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The Best Strategies to Invest Your Money Wisely

Laura answers a podcast listener's question about how to invest money for higher returns. Find out how much and where to put your money so you create financial security without taking too much risk.

By
Laura Adams, MBA
9-minute read
Episode #445

You can open a traditional or Roth IRA at brokerage offices, banks, or many online sites like Betterment, Motif, FutureAdvisor, and Scottrade.

If you’re self-employed, do freelance work, or run a small business, there are great options to create your own workplace benefits by opening a Solo 401k, SEP-IRA, or a SIMPLE IRA. These retirement accounts allow you to contribute much more each year than you can with a regular IRA.

Click here to learn more about retirement accounts for the self-employed.

See also: 10 IRA Facts Everyone Should Know

Strategy #3: Invest in a taxable brokerage account

The third best investment option is a taxable brokerage or investing account. You can use one no matter how much you earn and in combination with any retirement accounts.

You can open a brokerage account with many different investment firms or online sites. Consider making taxable investments only after you’ve maxed out contributions to your workplace plan or IRA.

Consider making taxable investments only after you’ve maxed out contributions to your workplace plan or IRA.

What Types of Investments Should I Choose?

Once you have a retirement or brokerage account open, you’ll need to pick specific investments. Your options will vary depending on the investing company, but good choices include mutual funds, index funds, and exchange-traded funds (ETFs).

If you have more than 10 years before retirement, choosing funds made up primarily of stocks, or labeled as growth funds, is the best way to get an optimal return on your investment.

Many accounts offer target date funds that invest based on the year when you plan to retire. For example, if you want to retire in 2040, the name of the fund would be something like “Target Date 2040 Index Fund.”

Target date funds are very convenient because they automatically rebalance on a periodic basis to achieve growth in the early years, but then become more conservative as you approach retirement.

See also: How Should I Choose Investments for My Retirement Account?

Listener Question About How to Invest Money

So let’s get back to the anonymous listener’s question about how to invest $20,000 that’s currently in his savings account. The answer is to hold back enough to maintain a healthy emergency fund and to also get started with an IRA, assuming a workplace plan isn’t an option.

The deadline for contributions to a workplace plan is December 31, but you have until until the tax filing deadline to contribute to an IRA for the previous year. If the listener can make this year’s deadline of April 18, he could fully fund an IRA for last year with $5,500.

Then he could begin making monthly contributions that would add up to $5,500 by the end of this year. His savings account would have the remaining $9,000 balance earmarked for emergencies.

If the listener doesn’t make the deadline for contributing to an IRA for last year, he could contribute some amount to a taxable brokerage account instead.

See also: Are You Making Investing Too Complicated?

The Secret to Investing Success

Getting in the habit of investing consistently sooner, rather than having to invest more money later, is the secret to investment success.

Never think you should wait to invest until you have more money. Even if you only have a small amount to put aside, that’s okay. Contributing just $50 a week over 25 years with an 8% return would give you close to $200,000.

Just remember that you should never put money in a retirement account that you might need to spend. If you take a withdrawal before age 59½, you're typically charged a 10% early withdrawal penalty. Roth IRAs give you the most most flexibility for withdrawals, but it’s wise to leave your retirement accounts untouched for as long as possible so you get maximum growth.  

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.