Learning how to invest money might seem scary, but it’s easier than you think, and you can start no matter how much you have saved. Learn the best way to invest money.
Investing money in the stock market is the No. 1 way rich build wealth and save for long-term goals such as retirement, but figuring out the best strategy to invest that money can feel daunting. This doesn’t have to be the case.
The journey towards financial wisdom is a painful one, mostly. It involves exploring various available forms of investing, then deciding which ones are worth your time and money, then learning as much as you can about them and finally trying them out.
Oh, and the “most enjoyable” last step in the process of establishing the best way to invest money. All the money lost whilst testing and learning, failing mostly, making all kinds of bad (but considered good at the time) decisions.
But this is all good – it builds up your financial savvy.
This takes years if not decades – for an average income person – the more money you have available.
The faster this process is, but we’ll focus on the majority here. People, who can save some money monthly, but are no tycoons with properties and capital.
Best Way To Invest Money: A Step By Step Guide
Everyone has a unique financial situation.
The best way to invest depends on your personal preferences along with your current and future financial circumstances.
It’s important to have a detailed understanding of your:
- Income and expenses,
- Assets and liabilities,
- Responsibilities and goals when building a sound investing plan.
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Here’s a five-step process that can help you figure out how to invest your money right now:
Identify your financial goals, timeframe and feelings about risk.
Decide whether you want to take a “do-it-yourself” or “manage it for me” approach.
Pick the type of investment account you’ll use (401(k), IRA, taxable brokerage account, education investment account).
Open an account.
Choose a combination of investments that match your risk tolerance and provide diversification (stocks, bonds, mutual funds, real estate).
Why Invest Money?
What is the best investments to make money? Investing can provide you with another source of income. Fund your retirement or even get you out of a financial jam.
Above all, investing grows your wealth. Helping you meet your financial goals and increasing your purchasing power over time. Or maybe you’ve recently sold your home or come into some money. It’s a wise decision to let that money work for you.
While investing can build wealth, you’ll also want to balance potential gains with the risk involved.
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And you’ll want to be in a financial position to do so, meaning you’ll need manageable debt levels, have an adequate emergency fund and be able to ride out the ups and downs of the market without needing to access your money.
There are many ways to invest — from very safe choices such as CDs and money market accounts to medium-risk options such as corporate bonds, and even higher-risk picks such as stock index funds.
That’s great news because it means you can find investments that offer a variety of returns and fit your risk profile. It also means that you can combine investments to create a well-rounded and diversified that is, safer portfolio.
9 Best Ways To Invest Money To Make Money
1. Stocks – Best Stocks To Make Money Fast
Best for: Longer timeframes and higher risks for higher returns.
When you buy a stock, you essentially become a shareholder (or owner) of that business. So whenever the company increases in value, your investment will also rise in price.
You only have to look at how much some of the most successful stocks have grown over the last few decades to see how profitable this can be.
For instance, if you’d invested in a Google stock back in July 2016, its value would have jumped from $719.85 to $2585.72 — an increase of around 259.2%.
That’s a whole lot better than stowing it away in your savings account and even better than investing in the S&P 500 (which achieved a return of around 100% over the same period).
How To Invest In The Stock Market?
To get started in the stock market in simple steps,
- Open a trading account with the Central Deposit System; either with a broker or a bank
- Choose your stocks
- Get a broker; if you are investing in local stocks in Kenya we recommend using Faida Investment Bank. If you are going for global stocks, you can use Hisa App as a broker and start investing.
- Start trading
With Hisa App, you can trade in US stocks. You will have access to hundreds of US companies, get predictions and also get paid dividends.
If you are looking to invest in global stocks, you can download Hisa App today to start your investment journey. Investment is made easier in the US stocks.
2. Mutual Funds
Best for: Longer timeframes and lower risk.
If you like the sound of the returns and liquidity that stocks can bring but not the high risk and the need to handpick your investments, I’ve got great news: you can opt for a fund instead.
Funds let you invest in a mix of different company stocks, therefore offering increased diversification. They don’t tend to achieve the same level of returns as the highest-performing stocks — but they’re far less risky.
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While it’s reasonably likely that a single company could face tough times, it’s far less likely that thousands of companies will experience these same difficulties (other than during recessions, but these are a natural part of the economic cycle and nothing to be scared of).
There will be some high-performers and some low-performers (or non-performers) in any fund, but on average, you’ll still get good investment returns. As long as you’re willing to invest for long enough, that is.
How To Invest In Mutual Funds?
To invest in mutual funds, you first have to:
- Look for institutions that have mutual funds.
- What type of mutual fund does this institution offer? Is it a money market fund, a dividend fund or a balanced fund?
- Register to start investing in the mutual funds.
In Kenya, we recommend CIC Asset Management if you are looking to invest in money market funds, balanced funds or equity funds. They are the largest asset manager by assets under management in Kenya.
3. Real Estate
Traditional real estate investing involves buying a property and selling it later for a profit. Or owning property and collecting rent as a form of fixed income.
Real estate is one of the best place to invest money right now despite the inflation caused by covid-19. But there are several other, far more hands-off ways to invest in real estate. One common way is through real estate investment trusts, or REITs.
These are companies that own income-generating properties (think malls, hotels, offices, etc.) and offer regular dividend payments.
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Real estate crowdfunding platforms, which often pool investors’ money to invest in real estate projects, have also risen in popularity in recent years.
Best for: Investors who already have a healthy investment portfolio and are looking for further diversification, or are willing to take more risk for higher returns.
Real estate investments are highly illiquid, so investors shouldn’t put into an investment any money they may need to access quickly.
How To Invest In Real Estate
Some REITs can be purchased on the public stock market through an online stockbroker, while others are only available in private markets.
Similarly, some crowdfunding platforms are open to accredited investors only, while others don’t put restrictions on who can invest.
4. Rental Housing
Overview:
Rental housing can be a great investment if you have the willingness to manage your own properties.
To pursue this route, you’ll have to select the right property, finance it or buy it outright, maintain it and deal with tenants.
You can do very well if you make smart purchases. With housing prices cooling off and mortgage rates off their highest levels, a strategic purchase of real estate could work out well in the long term.
Who are they good for?
Rental housing is a good investment for long-term investors who want to manage their own properties and generate regular cash flow.
Risks:
You won’t enjoy the ease of buying and selling your assets in the stock market with a click or a tap on your internet-enabled device. Worse, you might have to endure the occasional 3 a.m. call about a burst pipe.
Rewards:
Despite mortgage rates climbing higher, it still may be a good time to finance the purchase of a new property, though the unstable economy may make it harder to actually run it.
If you hold your assets over time, gradually pay down debt and grow your rents, you’ll likely have a powerful cash flow when it comes time to retire.
Where to get them:
You’ll likely need to work with a real estate broker to find rental housing, or you can work on building out a network that may be able to source you better deals before they hit the market.
5. High-Yield Savings Accounts
Overview:
A high-yield online savings account pays you interest on your cash balance.
And just like a savings account earning pennies at your brick-and-mortar bank, high-yield online savings accounts are accessible vehicles for your cash.
Who are they good for?
A savings account is a good vehicle for those who need to access cash in the near future. A high-yield savings account also works well for risk-averse investors who want to avoid the risk that they won’t get their money back.
Risks:
The banks that offer these accounts are FDIC-insured, so you don’t have to worry about losing your deposit.
While high-yield savings accounts are considered safe investments, like CDs, you do run the risk of losing purchasing power over time due to inflation, if rates are too low.
Rewards:
With fewer overhead costs, you can typically earn much higher interest rates at online banks.
6. Cryptocurrency
Cryptocurrency or digital currency is the latest type of investment that has taken the world by storm. Learn how to invest in cryptocurrency. It has facilitated faster payments and transactions at significantly low fees in place of traditional banks.
When you are investing in cryptocurrency, you can start with bitcoin but you always have to do your due diligence to avoid any fraud, security and regulatory risks.
How To Invest In Cryptocurrency?
To invest in bitcoin, you need to join a bitcoin exchange like Coinbase and Binance, get a bitcoin wallet and have a bank account. This is the best way to invest in crypto currency.
You can then start placing orders for bitcoin on the exchanges and pay for them, after which you can then sell them at a higher price.
- Join a bitcoin exchange; where you will make purchases of bitcoins. Examples of cryptocurrency exchanges include Kraken, Coinbase and Binance.
- Get a bitcoin wallet; you can get either a cold wallet or a hot wallet to store your bitcoins
- Have a bank account; to transfer funds easily
- Place your bitcoin order
- Keep track of your bitcoin investment
Bitcoin is one of the alternative investments in the world right now. As the world keeps on evolving, investing in bitcoin could be a wise decision you can make despite the recent drop in prices.
7. Bonds
Bonds are a type of investment security where you lend money to the government. Or a corporation for a specified period.
After which you will get your principal payment as well as the interest earned regularly for that given time, until maturity. We can say bonds are debt securities.
In Kenya, we have government securities like Treasury bills (T-bills) and Treasury bonds (T-bonds) that you can invest in. You will later get high returns on investment in the long term.
How To Invest In Bonds In Kenya?
To start investing in bonds you can either invest directly through the Central Bank of Kenya or as a nominee through an investment bank like Faida Investment Bank.
For this article, we will cover investing directly through CBK.
- Open a CDS account with the Central Bank. This is important for the Central Bank to establish who holds government securities.
- Decide how you want to invest in the government securities
- Fill in and submit an application form
- Get the auction results
- Make payments
- Wait for maturity to get proceeds
Here is a useful thread with a step to step explanation.
8. Index funds
An index fund is a mutual fund or an exchange-traded fund that is designed to follow certain preset rules so that the funds can track a specified basket of underlying investments. Its one of the best passive income investments to make with your money in 2023.
Index funds are an excellent investment opportunity because they have simple diversification and have high returns.
Index funds are good for beginners because they are easy to learn, unlike stocks. Some of the best index funds to invest in today include S & P index funds, Russell-2000 and Nasdaq-100 index funds.
How To Invest In Index Funds?
If you want to start investing in index funds that track various indices like the S&P 500 you can download the Hisa App today and begin your investment journey. All you have to do is:
- Find an index fund that you want to track, starting with some of the most popular index funds like Nasdaq-100, S&P 500 etc.
- Choose a fund that tracks the particular index like $SPY, $VOO, $IVV
- Buy the shares of that particular index
9. Commodities
Commodities like gold, silver, and platinum can be attractive investment options because they tend to hold their value over time and are not linked to the performance of any particular stock or bond market.
However, they can also be more volatile than other types of investments and may not be appropriate for all investors.
What To Consider Before Investing In Financial Instruments
Investing in financial instruments can be a lucrative way to make money. But there are a few things to keep in mind before doing so.
Here are some tips to help you make the best decisions:
1. Do Your Research:
It is important to do your research and understand the risks involved. It is also important to familiarize yourself with the instrument’s history and how it works.
This will help you make an informed decision about whether or not to invest in it.
2. Consider Your Investment Goals:
Before investing in an instrument, it is important to consider your investment goals and determine if that instrument is a good fit for you.
For example, some instruments may be better suited for long-term investments while others may be better suited for shorter-term investments.
3. Know Your Financial Limits:
Before investing in any instrument, it is important to know your financial limits. It will save you from impulse buying.
This will help you make the most informed decision about whether or not to invest in that particular instrument.
4. Risk Management:
Investing in any instrument may offer profit potential but it is also important to be aware that investments can also experience losses. So, make sure to follow the right risk management.
How To Choose Best Way To Invest Money
Building wealth through the investments outlined above can start at any age and at any income level. The key is to choose the right investments for you based on the following considerations:
1. How Much Money You Have
Some investments have minimum balance or initial investment requirements. But there are workarounds and providers that can accommodate most investment budgets if you know where to look.
2. Your Risk Tolerance
The more risk you’re willing to take by exposing your money to the short-term swings of the stock market, the higher the long-term potential payoff.
Spreading your money across different types of investments can help smooth out your investment returns.
3. Your Timeline
Money earmarked for near-term needs should be easily accessible and in a safe and stable investment. For long-term goals, you have more leeway to invest in more volatile assets.
4. How Much Help You Need
DIY investors can access many of the investments outlined above by opening a brokerage account.
If you’re not sure which investments are best for your situation, you can hire a low-cost, automated service called a robo-advisor to build an investment portfolio for you based on the criteria above. Some short-term investments, such as savings accounts, can be opened at a bank.
Conclusion
The best way to invest money is nothing complicated – no complex schemes, convoluted borrowing and lending, it’s good old disciplined money-saving in regular intervals, with the added bonus of investing it wisely into a good combination of compound interest and dividends that good dividend stocks provide.
- Stop chasing get-rich-quick schemes and promises.
- Start saving and investing regularly today, even in small amounts.
- Reduce your costs and increase your income as much as you can.
- Open an account at a good broker (I have very good experience with Charles Schwab) and start buying well-performing and stable dividend stocks.
- Learn about fundamental analysis and how to choose the right dividend stocks by reading these recommended books:
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