Making money is a necessity for anyone that wants to live well in society. While most people are working a job to make ends meet, making your money work for you can supplement your income and give you an even better lifestyle. In the long run, as your investments come to fruition, it can even replace your primary income such that you can live off of the return on your investments. This post will guide you into generating a second income by making your money work for you.
Let’s get something straight; trading online will take work. So, if you are not willing to treat the management of your investments as a secondary job, you would be better off managing your money the old-fashioned way: saving one penny at a time. It is dangerous to rely on what others are saying if you do not spend time to do your own research. But, if you are willing to put in some time and effort, then get ready to make money with your money.
Other than what is mentioned above, investing your money is essential in keeping your money valuable. Believe it or not, your money is losing value every day. Without getting into the academic study of inflation, most countries target inflation at 2% each year. This means that on average prices go up by 2% each year. So next year, the money in your bank account will only be able to buy 98% of the things you could buy today. It doesn’t seem like much, but in a mere decade, your money today will only be able to buy 81.7% of the things you could buy today. That’s nearly 20% less! Investing is an important method to make sure your money retains its value through time.
In the age of information, almost everything is accessible via the internet. Trading is no different. It is easy to set up accounts with reputable online trading platforms (such as Interactive Brokers, CMC Markets or DeGiro). Different platforms offer different services and rates depending on the volume of trade or the type of assets you are looking to invest in. The advantage of all online platforms are lower rates per trade compared to a personal broker. This means more money for you and less for the middleman. After reviewing a few investment vehicles, you will have a better idea of which platforms fit your needs.
What Can I Invest In?
In general, investing in stocks and bonds are less risky than forex, commodities, or other derivatives. Depending on the time you devote to managing your portfolio and the risk you are willing to take, different investment strategies should be used. However, regardless of portfolio management time, you should always look to diversity your portfolio. This means investing in different assets, so your portfolio will not be largely affected even if one of your stocks is not doing well.
There are different ways to diversify. You can diversify by holding different types of hand-picked assets or by holding funds. Generally, those with more experience and time to spend on research handpick their own assets to maximize their return on investment. But, for those just starting out or for those who do not plan to devote as much time to research, Exchange Traded Funds (ETFs) are great options that will naturally diversify your holdings.
ETFs are investment funds traded on the stock exchanges much like stocks. Most ETFs track an index such as the S&P 500. The S&P 500 Index (ticker name: SPY) consists of 500 companies selected by economists that reflect large market capitalisations in the USA. Thus, a fund made up of this index is already diversified. The reasoning behind choosing ETFs is that in the long run the stock market is profitable and you should not have to be concerned with short-term changes. This is reflected in the data as the S&P 500 index has a 7.476% average annual return over the last 20 years.
When investing in funds, the most common recommendation is a split between Local Country Total Stock Market Index Fund, Total International Stock Market Index Fund, and Total Bond Market Index Fund. As you grow to be more knowledgeable about available investments, you can start to diversify your portfolio even further by investing in more complex investment vehicles that can give you a higher return. But with a solid base in the funds mentioned above you are well on your way to not only retain the value of your money, but also to grow your money for a better future.