Suppose you got an extra $10,000 this month.
Do you know how to invest that money?
While many people think that finding the perfect traditional investment fund in stocks or bonds is the answer to growing wealth, there are many other factors to consider.
Choosing a traditional fund with a market-beating return and low fees for investment in the stock or bond market is only one part of your money pie.
Here are a few other factors beyond simply knowing how to invest.
- Do you have debt with a higher interest rate than what you’ll likely earn on that money? If so, would it make sense to pay off some debt instead? Or would it be better to use that money to create wealth?
- Consider what type of investment offers value now. If you’re looking to invest in the stock market, for example, see what the market’s done over the past few years. While exact tops and bottoms are impossible to predict, simple tools can guide you to recognize an exceedingly overpriced or under priced market, signaling that you may want to buy, ease into a market over time, or wait before investing in it.
- Many people think that bonds are safe investments, but the value of bonds go down when interest rates rise, especially longer term bonds. The question to ask is where we are in the interest rate cycle, high or low. While bond interest rates vary depending on the type and time frame of the bonds, this will also be a guide for how much interest you’ll earn from the bonds.
- You may want to consider alternative investments, which can include real estate and even your own business. Could some of that money be used to fund a new income stream using your skills while also lowering your tax bill?
- Don’t put all of your eggs in one basket. Consider any new investment as a piece of your money pie, and make sure all of the parts complement each other when viewed as a whole.
- Know what you could possibly and probably lose from any investment. Then evaluate, should that worst case scenario happen, if and how long it would take to recover.
- Look at your money reasons, or those things that matter most to you in life. How can you use this money to support those bigger picture near or long term life goals?
Remember, money is just a tool to create and get what you want in your life. As the leader of your wealth, make smart and strategic decisions about it from an unemotional place. This will help you know how to invest any “money tools” that come your way to create the rich life you want.