Taking too much investment risk can be dangerous for your portfolio, but keeping money in the bank can be risky, too. Get 8 investment tips to build wealth even if you hate taking risk.
Money Girl
208 MG Eight Investment Tips if You're Afraid of the Stock Market
In Colorado, our freedoms are everything. Gabe Evans would rip them away. Just like Lauren Boebert, he'd ban abortion without exemptions for rape or incest, and overturn the right to marry for same-sex couples. Don't let him take our freedoms. Paid for by DCCC, www.dccc.org, not authorized by any candidate or candidate's committee. "Is man up over here?" After investing billions to light up our network, T-Mobile is America's largest 5G network. Plus, right now, you can switch, keep your phone, and we'll pay it off up to $800. See how you can save on every plan for Verizon and AT&T at t-mobile.com/keepandswitch. Up to four lines via virtual prepaid card, a left 15 days qualifying unlocked device credit, service, poured in 90-plus days with device and eligible carrier and timely redemption required. Card has no cash access and expires in six months. Hi, everyone. And thanks for joining me on the "Money Girl" podcast. I'm Laura Adams, the author of the new book, "Money Girl Smart Moves to Grow Rich." Buy the paperback at your local bookstore or get the e-book version from amazon.com or barnsonnoble.com. If you'd like to sample the book first, you can download two free chapters at smartmoves2growrich.com. If you can't stand the thought of losing money, you might be afraid to invest it. After all, the losses many people took in the recent financial crisis were scary, but you also know that keeping your money totally safe in a savings account or a CB that only earns one or 2% a year could be financial suicide. A podcast listener all called Jenny asked me what she should do with her money. She's 28 years old and has worked really hard to sock away $100,000 in a savings account, but she's disappointed with the terrible interest rate she's getting. Jenny said, "The investment market kind of scares me. "What's the best way to get the highest return "on my money without a high risk?" In this podcast, I'll answer Jenny's question and give you tips to grow your money, even if you hate the thought of taking investment risk. When you get down to the heart of investing, there are really just two ways to make money. You can be an owner or a loner. In other words, you can own assets that you expect to increase in value, or you can loan money for a specified return, stocks, real estate, gold coins, artwork, or your own business are all examples of investments you might own with the expectation that their value will appreciate over time. Investments where you loan money include buying bonds or making private loans to individuals or companies. There are many ways to invest money outside of the financial markets. However, becoming a real estate investor or starting your own business requires a certain amount of expertise, time, and money, not to mention that selling those investments could take years. So for most people, the financial markets offer the most convenient and economical way to put aside small amounts of money on a consistent basis. Consider these eight tips to grow your money while keeping it as safe as possible. Investment tip number one, outpace inflation. For your long-term financial goals like retirement or paying for a child's education, inflation can really spoil things. Historically, it's been about 3%, which means that if you're only making 2% in a bank account or CD, your money is actually losing purchasing power. For most people, investing some amount of money in stocks or stock funds is the best way to keep up with inflation. Since stocks can go up or down in value at any time, they are the riskiest investments. But they also offer the highest potential returns and have consistently outpaced inflation since the 1940s. Investment tip number two, diversify. Even though stocks can really turbocharge your investment returns, you can keep a lid on your risk by owning a broad range of investments. That's called diversification. You can buy shares of funds that own real estate, bonds and commodities, for example, in addition to stocks, so you manage risk by spreading it out among multiple investments. That way, if one investment is a loser, you have other winners to count on. Investment tip number three, consider why you may be risk averse. According to a recent article in Money Magazine, the number of people under age 35 who are willing to put their money at risk has declined. It's no longer the case that young people are more risk tolerant than older people. The article reasons that young people who just started investing have only experienced turbulent financial markets and therefore are soured by the idea of investing and keep most of their money in cash. It seems like Jenny, who is 28 years old with $100,000 in the bank, may fall under this category. It's important to remember that taking financial risks, including losing money on paper in the short term, may be required to meet your long-term financial goals. Investment tip number four, remember that time is your friend. A big part of making money grow is to take advantage of time. 20-somethings might shy away from investing these days, but they're actually the most suited to own relatively risky investments like stocks. That's because young people have lots of time to recover from market setbacks. The longer your time horizon, the less market risk is a factor. So if you're waiting for significant signs of market stability or for the Dow to hit 14,000 before you start investing, that could be very costly. The longer you wait to invest, the more growth you miss. That's because time is the secret sauce that allows your money to multiply due to the long-term effects of compounding interest. - In Colorado, our freedoms are everything. Gabe Evans would rip them away. Just like Lauren Bobert, he'd pay an abortion without exceptions for rape or incest and overturn the right to marry for same-sex couples. Don't let him take our freedoms. Paid for by dccc, www.dccc.org, not authorized by any candidate or candidate's committee. ♪ He's better over here ♪ AT&T customers, switching to T-Mobile has never been easier. We'll pay off your existing phone and give you a new one free, all on America's largest 5G network. Visit T-Mobile.com/carrierfreedom to switch today. Pay off up to $650 via virtual prepaid master card in 15 days, free phone up to $830 via $24 monthly and bill credits plus tax, qualifying, porting, trading, service and bill 5G next to credit required. Contact us before canceling entire account to continue bill credits to credit stop and balance and required finance agreement is due. - I love learning and anything that makes learning easier. If you're a parent and your child needs some homework help, then IXL is a right for your family. IXL is an online learning program for kids covering math, language arts, science and social studies. IXL has interactive practice problems for topics from pre-K to 12th grade and everything is organized by grade and subject. As kids practice, they get positive feedback, awards and explanations for wrong answers. IXL figures out what your kids need more help with and recommends more topics to practice. Their videos, lessons, sample problems and learning games too. One subscription to IXL gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder IXL is used in 95 of the top 100 school districts. I think the positive feedback that IXL gives is really crucial when it comes to learning. So make an impact on your child's learning, get IXL now and money girl listeners can get an exclusive 20% off IXL membership when they sign up today at ixl.com/moneygirl. Visit ixl.com/moneygirl to get the most effective learning program out there at the best price. Investment tip number five, realize that not investing is risky. If you still don't feel comfortable about investing your money, remember that keeping it in the bank by default is risky too. The reality is that we'll probably need more money for retirement than we think because we're living longer and will probably have reduced social security benefits in the future. I mentioned inflation earlier. If it gets out of hand, investing in stocks may be the only way to accumulate enough money to last as long as you live. Investment tip number six, make appropriate investment choices. Whether we're talking about stocks or bonds, there's a range of risk within each of those categories. For instance, aggressive growth stock funds are riskier than income stock funds and poorly rated junk bonds are riskier than bonds issued by the federal government. So saying that the financial markets are just too risky is like saying there's nothing to eat at the grocery store. Markets have a massive selection of securities and funds that are just right no matter your appetite for risk. Investment tip number seven, start investing in small amounts. To gain confidence in your investments, don't do anything rash. Start by choosing investments that have performed well over the past five to 10 years and commit to buying small amounts on a regular basis. If you need help picking investments suited for your risk tolerance, ask your benefits administrator at work, consult with your broker, or get ideas from an investing magazine like money or kiplingers. Investment tip number eight, don't monitor your investments too closely. It's easy to get spooked if you constantly obsess over your investments. If your goal is to build wealth over a long period of time, what your investments do day to day is largely irrelevant. Monitor your monthly or quarterly investment statements to stay on top of their performance. But remember that what really matters is how much they'll be worth in 10, 20 or 30 years from now when you need to spend the money. You want to see a trend of growth, but some years may give you temporary setbacks. Jenny, thanks for your question, and congratulations on accumulating such a nice nest egg before your 30th birthday. The best way to get a good return on your money without taking too much risk is to start early, diversify your investments, keep enough cash on hand for emergencies, and consider turning to a financial advisor for help. Remember to download your two free book chapters at smartmoves2growrich.com. For more money tips and advice, be sure to visit the MoneyGirl section at quickanddirtytips.com. That's where you can sign up for the free MoneyGirl newsletter. Connect with me on social media, email me your comments and money questions, get the code for the MoneyGirl widget, read the show notes, and lots more. I'm glad you're listening. Chaching. That's all for now. Courtesy of MoneyGirl, your guide to our richer life. (upbeat music) - In Colorado, our freedoms are everything. Gabe Evans would rip them away. Just like Lauren Boebert, he'd ban abortion without exceptions for rape or incest, and overturn the right to marry for same-sex couples. Don't let him take our freedoms. 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