How to Invest Money Wisely

Daniel Penzing
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Want to invest your money and don't know where to start? Read on for our top tips.

How to Invest Your Money?

With the rise of online banks, in-store banks, and online investment banks, it is likely that you have several options when it comes to investing your money. But how do you decide where to invest your hard-earned cash?

With so much information out there, it can be difficult to determine where to put your funds for maximum return. This guide will take you through the steps to consider while looking to invest your hard-earned cash.

Step 1. Understand Which Type of Investor You Are

Before you invest, you should figure out exactly what type of investor you are. There are various kinds of investment, and they all serve slightly different purposes.

The experts on this list provide a basic introduction to each kind of investment. This list is by no means comprehensive. Instead, think of it as a starting point. It will help you figure out if you’re comfortable with any of those investment styles.

Keep in mind that there’s no such thing as a single investment style that’s unequivocally the best for every investor. For example, conservative investors are comfortable losing their money as long as they don’t lose everything. They’re unwilling to take major risks. On the other hand, aggressive investors are willing to risk losing everything because they believe in a bigger potential payoff.

Ultimately, the decision is yours to make. But if you have no clue where to start, here’s how to get started.

The Single Best Investment Style: Exchange-Traded Funds

This is literally an investment style, because it’s a way for you to invest in a variety of different stocks. An exchange traded fund is a security that invests the money in multiple securities and divides investors’ profits accordingly.

DIY Investing

There are several different kinds of investing which mean you're able to use your money to your advantage by achieving more with your money than you could with it sitting in a bank account. These types of investing can take a lot of concentration because you're able to use more money and many feel like this is too much to handle.

There are tools online that help you decide what to do with your extra money. You may want to invest in real estate or you might feel that you want to pay off a certain debt a bit quicker. Whether you use your extra money to create your very own portfolio or decide to invest it with a professional, there are multiple options you have in order to keep your money growing over time. It's estimated that approximately 90% of people don't take advantage of the power of investing because they're afraid of taking the first step.

The only way that you're able to take advantage of the power of investing is by using a bit of money to begin with. If you use your extra money to invest with a professional, chances are you're going to make much more money with your bank account growing slowly than what you're able to make on your own. If you know the basics of investing, then you're able to choose your own stocks and make a bit of extra money without the use of a professional.

Passive Investing

Investing in the stock market is something that can be a profitable and enjoyable process for the average investor … or it can be a bitter pill to swallow.

When you invest in the stock market, you are buying a piece of a company. As the company grows and produces a profit, so does your stock/shares. This process is simple and straightforward, as long as the company that you bought your shares in is doing well.

If the company isn’t doing well … or at the very least, not doing well enough … then things can become a lot more complicated.

Generally, you can expect to make between 6-8% on your investment each year. There can be wildly exciting times, when shares shoot up over 200% in a year, and then there can be the exact opposite. Investments that can take years to pay off suddenly become worthless.

In recent years, it’s fantastic to have access to this kind of investment opportunity; however, this type of investment opportunity has also been called “passive” as opposed to active.

Getting a Stock Advisor

Making smart investment decisions isn’t easy and it requires a lot of knowledge and time, but that doesn’t mean you have to take a DIY approach to it.

If you have the capital to invest, hire a professional to help you manage it.

Choose the right person for the job; someone who has experience, understands the market, takes a conservative approach and works at an investment firm that has a good reputation.

When you’re preparing to give the green light on any investment, ask yourself these questions:

  • Have you looked at the company’s current financial situation?
  • Are you familiar with the industry in which the company operates?
  • Do you know how much the stock typically sells for and how the current price differs from it?
  • What are the professionals in the industry saying about this company’s performance?
  • Are the projections in the financial reports reasonable?
  • Are you comfortable with the risk level?
  • Is there a reason to believe that any projections will not be achieved?

Ask yourself these questions and do your homework.

Step 2. Choose an Asset Class that Suits Your Risk Tolerance

The second step in the process of choosing which investment asset class to invest in is to decide what type of risk you are most comfortable with. For example, if you are pretty conservative and would like to minimize risk, you might consider U.S. Treasury Bonds, U.S. Treasury bills, or Money Market accounts. If you don’t like volatility, you might choose to only invest in a few bonds or stocks.

If you want more potential for growth but also consider yourself to be conservative, you might choose an investment in the stocks market. Stocks are notorious for their volatility, so you should choose which ones to invest in carefully. If you want to make more money, you should choose a less risky stock, but if you want to minimize risk, you should choose a safer stock.

Even with stocks, there are certain securities that are more risky than others. For instance, small cap stocks, often found on the NASDAQ, are more volatile than large cap stocks, such as IBM.

Finally, if you are young and have time to potentially take on a lot of risk, you may choose to go with venture capital. This can be a pretty risky investment, but you might be able to earn a lot of money on it.

Step 3. Decide How Liquid You Want Your Assets to Be

Step 3. Set a Deadline and Choose an Investing Goal

According to a recent survey, only 34% of Americans have a savings goal in place. This is a dismal statistic, but one that can be corrected. Without a specific goal in mind, it’s easy to lose sight of what you are working towards. Ask yourself if you are saving up for a vacation home or college education. These are concrete, short-term goals which are easy to keep track of. You can watch your progress as you save up for that vacation home. You can celebrate getting your kid that first suit for college.

Short-term investing

There is no doubt about it. Keeping your money in a bank, or in a long-term investment, is not the slickest way to get rich.

It is because you earn very little (or even nothing at all) for your money stored away in a bank. You earn interest (that is, some of the interest the bank earned) when you save money in a Certificate of Deposit (CD). The interest is usually barely enough to keep your money inflation-proof; in other words, to keep up with the rising prices over time.

In fact, many savers have found that their money buys less every year as prices rise and that their purchasing power decreases. At least it does so if it is stored in a bank. Also, even when interest rates are reasonably good, they are likely to be lower than inflation (deflation risks are even worse). So your bank deposit will lose purchasing power over time.

For this reason, many investors choose to do long-term investing. Long-term investing means they put their money into long-term investments. They do it for the hope of great returns. But in most cases, their hopes are not fulfilled.

Cons of Short-Term Investing

Investing for a short period of time (or even just one week) is potentially very risky. While it’s true that short-term investments tend to have a higher rate of return (better YTD rate means higher expected rate of return), if you can’t be prepared to weather short-term downturns, you should have a plan to exit your position in case the market goes south.

For example, say you invested in an ETF for a week and the market went down. You had to be prepared to exit your position, or else you risk being stuck with an investment that may be worth less than you paid.

Also, short-term investing involves a lot of monitoring and maintenance: It’s likely that you’ll need to check in on your investment at least once or twice a week to ensure everything is alright.

With delayed quotes and your broker operating between the hours of 8 am and 4 pm, this is a very time-consuming process. And since it can be hard to preempt what the market might do, short-term investing also involves a lot of guesswork.

Long-term investing

Strategies for building wealth.

Long-term investing strategies for building wealth.

Should You Invest in Stocks Or Bonds?
Stocks and bonds are the two most common types of securities. They both offer lucrative investment opportunities for long-term investors.

But the decision of how to invest can be a difficult one. You usually don’t want to diversify your investment too much, but you want to diversify enough to provide yourself with some protection and potential upside when stocks and bonds perform well. So how can you choose the best financial assets for your investment portfolio?

Invest in Stocks

Stocks give investors access to the largest companies in the world. There’s a reason long-term investors always hold some stocks in their portfolios … because stocks have traditionally outperformed most other forms of investments.

If you want to invest in stocks, you should always hold both large-cap, mid-cap and small-cap stocks. The three types of stocks offer different risks and different rewards. Over long periods of time, you might want to tilt your portfolio toward the types of stocks that are performing better in the short-term to take advantage of near-term stocks’ value.

Pros of Long-Term Investing

The general market is volatile, meaning that stocks tend to have short-term bumps up and down.The market and increase in value over a long period of time, typically five years.

When you invest in stocks for 30 years instead of three months, the market's volatility is smoothed out. This increases investors' chances of getting high returns.


Long investing is the best way to create value, allowing investors to capitalize on market trends.

Stocks that are held through the long term allow investors to have a chance to take advantage of years of ups and downs. This hands-on experience creates a unique opportunity to create value and learn valuable market knowledge in the process.

Securities in the Hands of Experts

Fast-paced investing in stocks can be very exciting, but can also be dangerous if you don’t know what you are doing.

When you have a long-term investing strategy, you can have confidence knowing that your money is being handled by experts who know how to follow long-term strategy.

Some investors simply don’t have the stomach for stocks. A general rule of thumb is that if you are uncomfortable with a certain level of risk, then you should consult a professional.

Cons of Long-Term Investing

If you invest in a mutual fund with a long-term outlook, there will be times when the market dips and you lose capital value. It is not like a car that you buy and drive for another 6 or 7 years.

Sometimes, you may be forced to sell the entire mutual fund and buy another one, which may end up with lower returns.

Also, you may be required to withdraw money from your investment account before the maturity date, which may also reduce returns on your investment.

Although there are ways to get over these issues, it is best to look at them first so that you can plan your investment plans with proper care.

B) Fees

There are fewer fees that you may have to pay when you invest for long term. There are different kinds of fees associated with mutual funds, and you must keep updated on all fees that you have to pay before buying mutual funds.

C) Relief Option

When you invest for a long-term, you usually have the option to take long-term relief on the capital gains and income taxes. You will be able to increase the capital for your investment with this relief option.

Step 4. Define Your Investment Budget

One of the first things to do before investing in any financial instrument is to define a budget for your investments. A budget is important because it defines the amount that you are willing to risk. This is very important for investments because some financial instruments are riskier than others. For example, buying a stock in a small company is a high-risk investment. It could end up going up in value if the company goes public or down in value if the company gets acquired or goes bankrupt.

The amount that an investor should invest in a individual stock depends on many factors such as how much the investor can afford to risk, the risk tolerance and the amount of liquidity in the stock. However, once you define this value for yourself, it doesn't mean that you can't adjust it over time. If you find yourself becoming risk-averse as you get older or richer, you can adjust this value accordingly.

This budget can also give you a perspective on how much you can afford to invest in a real estate property. If you are a first-time investor in real estate, you can start by investing in a stock that is riskier, such as stocks from small companies. If you're investing in 100 shares of such a stock and you have in a budget of 200 per-stock, you will be able to invest in 2 stocks. If 2 or more of these stocks appreciate, then you can consider investing in real estate.

Step 5. Reduce Fees and Fund Expenses

Investing money can get expensive unless you do things right. One of the most common mistakes that people of all levels of experience can make is paying too much in fees. Paying high fees can significantly reduce your wealth over time. So look to your investment vehicle and select one that has competitive fees.

You can also minimize your investment expenses by doing proper investment planning and developing solid wealth strategies.

Consider These Factors Before You Start Investing

The risk of losing money shouldn’t scare you away from investing, though. That’s just part of the process. Trust is an integral part of being an investor. You need to trust yourself, trust the market, and, yes, even trust that the company or industry you’re investing in will do well. Buckle up, because it’s going to be a long ride, but one where you can only benefit from the experience and feel proud of yourself.

Start Investing Today

Investing your money in the stock market can be a great idea. if your plan is to retire early, for example, or if you need to get your money growing as quickly as possible. If you’ve done all of your homework and have done your research with your favorite investment vehicles, then you’ll be ready to start investing.

A Few Terms Investors Should Know

“Investing” encompasses a wide range of topics and can apply to any federal or private entity. The stock market is one of the more well-known fields that utilizes “investing.” The stock market is where businesses, both large and small, are offered to the investing public. Other popular “investing” topics that the general public knows, at least in part, include home loans, personal loans, car loans, and retirement plans; however, these fields are more accurately described as “lending.”

The term “investment” comes from the Latin word “investire,” which means “to clothe.” This term was first used in English during the early 1600s. When the term “investment” surfaces, often the word “investor” is close behind. Thus, approximately 400 years ago, the term “investor” was defined as “someone who invests money in something.” Investment does not just mean that you must accept “risk.” For example, a person studying to become a Certified Public Accountant (CPA) can invest in his or her education, but by the same token, these schooling costs a good chunk of someone’s life, sometimes much more than a down payment on a new home.