Best Ways To Invest Money For The Future

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A rocky economy, a dismal outlook on the future of Social Security, increased tuition rates, an employment crisis and turmoil within the healthcare industry are just some of the factors that are forcing people to look towards investing their money for the sake of their future. When the time comes to retire, many are unsure if they'll have enough money to survive without a steady income, which is why making smart investments with your money is so important. If you're looking for a solid way to invest money for the long run, here are some options for you to try that can be put towards your future:

Diversify

Stocks will always be one of the best long term investments for your money. However, one of the golden rules for investing follows the age-old saying, "Don't put all your eggs in one basket." A well-managed, diversified portfolio is less risky than a portfolio with minimal investments. While diversifying in different types of stocks is a safe bet for protecting your investments, diversifying through different assets, like stocks and bonds, or through mutual funds, is even better. While diversification does not guarantee that you will ever suffer a loss, it can help minimize the damage.

Real Estate

When the economy is in bad shape, one of the first industries that will take a dive is the real estate industry. While most may argue that it's better to rent and invest money elsewhere during a housing slump, there are ways a newly purchased home can pay off in the long run. However, there are certain factors to consider before buying:

  • Buying a home during a housing slump can land you a piece of real estate at a great price. The problem is there is still a risk that the value can drop below what you paid for. However, if you're planning on making the home your permanent residence, you will eventually see a return on your investment when the housing market recovers and your home appreciates in value. A good rule of thumb is to pay close attention to the property values of a particular area you are willing to reside in. When properties begin to increase in value over a span of three to six months, that's a good time to buy.
  • The effect of inflation is a danger to investors that can go unnoticed. However, inflation can work for you if you plan on owning a home for the long haul since it can cut the cost of your mortgage over an extended period time.
  • Sometimes it's better to rent and invest elsewhere, than to sink all of your money into a home. Unlike a diversified portfolio that is properly managed, there are many added expenditures one must consider when buying a home, such as: property tax, homeowner's insurance and maintenance. These expenses are something to consider when determining if buying a home is right for you. Also, if there is a high probability you will be uprooted due to a job transfer, career change or lack of job security (like working a temporary or contract position), it is better to rent than buy a home.

Gold

Many people consider gold to be a good way to invest their money towards the future because it will allow them to diversify their portfolio, while retaining its value against a fluctuating dollar. Gold is one of the oldest, precious metals used as a hedge to counteract inflation, deflation and devaluation. It can also resist the effects of economic and political crises, including war and social unrest. In a market where the return on other investments, like stocks, bonds or real estate, is in jeopardy, precious metals, like gold, are sought after as a means for portfolio diversification.

401(k) Investment

Investing in a 401(k) plan can help you create a safety net for your future so that you never run the risk of running out of money after you've retired. It can also allow for an immediate tax deduction and a matching contribution up to a certain percentage from your company (if they offer it). The money is then taken by an investment company where you are given options on how you would like to invest your money. This will allow the money in your 401(k) to grow, tax-deferred, while you continue to contribute money towards it. You are then allowed to withdraw the money by the age of 59.5, or you must pay a penalty if you try to withdraw money at an earlier time.

In case you were wondering whether you should put money towards a 401(k), or put money towards your own investment plan, here are some things to consider:

  • Part of diversifying your financial investments would be to have a 401(k) and a separate investment plan. For example, it would be wise to set aside money in a company offered 401(k), while also investing in stocks on your own. If your company also offers a stock option, that's even better for diversification.
  • Unlike your own investments, your money that's placed into the 401(k) is pre-tax. That means that your taxable income is lowered by money that you are saving for your future.
  • The money in your 401(k) is tax deferred, which means interest, dividends and capital gains are tax free until you withdraw the money from your 401(k).
  • You may sell stocks and withdraw money from your own investment portfolio without any penalties. However, money from your 401(k) cannot be withdrawn until the agreed time unless you are willing to be penalized for it.

For those who are self-employed or do not have a 401(k) option, an Individual Retirement Account, or IRA, is another retirement plan worth investing money into. An IRA works similar to a 401(k), where money is put away in a retirement savings account, and can be withdrawn at a certain age.

Last Updated: August 30, 2011
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About Matthew Cenzon Matthew Cenzon has been writing for numerous publications since 2003, covering topics ranging from health and nutrition to the real estate industry. He is one of the contributing writers for CanDoFinance.com, and is a college graduate of the University of California, Riverside, with degrees in English and Asian literature. Matthew's interest and knowledge in finance stem from over five years spent working in residential real estate appraisal. 

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