Making money and managing money are two different ballparks. Do you make good money but don’t know how to invest it? If this describes you, you are not alone. Many high-earning professionals aren’t well versed on how to invest their money long-term.
The goal with investing is always to get the highest returns while paying the least amount of fees, and the cherry on top is for your money to always be there for you.
Below are some key tips for investing your money so it doesn’t run out, you earn the highest returns, and you pay the least amount of fees.
Opening a Brokerage Account
If you are going to manage your own investments, the first thing you will need in an investment account. More and more of the top brokerages are offering self-directed accounts that can be opened online. My favorites are Fidelity and Vanguard.
There are two main categories: self-directed brokerage accounts and self-directed IRAs. The former is more liquid, meaning you can withdraw your money at any time. However, you have to pay taxes on your earnings. The latter is a retirement savings account called an Individual Retirement Account (IRA) that you can only withdraw from after the age of 55 ½, but without paying taxes on your profits.
Where to Invest
Without a financial advisor, it’s up to you to decide where your money is invested. You’ll need to do your research here. Choose investments that you believe will go up in value and look at their historical data, market trends, the local and global economy, and your own desire to participate in the growth of the business and industry your investment is in.
To manage the cost of your investments, keep an eye on their expense ratio. These fees have to be paid regardless, whether working with a financial coach or a financial advisor or not.
Stocks and Bonds
Stocks and bonds are the main focus of index and mutual funds, and it’s a good idea to have a healthy mix of both. Bonds are a bit more conservative, but you lose out on some earning potential. Stocks are riskier, but can pay out better. You can invest in these individually or use an index or mutual fund.
These expose your portfolio to a number of stocks and bonds. Their goal is to match the returns of a benchmark stock market index like the S&P 500. They typically have a low to non-existent expense ratio.
The goal of these funds is to beat the benchmark market index, meaning you can potentially see higher returns. However, as they are actively managed, the expense ratio tends to be higher.
REITs are similar to mutual funds, but instead of stocks and bonds, they expose your portfolio to a real estate investment portfolio. A great option for those who want to diversify without the expense of purchasing an investment property.
Be Your Own Financial Coach
There are a whole slew of sites boasting insider knowledge on which stocks to invest in, but the truth of the matter is that you need to become your own expert investor. Online brokerage accounts allow you to keep track of your earnings and research other investments so that you know when and where to invest.