5 Tips on How to Invest Money Wisely

June 12, 2020
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Investing money is a smart choice, but we often feel confused or overwhelmed by the many options available. It doesn’t always have to be this way.

Despite the uncertainties you may be facing, smart investing is worth every effort because you can gain from profitable returns. You could make money from:

  • Interest and dividends from savings or stocks, 
  • Cash flows from businesses or real estate, and 
  • Value appreciation from real estate and other assets.

While buying and selling stocks works best for long-term goals, this guide will show you ways to invest money wisely, even for the short term.

Let’s have a look at the 5 key tips on how to invest your money.

1. Decide if you need help investing

If you are an experienced investor, you can take the “Do-It-Yourself” (DIY) approach, where you do all the research and manage the stocks on your own.

If this approach works for you, then you will have complete control over your portfolio. You can start the process by opening a brokerage account with a stockbroker.

Alternatively, you can take the passive approach. Here, you can hire an expert, such as an investment advisor with whom you can discuss your investment goals and risk appetite. Platforms, such as Paladin Registry, have professional investment advisors for hire.

2. Understand your risk tolerance

The temptation to invest money in risky assets is high because such stocks tend to yield high returns.

However, whether you are investing in stocks, real estate, or savings accounts, it is always advisable that you diversify your portfolio.

For instance, you can invest money in a mutual fund, different individual stocks in retail, transportation, or energy industries, and also rent out or lease a few real estate properties.

The order of the least to the most risky asset classes looks like this:

Risk asset classes according to risk tolerance
Risk asset classes – Image Credit: 123rf.com
  • Cash (in interest-paying savings accounts)
  • Bonds – such as certificates of deposit and mutual bonds
  • Real estate – can be a long-term commitment to create retirement income
  • Stocks or equities
  • Futures
  • Commodities and precious metals

3. Set an investment goal

Determine how much you need and what you want to save for.

If you need the money within a few months or years, then go for short-term investing, such as putting your money in an interest-earning savings account.

While this strategy is low-risk, allowing you to access your money easily and conveniently, it has low returns.

Long-term goals entail buying and holding on to stocks or investing in certificates of deposit and real estate. You can learn how to invest your money in stocks using this comprehensive guide.

This approach is less risky, but it requires your patience.

4. Create an investment budget

An investment budget
An investment budget – Image Credit: 123rf.com

A budget is a part of how to invest money wisely because you need to save or earn money to put in that savings account or buy that bond.

You can create a budget using simple tools, such as excel files or even a pen and paper. You can also use free budgeting apps, such as Empower Personal Wealth and others.

5. Manage investment fees

Every investment comes with its own set of fees.

However, before you invest your money, find out all the fees, including taxes, attached to understand the expected returns.

For instance, savings and fixed deposit accounts can carry account maintenance fees, while trading stocks comes with commissions charged by the broker. Fund managers also levy advisor fees.

Take the first step

Create sound goals and determine if you want to invest money for the short term or long term.

When there is a market crash, saving cash is a more viable option until your investment advisor proposes a more appropriate time to buy stocks.

If you invest time in asking a few questions to understand what you’re getting into, chances are that you’ll reap healthy and strong financial returns.

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Victoria Munyi
Victoria Munyi
Victoria is a seasoned SEO content writer and copywriter with proven experience in creating unique, insightful, and engaging content for a wide range of audiences that ranks high on search engines.

She is also a personal finance coach who will help you manage your money better by reducing wastage and identifying opportunities to grow your income. Follow her on her social media pages where she talks about personal finance and business growth strategies.
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