A lot of people spend down their paychecks in their entirety and have nothing left over at the end of the month. But if you're in the fortunate position of having extra cash on hand on a regular basis, then it pays to invest it. Whether you're new to investing or have been at it for years, these strategies could help you score some pretty sizable gains that help you meet the financial goals you set for yourself.
1. Start as early as possible
When it comes to growing wealth, the biggest weapon in your arsenal is time. The more years you give yourself to invest, the more growth you're likely to enjoy.
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Imagine you manage to sock away $500 a month in an investment account that delivers an average annual 8% return, which is a bit below the stock market's average. If you invest over a 20-year period, you'll end up with about $275,000, which represents a gain of $155,000.
But if you manage to invest $500 a month over a 30-year period, you'll end up with $680,000. That's a $500,000 gain. And if you invest $500 a month over a 40-year time frame, you'll grow your balance to $1.55 million. That's a gain of over $1.3 million to enjoy.
2. Diversify your investment portfolio
Investing in different types of assets is another important step on the road to growing wealth. Many people who invest stick to the stock market only, and while that's not a bad bet, it wouldn't hurt to expand your horizons.
In addition to stocks, you might want to put some of your money into cryptocurrency. Though digital currencies carry risk (perhaps more risk than stocks), they can also deliver substantial rewards.
You can also diversify by getting into real estate. That could mean buying physical properties or adding REITs (short for real estate investment trusts) to your portfolio.
It's important to diversify within the realm of stocks, too. Make sure to load up on stocks from a variety of market segments rather than focus on a single sector, like tech or energy. Or look at putting some of your money into index funds, which offer built-in diversification.
3. Be tax-savvy
The less tax you pay on your investment gains, the more your money can grow. To this end, it pays to invest in an IRA or 401(k) plan. Though the money you put into these accounts must be earmarked for retirement, and there are penalties for early withdrawals, IRAs and 401(k)s offer a world of tax benefits.
Traditional IRAs and 401(k)s allow for tax-free contributions and tax-deferred growth, which means you don't pay taxes on investment gains until you take withdrawals from your account. Roth IRAs and 401(k)s offer tax-free investment gains, and withdrawals are exempt from taxes during retirement, although contributions don't reduce your taxable income for the year.
The right investing strategies could end up making you wealthy beyond your wildest imagination. Be sure to incorporate these tips into your personal game plan so you can enjoy the benefits down the line.
