In this article, we’ll break down what investing is, why you need to be investing, and the different types of investments that you can make.
Being rich is not the same as being wealthy.
When you’re rich, it’s about the way you appear to others…a nice car, a big house, fancy vacations. When you’re wealthy, it’s more than that.
Wealthy people use money to attract and grow more money.
70% of people who win the lottery end up broke within a few years. These are people who had sometimes hundreds of millions of dollars! How do you lose that kind of money in just a few years?
So what’s the difference between being wealthy and being rich? Simple, it’s your mindset.
Wealthy people use their money effectively. They don’t spend all of it on things that will make them broke over time.
They invest their money because the wealthy understand the big picture: Having money today does not guarantee that you’ll have it tomorrow.
And the only way that you can become wealthy is through investing.
Which is why we’re going to breakdown:
Investing is the key to wealth, but there’s a right way and a wrong way to invest.
Here’s why you should invest
When you invest, you have the opportunity to grow your money into something more than just a bi-weekly paycheck. And since your money is a tool that helps build your finances, you want to keep it strong and sharp.
That’s where investing comes in.
Think of your finances like a tree. A tree has more than one root, right? Of course, a tree could survive with just one root, but it’s not very strong.
But, if a tree has multiple different roots, it grows bigger, stronger, and lives longer.
You’ll want to create a, no pun intended, money tree with your finances so that you can beat inflation and strengthen your base all at the same time.
Investing is the tool that grows your money tree.
And you don’t need a lot of money to start investing. People have started growing their money with as little as $5 a day.
Micheal Taylor didn’t think he was going to start saving for retirement until his late 30s. But that changed when he decided to crunch the numbers.
He invested just $5 every day, with a 6.7% average annual return each year, and had almost $700,000 dollars after 50 years.
Dawdu M. Amantanah was in the same boat. He invested $5 a day because that’s what he could afford. His investments continued to grow until he was making an extra $100 a month, and it quickly grew into a $1000 a year.
All from a $5 investment.
What do these two stories have in common? They invested only what they could afford and they realized that investing is a long term game.
You don’t need a lot to start investing. You just need the right mindset.
What is Investing?
Investing is when you buy something today, with a goal of getting paid for your purchase in the future.
When you invest your money, you’re buying ownership in something. You can invest in:
- Real Estate
In the words of legendary investor Warren Buffet, “investing is the process of laying out money now to receive more money in the future.”
When you invest, you buy something today and hope that it is worth more in the future. If your investment is worth more in the future, then you’ll make a profit on your investment.
This is what’s called your return, and you won’t see the biggest returns on your investment overnight, or even in six months.
Successful investing is a long term game. It takes years for your investment to grow into a return that can make you wealthy. So don’t expect immediate results.
In fact, don’t expect any results at all. You can hope that you benefit from your investment years down the road, but it’s never a guarantee.
So don’t invest what you can’t afford to lose. If you don’t have a strong financial base with an emergency fund, you’ll need to establish that before you can start investing.
Otherwise, you’ll put your finances at risk, and investing won’t do you much good.
But, investing isn’t just buying shares or owning property. You can also invest in yourself – that is, improving your health or education.
And, if you have debt, you can pay down this debt as an investment because less debt means more opportunity to use the money that you earn.
This investment strategy won’t put money into your pocket right away, but over time, you’ll learn new skills which you can use to attract more money in the future.
You’ll be investing in your mindset and health. This is the foundation for your life, and it needs to be solid before you can start to grow and attract money.
You should never stop investing in yourself, but you can get to a point where you can invest in other things at the same time. Just like anything, it’s a skill that needs to be learned through practice.
Now that you know what investing is and why you need to do it in order to grow and attract more money, let’s go over some popular investments you can make with your money.
Stock Market Investing
The stock market is where investors come together to buy, sell, or trade their stocks, which are shares of ownership in public companies. In the United States, the most popular stock exchange is the New York Stock Exchange (NYSE) located on Wall Street in New York City.
Think of it like a street fair. At a fair, businesses set up a stand and sell their products. You come to the market because you’re interested in buying a new painting.
The stock market works in a similar way. The difference is, on the stock market, instead of selling products, businesses are selling ownership in their company.
Today, the stock market is easily accessible, meaning, you don’t actually have to go to the New York Stock Exchange to sell or buy a share. You can do it all online.
So, investing in stocks is like buying a very small portion of the company that you’re investing in. The more stocks you buy, the more of that company you own.
When you invest in a company’s stock, you’re not becoming a manager of the company, and you don’t have to attend company meetings. That means you don’t have to do any work for the company or business in order to share in their profits.
That also means if the company drives itself into the ground, there’s not much you can do to stop it. You’re only investing with them in the hopes that the company grows and returns your investment.
Stock market investments are not tangible. If you buy one share of the McDonald’s company, you don’t own a tangible building or asset. You own a paper share of the McDonald’s company.
But your investment is liquid. If you need cash, selling your stock is easy.
But how exactly do you make money through stock market investing? Well, there’s a couple different ways.
Dividends are when a company pays its investors just for investing in their stock. Think of it as a ‘thank you’ check for investing with them.
Not every company pays a dividend, and most companies that do pay a dividend pay their dividend every quarter (meaning three months). Dividends are a simple type of investment strategy that allows you to receive steady income from a company.
The other way that you can make money on the stock market is by actually selling your stock for a profit. This is known as appreciation.
So, if you wanted to buy stock in your favorite company, and it’s priced at $100 a share, that means you’ll have to spend $100 to get that share.
But here’s the kicker: The price of stocks are always fluctuating. You may have bought a share for $100 today, but that stock might be valued at $600 in the future.
That means if you sell that stock you’ll make $500. Or you can hang on to it, and hope that it’s worth even more in the future.
Although, a stock can lose value too. The stock you just bought for $100 could be worth nothing if the company goes bankrupt. That means you just lost your entire investment.
To put it more simply: you just lost $100.
The price of a stock goes up and down based on the demand of that particular stock. The demand is linked to how many buyers and sellers there are.
If there are more buyers than sellers, the price of a stock will go up.
If there are more sellers than buyers, then the price of a stock will go down.
This is the emotional rollercoaster of the stock market. And this determines the value of stocks.
Trade wars, pandemics, physical wars, and politics can have a huge impact on how many buyers and sellers there are in a market. So, the atmosphere of the markets can change overnight, which means the value of your stock can change, too.
That is what makes short-term stock trading more risky because your portfolio can move up or down quickly based on issues unrelated to your company. However, over the long run, the stock market tends to go up.
The best part about investing in stocks is you can start with as little as $100.
And if you’re just starting out on the market and don’t know how to find a great company to invest in, you can put your money towards something called an index fund, instead of investing in individual companies.
There are thousands of stocks on the market. To help keep track of them all, most stocks are grouped into an ETF or exchange-traded fund. These are known as indexes, and each index tracks how well the individual stocks are performing in their own funds.
Some of the biggest funds are the Dow Jones Industrial index or the DOW, the S&P 500, and the NASDAQ.
These funds track some of the largest companies in the world.
The main purpose of an ETF or electronic stock market index is to group stocks together so that it’s easier for investors to get exposure to many different companies. Otherwise, you’d have to spend a lot of time trying to find the best company to invest in.
Investing in an index fund just means that you’re investing in a group of companies. So, for example, let’s say there’s an index fund that groups together 30 of the largest companies in the DOW.
If you invest in this index fund, you’ll be investing a portion of your cash into all 30 of these companies.
The advantage here is that if one company goes under, you’ll still have 29 other investments.
Index funds allow investors to invest as much money as they want, without pouring all of their money into one stock.
So, while investing in the stock market is as simple as buying a stock, you can only make money if you have patience and know when to buy or sell your stock.
This comes with experience, practice, and a ton of research. Always do your due diligence before you invest any of your money, and make sure you know the risks before you take a chance on a particular stock or index fund.
Real Estate Investing
When you invest in real estate, you’re becoming the owner or partial owner of a property. It’s a tangible asset. That means you can see, feel, touch, and manage the property however you want.
Here, the investment is the house, building, or land that you buy. You have complete control over it.
This differs from stock market investing because when you buy a stock in a company, you don’t get an asset you can touch or control.
When you buy real estate, it’s yours to do whatever you want with. Think of it like buying a home versus renting an apartment.
When you’re the landlord, you get to run the business however you want.
That means there is more work involved when you invest in real estate. You have to keep up with any maintenance, and manage all of the paperwork like bills, taxes, and legal issues.
Just like with stocks, there’s a couple different ways you can make money.
The first is renting out your real estate. If you buy a building or a home and lease it out to a tenant, these tenants will have to pay you rent every month.
The rent that you get from your tenant becomes the return on your investment.
The advantage of real estate investing is that you have calculated income every single month. If you own one property, and you’re renting it out for $500, you can expect to receive $500 every month.
It’s money that you can have and can use today.
So this rental income is similar to the dividends you can receive in the stock market.
Another way you can make money with your real estate investment is by selling your property for more than what you paid.
If you buy a property for $50,000 and end up selling it for $100,000, then you just doubled your investment. This property appreciation works similarly to the appreciation you can see in the stock market.
Another plus to investing in real estate is that real estate has tax advantages, like tax breaks on the income you receive from rent and the ability to defer your taxes when you sell your property for a profit through a tax loophole called the “1031 exchange.”
If the thought of becoming a landlord gives you anxiety, you can always hire a property manager to oversee your investments on your behalf.
A property manager takes care of all of the work associated with the property. That way you have more time to find other investments and attract more money.
If real estate investing still seems like too much, there are other options. You can invest in a REIT.
A REIT, or real estate investment trust, will make you a partial owner of a company that invests in real estate. You can invest in REITs on the stock market.
The advantage here is that you can get exposure to real estate investments without becoming a landlord or hiring a property manager.
The biggest difference between real estate investing and stock market investing is the amount of physical work you have to do to get started.
With stock market investing, you could open up a brokerage account and start investing today.
With real estate, you have to find a property, secure financing, make renovations, find a renter, and hire a property manager. These steps could take months, and if something goes wrong, you can’t just sell your investment quickly like you can with a stock.
But, investing in real estate gives you complete control over your investments, as well as steady calculated income.
When you invest in a commodity, you’re investing in a tangible asset like gold or silver.
Commodities have value because they can’t be printed. There’s effort and a cost required to mine an ounce of gold unlike paper dollars which can be printed very inexpensively.
And owning these types of physical assets is one way that you can protect yourself during an economic recession or market crash.
This is because whenever there is a stock market or economic crash, physical commodities like gold go up because people worry about the economy.
Remember the gold standard? Well, this just meant that if you had $100 in paper money, there was a bar of gold worth $100 at Fort Knox that backed it up. Under this plan, paper money just represented the gold that the US had in a vault.
The US was not able to sustain this monetary system so the United States dollar was taken off of the gold standard in 1971. Our money has value today because the government has mandated that, and we trust and believe our dollars are valuable.
In a recession or depression, people get worried about the strength of the dollar. So what do they turn to? You guessed it: commodities.
That’s what makes commodities valuable. They’re a safety net for your financial plan. But gold isn’t the only type of commodity. You can invest in other physical assets like:
Investing in these commodities means that you have a physical representation of what your money is worth.
In addition to buying a physical asset like gold, you can invest in the stock of companies that mine or produce these commodities.
These types of stocks will specialize in the type of commodity that you’re looking to invest in, and because you’re not buying the actual commodity itself, you don’t have to find a place to store it either.
So commodities are physical assets that you can invest in that tend to keep their value even if the dollar loses value. By investing in them, you’ll have some protection against a market crash because you’ll have something to sell that is internationally valuable.
Bitcoin: The New Commodity
Cryptocurrency is the new commodity on the block.
Cryptocurrencies like Bitcoin are intended to be a global currency that are run by ordinary people without government intervention.
But, because it’s not regulated by most world governments, you can’t use it like paper money.
And its value as a commodity is still largely up for debate, so if you plan on investing in Bitcoin anytime soon, do your research and understand the risks ahead of time.
The Goal Is to Be Wealthy, Not Rich
If your goal is just to make a bunch of money quickly so that you can spend it, you will never live a wealthy life. And investing is not for you.
But, if your goal is to use your money to attract more money, then you can start the journey towards becoming wealthy with investing.
By investing, you’ll have the opportunity to beat out inflation and grow your money into multiple streams that you can then use to multiply your income later.
You can’t do that if you’re saving all your money.
Investing is the key to becoming wealthy, but successful investing doesn’t happen overnight.
It takes time, patience, perseverance, (some) luck, and a lot of research.
So before you start investing, make sure that you have an initial financial base that can protect you in case disaster strikes in your life or if your investments fall through.
Because investing has risks. You’re never guaranteed to make any money, and you might end up losing money if you don’t invest the right way.
Looking for tips on how to manage your money and invest the right way? Well, we wrote a free eBook on money management and investing that you can read right now when you sign up for our financial education emails! It goes over everything you need to know about using your money the right way.