialized managed account, such as a Gold IRA or a mutual fund, and keep the rest for self-directed investing.
Here is a look at five of the best investment options.
Cryptocurrency is digital money. Most popular currencies, including Bitcoin and Ethereum, use blockchain technology. The advantages include a decentralized setup and fast, cheap transfers.
Cryptocurrencies offer direct, secure online transfers without the need of an institution. Some have become quite valuable or have a lot of growth potential. These currencies have become popular with traders and buy-and-hold investors.
You can purchase cryptocurrency from dealers and brokers and through centralized and decentralized exchanges. It is also possible to provide liquidity on markets or earn by using your computer power to facilitate transactions on the blockchain (known as “mining”).
Cryptocurrency can be a good investment, but it is still quite new, and many markets are prone to volatility. Therefore, you need proper risk management strategies and a diversified investment portfolio that can offset cryptocurrency losses if needed.
Precious metals, such as gold and silver, are also investment opportunities. Throughout history, investors have used precious metals to store value. They often see these physical assets as a way to hedge against inflation and protect wealth during times of uncertainty.
When there’s economic uncertainty, it is a good time to buy gold. Whenever the market is down, the value of gold rises. Most typically gravitate towards gold in times of financial uncertainty. In addition, since gold is a good way to diversify your portfolio and offset riskier investments, you can purchase it at any time and still enjoy these benefits.
Gold has always been the most popular precious metal, with silver coming in second. The average annual trading volume of gold is greater than the volumes of all stocks that make up the Dow Jones Industrial Average, all corporate bonds, and U.S. treasury bonds.
In addition to physical gold, you can purchase gold ETFs, gold futures, and gold mining stocks, which often follow the price of gold. There are also specialized options, such as a gold IRA, which allows you to invest without actually having to store physical gold.
You can invest in real estate by buying residential or commercial buildings or undeveloped land. There are multiple ways to earn from property acquisitions. You could hold onto the asset and wait for its value to appreciate. Also, you could lease the property to residents or businesses and earn money through monthly rent payments.
Real estate investments are attractive due to the potential for long-term appreciation and short-term cash flow. You can use the equity that you have built up to get secure loans for other businesses or investments.
The drawback is that real estate involves physical property, so you need to carefully inspect the land and buildings before purchase and take steps, such as getting insurance, to protect against damage, theft, or other incidents that could ruin your investment.
Collectibles and rare items are alternatives to more traditional investments. There are multiple types of collectibles, but some of the most common are rare coins, stamps, art, toys, comic books, and cards. Some people enjoy this type of investing and make it a hobby as well as a way to build wealth. Unfortunately, collectibles markets are unregulated and often illiquid, so you need to perform due diligence to ensure you buy legitimate items and time purchases and sales correctly.
Many valuable collectibles are older items. While some antiques are worth a lot, the price is often associated with rarity and demand, instead of age.
Stocks are the most common asset associated with investing. Each stock that you purchase represents a share of a company. Publicly traded firms issue stocks to raise money for development, expansion, and other initiatives. Newer companies go public to increase their access to funding.
For investors, there are many approaches to making money from stocks. You can buy and hold stocks that promise long-term growth, speculate on shares of newer companies that have lots of potential, or trade shares that you think are undervalued and have temporarily dipped in price.
Some brokerages even offer fractional shares, so you can purchase part of a share for only a few dollars and build your investment portfolio over time.