The way people talk about investing money makes it seem like magic. Have you seen TikToks or Tweets that talk about putting $5 a day into an account and turning it into $2.3 million? Sure, it’ll take five decades to accumulate and a 10% annual return, but it’s enough to make you reconsider that morning Starbucks!
The question remains, though, What’s the best way to invest money so you, too, can become a wealth wizard?
Given the risks of losing your hard earned-money, the last thing you want is to try, fail, and end up in a worse financial position. To help, we’ve interviewed six financial experts to gain their best advice on the evergreen investment strategies. This is The Way.
Expert Tip #1: Just Get Started
Investing is a daunting prospect when you’ve never done it before. The process is a mystery; terms like a bear market, dollar cost averaging, and asset allocation make no sense. It may make you think that investing is only for wealthy people.
Ultimately, the idea of making money this way can seem out of reach – especially when you factor in the terrifying potential to lose money. Small wonder that, for many people, the most challenging part of investing is getting started.
That’s why the best way to invest the money as a newbie is usually to dip your toes in the water. But rather than diving in with a large scary investment, start small! Nick Covyeau, the owner and financial planner at Swell Financial Partners, explains that “$50-$100 a month…is a great way to get started.”
Remember, as the $5 example demonstrates, small investments eventually stack up. Moreover, the sooner you start, the wealthier you can become. That’s because a) compound interest (i.e., the interest that accrues on interest) has longer to work its magic, which leads your net worth to snowball, and b) you have more time/opportunity to recover from market downturns.
Conversely, the longer you wait, the more aggressive you must be to attain the same financial rewards and the more challenging to weather problematic downturns.
Expert Tip #2: Think Long-Term
Nicknamed “The Oracle of Omaha,” 92-year-old Warren Buffett is arguably the most successful investor ever. He’s amassed a whopping net worth of $118 billion, making him the 5th richest man on the planet at this moment. So what’s his best way to invest money?
However, the secret to his success isn’t just an uncanny ability to invest in winning companies. It’s his unprecedented staying power. Buffett’s been investing for well over three-quarters of a century! This longevity – coupled with the power of compound interest – has enabled him to accrue such a vast personal fortune. Indeed, he’s amassed 90% of his wealth since his 65th birthday. The take-home?
One of the best ways to invest money is over the long term.
Jen Swindler, a Senior Wealth Manager at Vincere Wealth Management, says that “a lot of clients in their 20s and 30s…focus on the short-term, and many fears stem from considering what might happen in the next year.” To ease their minds, she reminds them that “over the past 10, 20, 50, and 100 years, the S&P has generated returns between 8% and 11% on average.”
Likewise, the market downturns that worry investors are actually golden opportunities to generate wealth and one of the best ways to invest money. Hence why Buffett once famously suggested that investors should “Be fearful when others are greedy and greedy when others are fearful.” Keep buying, and you take advantage of the bargain prices.
That’s why, as Jen Swindler puts it, “consistency is key to financial and investment success.”
Expert Tip #3: Diversify and Stay Focused
Another tenet of effective investing is diversification. An essential risk management strategy is to avoid having all your eggs in one basket by creating a portfolio full of different types of investments.
Thus, rather than being exposed to a single asset class (e.g., stocks, crypto, or real estate), the best way to invest money is in different types of investments.
You could also have investments in numerous countries and industries or invest in companies of various sizes. Likewise, because index, mutual, and exchange-traded funds tend to hold shares in dozens (and sometimes hundreds) of different companies, investing in them is a simple way to diversify.
Done right, this process limits the financial impact of an investment gone awry. In contrast, failing to diversify is the betting equivalent of putting everything on black.
From there, the best way to invest money is to stay focused regardless of challenging economic situations that arise, such as recessions. Erik M. Baskin, a Financial Planner and the founder of Baskin Financial Planning says you should “continue to invest in your diversified portfolio and also…ignore the value of your portfolio and the news.” He notes, “For the long-term investor, recessions and inflationary periods are simply distractions that can get you off track from your long-term goals.”
This corroborates the advice from Nick Covyeau. He suggests investors should “Step back and let the investments do the work! Checking or tinkering with your investment decisions daily or weekly is a surefire way to add anxiety and potentially underperform the market.”
Expert Tip #4: Allocate Assets Effectively
Diversification falls under the umbrella of asset allocation. Investor.gov says it is “dividing your investments among different assets, such as stocks, bonds, and cash.” In other words, you’re deciding what goes into your investment portfolio; where to put your money to work in the market.
We could write an entire article on this topic, but here’s the TL/DR version: The best way to invest money is with an allocation that’s diversified, catered to your risk tolerance, and makes sense for the time you have available in the market.
For example, the allocation for a bullish twenty-year-old who wants to be a millionaire ASAP will look very different to an octogenarian who wants to bequeath their family the biggest possible estate when they die.
The former would want to (and, because time is on their side, could afford to) invest aggressively and take more significant risks. Their asset allocation might be full of new IPOs, small-cap stocks, and high-yield bonds – AKA high-risk assets that promise strong returns. In contrast, the octogenarian would likely focus on capital preservation. Reluctant to lose money, their allocation might contain US Treasury securities, Series I savings bonds, and property/real estate.
Sean Polley, a Private Wealth Manager and the CEO of Polley Wealth Management, backs these ideas up. He told us, “The key to successful investing is to ensure that your portfolio is allocated according to your proper risk level and diversified across high-quality investments.”
Expert Tip #5: Leverage the Power of Automation
Consistent, long-term investing isn’t easy – particularly during market downturns when it’s tempting to sell shares, ditch assets, and mitigate risk. The solution?
One of the best ways to invest money is by automating your investments.
As Joe Dunat from The Sturkie Wealth Management Group puts it, “You tend to be much less reactive to market turbulence when you know the next influx of funds is around the corner. The market takes a dip? It’s ok; you’ll buy it at a discount. Market soars? Great, can’t wait to buy more of a winner.”
Alexis Woodward of Blend Wealth backs these sentiments up. Their advice is to “automate your savings as soon as possible.”
That way, instead of doing everything manually, you can purchase new assets on autopilot. You can ‘set it and forget it,’ living your life without constantly checking your balance and/or being tempted to make pre-emptive withdrawals. That’s a major boon for Woodward, who says, “time in the market is everything because it gives your money more opportunity to compound.”
Furthermore, making automatic investments at set times each month will likely produce better long-term outcomes versus the risky game of timing the market. As Woodward notes, “Economic uncertainty is certain. Do not try and time the market because the future can’t be predicted.”
Automatic payments also prevent forgetfulness, internet problems, and other issues from hindering your investment journey.
Nick Covyeau confirms those sentiments, noting that “Automating your finances is the key to paying yourself first and setting the proper foundation for a successful retirement.”
Expert Tip #6: Work With a Financial Adviser
Suppose the idea of learning about financial markets and the various assets and processes involved has your head spinning and stomach-turning. In that case, the best way to invest money for those who need additional guidance and support is with help from a financial advisor.
Trained to counsel people on wealth management and other critical money matters, they’ll help you identify your financial goals and establish a plan for achieving them, all while considering your risk tolerance.
Better still, they can offer advice on tax efficiency too.
This is important because, as Alexis Woodward notes, “All investment accounts fit into one of three different types of buckets based on tax treatment: tax-deferred, taxable and tax-free.” They recommend you “Work with your financial planner to determine how best to save to your tax-deferred, taxable and tax-free buckets to ensure proper tax diversification…[This] can lead to major tax savings and gives you more control over taxes paid in retirement.”
Just to let you know, all this input comes at a cost, though. Financial advisers aren’t free and are usually not cheap, either. They’ll either charge a straight commission, an hourly rate, or a fee based on how much money you want them to manage.
Likewise, if you decide to hire an adviser, ensure they possess the proper professional credentials. For instance, are they a Certified Financial Planner (CFP) or a Chartered Financial Analyst (CFA)? In addition, those well-recognized standards in the industry should guarantee they act as fiduciaries. In other words, they must help manage your money for your benefit instead of theirs.
Asking them questions on how they get paid will help identify any red flags, such as recommending investment options that come with a high fee because it grows their wallet and not yours.
So, What is The Best Way to Invest Money?
Furthermore, with inflation currently hovering at 6.2%, making your money work for you like this is increasingly important. Don’t, and your hard-earned savings diminish in value each day, your buying-power drops, and the rising cost-of-living bites harder.
Every investor’s different, which makes it all but impossible to define a single Best Way to Invest Money strategy that’d prove suitable and lucrative for everyone. Having said that, there are certain investing principles that definitely apply across the board.
As we’ve seen, the best way to invest money is to start small and ignore short-term market fluctuations in favor of a long-term approach. With ongoing automated purchases, you should have a diversified portfolio that suits your time horizon and risk tolerance. And, if you feel out of your depth at any point, hire a professional adviser to help bring your investment dreams to fruition.