3 Ways your Money can Work for You

Sun, Sep 2, 2012

Financial Advice

The ideal point in every aspiring wealth-maker’s life is when money begins earning a higher amount than is being saved each month. You don’t need a business degree to make smart investments or manage your money; however, before you begin investing and building wealth, there are three things you must have.

  • No credit card debt
  • An emergency savings of 3-6 months of income
  • A retirement savings plan

Investing comes at a risk, and it is unwise to tie up large amounts of money if you have no backup plan for emergencies. There, however, are relatively low-risk investments are ideal for beginners. The following examples require no market speculation and can earn money over the course of months or years.

Mutual Funds

The mutual fund is an investment tactic that involves pooling funds from different investors for the purpose of investing in securities (stocks, bonds, etc.). Mutual funds are professionally managed, which is an advantage for the unseasoned investor.
Mutual funds also give investors access to diversified portfolios that would not be otherwise accessible by an individual with a small amount of capital.

  • Even with monthly contributions as low as $50 per month, funds can compound to breed larger returns.
  • With less than $10,000 in savings, you should invest in five or six different mutual funds.
  • New investors with more than $10,000 can invest one-twelfth of their total amount each month for a year.

Mutual funds are long-term investments and will fluctuate in value. Although your wealth will grow over time, it will also sustain losses. To avoid losing all of your investment, it is important to consider a variety of different mutual funds or savings options. This may mean choosing mutual funds with different portfolios or participating in low-risk investments like money markets or CDs.

Money Markets

A money market is a type of mutual fund that yields returns by serving as a means for borrowing. In essence, participants in a money market become lenders and receive interest from the borrowers. The amount of interest is directly proportional to the amount of the investment, which means that larger sums draw more revenue.
Money markets are considered generally low risk due to the securities invested. The goal of money market managers is to keep the value from falling below the dollar, meaning that the cash value is always maintained and thus offering high liquidity. Due to the high liquidity of money markets, the funds are generally available to investors for withdrawal, even before the maturity has been reached.

Certificates of Deposit

The Certificate of Deposit (CD) is a bank instrument, not a mutual fund. Unlike in Money Markets, funds invested in CDs are unavailable to the investor before maturity is reached. The CD offers interest rates that increase according to the amount of time the money is left in the account. Investment plans can cover weeks or years and are set with pre-determined rates. These funds are insured by the FDIC for up to $100,000.

It’s never too late to begin investing, but you also can’t begin too early. Students and college graduates who begin saving at an early age have an advantage to higher-risk markets as they have more time to spend waiting for the market to recover.

Karen Smith is a freelance writer and business blogger whose primary goal is to inform her readers about pursuing a www.onlinebusinessdegree.org. She also enjoys writing about small business trends, Internet marketing, personal development, and sustainable living. Karen welcomes your comments below!

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