How to Invest Money
If you've got your money parked in a typical bank account, you're actually losing value over time. Thanks to inflation, your purchasing power is declining a tiny bit every day. Instead of watching your money bleed value, you can put it to work by investing in the market and in real estate. Investments put your money at risk, but they also generate opportunities for big returns.
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Tax-Advantaged Retirement Accounts
The first step in investing your money is to open a new bank account specifically for investments. The best way for most people to start investing is through a tax-advantaged retirement account like an individual retirement account. or IRA, or an employer-sponsored 401(k). These retirement accounts come in lots of different flavors, but all of them offer significant tax advantages. In a typical 401(k) account, for example, you never pay income or capital gains tax on your earnings until you withdraw the money at retirement. That allows you to accumulate savings much faster without having to pay Uncle Sam.
Investing in a retirement account is such a good idea that Larry Fink, manager of BlackRock, one of the world's largest hedge funds, suggested making retirement savings plans mandatory across the nation .
If you work for a large company, you may be able to earn extra money through a 401(k) matching program. In these programs, companies agree to match some or all of their employees' annual retirement plan contributions.
Mutual Funds and ETFs
Whether you decide on a retirement account or a brokerage account, mutual funds and exchange-traded funds. or ETFs, are the best way to start investing. Funds are basically huge collections
of stocks from different industries and sectors of the economy. When you buy a share in a fund, you buy a tiny piece of all the fund's investments.
The big advantage of investing in funds is automatic diversity in your portfolio. Owning a piece of dozens of companies gives you extra security. That's why Warren Buffet. one of the most successful investors in history, advised his followers to stick to low-cost index funds:
My advice to the trustee couldn't be more simple: Put 10 percent of the cash in short-term government bonds and 90 percent in a very low-cost S &P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.
Mutual funds and ETFs charge their investors with management fees. Fees can cost thousands of dollars per year in some cases, so choosing a fund with low fees can be the wiser choice even if the fund underperforms compared with more expensive competitors.
Real Estate Investing
Investing isn't just about trading securities. Buying a house or any other piece of real estate is an investment, too. According to John Paulson. one of the most successful hedge fund managers in the world, buying a house is actually the best investment most people can make. Even though Paulson made billions betting against the housing market in 2008, he's changed his tune and now calls buying a home the "best investment deal you can make." The low cost of mortgages in the 2014 and 2015 makes buying a home particularly attractive, according to the investment guru.Source: ehow.com