Investing your money young to become rich
Investing is not a get-rich-quick scheme. Smart investors take a long-term view, putting money into investments regularly and keeping it invested for five, 10, 15, 20 or more years. Here are some options for investing your money. Bonds—Lending Your Money When you buy bonds, you are lending your money to a federal or state agency, municipality or other issuer, such as a corporation.
A bond is like an IOU. The issuer promises to pay a stated rate of interest during the life of the bond and repay the entire face value when the bond comes due or reaches maturity. The interest a bond pays is based primarily on the credit quality of the issuer and current interest rates. The rating for municipal bonds is based on its financial picture.
The rating for municipal bonds is based on the creditworthiness of the government or other public entity that issues it. Issuers with the greatest likelihood of paying back the money have the highest ratings, and their bonds will pay an investor a lower interest rate. Remember, the lower the risk, the lower the expected return.
A bond may be sold at face value called par value or at a premium or discount. It is sold at a premium. When bonds are purchased, they may be held to maturity or traded. There are different types of savings bonds, each with slightly different features and advantages. Series I bonds are indexed for inflation.
The earnings rate on this type of bond combines a fixed rate of return with the annualized rate of inflation. If you have paper U. Treasury issues are sold to pay for an array of government activities and are backed by the full faith and credit of the federal government.
Treasury bills are short-term securities with maturities of three months, six months or one year. They are sold at a discount from their face value, and the difference between the cost and what you are paid at maturity is the interest you earn. Treasury bonds are securities with terms of more than 10 years. Interest is paid semi-annually. Treasury notes are interest-bearing securities with maturities ranging from two to 10 years.
Interest payments are made every six months. Interest is paid on the inflation-adjusted principal. These securities, along with U. Department of the Treasury through Treasury Direct at www. Some government-issued bonds offer special tax advantages. There is no state or local income tax on the interest earned from Treasury and savings bonds. And in most cases, interest earned from municipal bonds is exempt from federal and state income tax.
Typically, higher income investors buy these bonds for their tax benefits. When you buy common stock , you become a part owner of the company and are known as a stockholder , or shareholder. Stockholders can make money in two ways—receiving dividend payments and selling stock that has appreciated.
A dividend is an income distribution by a corporation to its shareholders, usually made quarterly. Stock appreciation is an increase in the value of stock in the company, generally based on its ability to make money and pay a dividend. There is no guarantee you will make money as a stockholder. In purchasing shares of stock, you take a risk on the company making a profit and paying a dividend or seeing the value of its stock go up.
Before investing in a company, learn about its past financial performance, management, products and how the stock has been valued in the past. Learn what the experts say about the company and the relationship of its financial performance and stock price. Successful investors are well-informed. When you buy mutual fund shares, you become a shareholder of a fund that has invested in many other companies. By diversifying, a mutual fund spreads risk across numerous companies rather than relying on just one to perform well.
Mutual funds have varying degrees of risk. They also have costs associated with owning them, such as management fees, that will vary depending on the type of investments the fund makes. Before investing in a mutual fund, learn about its past performance, the companies it invests in, how it is managed and the fees investors are charged. Learn what the experts say about the fund and its competitors. Stocks, bonds and mutual funds can be purchased through a full-service broker if you need investment advice, or from a discount broker or even directly from some companies and mutual funds.
Divide 72 by 8 and you get 9. Your investment will double every nine years. The Rule of 72 also works if you want to find out the rate of return you need to make your money double. For example, if you have some money to invest and you want it to double in 10 years, what rate of return would you need? Divide 72 by 10 and you get 7. Your money will double in 10 years if your average rate of return is 7. Invest for Retirement Have you ever thought about how much money you will need when you retire?
If you wait until you are 40 to start investing, the results are much lower. Individual retirement accounts An individual retirement account IRA lets you build wealth and retirement security. The money you invest in an IRA grows tax-free until you retire and are ready to withdraw it. You can open an IRA at a bank, brokerage firm, mutual fund or insurance company. IRAs are subject to certain income limitations and other requirements you will need to learn more about, but here is an overview of what they offer, with the maximum tax-free annual contributions as of Money invested in an IRA is deductible from current-year taxes if you are not covered by a retirement plan where you work and your income is below a certain limit.
However, you can make certain withdrawals without penalty, such as to pay for higher education, to purchase your first home, to cover certain unreimbursed medical expenses or to pay medical insurance premiums if you are out of work. Participants authorize a certain percentage of their before-tax salary to be deducted from their paycheck and put into a k. Many times, k funds are professionally managed and employees have a choice of investments that vary in risk.
But if the stock instead rises, then the short seller loses. Story continues In many ways, short selling is like day trading, meaning it's a quite aggressive strategy. As the long-term trend of the market is strongly up, a short seller must have a compelling reason for believing that a specific stock or index will fall.
Macroeconomic factors, an overvalued stock price or a deteriorating business are all reasons that might cause a stock to fall, but they are not guarantees. In a booming market, even stocks that are "overvalued" or unprofitable may continue to rise.
Like day trading, short selling can be profitable, but it takes a very astute or professional trader to do so. Over-the-counter stocks, for example, don't trade on a public exchange and often sell for pennies per share. While many of these companies end up going bankrupt, they also offer speculators the chance to double their money in short order based on rumor and innuendo.
Be aware that there is plenty of hype and outright fraud in the OTC markets, however, as they are full of touts that will pump up the price of a stock so they can sell out themselves before the prices crash. Investing in these types of companies isn't a solid long-term financial plan, and you certainly shouldn't devote any significant portion of your portfolio to them.
However, if you're looking for stocks that can make huge moves in a relatively short period of time, these are areas you could investigate.
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The BEST Investments To Make While You're Young (Life Changing)
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