Investing money can seem intimidating, but it doesn’t have to be. With some knowledge about the different types of investments available, you can create a diversified portfolio that matches your risk tolerance and goals. Here are some of the best ways to invest money in 2023.
Choose the Right Investment Account
Before investing, you’ll need to open a brokerage or individual retirement account (IRA). Some of the most popular options include:
Taxable Brokerage Accounts
A regular brokerage account allows you to buy and sell investments and is funded with after-tax dollars. While you’ll owe capital gains taxes on profits, no contribution limits exist.
Traditional IRAs allow tax-deferred growth on contributions up to $6,000 annually ($7,000 if over age 50). You pay taxes when withdrawing in retirement.
Roth IRAs are funded with after-tax dollars but offer tax-free growth and withdrawals in retirement. The annual contribution limits are the same as traditional IRAs.
Stock Market Investing
Investing in the stock market can provide substantial returns over time. Here are some intelligent stock strategies:
Index funds track market indexes like the S&P 500. They provide instant diversification and often have meager fees.
Buying shares of individual companies has higher risks but offers potentially higher rewards. Stick to established, profitable companies in essential industries.
Exchange-traded funds (ETFs) trade like stocks but track various indexes, sectors, or assets. Look for ETFs with solid long-term performance and low expense ratios.
Bonds for Stability
Adding some bonds to your portfolio provides steady interest income and balances out stock market volatility:
Backed by the federal government, Treasury bonds, bills, and notes offer the ultimate stability. Shorter durations have lower yields.
Municipal bonds finance local projects like roads or schools and pay interest exempt from federal taxes. They involve slightly higher risk than Treasuries.
Issued by companies to raise capital, corporate bonds pay higher interest rates but have default risk. Stick to investment-grade options.
Real Estate Investing
Real estate can be an excellent addition to a balanced portfolio when approached prudently:
A real estate investment trust (REIT) owns income-producing properties and sells shares to investors. It’s a simple, liquid way to invest in real estate.
Owning rental real estate can provide ongoing income from tenant rents. But it also involves hands-on work as a landlord.
Real Estate Crowdfunding
Crowdfunded real estate allows you to pool money with others to invest in properties. This increases diversification.
Maxing out tax-advantaged retirement accounts should be a priority for most investors:
401(k)s allow tax-deferred investing through employer-sponsored plans. Aim to contribute enough to get any match offered.
In addition to 401(k)s, contribute up to annual limits in IRAs for more tax-advantaged retirement savings.
A health savings account (HSA) allows triple tax benefits if you have a high-deductible health plan.
For sophisticated investors, alternative assets can provide portfolio diversification:
Private equity firms invest in private companies with growth potential. It’s an exclusive asset class with high minimums.
Hedge funds aim to generate returns in any market environment using alternative strategies. They require very high investment minimums.
Investing a small portion of your portfolio in gold or other commodities like oil and gas can hedge against inflation.
Pay Off High-Interest Debt
Before investing, it’s wise to pay off any high-interest debt you may have:
Credit card interest rates can exceed 20%. Pay off balances in full each month. If carrying a balance, pay it down aggressively before investing.
Unsecured personal loans quickly have interest rates above 10%. Pay them off as fast as possible.
Though student loan rates are lower, their balances can be high. Make extra payments to pay them down faster.
Creating a well-rounded investment portfolio is within reach for most people. Stick to the basics like stocks, bonds, and real estate in tax-advantaged accounts. Keep fees low, diversify your holdings, and let compounding go to work over decades. Avoid high-risk strategies, and don’t invest money you’ll need in the next 5-10 years. You can build wealth to achieve your financial goals with time and discipline.
How much money do I need to begin investing?
Many online brokers allow you to open an account with no minimum. But you’ll need at least a few thousand dollars to build a diversified portfolio.
What is the best investment for a beginner?
Index funds that track major market indexes like the S&P 500 are ideal starter investments. They offer built-in diversification and low fees.
What percentage of my income should I invest?
Aim to invest 10-15% of your gross income. Increase that percentage as your income rises over time.
How often should I review my investments?
Review your overall asset allocation once per year. Rebalance periodically to get actual grants back to target levels.
When should I sell an investment at a loss?
Selling at a loss makes sense if fundamentals have changed or you need capital for better opportunities. Avoid selling based just on short-term price movements.