How to Become an Investor
“Investor”. That’s a title that many of us never thought we would think about taking on. But now that you are a grown up and taking care of your finances in a meaningful way, you have come to the point where you realize you need to invest in order to make your money grow. Achieving even moderate wealth is not something most people can do by simply going to work every day. The money you earn hourly, or on your salary, is the engine by which you power the rest of your financial system. If you have a good job, you’ve probably got investment options already available to you. But if your job is not great (don’t worry) or if you work for yourself, you have got to create these opportunities on your own. Luckily, there are tried and true ways to enter the investment world that are sure to work for you. Here are a couple different ideas on how you can approach becoming an investor:
How to Become an Investor – Tips:
- Eliminate Debt – Some people would leave this out of a list like this, but not me. Debt is like reverse investment. You are losing money at a rate of 5,10, sometimes as high as 35% a year. In a normal investment, you would see stellar performance to receive a 10% return on your money every year. To lose more than that amount annually can not be tolerated! Before you invest one dollar, you have got to make sure that your money is not hemorrhaging through debt. Put all the funds you can toward eliminating every debt you have! Then we can talk about investment.
- Use Tax Protected Accounts – If your employer offers 401(k) options, max yours out every year. These funds are matched by your employer, so by not contributing into your 401(k), you are leaving free money on the table. Not a very good investment strategy! Take advantage of every investment option given to you by your employer. If you do not have a 401(k), and even if you do, you have got to max out your IRA every year as well. Accounts like these earn dividends on stocks and bonds, which are then reinvested. You earn compound interest this way – basically a financial snowball effect. These accounts are also tax protected. You will pay taxes sooner or later, either when you deposit or when you withdraw, but you will not pay every year like you would in a non-protected taxable brokerage account.
- Invest in Real Estate – Buy the house you live in, or one that you can live in. You will build equity and make money as the home appreciates. Also, think about buying investment properties to rent or flip. It is a powerful money making strategy if executed properly.
- Ensure Your Risk Matches Your Tolerance – For those of us that are younger, we can afford to take some additional risk with our money. Higher risk usually means higher return. Many have leveraged their money through riskier bets such as options. One can use a service like CMC markets and spread betting strategies to make big money on small amount of capital.
- Peer-to-Peer Lending – This is a relatively new concept in terms of availability to folks like you and me. You basically make small loans available to people through services like LendingClub.com. It is not unheard of to make 15%+ a year on your investment!
How to Become an Investor – Final Thoughts
By first killing your debt, and then taking advantage of tax advantaged funds through your job, you will be well on your way to becoming a great investor. As your wealth builds, you can explore riskier investments to try and obtain an even larger return on your investment. If performed responsibly and properly, investing can lead you to financial independence in short order!
