Have you ever heard the phrase “the rich get richer” and wonder what it means? How can one group of people get richer than others if everyone has the same 24 hours in a day to work? To help explain, let’s look at a few stats: according to a Gallup Poll, 46% of Americans do not own any stocks or similar investments.
Even more alarmingly, the Federal Reserve determined that 92% of all stocks are owned by the wealthiest 10% of Americans. This means that the majority of Americans are missing out on the secret to attaining wealth: investing.
What is investing?
Investing is defined as the act of allocating funds to an asset or committing capital to an endeavour with the expectation of generating an income or profit. Investing your money is what will help your wealth grow exponentially and allow you to separate earning money from your time.
To get an idea of what a smart investment decision looks like, consider the following story. In 2015, Beyonce was asked to perform at a company party for Uber before they went public. They offered to pay her $6 million but she declined and instead requested to be paid in stock options. After the company went public, the price of those shares can fluctuate and today it’s worth closer to $300 million. This is just one example of understanding how wealth generation works and capitalizing on it. Instead of accepting cash, Bey chose to be paid in something whose value can increase: stock options.
Although you’re probably not being asked to perform for up-and-coming tech companies, there are still many ways for you to invest your money so it can grow.
So what are a few good places to start investing? Let’s take a look.
Where can you start?
Let’s take a look at some of the most common places where people invest their money and what the pros and cons of each are.
- Stocks – These are shares of a corporation that are able to be bought and sold by the general public. They are listed on stock exchanges like the NYSE, Dow Jones, and Nasdaq. Stock prices fluctuate based on how much people are willing to buy or sell them for.
- Pros – Very liquid (able to be bought and sold very quickly), the potential for growth and income (dividends), historically a fairly safe place to invest
- Cons – Little control post-investment, can be volatile, difficult to predict
- Fixed Income – These are securities like bonds and treasury bills where the issuer agrees to pay a fixed payment to the holder until the end of the term. It works like an I.O.U.
- Pros – Very safe, create a reliable income
- Cons – no potential for growth, there’s still a risk of default, not a great return
- Real Estate – Investing your money into a land or a building.
- Pros – Lots of control, can be very lucrative
- Cons – Tough to get started, requires more capital, very illiquid
- Cryptocurrency – Buying digital currencies.
- Pros – Lots of potential for growth, potential to make lots of money in the short-term
- Cons – No control, prices can be volatile, potential to lose lots of money in the short-term
- Business – Invest your money into an enterprise in exchange for a portion of the profits.
- Pros – Lots of control, lots of potential for growth
- Cons – More work required for this investment than others
Platforms to get started?
These are examples of companies where you can get started investing.
To buy/sell stocks – Robinhood is the easiest platform out there. They let you buy/sell stocks, ETFs, mutual funds, bonds, etc. from your phone at no charge.
For retirement funds (IRAs, 401(k)s, etc.) – Betterment is a well-trusted online brokerage that offers lower rates than traditional brokerages.
To buy real estate – Fundraise is a platform that invests in a portfolio of properties and manages them. They then allow individual investors to purchase shares in their funds.
To invest in local businesses – Nextseed vets local businesses and posts only the most sound