You'll often hear that investing your money is a solid way to grow wealth. But the way you invest your money matters -- a lot. And if your goal is to build a portfolio that delivers strong returns, here are three investments worth focusing on.
S&P 500 index funds
Index funds are passively managed funds that track different benchmarks. And S&P 500 index funds have the goal of matching the performance of the S&P 500 index itself. That index is comprised of the largest publicly traded companies today.
The upside of buying S&P 500 index funds is that you get broad market exposure. And a diverse portfolio could be your ticket to not only growing wealth, but also protecting yourself when stock market crashes occur.
By investing in the S&P 500, you get to benefit when the market on a whole does well. At the same time, you get protection if a specific segment (for example, tech) does poorly.
The great thing about dividend stocks is that they help you earn money in two different ways. First, like all stocks, dividend stocks can gain value over time. You might buy shares of a given company at $150 apiece, only to have them soar to $250 a year later.
Second, companies that pay dividends give shareholders a piece of their profits. The dividend payments you collect can serve as a backup income stream. Or better yet, you can set up your dividends to be reinvested, which could help your portfolio gain even more value.
Though there are many companies that pay dividends, you might want to focus on buying Dividend Aristocrats. These companies have paid and increased their base dividend every year for at least 25 years in a row, which means they're likely to continue paying dividends even during periods of market turbulence.
REITs, or real estate investment trusts, are companies that own and operate different properties that have the potential to generate income. Mall REITs, for example, operate different shopping centers, while industrial REITs operate facilities like warehouses and distribution centers.
One terrific thing about REITs is that they're required to return at least 90% of their taxable income in the form of shareholder dividends. Plus, the performance of REITs won't always be tied directly to the stock market's performance, which gives you a little more protection as an investor. It could be that there's a period when stocks underperform but the REITs in your portfolio manage to retain their value.
A strong investment portfolio could be your ticket to meeting the various financial goals you set for yourself, whether it's retiring early, getting to own a second home, or having wealth to pass on to your children and grandchildren. If you're not sure how to start building a portfolio, it pays to consider S&P 500 index funds, dividend stocks, and REITs as a starting point. Each of these investments is solid in its own right, but combined, they could really make you quite rich.