How and where to invest your money?

Unfortunately, the financial service industry breeds more of those opportunists than any other sales field. And they can skillfully disguise feline faeces to look (and smell) sweeter than a bouquet of spring flowers. As a young investor, you can’t afford to put some of these products on your dinner plate – not if you eventually want to grow wealthy. Don’t listen to a salesperson or financial advisor who refutes or supports certain investment advice. Find an academic study, something truly impartial.

What is the riskiest way to invest your money?

If you already have your funds, you’re probably wondering where you can invest them. For starters, if you’re going to invest, buy assets that appreciate over time (investments which rise in value). Cars lose their value each year, so it’s best to spend small amounts on depreciating assets (like cars) and more on assets that increase in value.

I’ve seen the advertisements for forex trading, especially targeting young people with grand promises. But remember this: for every dollar that’s made, there’s a dollar that’s lost. Always. Unlike stocks, shares, bonds and real estate, currencies (except cryptocurrencies) don’t rise in value. When you trade a currency, there’s another person on the other end of that trade. Do you really want to gamble with them?

The only sure winner is the investment bank that makes money on the commission spreads from the sale and purchase. These investments are pushed for that reason: they create excitement (usually for the naïve) and reap tremendous benefits for the large brokerages doing the transactions.

Investors are better off buying assets that appreciate over time – rather than wasting time and money trading currencies. If two people trade a currency (forex) back and forth for twenty years, the winner will win by an equal proportion to the amount lost by the loser. The odds are, also, that the winner wouldn’t win by much, if they each played the game for twenty years.

If you and I traded a stock market tracking fund or a London flat back and forth for twenty years, we would both benefit from the rising value of the stock market (plus dividends) or the rising value of the flat. We’d likely be better off holding those assets, rather than trading them, but my point is this: the overall stock and bond markets increase in value over time, as do real estate prices.

Forex trading doesn’t offer that. It gives low odds of success (like a night in Blackpool) and you won’t find Warren Buffett, nor a college endowment fund manager, nor an economic Nobel prize winner suggesting forex trading as a sensible investment method. It makes money for the house, but not for the players, as an aggregate.

In short, if you’re wondering where to invest your money, the simple answer is: not in forex.

Determine Where to Invest Your Money

The Stock Market: When you buy a stock, you will then own a small portion of the company you bought into. When the company profits, they may pay you a portion of those profits in dividends based on how many shares of stock you own. When the value of the company grows over time, so does the price of the shares you own, meaning that you can sell them at a later date for a profit.

Index Investing: Index investing is another way of investing in the stock market, but instead of buying a stock in an individual company, you purchase stock in a stock market index, which tracks a number of the largest companies in the stock market. Over the past 90 years, the S&P 500 – which is an index of the 500 biggest companies in the US and a pretty good reflection of the overall stock market – has delivered an average annual return of 9.8%.

Investment Bonds: When you purchase a bond, you are essentially loaning money to either a company or the government (for US investors, this is typically the US government, though you can buy foreign bonds as well). The government or company selling you the bond will then pay you interest on the “loan” over the duration of the bond’s life cycle. Bonds are typically considered ‘less risky’ than stocks, however, their potential for returns is much lower as well.

Mutual Funds: Rather than buying a single stock, mutual funds, similar to index funds, enable you to buy a basket of stocks in one purchase. The stocks in a mutual fund, though, unlike an index fund, are typically chosen and managed by a mutual fund manager.

Short-Term Investments vs. Long-Term Investments

Short-term investors make money by trading in and out of stocks over a short period of time rather than buying and holding them for several years. While you certainly can make money doing this, the problem is that no matter how skilled at trading you become, there will always be a big element of luck involved. For beginner investors, especially, short-term trading comes down almost entirely to luck, and you can easily lose as much or more than you profit.

Although some people experience success from short-term trades, this isn’t the type of investing that benefits most people, and this isn’t the type of investing I teach. Investing shouldn’t be used as a get-rich-quick scheme or a gambling game, but rather as a way to consistently grow the wealth you already have over the long-term. With long-term investing, you are able to minimize your risk and negate the sometimes-crushing effects of short-term volatility and price-drops. This involves letting your money compound in the stock market over 10 and 20 years.

I get it. Growing your wealth over a few decades doesn’t sound all that glamorous, but trust me, long-term investing, the Rule #1 way, is how people retire rich.

What Investments Give the Best Return?

If the purpose of investing is to grow your wealth over time, you should prioritize the type of investment that gives you the best return, right? Among the various types of investments, the stock market is the place to invest to get the best returns. When you learn Rule #1 investing, you can achieve average annual returns upwards of 15%. Rule #1 investing is a stock market investing strategy focused on buying wonderful companies on sale.

A wonderful company is one that will continue to grow as the years go by, surviving whatever challenges the market may throw at them along the way. If you are able to find these companies to invest in, you can certainly get the best returns on your investments.

You don’t just have to invest in singular stocks, though. Putting some of your money into a stock market index fund is also a good practice. If you are more risk-averse, or only ready to dip your toe into the stock market at this point, that’s OK too, but keep in mind nothing will grow your money quite like investing in the stock market can.

How To Invest Money in Stocks?

Of the investment options available, investing in the stock market is the option that offers the most potential for reward, but, you can’t blindly put your money in stocks chosen at random and expect to achieve great returns. In order to succeed investing in the stock market, you have to use a system and a strategy.

By taking the time to research and learn about the companies you are investing in, you are providing your own safety net, because you won’t invest in any company that doesn’t meet the standards for a wonderful company, as we define it in Rule #1 Investing.