So far this year, we have discussed having a standard of living, managing your cash flow and increasing your savings. You have these areas of your life under control and are ready to move to the next level. This may have you wondering, “How do I accumulate wealth?” You accumulate by investing.
According to Webster Dictionary, invest means to commit money in order to earn a financial return. Investing is for long-term goals. There are a number of ways for you to invest. Some people purchase collectibles, such as art, jewelry, wine and antique cars, hoping they will increase in value over time.
Investing In Real Estate
Real estate is another instrument that can be used to build growth. Although we are currently experiencing some challenges in the real estate market, over time there is generally an increase in the value of property.
According to the Office of Federal Housing Oversight (now the Federal Housing Finance Agency), from 1980 to 2004, there was 247% return in this market. Real estate investment can start with purchasing your home. You can branch off into owning single family homes or multi-family units that you rent. Maybe you have an interest in commercial real estate.
When making any type of investment, you must weigh the pros, cons, risks and rewards. Do you want to be a landlord or would you need a property manager? If you have a property manager, how would that impact your profit? Is the property in a location that will allow it to appreciate?
Investing In a Business
Starting and growing your own business can contribute to your wealth building. By building a profitable business, the worth of your business contributes to your overall financial well-being. You can pass it down to your children or other family members as an inheritance. If at some time you would have the desire and opportunity to sell the business, that would be money in your pocket to assist you with other financial goals such as retirement or college expenses.
Remember to do your homework before starting your business so that you understand your target market, opportunity for growth, competition. You should conduct a SWOT analysis to determine your personal and business strengths, weaknesses, opportunities and threats. How much money does it take to start the business? Can you start it while working another job, or will you need to quit your job to get your business up and running?
Investing In the Stock Market
Frequently, when we hear the word invest, our thoughts go to the stock market. There are a number of ways to purchase stocks and bonds. You can purchase individual stocks and bonds, mutual funds, which contain groups of stocks or bonds and are professionally managed or exchange traded funds (a.k.a. ETFs), which represent a basket of securities that are traded on an exchange.
Before investing in any securities, make sure you take a risk tolerance questionnaire. This will help you determine your appetite for risk. Once you know your appetite for risk, you can decide whether you would like to manage your portfolio or work with a professional.
We frequently first encounter investing in securities through our employer-sponsored retirement plans, i.e., 401k, 403b. 529 plans for educational savings also use securities.
Remember there is a certain amount of risk in whatever you invest. Know how much and what kind of risk you can tolerate. Because you are managing your cash flow, you know how much money you can afford to invest.
About the Author
Marla V. Brady is a fully licensed financial advisor with strong business background, analytical and problem resolution skills that ensures achievement of team and individual goals. Versatile, results-oriented leader and developer of people, processes and relationships with expertise in human resources, consulting and compliance. Specialties: Financial Planning, Deferred Compensation, Structured Settlements.