How to Invest Money

Author Name
Respect Gwenzi

Investing your money is the most reliable way to create wealth over time. If you’re new to the investing world, we’re here to help you get started. It’s time to make your money work for you.

Before you put your hard-earned money into an investment vehicle, you’ll need a basic understanding of how it works. Here are some of the best ways to invest money:

Stocks

Stocks are investments in a company's future success. When you invest in a company's stock, you profit along with them.

Bonds

Just as borrowing money is a part of life for most people, companies and municipalities also borrow money by using bonds.

Index Funds

This popular investment vehicle tracks a market index and can help balance your portfolio.

ETFs

Learn about exchange-traded funds, or ETFs, which trade much like stocks.



However, there's no one-size-fits-all answer here. The best way to invest money is whichever way works best for you. To figure that out, you’ll want to consider:

  1. Your style
  2. Your budget
  3. Your risk tolerance

Your Style

How much time do you want to put into investing your money?

The investing world has two major camps when it comes to the ways to invest money: active investing and passive investing. We believe both styles have merit, as long as you focus on the long term and aren't just looking for short-term gains. But your lifestyle, budget, risk tolerance, and interests might give you a preference for one type.

Active investing means taking time to research investments yourself and constructing and maintaining your portfolio on your own. If you plan to buy and sell individual stocks through an online broker, you're planning to be an active investor. To successfully be an active investor, you'll need three things:

  • Time: Active investing requires lots of homework. You'll need to research investment opportunities, conduct some basic analysis, and keep up with your investments after you buy them.
  • Knowledge: All the time in the world won't help if you don't know how to analyze investments and properly research them. You should at least be familiar with some of the basics of how to analyze stocks before you invest in them.
  • Desire: Many people simply don't want to spend hours on their investments. And since passive investments have historically produced strong returns, there's absolutely nothing wrong with this approach. Active investing certainly has the potential for superior returns, but you have to want to spend the time to get it right.

On the other hand, passive investing is the equivalent of putting an airplane on autopilot versus flying it manually. You'll still get good results over the long run, and the effort required is far less. In a nutshell, passive investing involves putting your money to work in investment vehicles where someone else is doing the hard work -- mutual fund investing is an example of this strategy. Or you could use a hybrid approach. For example, you could hire a financial advisor or use a robo-advisor to construct and implement an investment strategy on your behalf.