Are you investing blindly in the stock market? You may have heard of people buying cryptocurrencies and NFTS. Should you do the same? Investing has become more complicated these days! This is exactly why I want to lift the curtain on how to invest and make money every day. Yes, really!
Investing is a lot different than it was for our parents’ generation. With rising inflation, student debt, and a changing workforce, making every dollar count is more important than ever. The best way to invest is no longer what it was ten years ago.
When it comes to being smart with your money, most people only think about budgeting and paying off debt. While these two things are important for 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 basics you need to know to get started. I’ll also provide the framework to actually start investing and watch your money grow!
Types of investments
There are many, many types of investments you can make. But below, I’ll break down the most important fundamentals you’ve likely heard about and might want to invest in.
When you think of investing, you probably think of stocks. A stock is a small ownership of a company – think of it as a small slice of a larger pie. The cost of individual shares depends on the share price and can range from a few dollars to thousands.
Shareholders can also receive dividends, which are payments made to owners of a company’s shares. Mostly, people make money from stocks by buying them when they are low and selling them when they are high. By purchasing a stock, you are investing in the company’s growth potential.
Most people like stocks because they have the highest average rate of return (AKA, the highest profit 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 goes up and down repeatedly but always rises in the end.
Stocks are the most intimidating and difficult investment to learn for beginners. You can pick individual stocks manually, but that takes a lot of time, effort and money. As a general rule, never invest in something you don’t fully understand.
Bonds are the other better known and much easier sister to stocks. Basically, bonds are a type of contract where you lend money to some entity with the promise that they will repay you with interest. Most are corporate, municipal or US Treasury bonds.
Bonds are very safe and predictable – you know exactly how much money they will give you and how much interest they will accrue. As a small bonus, interest earned on government bonds is not taxable. But with lower risk comes lower reward. You will get a much lower rate of return for them.
Bonds are a great option for those who have a set schedule for their money. Young people should aim to invest for growth rather than buying bonds. They’re also part of a well-balanced portfolio.
Mutual funds, one of the easiest types of investing, allow you to participate in investing when you don’t want to do the research or want something with little effort on your part. Mutual funds are when a portfolio manager pools different investors’ money together and purchases different assets. Essentially, you’re buying a portfolio of stocks, bonds, indices, ETFs, and more.
You provide the money and someone else will oversee it. Mutual funds are a very popular investment but are slowly losing popularity. They have high fees known as the administrative expense ratio (MER). In the United States, 1% is a common exchange rate rate you will see. It may not seem like a lot, but it can drain a significant portion of your money over time.
Similar to mutual funds, index funds do not select individual assets, but instead invest 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 example, you may have heard of the S&P 500. It is an index fund that holds the stocks of all major companies in the United States.
Index funds attempt to reflect the performance of the overall stock market by purchasing stocks in that specific index. This is a passive approach to investing and does not require much tracking on the part of investors – computers and algorithms do most of the work! This makes index funds a much cheaper option with lower fees.
Exchange-traded funds (ETFs) are often combined with index funds. They also track the entire stock market by investing in a sample of the most popular stocks. They roll with the market rather than trying to beat it.
The only major difference between ETFs and index funds is that they are traded throughout the day and are purchased at the stock 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 major types of investments, it’s time to figure out where you want to buy your assets. For each person, it will look completely different! Find the option that aligns best with you and your financial goals.
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 create and manage your financial portfolio. Cool, isn’t it?
When you register, you will answer some personal questions such as your income, age, and goals. The computer model will then create a portfolio mix based on your answers that matches your personal finances. For the most part, robo-advisors will choose between ETFs and index funds.
This is good for beginners for several reasons:
- First, the work is done for you – just check back every now and then to make sure everything is in order and watch your money grow.
- Second, robo-advisors charge significantly lower management fees. Since there is low overhead and no financial advisor to pay, fees remain around 0.25% (much better than 1% from a mutual fund!).
- Robo-advisors also require a minimum amount of money to get started. Beginners usually don’t have a lot of money to start with, but it allows you to grow the money you have.
If you are looking for another beginner-friendly way on how to invest and earn money daily, download an investing app like Oak tree fruit or stash. These are a type of robo-advisors but on a smaller scale.
Using apps, you can link your credit or debit card, and they will automatically collect your purchases. This “spare change” will then be invested in your account. It’s a way to start saving and investing without actually saving money.
The money will go into an ETF portfolio and will be diversified among thousands of stock and bond options. With these applications, the return is minimal. You won’t make millions in spare change. But it’s a good starting point and a way to help other investors.
If you’re feeling brave and want to get started, you can also create your own portfolio. This will require you to buy stocks, bonds, mutual funds, ETFs, and index funds yourself.
You will be responsible for making all decisions, including when to invest, when to sell, and when to trade. This requires you to be fully aware of your investment portfolio and how different assets perform over time. You will also have to deal with transaction or loading fees as you make purchases and trades.
But for the right person, creating your own portfolio can be very empowering! It can also be very profitable if you diversify your weapons and make them accessible to your choices.
Whether you’re thinking about retirement or not, you’ll need to think about retirement accounts. Most of these account types allow you to invest using the account. The money in the account doesn’t do anything until you invest it!
This is an employer-sponsored retirement plan. If you’re lucky enough to have one, you should definitely take advantage of it! Through it, you can allocate a certain amount of your pre-taxable salary to the account. Some employers will even offer to match your contributions. If so, don’t miss this opportunity! Did someone say free money!?
This is the best way to fund retirement, which is essential for long-term security. With a 401(k), you can invest in stocks, bonds, and mutual funds, which the employee can choose. You can do all of them or just one! The account will be managed by an investment company chosen by the employer.
IRA and Roth IRA
IRAs and Roth IRAs are both types of individual retirement accounts. They’re also great for long-term saving, helping you grow your money and save for retirement.
With traditional IRAs, you can contribute money before it’s taxed. The money then grows tax deferred. After age 59 ½, you can take withdrawals, but they will be taxed as income.
Roth IRA accounts are the opposite. You can make contributions after your money has already been taxed. After that, the money becomes tax-free, and you can withdraw without having to pay tax after age 59 1/2. Basically, you can choose to pay your taxes now or pay them later!
You can have a 401(k) and an IRA – and you should! When you reach your contribution limits for one, you can contribute to the next.
Now that you know the types of investments and how you can actually invest your money, it’s time to create an investment plan that matches your goals and personal situation. Here’s what you need to consider before you invest!
Understand the risks
Some investments will be riskier than others. So think about how comfortable you are with risk and whether you are actually in a position to take the risk. For example, someone with children and a mortgage is likely to be less risky than an independent person who rents a home.
Often times, the risk lies in 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. Young people who start investing have more time to grow their money. They have more freedom to take risks while they wait for the market to rise and fall.
Investing early gives you an advantage. Investing has a snowball effect in that you make money from the money your investments have already earned. This is double the fun!
On the other hand, seniors cannot jeopardize their nest egg and ability to retire. While they may have patience, they must discover a realistic way to preserve their money.
Diversify your investments
Don’t put all your eggs in one basket. Instead, always spread your money across different investments – this helps reduce investment risks. This means investing in different forms of investments such as stocks and ETFs, different industries, and different markets, such as the US market versus the Canadian market.
Mix high and low risk investments. This ensures that your investments grow, but you never run the risk of losing everything.
Conclusion: How to invest and make money daily
So how do you invest and earn money daily? Well, now you know that it is more complicated than just a simple form of investment. There is no get-rich-quick 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 can contribute more slowly to investing.
Investing is just one part of gaining financial knowledge. You want to make sure you also do the basics like budgeting, reducing debt, and saving for a rainy day!