5 Proven Ways to Invest Money Successfully
Investing does not have to be difficult.
Let’s face it.
Investing has been absolutely beaten to death.
Everyone is telling you how to invest. They want you here, there, and everywhere in between, and NONE of it makes any sense.
One group says “go all in into bitcoin!”
Another one says “if you go into bitcoin, you’re an idiot!”
It is so hard to know what to do and who to trust with your money. I know I have struggled with this and know many others who have the same frustrations and anxiety about investing in the stock market.
In order to help you out and solidify this in my own mind, I’ve set aside 5 proven ways to invest in the stock market successfully.
#1–Utilize your 401(k)
Most companies in today’s world offer a 401(k). If your company offers this, you should be utilizing it regardless of your financial status.
A 401(k) is a retirement account that allows you to contribute income from your paycheck pre-tax. This can be a huge advantage over the long run as it not only has in-the-moment tax advantages, but usually, a company will also match up a certain percentage of your contributions.
As a rule of thumb, contribute at least up to your employer’s contribution match percentage. It is basically free money from your employer straight to your retirement account.
Typically, a company will set up your 401(k) by investing everyone’s contributions into a mutual or index fund that tracks the market. The stock market on average has returned about 10% per year. That means if you invest $10,000.00, after 30 years that would turn into $174,494.00 with no additional contributions. It is absolutely amazing what compound interest can do for you.
All you have to do is contribute money out of your paycheck every pay period, and the compound interest takes care of the rest.
You can begin to take out money from your 401(k) penalty-free at the age of 59 and a half.
The only downside, in my opinion, of a 401(k) is that when you start taking out money from it in retirement, it will be taxed as regular income.
The next section will detail a secondary method to help ease the pain of taxes in retirement.
#2- Investing in a Roth IRA
A Roth IRA can be an incredible advantage in your investing journey for multiple reasons, but mainly because all of the gains you make in a Roth IRA are completely tax-free.
This is because you can only contribute to it with post-tax money. As the government sees it, money for them now is better than money later.
The maximum limit however to contribute to a Roth IRA each year is $6,500.00 per year for those under the age of 50 and $7,500 per year for those over the age of 50.
If you are under 50, you can make some incredible tax-free financial gains, by maxing out your Roth IRA.
#3-Focus on Index Funds
Index funds are honestly, the most reliable way to invest your money.
An index fund is just a giant pool of money that tracks an “index”, or group, of companies. The most successful index funds, like the S&P 500, by stock in the most successful companies in the market and hold them for shareholders. They typically do not buy or sell based on the state of the market. They simply follow their index.
This is a good thing. If you can consistently invest in an index fund that tracks the market, you will earn about 10% per year on average in returns.
The downside to this method is that this is not a “Get-rich-quick” scheme. If you invest this way, prepare to be in it for the long haul, just like the previous two methods.
If you save a decent amount of your income and put them into an index fund, over the course of your working life, you will probably make some great gains.
#4- Dividend Investing
Dividend investing is a touchy subject for some people.
The promise of high-yield returns within the next month is very tempting. However, the price you may pay can deter you if you are particularly risk-averse.
The highs of high-yield monthly returns, with little to no growth in stock price, is a risky decision to make.
I would say that if you are going to invest in dividends, really focus on what your goal is.
Do you want high returns now?
or
Do you want high returns later?
or
Do you want both?
If you just want high dividend payments now and you don’t particularly care how your money grows over time, then investing in high-yield dividends can help you meet that goal. However, beware as investing in high-dividend-yielding stocks is riskier in the long run.
If you want high returns later, investing in small percentage dividend-paying stocks could be right for you. If you make the decision to invest this way, really look into the companies that you invest in. Make sure they have consistently increased their stock price and dividend payments.
Personally, I try to find a happy medium between high returns now and high returns later. I try to find companies that have a decent dividend payment between 4% and 10%. Also, I make sure the companies have increased dividend payments consistently.
Honestly, if you look into dividend investing it’s easy to see the power of continued dividend re-investment. It can be slightly riskier than index funds but it doesn’t have to be. Also, I personally like a little risk, but if you’re risk-averse focusing on consistent dividend payment growth is a viable option that can help ease your mind as well.
#5- Invest in yourself
I think the most effective way to invest your money successfully is by investing in yourself.
It’s easy to get off track with this so I’ll break it down a little more.
Investing in yourself should be focused, purposeful, and exciting.
If you are spending money on stuff that you don’t like or has no purpose then that is not investing in yourself. That is just lazy spending.
Investing in yourself would be something like these examples:
- Buying a course to help you with your freelance writing business.
- Purchasing a book on a subject that interests you.
- Using your money to get a helpful degree.
I’m not saying you have to do these things, but use your money to improve your skills or options. This will pay off the most in the long run out of any of these other investing methods.
If you have a focused way to spend money on improving yourself, you are already ahead of the curve. I personally set aside two hundred bucks a month to buy books and attend courses or classes on subjects that can help me make more money or improve my skills in general.
Investing your money is not difficult, you just need a focused strategy to improve your finances and skills.
Happy investing!
