Are you blindly investing in the stock market? Perhaps you’ve heard of people buying cryptocurrency and NFTS. Should you be doing the same? Investing has only gotten more complicated these days! This is precisely why I want to peel back the curtain on how to invest and make money daily. Yes, really!
Investing is so much different than it was for our parents’ generation. With inflation on the rise, student debt by the bucketload, and a shifting workforce, utilizing every dollar is more essential than ever. The best way to invest is not the same as it was even ten years ago.
When it comes to being smart with your money, most people just think of budgeting and paying off debt. While those two things are crucial to your financial health, investing is just as important!
In this guide on how to invest and make money daily, I’ll break down all the essentials that you need to know to get started. I’ll also provide the framework to actually begin investing and watch your money grow!
Types Of Investments
There are many, many kinds of investments you can make. But below, I’m going to break down the most basic ones you’re likely to hear about and may want to invest in.
Stocks
When you think of investing, you probably think of stocks. A stock is a tiny ownership of a company – think of it as your mini slice of a greater pie. The cost of individual stocks depends on the share price and can range from a few dollars to thousands.
Shareowners can also earn dividends, which are payments made to owners of the company’s stock. Mostly, people make money from stocks by buying them when they’re low and selling them when they’re high. By buying a stock, you’re investing in the potential for the company to grow.
Most people like stocks because they have the highest average rate of return (AKA, the highest gain or loss). But with high reward comes high risk. The stock market is very volatile and difficult to predict. This makes it better for long-term investing, as the market dips up and down frequently but always eventually goes back up.
Stocks are the most intimidating and difficult investment to learn for beginners. You can hand pick individual stocks, but this takes lots of time, effort, and money. As a general rule of thumb, never invest in something you don’t fully understand.
Bonds
Bonds are the other commonly known, much tamer sister to stocks. Essentially, bonds are a type of contract where you lend money to some entity with the promise that they will pay you back with interest. Most are corporate, municipal, or US treasuries bonds.
Bonds are considered very safe and predictable – you know exactly how much money you’re giving out and the amount of interest it will accrue. As a little bonus, the interest earned from government bonds is not taxed. But with less risk comes less reward. You’re going to get a significantly lower rate of return for them.
Bonds are a great option for those with a specific timeline on their money. Young people should aim for investments for growth rather than buy bonds. They’re also part of a well-balanced portfolio.
Mutual Funds
One of the easiest investment types, mutual funds allow you to get involved with investing when you don’t feel like putting in the research or want something with little effort on your end. Mutual funds are when a portfolio manager pools the money of different investors together and purchases different assets. Essentially, you’re buying into a portfolio of stocks, bonds, indexes, ETF funds, and more.
You provide the money, and someone else will oversee it. Mutual funds are a very popular investment but are slowly falling out of favor. They have high fees known as management expense ratio (MER). In the US, 1% is a common MER you will see. It might not sound like much, but it can really take a chunk of your money over time.
Index Funds
Similar to mutual funds, index funds are not selecting individual assets but instead investing in a pool of assets. With index funds, you are trying to track a market index. A market index is the overall performance of a particular industry. For instance, you’ve probably heard of the S&P 500. This is an index fund that holds the stock of all the largest companies in the US.
Index funds try to mirror the performance of the overall stock market by buying the stocks in that particular index. This is a passive approach to investing and doesn’t require much tracking on the investors’ part – computers and algorithms do most of the work! This makes index funds a much cheaper option with fewer fees.
Exchange-Traded Funds
Exchange-traded funds (ETFs) are often lumped together with index funds. They also follow the whole stock market by investing in a sample of the most common stocks. They roll along with the market rather than try to beat it.
The only main difference between ETFs and index funds is that they are traded throughout the day and purchased at a share price, which can fluctuate.
How To Invest And Make Money Daily
I hope I haven’t lost you yet! Now that you know all the main types of investments, it’s time to figure out where you want to buy and place your assets. For each person, it’s going to look very different! Find the option that aligns best with you and your financial goals.
Robo-Advisors
By far, the easiest way to start investing for beginners is with a robo-advisor. Robo-advisors are technically a type of software that uses algorithms to build and manage your financial portfolio. Cool, right?
When you sign up, you will answer some personal questions such as your income, age, and goals. The computer model will then generate a portfolio mix based on your answers that aligns with your personal finances. For the most part, robo-advisors will select from ETF and index funds.
This is good for beginners for a few reasons:
- First, the work is done for you – you just get to check in every once in a while to make sure everything is okay and watch your money grow.
- Secondly, robo-advisors have a significantly low management fee. Since there is low overhead and no financial advisor to pay, the fee stays around .25% (way better than the 1% from a mutual fund!).
- Robo-advisors also require minimal money to get started. Beginners typically don’t have much money to begin with, but it allows you to grow the money you do have available.
Some common robo-advisors include Betterment, Wealthfront, and Ellevest.
Investment Apps
If you’re looking for another beginner-friendly method for how to invest and make money daily, download an investment app such as Acorns or Stash. These are a type of robo-advisor but on a smaller scale.
With the apps, you can link your credit or debit card, and they will automatically round up your purchases. This “spare change” will then get invested into your account. It’s a way to start saving and investing without actually putting money aside.
The money will go into a portfolio of ETFs and diversified among thousands of stock and bond options. With these apps, the return is minimal. You won’t be making millions off of your spare change. But, it’s a good jumping point and method to assist your other investing.
Self-Directed Portfolio
If you’re feeling brave and want to put in the work, you can also make your own self-directed portfolio. This would require you to purchase stocks, bonds, mutual funds, ETFs, and index funds yourself.
You would be in charge of making all the decisions, including when to invest, when to sell, and when to trade. This requires you to be very aware of your own portfolio and how different assets have performed over time. You also will have to deal with transaction or load fees as you make your purchases and trades.
But for the right person, it can feel very empowering to make your own portfolio! It can also be very lucrative if you diversify and hold your guns to your choices.
Retirement Accounts
Whether you’ve got retirement on the brain or not, you will want to consider retirement accounts. Most of these account types allow you to invest using the account. Money sitting in an account doesn’t do anything until you invest it!
401(k) Plans
This is an employer-sponsored retirement plan. If you’re lucky enough to have one, you should definitely utilize it! With it, you can dedicate a certain amount of your pre-taxed salary to the account. Some employers will even offer to match your contributions. If this is so, don’t pass up this opportunity! Did someone say free money!?
This is the best way to fund retirement, which is essential for long-term security. With your 401(k), you can invest in stocks, bonds, and mutual funds, which the employee can select. You can do all of them or just one! The account will be managed by an investment company that the employer chooses.
IRA And Roth IRA
IRA and Roth IRA accounts are both types of individual retirement accounts. Also amazing for long-term savings, they help you grow your money and save for retirement.
With traditional IRA accounts, you contribute money before it’s been taxed. The money then grows tax-deferred. After the age of 59 ½, you can make withdrawals, but they will be taxed as income.
Roth IRA accounts are the opposite. You make contributions after your money has already been taxed. The money then grows tax-free, and you can withdraw without needing to pay tax after age 59 ½. Basically, you can choose to pay taxes now or pay them later!
You can have both a 401(k) and an IRA account – and you should! When you’ve reached your contribution limits on one, you can contribute to the next.
Investment Planning
Now that you know the types of investments and how you can actually invest your money, it’s time to make an investment plan that aligns with your goals and personal situation. Here’s what you need to consider before you invest!
Understanding Risk
Some investments are going to be riskier than others. So consider how comfortable you are with risk and whether you are actually in a position to be risky. For instance, someone with children and a mortgage is less likely to be risky than an independent person renting a home.
More often than not, the risk is all about finding the right balance. You need some risk to grow your money, but you also don’t want to lose it all.
What Are Your Goals And Situation?
Everyone has a different time frame. Younger people who begin investing have much more time to grow their money. They have more freedom to be risky as they wait out the ups and downs of the market.
Investing early gives you an edge. Investing has a snowball effect as you earn money on the money your investments have already earned. That’s the joy of compounding!
On the other hand, older people can’t jeopardize their nest egg and ability to retire. While they may have the patience, they must figure out a realistic way to maintain their money.
Diversify Your Investments
Never put all of your eggs in one basket. Instead, always spread your money across various investments – this helps to reduce investment risk. This means investing in different forms of investments like stocks and ETFs, different industries, and different markets, such as the US market versus the Canadian one.
Mix high and low-risk investments. This ensures your investments grow, but you won’t ever be at risk of losing everything.
Conclusion: How To Invest And Make Money Daily
So how exactly do you invest and make money daily? Well, by now, you know that it’s a lot more complicated than one simple form of investment. There is no get-quick-rich scheme here.
Remember, it doesn’t matter how much money you have; the important thing is just to get started. This will set you up for success down the road as you slowly can contribute more to investing.
Investing is just one part of becoming financially literate. You want to ensure you’re also doing the fundamentals like budgeting, reducing debt, and saving for a rainy day!
