Best Way to Invest Money

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Best Way to Invest Money


Best Way to Invest Money

I wish I had a nickel for every time someone has asked me “What is the Best Way to Invest Money?”


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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.

I assume, because you are asking me about the best way to invest money, 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 down. 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 (or another 3x$6.82=$20.46 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.
  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 because A) You will spend it; and B) Most checking accounts don’t pay interest.  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 higher rate credit cards or loans, 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 your credit card a high interest rate is a waste of your money, paying brokerage fees when you invest your money is a waste of your money too.  To find the best brokerage firm for your needs that doesn’t charge commissions  review this listing of current commission-free offers. Opening a Real Brokerage Account
  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 money you invest in an IRA or SEP-IRA.  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 to see 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 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 the best.  It has a 70% rate of picking winners, and an excellent history of picking a few stocks that double or triple every year.    This services currently costs $99 a year, but it will be the best $99 you ever spend.  For example, their January pick is up 30% in the first 30 days.  Since inception, this newsletters picks are up an amazing 330% compared to the markets 85%! CLICK HERE to get their latest picks. The Motley Fool newsletter Performance
  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 you buy so that 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 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.

 
So THAT is the BEST WAY TO INVEST MONEY!

GOOD LUCK!
 



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