I wish I had a nickel for every time someone has asked me “What is the Best Way to Invest Money?”
As the CEO of a company that develops financial education software, I have travelled all around the U.S. for 30 years promoting our software and speaking to college students, high school students, professors and teachers about the best way to invest money and build wealth.
From the students and their teachers, to the strangers sitting next to me on a plane or at a restaurant, the one question I get asked the most is what is the “Best Way to Invest Money?” Well, for those of you whom I have NOT had the pleasure of meeting, here is my answer.
The Best Way to Invest Money
Here are my Top 10 Tips of The Best Way to Invest Money. Take 10 minutes to read this list. You will learn where to get the best stock picks, how to trade commission free, and how to earn 24.9% on your cash.
Because you are asking about the best way to invest money, I assume that you actually have some extra money that you are ready to invest. Here is what I think you should do (and the sooner you get started the better off you will be):
1. Pay off any debt that has an interest rate greater than 10%.
The best way to invest money is to pay off any credit card or loan that you have that is charging you a high interest rate. If you don’t know the interest rate on all of your debts–GO FIND OUT NOW! Pull out your last statement and see what rate you are being charged. If you are being charged 24.9% on a $10,000 credit card balance, then you are paying $6.82 a night in interest. That’s like buying someone at your bank a latte and a muffin every night before you go to bed. SO STOP IT! The best way to invest your money, if you have any debts with a high interest rate, is to pay down that debt. Every dollar counts, so if you have an extra $50 this week, pay down that debt. If you have an extra $100 this week, pay down your debt. And do it by this Friday! Why is Friday important? If you wait until Monday then you just paid 3 more nights (Friday, Saturday and Sunday) of interest expense. That would be another 3x$6.82=$20.46 in interest in the example above. Paying down a credit card or loan balance at a high interest rate is the same as investing your money and earning that rate. So make that you #1 goal.
Oh, and speaking of credit, make sure you know your credit score. If you know your credit score, then it you have more negotiating power with banks to get a lower rate. Get your FREE credit score, monitoring and more at Credit Sesame – Sign up in 90 seconds. No Credit Card needed.
2. Open a Money Market Account & Save Some of the Money You Want to Invest for Emergencies.
Even though you say you are ready to invest your money, you always need to expect the unexpected. You need to have some money set aside for the unexpected emergencies. Most financial advisors say you need 1 to 3 months of living expenses in cash. If you don’t already have a Money Market Account that pays interest, you need to set one up. Don’t just keep that cash in your checking account. If you do, then you will spend it. And even if you don’t spend it, most checking accounts don’t pay interest.
Click on the bottom tab in the chart above and see what Money Market Accounts (MMAs) are paying near you. Open up a Money Market Account and start earning interest. It is ALWAYS better to have a bank pay you interest than for you to be paying the bank!
3. Open a Stock Brokerage Account that Doesn’t Charge Commissions.
Once you have paid down some of your credit cards, you should start thinking about investing in the stock market. That’s because the best way to invest money is to invest it in the stock market. The stock market historically returns 8-12% a year whereas banks historically pay 3-5% interest. Just like paying a high interest rate on your credit card is a waste of your money, paying brokerage fees when you invest is a waste of your money too. To find the best brokerage firm that doesn’t charge commissions review this listing of current commission-free offers.
4. Don’t Overlook Your Tax Situation (Maybe You Can Get A Tax Deduction for Contributions to a Retirement Account).
You might be able to get a tax deduction for the money you invest in an IRA or other retirement account. If you need to open up a retirement account so you can get a tax deduction, here are the best brokerage accounts to consider. Talk to a tax adviser. Find out if you might be able to get a taxable deduction on your next tax return for the money you invest in a retirement account.
5. Make This Stock Your First Stock When You Start Investing Your Money.
Most portfolio managers on Wall Street try to build a portfolio of stocks that beats the overall market. But to new investors, I say why try to beat the market when you can just match the market. There are several securities that trade just like stocks that match the performance of the top 500 stocks. These are called SP500 ETFs, or exchange traded funds. The ticker for the most popular one is “SPY.” If you are just getting started, you should plan on investing half of your money in SPY.
6. Make Sure to Diversify: Get Quality Stock Recommendations.
After you have opened up your brokerage account and made your first investment in SPY, the next thing you need to do is gradually add a few more stocks to your portfolio so that you begin to build a diversified portfolio. To get these new stock ideas, don’t ask friends and don’t chase rumors. Please, please, please get expert recommendations–this is my most important tip for people looking for the best way to invest their money. My company subscribes to dozens of stock newsletters. We use free virtual trading accounts at www.WallStreetSurvivor.com to paper trade all of these picks. After 3 years of monitoring the performance of all of these newsletters, there is one service that is by far the best and most reliable. It has a 75% rate of picking winners, and an excellent history of picking a few stocks that double or triple every year. This services currently costs only $19 a month or $99 a year, but it will be the best $99 you ever spend! For example, as of February 8, 2019 their January 2019 pick (TWLO) is up 38% in the first 30 days. Their February 2019 pick (which I am not allowed to disclose yet) is up 10% in just the first week. Since inception, this newsletter’s picks are up an amazing 330% compared to the markets 85%! CLICK HERE to get their latest pick, their top 10 stocks, and their next pick which will be released soon.
7. Understand Dollar Cost Averaging.
The best way to invest money is to invest the same amount of money each month. Please note that I said to invest the same amount of money each month; and not buy the same number of shares of stocks each month. The market will go up, but it will also go down. The idea behind dollar cost averaging is if you invest the same amount of money each month, then you will be buying more shares when the prices are lower and fewer shares when the prices are higher. This helps you, on average, buy stocks at a lower average cost. This is a good thing because it helps you to maximize your profits.
8. Start Investing Your Money in the Stock Market Every Month.
If you have money that you will not need in the next few years, then historically the best way to invest money is in the stock market. There are lots of studies out there that show if you have 10 or more years to invest, the best way to invest your money is in the stock market. The stock market historically has returned 8-12% which makes it the best place to invest. There are years when the stock market goes up, and years when it will be down, but over the longer term, it does go up, up and up.
9. Know When (and How) to Sell Your Stocks to Protect Your Profits.
Now that you are learning the best way to invest money, you must also learn how to protect the money you have invested. Have you ever heard of a stock market crash? The market will crash (or correct) every few years so be ready and make sure you don’t lose all of the money you have made. I recommend that everyone know when to sell! The best way to learn more about managing a stock portfolio is to sign up for a free practice trading account at WallStreetSurvivor.com. You will get a virtual $100,000 of cash so you can practice buying and selling stocks. My tip here is place an 8% trailing stop loss order on all of the stocks. This way if any stock ever goes down by 8% or more, you will automatically sell it. This helps prevent taking big losses when the market goes down.
10. Don’t Panic. Stay Informed. The market does go up and it does go down.
Always be learning. Investing in the stock market is art, not a science. But the more you read and learn, the more understandable it becomes. And as it starts to make more sense, the more confident you will become investing in the markets. There are lots of free newsletters out there to help you stay on top of the markets. The free one I recommend for general market news only requires an email address. Click here to get it.
It’s not hard to invest money, but it is hard to invest it wisely and stick to a plan. That is where most people fail. But if you take note of these tips and you will be years ahead, and dollars ahead, of others that are just getting started.
Remember, start paying down any credit card debt that you have that is charging you over 10% interest. And if you haven’t called your credit card company to beg them to drop the rate, you need to do that too. Most of them will if you threaten to consolidate your balance on another lower rate card.
Remember, if you don’t already have a brokerage account, you need to open one. And when you do, make sure you get the “commission free” promotion that some of the brokers are running now. If you already have a brokerage account, then open a new account and take advantage of these offers. Stop wasting your money on commissions! CLICK HERE to get the latest commission-free stock brokerage offers.
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So THAT is the BEST WAY TO INVEST MONEY!