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How and where should you invest your money to maximize return on investment while still mitigating financial risks? Everyone will eventually face this crucial decision when it comes to their personal finances. The best approach to find smart ways to invest your money is to be prepared and strategically analyze all of the investing options available to you. Each investor is different, and your personal finances require a custom strategy that makes sense based on your financial needs in both the short and long terms. But there are some common investing strategies that can help you build a robust and successful portfolio with as little as $1,000 of your money as a starting point.
The highs and lows in the market can fluctuate as much as 20% or more, but the returns for individual investors are often not nearly as dramatic. In fact, it isnt unusual for the earnings of the average investor to be less than market gains by 50% or more. Now, in historic terms a 10% return isnt bad, but what if you want to do better? Lets look at some ways to invest money that can give you the opportunity for higher returns, from worst to best.
Well suppose you have exactly $1,000 and want to make an investment in the financial markets. Determining where to invest your money is an important and potentially confusing decision. What do you do? Should you invest $1,000 in stocks, futures, options or a combination? How much risk should you take on, knowing that the greater the risk the greater the potential rewardsand potential losses?
So, whats the best way to invest $1,000 today? With so many ways to invest these days, it can be difficult knowing which is the right course of action for you and your hard-earned money. Here, well look at 10 options for ways to invest your money.
When investigating ways to invest in stocks, some people think penny stocks make sense. $1,000 would seem to go a long way when buying stocks that are priced at less than a dollar. The attraction to penny stocks is that a) since theyre so cheap, there is no place to go but up and b) since the price is so low, you can buy lots of different stocks and youre sure to find some winners.
Unfortunately, theres a reason penny stocks are priced so low. They are either obscure, thinly-traded (and near impossible to liquidate) companies or companies that have fallen far down on their luck. And they can still get cheaperuntil their value is zero. These are just a few of thereasons to to stay away from penny stocks.
When the market is up significantly, you should be able to match those gains simply by buying an index fund. So why does the average investor do so poorly? Perhaps youre trying to second-guess the markets, getting out of winning positions too soon or sticking with losers for too long. Or, are you investing based on tips you see in the media, read in books or hear about from their neighbor or brother in law.
Another reason you may not be realizing the returns you should is because youve invested with an advisor who charges a fee, or a commissioned broker. The more you pay these professionals, the less of your money you keep. True, a good broker can perform a valuable service. But a broker may also make recommendations based on what is best for their interests (by earning them a bonus or boosting their companys profits), instead of your interests. Unless you can tell the difference, you might be better off learning to manage your own money.
Buying Cryptocurrency (or another fad) based on emotion, not knowledge, is always a bad idea.Bitcoin, like other fad investments before it, seized the imagination of the person in the street when it soared from a few hundred dollars to nearly $20,000 in a relatively short period of time. Those who bought at the top would have had a gut wrenching roller coaster ride as it quickly lost half its value. Regardless of where Bitcoin is priced when you read this, there are sound reasons not to jump onto a bubble like this and buy based on emotion rather than a logical study of the markets.
True, Bitcoin and other cryptocurrencies are indeed exciting because they may be shaping up to be the first entirely new asset class to come along in many years. Cryptocurrencies are not backed by governments or hard assets, but by blockchains; incredibly complex databases that record and share transactions. Crypto has real potential for future technologies, including secure transfers of money; and banks and retailers are seriously studying it. They are however, extremely volatile and risky, and there is a high potential that most of the cryptocurrencies today will be gone five years from now.
Those who want to invest in cryptocurrency would be better off learning about the risks and analyzing likely price movement based on supply and demand first. Jumping in without doing your research first would essentially move this investment opportunity to the bottom of this ways to invest $1000 list.
Robo-advisors appear to be an attractive new alternative for beginning investors or those with limited capital. You choose an investing profile (which will combine your acceptable degree of risk and the timeframe for your investing), and a computer algorithm works on your behalf to make the best investments for your needs and adjust them as conditions change in the financial markets. Fees are much lower than for traditional advisors, and can be waived entirely once your portfolio reaches a certain size.
The drawbacks of robo-funds are the same as the benefits, however: you dont actually see how the funds are invested, and you usually cant turn to a live human if you need advice. And the biggest decision of all which of the increasing number of robo-funds to invest in is still up to you.
Maybe its unfair to rate this traditionally conservative strategy as a bad investment on our list. But the fact is, at todays returns, youre almost guaranteed to lose money. If inflation is 2% and your CD pays at best 1.5%, it isnt hard to figure out that youll be in worse shape when it matures. Plus, you wont have access to the money in the meantime, so youll be out even more in missed opportunity if interest rates go up (which, economists universally agree, they will; the only question is when).
Through the power of leverage, your $1,000 might control a futures contract worth as much as $15,000 or more. However, your broker might require you to have additional cash available for margin calls, and if a trade goes south you could lose your entire stake and more. OTAs Don Dawson wrote a thoughtful piece inLessons From the Proswith advice on trading very small futures accounts. It can be done, but until youlearn how to invest in futurescontracts the risks probably exceed the potential rewards.
Like futures,Forex Trading(also known as FX or foreign currency trading) has a low price of entry; some online brokers will open a mini account with a deposit of $100 or less. Forex is also an appealing asset class because its relatively simple to understand: most of the action is concentrated in just a few currency pairs. As in futures trading, you can control far more than your actual investment through leverage, but leverage can also magnify your losses.
Options Trading allows you to control a stock or other asset and capitalize on its price movement without actually owning it. Because options expire in a few months (or even weeks) theyre priced low, far below the pershare price of the underlying asset. Want to trade Tesla or Google or another expensive high-flyer? Options allow you to do that for just a few dollars. A benefit is that unlike futures, the most you can lose is your stake; theres no threat of an additional margin call. But like futures, options are a complex (though exciting) asset class and you need training and experience totrade options successfully.
Warren Buffett advises investors to stick to low-cost index funds like the S&P index fund that won his hedge fund bet. You can do the Oracle of Omaha one better by buying Exchange Traded Funds (ETFs) that mimic the same measurements.ETFsoffer a much wider choice of investments so you can find an ETF that tracks a very narrowly defined sector, if that suits your needs. And since ETFs trade like stocks you can buy and sell throughout the day, unlike mutual funds.
Many brokerages and platforms offer test accounts where you can trade with play money, the equivalent of Fantasy Football, until you become experienced with the ebb and flow of the markets and the behavior of individual ticker symbols. Or $1,000 could be used to learnhow to invest in stocksand other investment courses. Online Trading Academy offers comprehensive trading and investing education for traders and investors of all levels of experience. And you can get started for FREE by attending ahalf-day classin your area.
As weve seen, there is no magic bullet investment that is going to magnify your money with no downside whatsoever. Theres always a tradeoff between acceptable risk and potential reward. The worst investments are those that reduce your upside by paying somebody else a portion of your hard earned money to manage your portfolio without doing anything to take away the risk. And the best investments are those that put you in control even if you ultimately choose to have someone actually do the investing on your behalf.
Remember, nobody cares more about your money and your future than you do, so do your homework and educate yourself about the financial markets before putting your money at risk!
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