What are the different ways to invest money?

What are the different ways to invest money?

You can invest money and earn through capital gains (increase in value) or through dividend payments (income). Assets include stocks, stock options, ETFs or Mutual Funds, Real Estate, cryptocurrency, currency, businesses, P2P lending, and more.

Imagine, having a well diversified portfolio that you can stand behind. You selected each investment and have a clear understanding on how they will perform.

There are many different ways to invest outside of the stock market!

Luckily for you, I’m going to show you different ways to invest your money. You’ll learn some of the best investments so you can make a good decision for your money. Let’s take a look at some of the best assets available for individual investors.

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What are the different ways to invest money?

As an investor, you acquire different assets which pay you to own them or increase in value over time. Examples of assets include stocks, ETFs, Real Estate, cryptocurrency, businesses, or precious metals. Each asset has their own risk factor, growth and income potential.

Most investors stick to the stock market as their primary way of investing. However, you can diversify your portfolio by investing in assets outside of the stock market.

For example, you could invest 50% of your cash in stocks, 30% in Real Estate, and 20% building your own business.

Purchasing multiple assets is a good way of diversifying your portfolio. In the example above, only 50% of your assets are tied to the stock market. Therefore, your portfolio would experience less volatility if the stock market crashed.

There are many ways to build your dream portfolio. Investing in stocks is simply one of the easiest.

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Stocks

Stocks allow you to purchase partial ownership of a company when you buy the company’s shares. You make money as the share price increases or if the company pays a dividend payment.

You’ll need to open up a brokerage account, like Robinhood, if you want to invest in stocks. A brokerage account is the middleman between you and the stock market.

Most investors will want to buy at least 10 different companies for diversification.

There are many different strategies investors use for purchasing companies. Some investors like high dividend yield companies, growth, value, dividend growth, or simply speculating.

Stock options

Stock options are another asset which is usually reserved for more experienced investors. Options give the right, but not the obligation, to purchase a security.

For example, let’s assume you’re interested in buying a home in an undeveloped area. You give the developer a premium to reserve a spot in the area, but you are not obligated to purchase the location. Your contract also secures the land at today’s prices.

In two years, the land value increases by 50% because the area is starting to be well developed. You can execute your contract, allowing you to buy your land at the previously agreed upon price. 

Alternatively, the land value could have decreased. You no longer want the property because it’s no longer seen as a desirable place to live. You don’t execute your contract, which allows the developer to keep the premium and you can walk away.

Stock options are the same as the real estate example above. You pay a premium to reserve the right to purchase a stock at a predetermined price. You can purchase the stock at the predetermined price later or walk away from it and only risk your premium.

Exchange traded funds and Mutual Funds

Exchange traded funds or mutual funds are a collection of stocks offered for one low price. You gain instant diversification by purchasing one fund and often pay minimal fees. Each ETF or Mutual fund often tracks a specific index or has an underlying fund goal.

For example, VOO is the Vanguard S&P 500 exchange traded fund. VOO tracks the performance of the S&P 500 for about 1/10th the share price of investing in the S&P 500.

As of writing this, the S&P 500 costs $4,255 per share. Most investors don’t have that much money to purchase one share, so VOO is offered at a much lower price of $391.

These funds are often well diversified. Most exchange traded or mutual funds contain well over 100 different companies. Therefore, you don’t have to worry if one company goes under because you have 99 or more others.

Each fund has an expense ratio, which is the fee charged by the brokerage to maintain the fund. For example, VOO has a 0.03% expense ratio which is an annual fee of $0.03 per $100.

There are differences between ETFs and mutual funds. ETFs are typically passively managed funds which trade like stocks. Mutual funds are often actively managed, cost slightly more, and are often traded once per day.

Real Estate

There are many different ways to invest in Real Estate. You can purchase rental properties, Real Estate Investment Trusts (REITs), and crowdfunding. Each method of investing in real estate has its own risks, reward, and effort required to invest.

Purchasing rental properties has the most potential upside, but is very risky and time consuming. You find the property, secure a loan, and find renters or a property manager. As a rental owner, you benefit from rental income and property appreciation.

REITs trade like individual stocks on the stock market. These companies purchase real estate and pay investors a dividend payment. Therefore, you benefit from dividend income and potential share price appreciation.

Real Estate crowdfunding allows investors to pool their money together to purchase property. The property is managed by the investment sponsor, who may charge fees for their service. Companies like Fundrise allow individual investors to choose between appreciation, income, or a balanced portfolio.

Cryptocurrency

Cryptocurrency is best for investors looking for a decentralized investment opportunity. As a decentralized investment, crypto isn’t controlled by one entity or government. Use caution as the nature of cryptocurrencies can leave unsuspecting investors open to scams.

Currency

Investors may also invest in currency of different nations, also known as Forex. For example, you can invest in canadian dollars or british pounds. Investing in currency is less volatile than other assets like stocks.

Individual Sectors or Commodities

Some investors choose to invest in specific sectors or commodities. Sectors include specific industries like technology, real estate, energy, etc. Commodities are trade goods like lumber, gold, silver, etc.

Some investors like to heavily weight their portfolio into a specific sector where they see growth potential. For example, technology stocks have seen tremendous growth which outpaced the overall stock market.

Commodities can see good growth during different economic conditions. For example, stock market crashes often have investors piling into gold.

Websites

Website investing is a good business for those that know how to run a website or blog. You can earn money through ad revenue, affiliate sales, sponsorships, and selling websites for profit. Therefore, blogs can be a good source of recurring income for income investors.

You can hire freelancers to write content and build a substantially trafficked website. These website visitors can purchase your products or view ads on your website.

However, building your own website can take time. Websites like Flippa help investors purchase already profitable websites.

For example, you can purchase a website making $1,000 per month for $32,000. In three years, your website has paid for itself and you can live off the income.

Vending machines

Some investors choose to build themselves a vending machine business. Each vending machine can make between $50-$150 per month in profit. Most vending machines can be financed, meaning you need little to no money down.

Starting a business

One of the fastest ways to build wealth by investing is starting your own business. You can have unlimited income potential by starting a successful business. However, most individuals struggle and lose money when starting a company.

Most wealthy individuals have their own business. You can be an employee and make $50k per year, but the owners are often making much more.

Certificate of Deposit (CDs)

Certificates of deposits are a very low-risk and low-reward investment. Most CD’s pay less than 1% annually for your investment. Therefore, you shouldn’t be looking to invest in CD’s for wealth building, but for a short-term storage location.

You can purchase a Certificate of Deposit at your local financial institution. Banks set their own rates and typically give higher returns for longer duration CD’s.

Some investors build CD ladders, where the CDs mature each month. For example, you buy a 3 month CD in January, February, and March. Your CDs will mature in April, May, and June so you constantly have money available.

Money Market Accounts

Money Market accounts are a low-risk and low-reward investment. A money market is slightly better than a savings account. Most investors use money market accounts for storing money they may need quick access to.

For example, you can keep your emergency fund in a Money Market account. You can have quick access to your cash should an emergency happen.

Peer to Peer lending

Peer to Peer lending (P2P) is a risky investment that is seen as a stock market alternative. Rather than investing in companies, you’re investing your money with other individuals. These individuals may have been denied by the bank for a loan or are seeking aid outside of a financial institution.

For example, someone might reach out to a P2P lender if they want to refinance their car loan. The P2P lender crowdfunds the loan amount and facilitates the contract between borrower and investors.

P2P lending can have a high default rate. If anyone defaults on their loan, you could lose your investment. Therefore, it’s important to diversify your investments over multiple borrowers.

Products for resale

Some investors like to use their investment capital to flip products for profit. You can purchase items on clearance and sell them on Amazon or Ebay. You make money when the product sells and the item is shipped to your customer.

Flipping products for profit has the ability to make better than stock market returns. For example, you could buy an item for $10 and sell it five days later for $20. You’ve instantly doubled your money in a matter of days.

The problem is that flipping products is a very active source of investing. You have to constantly find new deals to list and sell. 

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Summary: Different ways to invest money

As you can see, there are many ways to invest money. Each investment has its own risk factor and potential reward. Some investments are very passive, while other investments require a lot of input on your part.

You can invest money and earn through capital gains (increase in value) or through dividend payments (income). Assets include stocks, stock options, ETFs or Mutual Funds, Real Estate, cryptocurrency, currency, businesses, P2P lending, and more.

Most people choose to invest in the stock market, but that’s not the only way to invest. You can diversify your assets in order to reduce your volatility. Should the stock market crash, your assets aren’t all tied to the market.