Most of us have been taught that saving money is the best way to protect our financial future and build wealth. While this is true and saving money will protect you against unforeseen scenarios, we all should have our money working to generate more income.
Just like you work to generate an income, your money can work to increase your wealth as time goes by. While investing certainly has some risks, these can be greatly diminished by doing your homework beforehand.
The rewards of investing wisely will allow you to achieve financial freedom, meet financial goals, or just ensure you have more money for a rainy day. Whatever your reason to want more money is, investing is the way to achieve it!
Whether you decide to invest in stocks, bonds, cryptocurrency, or precious metals, technology has made it easier than ever. In fact, even without previous knowledge, there are several platforms that will help you in the process.
Continue reading this article if you are interested in protecting your savings from inflation. Your savings should be working for you, not your bank!
How Is Investing Different Than Saving to Build Wealth?
If you are working to receive a salary, chances are you save your money in a bank account. While bank accounts have told us for years that they pay interest based on our savings, it is likely that you haven’t really noticed a big difference in your balance as a result.
Despite what your bank has told you, saving money and investing are just not the same. Saving money consists of setting cash aside to have easy access to it if needed. Investing is using your money to buy assets that will then generate a certain return over time if done correctly.
Investing allows you to generate gains due to the volatility of the asset you are acquiring. While volatility sounds like a word you should be scared of, it only means that a value can swing in any direction. This is the case with any asset you can think of.
However, just like volatility can be your friend, it can also result in losses. As such, it is important to do your research and only invest a part of your money. Investing should not replace saving!
Saving your money in a bank account can generate some returns depending on the interest rate offered by your bank. However, as the currency you are using is likely to devaluate due to inflation, you are unlikely to notice.
How Much Should You Invest?
Investing is not an exact science and as such, there is no concrete answer to this question. The amount of money you invest depends on your particular circumstances. However, there is some advice that financial experts have for those looking to invest.
Before we talk about that advice, here is the most important advice anyone can give you: Don’t overdo it. Being responsible for how much money you invest is fundamental to protect your finances. It is easy to think that you need to invest more and interact with your assets to build wealth: this is false.
Getting help from a financial advisor might be a great way to decide how much you can afford to invest. Services like Blooom offer a great way to get insights into your financial situation to help you make a good decision.
Now that this is out of the way, let’s talk about some rules you should keep in mind when investing to build wealth.
Having a diversified portfolio is key to reducing the risk you incur when investing. Any industry, company, or project can have its ups and downs, causing a wreck for investors. By having a broad spectrum of assets, you are less likely to suffer losses in such events.
While someone who invests all of their money on a single asset might be lucky and see their money doubled in a year, this is almost as likely as losing it all. Don’t be a reckless gambler!
While diversifying can be separated from balancing by many investors, we consider them the same. Having a balanced portfolio means not putting too much weight on any asset (or its industry). While having $1000 of A and $10 of B, C, D, and E could be called “diverse” … Is it really?
Choosing the right platform to invest in is essential to keeping a diverse and well-balanced portfolio. Platforms like Robinhood offer commission-free investing access to thousands of companies and projects to build wealth. Whether you want to invest in stocks, options, gold, or crypto, this platform got your back!
Just like saving, it is easy to forget about investing more money as time goes by and you see your balance grow. Put money aside every month based on your financial situation and stick to it. Several apps will allow you to set up automatic investments, allowing you to forget about it.
It doesn’t matter if you can afford to invest $1000 or only $10 each month, being consistent is key. Apps like m1finance offer the perfect mix of customization and automation to make investing easier.
With m1finance you can choose how much to invest, risk tolerance, type of asset you are interested in, and it will take care of the rest. The best thing is that you won’t be charged management fees and it is free to download!
If you would rather manually choose when to invest, it’s ok! Just make sure to build wealth consistently by investing, be it a flat number of dollars or a percentage of your salary.
Be Patient and Calm!
Learning how to invest is a process that takes time. It is easy to forget this when your assets don’t generate as much income as you expected. Or even worse, they generate losses.
Selling your assets in a time of fear due to losses or low gains can lead to bad decisions. As your ultimate goal is to build wealth, keep your emotions at bay. If you did your research or got advice before investing, there is no reason to doubt your choice.
If you find it hard to keep a cold head when things seem bad, you can leave it to an expert. Services like Acorns allow you to create an investment account with portfolios designed by experts. This means you will have the peace of mind of knowing your money is being invested in projects that matter.
While Acorns is not free, its plans range from $1 to $5 per month, which is basically the same. The platform also gives you easy access to your money via a debit card, giving you the best of both worlds.
Do Your Homework!
It is now uncommon for new investors to put their money on companies, cryptocurrencies, or precious metals they know about. While big names might provide a bit more security in the short term, they are not always the best choice to build wealth.
The opposite is also true. Don’t go looking for the next unicorn of Silicon Valley! By doing your research and looking at the status of the company, its balance sheet, and the status of the industry, you are likely to make a better decision.
We understand that not everyone is a financial expert. However, just by reading about a company’s vision or the latest news where it has been mentioned can help. You can also get assistance from professionals.
Remember we mentioned Blooom https://www.blooom.com/robo-advisor-fees/ before? Well, they can also help you to optimize your strategy and analyze your investments.
How To: Start Investing
You might be thinking “That’s great but how do I start investing?”. Well, we already have provided you with some platforms that will allow you to do that. Acorns, m1Finance, and Robinhood all allow you to acquire stock quickly and easily.
However, you might still not have an idea of how to start. When we talk about starting investing, we are not talking about what platform to use. That will depend on your specific needs and interests.
No, the first step to start investing is setting your basic objectives. Depending on what your objectives are in terms of safety, income, and growth, there will be different options you can choose from.
Safety refers to how much risk you are willing to take when investing. Is not the same as investing in U.S government-issued securities or cryptocurrencies, as the level of volatility varies. As we said, volatility can play in your favor or against you.
On the other hand, income refers to how much return are you expecting to receive. For example, fixed-income assets like AAA bonds are likely to generate a stable source of monthly income.
Finally, Growth refers to gains generated from selling the assets. This is the case with cryptocurrency, real estate, gold, and stocks.
If you are not familiar at all with different investment assets, we totally recommend using Robinhood https://robinhood.com/. As a platform specifically targeted at new investors, it offers tons of resources and tips for you to start your journey.
By determining what your priorities are, you will be able to choose what asset to invest in, making it easier to choose a platform!
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