One of the biggest obstacles holding people back from investing is that they think it is too complicated or too risky, but there are simple and smart investment strategies everyone can learn.
The truth is, the longer you put off investing, the more you miss out on the very best opportunity to grow your wealth.
So, if the fear of losing money is holding you back from investing, know that there are ways you can substantially reduce your risk. I’ll teach you smart ways to invest money that can set you safely on the path to financial freedom.
Why You Should Start Investing
The longer your money sits in the bank, the less purchasing power it will have.
It can be all too easy to put off investing, especially if you’re intimidated by the process or worried about the risk. But the smart investor is the one who doesn’t wait to start investing.
Risk is what you get when you put your money in a simple savings account and expect it to be able to support you 10, 15, or 20 years from now. The interest you get from a savings account or money market account won’t even keep up with inflation, which means you’re losing money.
When you invest, however, you can outpace inflation (at the very least!) and build wealth that will support you long-term. The longer you leave your money in smart investments, the more your money will grow. Over time, thanks to compound interest, your money can double, redouble, and so on until you have a substantial nest egg.
The earlier you start investing, the more time your money has to grow.
So, the best time to start investing is right now. If you’re new to investing, I’ve got a simple guide to show you how to invest money. It will help you figure out how much you want to invest, how often, and how to get started with little money before you pursue the smart investment options below.
What Are Smart Investments to Make?
Once you decide to invest, you have a choice of several types of investments. You could invest in homes or commercial property. You could invest in gold or in bonds. Many of these are smart ways to invest your money, but there are pros and cons to each type.
Rule #1 investors believe that the smartest investment of them all — as long as you do your research — is buying shares of stocks or small pieces of great companies.
Let’s take a closer look at all of these options.
Gold is a commodity that has tangible value, which is why many people invest in it during times of fear and uncertainty. The price of gold rises and falls, depending on the demand.
Demand may go up when people feel afraid or uncertain about the future, but there’s no way to predict that an investment in gold will be worth more in the future than it was when you bought it.
This makes putting your money in gold a bit of a gamble. It will never be worth absolutely nothing, but it also won’t be any more valuable than the demand at any given time.
Real Estate Investing
Real estate, such as homes, rental properties, and commercial property can be a good investment. It can increase in value over time and potentially provide passive income.
However, it can be extremely difficult to invest in real estate with a small budget. And being a landlord can be a hassle; You’ll have ongoing obligations to take care of both your buildings and your tenants.
Additionally, Rule #1 investors like to look for investments that are selling at only half of their actual value. That’s hard to find if you are buying real estate, where the selling price is usually close to the value.
Investing in Your 401k
Investing in your retirement is always a good idea. But you don’t necessarily have to use the retirement vehicles available to you. There are times when using a 401k is a smart investment and times when it’s not…
Putting money into a 401k is always a smart investment if your employer matches your investment. Your employer’s contribution is the closest thing to free money you can get, so take advantage of it.
However, if your employer doesn’t match your investment, you are better off investing for your retirement on your own.
The problem with 401k programs is that you have limited control over your investments. They often give you a small selection of mutual funds that are managed by robo-advisors and track the whole market or large segments of the market, or, they give you no choice at all.
By using smart investment strategies to pick individual companies to invest in, you have the potential for much higher returns than you would get with a mutual fund.
Stocks can be an incredibly smart investment if you thoroughly research the stocks you buy. When you buy stocks, you benefit in two ways: from any increase in the price of shares of the stock, and from dividends that the company pays to its investors.
The more successful a company is and the more it grows, the more that your investment will grow too. This is how the stock market works.
Rule #1 investors create a moat of safety around their investments by buying companies when their shares are selling at a price that is half of the company’s value — this is key to minimizing risk and maximizing returns when investing in stocks.
If you take the time to learn how to invest in stocks this way, then it is the smartest investment you can make.
Smart Stocks to Invest In
In order to ensure the companies you invest in will grow, and thus, the shares of stock you own will increase in price, you need to invest in wonderful companies and buy them at a discount.
This is the Rule #1 strategy.
To identify wonderful companies, we use four key qualifiers. These are what make a stock a smart investment.
Stocks You Understand
First, it’s crucial to always understand the stock you’re buying before you buy it. This means you know what the business does, how it runs, how it makes money, and what its pain points are.
When you have knowledge of or experience in an industry, then you can be a better judge of whether a particular company in that industry is truly wonderful or not, and make a smarter investment.
Long Term Stocks
A smart investment is one you can hold for the long term.
“Time is the friend of the wonderful company, the enemy of the mediocre.” – Warren Buffett
A wonderful company will continue to grow and benefit the investor over time, while a poor company will only prove its mediocrity with poor returns. Look for companies that will continue to prosper over the next decade or longer and will be able to thrive in any market condition.
How can you spot these companies? They are well run, have their finances in order, and have something intrinsic to their business that helps protect them from competitors.
Stocks with Strong Management
Before you invest in a company, make sure it is run by people you respect and trust. Research the CEO, looking for someone who is on fire and driven to excel, as well as other top-level management to make sure they have sound judgment and have made decisions that have served the company well in the past.
Stocks On Sale
The smart way to invest money in stocks is to buy them on sale. By “on-sale,” I mean priced for less than what it’s worth.
When you buy a company at a price that is less than its actual value, it gives you a margin of safety. If you then practice patience and wait for the stock price to rise to meet its actual value, you will be richly rewarded.
Stocks on sale are few and far between, but when you know how to find them, you’ll be able to get a great deal that will be well worth the wait.
What Are NOT Smart Investment Strategies?
Investing in stocks the Rule #1 way is the smartest way to invest and the best way to minimize your risk. There are a lot of other investment strategies out there right now that aren’t very smart. In fact, they’re not really strategies at all but rather gambles.
Investing in Meme Stocks
It’s not smart to invest in something just because someone on social media told you to. What has come to be called meme stocks are highly volatile stocks whose prices are based on hype, not value. If you are looking for smart ways to invest money, meme stocks aren’t it.
Investing in Cryptocurrency
Don’t invest in what you don’t understand. For most people, this rules out investing in cryptocurrency.
Even if you do understand it, though, there’s more risk associated with cryptocurrency than almost any other investment because it’s highly unregulated and its future is highly uncertain.
If you want to diversify your investment portfolio, do it the right way, not by throwing money at something just because everyone else is.
Investing for the Short Term
If you don’t want to own a company for five years, you shouldn’t want to own it for five minutes. Short-term investing strategies, such as day trading and other methods that promise big returns quickly are too good to be true. They’re not only risky but also could hurt you when tax season rolls around.
Become a Smart Investor
Now that you know smart ways to invest money, as well as NOT so smart strategies, you’re already a smarter investor than most.
Get started today, even if you only have a small amount of money. If you invest it smartly, that small amount of money could double and continue to grow until it’s a large amount of money.
The smartest investors are those that continue to learn. There are two steps I suggest you take if you’re ready to move forward on this investing journey and learn more.
First, Download my Cheat Sheet for Smarter Investing. The Cheat Sheet’s 10 steps will give you the tools and knowledge you need to make smart investment decisions.
Then, sign up to attend my Free Investing Webinar where I’ll walk you through how to find and buy stocks in wonderful businesses while they’re on sale.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.