December 16, 2023 | Fairlyeven
How Money Grows: Investing Your Money the Right Way
Aside from buying property, investing in the stock market is one of the primary ways to grow your money and make savings for long-term goals. Knowing how to invest your money can make the whole process easy.
Defining Your Investment Goals
Setting well-defined and realistic goals is an important first step toward hitting your investment strategy. These goals help draw the line between your short-term needs less than five years away and long-term objectives 5+ years out.
For short-term goals such as saving for a vacation or building an emergency fund, it makes the most sense to keep the money in a low-risk savings account since you will need quick access to it. Money market accounts and high-yield savings accounts fit the bill here.
Retirement, a child's education, or purchasing a second home call for long-term goals that allow for more growth-oriented investments. Mutual funds and ETFs that match your risk tolerance and timeline are reasonable options.
Choosing an Investment Account
Your risk tolerance and investment time frame will determine the best investment strategy and account for you. Individual retirement accounts (IRAs) are a popular option for retirement savings. A Traditional IRA allows tax-deductible contributions, while a Roth IRA offers tax-free growth and qualified withdrawals. There are also employer-sponsored 401(k)s and other plans, but contribution limits vary by account type.
For college savings, a 529 plan is a tax-advantaged account dedicated to education expenses and contributions accumulated tax-deferred with tax-free cash-outs. A taxable brokerage account provides flexibility as it has no contribution limits or withdrawal restrictions. You can continue adding to these accounts after maxing out retirement savings, but capital gains and dividends are taxable.
Your investment mix should align with your goals, timeline, and risk tolerance. Think about real estate, mutual funds, bonds, and stocks to grow your money in the long haul. Thorough research is key to finding the right balance to meet your objectives.
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