If you want to be rich, many financial experts will suggest you invest. You can become rich in other ways than investing, of course, such as inventing something useful or starting a business. But the genius behind investing is that the money you earn is passive income. While you’re working or living your life or even sleeping, your money is earning more money for you. If you want to get rich through investing, you’re going to need to think carefully about where to put your money. You can also work with a financial advisor who can help create the right plan that can help you achieve that goal as well.
What Being Rich Means to You
One of the first things you’ll need to do is to figure out what it means to you to be rich. To many that might just mean having enough to not dramatically impact their lifestyle during retirement while others might think it means they can buy whatever they want when they want to. In order to make the right plan that will help you achieve your “rich” goal you’ll first need to define it and make sure you know what you’re shooting for.
Once you know what you’re wanting to accomplish then you can put together the right investment plan that will take into account the right assets to help you maximize return. Your plan might be impacted by your age, how much you need to accumulate or what your appetite for investment risk might be.
Some Rules of the Road
As noted, there is no guarantee that if you invest your money you’ll get rich. However, there are five guidelines that every investor should try and follow:
1. Start Investing When You Are Young
Making money through investing takes time and the more time you have, the more money your investments can make by taking advantage of compound interest. If you’re in your 20s and feel as if you don’t have the money to invest, try to invest some money as soon as you are able to. In other words, don’t wait until you’re in your 30s. If you’re in your 30s and feel financially stretched, don’t put off investing until your 40s. And so on.
2. Once You Start Investing, Keep Investing
If you invest when you are young, that money will grow over time, but unless it’s an extraordinarily large sum, you probably won’t do yourself much good if you wait for decades to invest again. If you can automate your investments so that you’re contributing to your retirement funds once a month and if you’re continually looking for new strategies and places to invest, you’re going to greatly improve your odds of someday becoming rich.
Most financial experts will suggest that you not put all of your investment money into one investment. The more types of investments your income can be put into, the less risk you will incur. For instance, if you put all of your money into stocks and the stock market has a really bad year, all of your investments will suffer. If you put your money in stocks, real estate and bonds, a bad year in the stock market may be offset by gains in real estate and bonds.
4. Consider Working With a Financial Advisor
A financial advisor can help build your wealth and make a financial plan to reach your goals. They can even manage your investments for you. If you don’t have a lot of money to invest yet then you may need to wait for some financial advisors. You may, however, want to open an account with a robo-advisor or online brokerage, perhaps one that allows people to open accounts with low minimums. The main point is, when you’re investing your money, it’s never a bad idea to have help in deciding where to make those investments.
5. Budget Well
It probably goes without saying, but if you don’t keep a budget and stick to it and continually monitor your cash flow, you may find that you rarely have enough extra income to invest. One of the best strategies to follow to get rich is to make sure you spend the money you do have, as wisely as possible.
Where to Invest Your Money
If you want to get rich through investing, there are several financial vehicles you should consider putting your money into.
- A 401(k): If your employer offers a 401(k), this is an excellent way to save for retirement. Your employer will help you set it up. You’ll put aside a portion of your paycheck before income taxes apply and your money will be invested in the 401(k), a retirement savings plan in which the money is often invested in index funds, mutual funds or exchange-traded funds. In other words, a 401(k) adheres to the important rule of diversifying investments. Even better, many employers offer a match program, so that if, for instance, you put in 6% of your paycheck, your employer might also put the same amount of money into your 401(k). As many financial advisors point out, taking advantage of an employer match program essentially means that you are receiving free money.
- Certificates of Deposit: Also known as CDs, investing in these is considered a low-risk and slow “how to get rich” strategy. Still, certificates of deposit offer fixed rates, so you always know before you invest how much money you’ll earn over time. If other investments feel risky, you may want to balance your portfolio with purchases of some certificates of deposit. Check out some of the best CD rates.
- Invest in the Stock Market: You can invest in the stock market in a lot of different ways. You can do it indirectly by setting up a 401(k) or an IRA (individual retirement account), a traditional IRA or Roth IRA. Or you could instead consider purchasing exchange-traded funds (ETFs) which often rely on investments in the stock market. You could buy stock directly from a company or take the more common route and invest in stocks through an online brokerage or trading firm, like Charles Schwab, Fidelity and Vanguard. But if you want to get rich through investing, you probably, in some fashion, will want to invest in the stock market.
The Bottom Line
It can be very hard to earn enough money to become rich, whether you invest or make your wealth in some other way. But investing works for a lot of people. As you accumulate wealth, though, you would be well advised to work with a financial advisor and a good tax accountant, to get good advice on how to keep more of your money – and how to keep reinvesting your assets, so that you become even more wealthy.
Tips for Investing
- As you’re looking to grow wealth you might benefit from working with a financial advisor. An advisor can help you create a financial plan and even manage your assets to maximize your return and speed up the time until you’re able to reach your goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- It’s important to understand what your potential return might be when you’re considering new investments. You can use SmartAsset’s free investment calculator to help you estimate what your return might be to help with the decision beforehand.
Photo credit: ©iStock.com/Mikhail Sotnikov, ©iStock.com/adamkaz, ©iStock.com/Foxys_forest_manufacture