Picture this: you’ve just received or saved $20,000 but are unsure what to do with it. You could spend it on a luxurious vacation or a new car, or you could invest it wisely to set yourself up for financial stability in the future. So, let’s find out the best way to invest $20k!

In this article, we’ll discuss ideas for different investment strategies that suit varying financial goals, investment time horizons, and risk tolerance levels.

You will better understand the various investment options available when you’re trying to figure out what to do with 20k. And you’ll also discover their benefits, risks, and how to approach the decision-making process.

​​So, without further ado, let’s explore what to do with $20k!

Short-term strategies to invest $20k

Short-term investment strategies are designed for those who are looking to invest for a period of up to two years.

They are a great option if you want to save for a specific goal.

For example, if you’re saving for a house down payment, a wedding, or a vacation.

Short-term investment strategies are also great for building your emergency fund—as long as they aren’t too risky.

Common examples of short-term investments include:

• High-yield saving accounts
• Money market funds
• Peer-to-peer lending

High-yield savings accounts

If you’re looking for a safe and straightforward way to invest $20k, a high-yield savings account may be the way to go.

A high-yield savings account is like a regular one.

However, it has a higher interest rate, allowing you to earn more money over time.

But unlike other investment options, there is no risk of losing money due to market fluctuations.

However, you should make sure your high-yield savings accounts are FDIC-insured. The federal government will protect your cash up to $250,000 for each depositor, per ownership category per insured bank.

This is why high-yield savings accounts are a popular choice regarding short-term investment strategies. I personally keep some of my short term savings in this account type.

They are a low-risk, low-stress way to earn interest on your money without tying it up for an extended period.

Money market funds

Regarding short-term investments, money market funds are an attractive option for those who want to earn a higher return on their money than they could with a traditional savings account.

A money market fund is a sort of mutual fund that invests in short-term and low-risk securities. It could include assets like government bonds, certificates of deposit, and commercial paper.

Another advantage of money market funds is that you can usually access your funds quickly and easily. However, this usually isn’t the case for longer-term investment strategies.

So, if you’re looking for a low-risk, low-volatility investment that offers a stable return, a money market fund may be the best way to invest 20k to meet your financial goals.

Peer-to-peer lending

When it comes to short-term investment strategies, peer-to-peer (P2P) lending is an innovative option. It offers a unique combination of high returns and low risk.

P2P lending connects borrowers directly to investors without an intermediary financial institution.

In other words, YOU become the “bank.”

By cutting out the middleman, P2P lending allows investors to earn higher returns than they would with traditional savings accounts.

Plus, you choose who you invest with, making it easier to put your money where your values are. That said, it is still very important to do your research when it comes to P2P lending platforms to determine if this is the best way to invest 20k for you.

Mid-term investment strategies to invest $20k

Mid-term goals and investment strategies are suitable for those looking for the best way to invest $20k for two to five years.

It’s a good strategy for saving for a child’s education or starting a business.

Common examples of mid-term investments include:

• CDs
• Robo-advisors
• Index funds
• Mutual funds
• Exchange-traded funds
• REITs

CDs (Certificates of Deposit)

CDs, or Certificates of Deposits, offer a safe, low-risk investment option with a guaranteed return for your mid-term financial goals.

A CD is a deposit account that typically offers a set interest rate for a specific term, such as six months, one year, or two years.

As with high-yield savings accounts, one of the primary advantages of CDs is that they are FDIC-insured.

CDs also offer higher interest rates than you’d find with traditional savings accounts. It makes them a good option for those looking to earn more money on their investment.

The bank also guarantees interest earned, regardless of inflation volatility.

Which is good for those looking for a guaranteed investment return over a specific period. You can also check out other ideas for the best compound interest investments.

Robo-advisors

With user-friendly platforms, diversified investment portfolios, and 24/7 access to your investments, robo-advisors provide a convenient and cost-effective way to grow a $20k investment.

Unlike traditional brokerages, a robo-advisor is a digital investing option that provides automated investment management services.

It uses complex algorithms to create and manage a personalized investment portfolio based on your short and long term financial goals, risk tolerance, and investment timeline.

Plus, because robo-advisors eliminate the need for a traditional financial advisor (who will typically charge high fees for their services), you can access professional investment management services at a fraction of the cost.

As an added perk, robo-advisors are designed to make a well-balanced portfolio of investments across different asset classes, which can help mitigate risks and increase returns.

Index funds

With diverse investment options and high transparency, index funds are a reliable and proven way to invest $20k for mid-term purposes.

The best index funds are an aggregation of stocks, bonds, and other securities. They track an index, depending on the index fund, such as the S&P 500 index.

When investing in index funds, you can access various investment options. It can help you spread your investment risk and maximize returns.

Plus, because they’re passively managed, index funds are known to have significantly lower fees than mutual funds. Still, index funds can offer very strong investment returns over time.

Moreover, the prevalence of index funds is high. Whether you’re looking for a conservative, low-risk investment option or a more aggressive investment strategy, there’s likely a fund out there that meets your needs and can be the best way to invest 20k.

Mutual funds

Unlike index funds, which are passively managed, most mutual funds are actively managed by a dedicated mutual fund manager.

If you learn how to start investing with mutual funds, your cash will be pooled with other investors’ money and then invested in different assets, like stocks and bonds. To get started, you’ll need to check out brokerage accounts and open one.

Mutual funds are one option for figuring out what to do with 20k if you want to work with a mutual fund manager. But bear in mind that mutual funds come with much higher fees than index funds or ETFs. In the end, these fees can cut into your returns over time.

Exchange Traded Funds (ETFs)

With their low fees, flexibility, ease of access, transparency, and potential for long-term capital appreciation, ETFs can provide a reliable investment strategy that aligns with your financial goals.

In some ways, ETFs are similar to mutual funds. ETFs and mutual funds are a collection of securities that can provide diversification and risk management benefits.

However, ETFs trade on an exchange like a stock, allowing you to buy and sell them throughout the trading day at market prices.

Compared to actively managed mutual funds (which require professional management and research), ETFs are typically passively managed. As a result, their management fees are much lower, allowing you to keep more of your returns.

Moreover, investing in a diversified portfolio of ETFs can minimize the risks associated with individual securities and market volatility, thus potentially achieving steady returns over the long term.

REITs (Real estate investment trusts)

If you want to invest $20k for mid-term purposes that provides regular income and capital appreciation (and is great for real estate beginners), investing in real estate investment trusts (REITs) could be a great option.

REITs own, operate, and/or finance income-producing real estate, such as shopping centers, office buildings, apartments, and hotels.

By investing in REITs, you can gain exposure to the real estate market without the hassle of buying and managing physical properties.

Importantly, when you invest in REITs, you also get to invest in various property types and geographic regions, allowing you to diversify your portfolio and minimize risk.

Best of all, REITs are required by law to give at least 90% of their taxable income to their shareholders as dividends, providing investors with a reliable source of income. So, if you’re looking to build a passive income stream, REITs might be the best way to invest 20k to meet your financial goals.

You can buy REIT ETFs directly in a brokerage account or use tools like Fundrise, an online investment platform designed to help individuals invest in real estate and venture capital without big fees.

Long-term strategies to invest $20k

Long-term investment strategies are the best way to invest $20k for five years or more. They are a great option if you’re looking to build long-term wealth, such as saving for retirement. The new contribution limits for 2024 for IRAs and 401ks are listed here, according to the IRS.

Common examples of long-term investments include:

• Retirement accounts
• Real estate

Traditional IRA

A traditional IRA allows individuals to contribute pre-tax dollars, which can lower their taxable income for that year.

Then, the money grows tax-deferred until withdrawal in retirement, when it is taxed at the individual’s tax rate. It can be advantageous because you’re more likely to be in a lower tax bracket when you’re a retiree than when you’re a working professional.

Roth IRA

Roth IRAs allow individuals to contribute after-tax dollars, meaning there is no contribution tax deduction.

However, the investment earnings grow tax-free, and withdrawals in retirement are also tax-free.

401(k) retirement account

This is an employer-sponsored retirement account where employees can add a portion of their pre-tax income.

Some employers may match a portion of their contributions with 401k matching. The money grows tax-deferred until withdrawal in retirement, where it is taxed as ordinary income.

Other types of retirement accounts include:

• Savings Incentive Match Plan for Employees (SIMPLE) IRA plans
• Simplified Employee Pension (SEP) plans
• Solo 401(k)s

Investing in retirement accounts is a wise choice for long-term financial planning.

Retirement accounts offer tax benefits, the power of compounding interest, a range of investment options, and the opportunity to plan for your future.

In addition, by learning how to start saving for retirement, individuals can build a comfortable nest egg that will last for decades, ensuring a financially secure retirement.

Real estate

Real estate offers the potential for appreciation in value, real estate passive income, a range of investment strategies, a hedge against inflation, and greater control over your investment.

It’s a tangible asset that has the potential to appreciate over time. Investing in a property allows you to watch your investment grow as the property increases in value.

Treating your real estate as a rental property could earn steady ongoing passive income. Alternatively, you could venture into flipping properties for a quick profit.

Another real estate investment strategy is to buy a home and hold it as an asset until the appreciation in value allows you to invest in a higher-value property. It can be a viable strategy since inflation drives up not only the cost of goods and services but also the value of real estate.

Other ideas to invest 20k? Think outside the box!

Hoping to get more creative with finding the best way to invest $20k?  If so, paying off debt or investing in education may be your route.

Let’s explore these ideas a little further.

Pay off credit card debt

When you carry debt, you’re essentially paying someone else for the privilege of borrowing their money. Unfortunately, that interest can really add up over time.

So, by using $20,000 to stop paying credit card debt, you can save yourself a significant amount of money in interest payments over the long run.

Paying off your debt can also improve your credit score, positively impacting your financial life.

With a higher credit score, you may qualify for lower interest rates on future loans, credit cards, and mortgages, saving you even more money in the long term.

And we’d be remiss if we didn’t note that paying off debt is the gift that keeps giving.

Why? When you pay off debt, you free up your cash, giving you more money to put towards other financial goals, such as investing, saving, or even treating yourself to something special.

Make student loan payments

Figuring out how student loans work is complicated. With interest adding up over the years, you often have to pay back a lot more than you originally realized.

If you have a lot of money due in student loans, this could be a great way to use that extra $20k!

Whether the $20k is enough to cover all or just part of your student loans, getting rid of or minimizing your monthly student loan payment will make managing your biweekly budget or monthly budget that much easier.

Invest in your education

With $20,000, you can pursue additional education, such as a college degree, trade school, or other specialized training.

Education can open up new doors and opportunities for your career and increase your earning potential over the long run. So, if you’re thinking about what to do with $20k, investing in your education today could mean limitless returns tomorrow.

Investing in education can also positively impact your personal growth and development. It can expand your horizons, challenge you to think differently and expose you to new ideas and perspectives. Ultimately, education can help you become a more well-rounded and fulfilled individual—professionally and personally.

Save for your kid’s education

If you have children, another great way to plan for the future is to start saving for your kids’ college education. Even if your children are still young, the earlier you start, the better!

One way to invest $20k for your kid’s college education is with a 529 plan. This special education savings plan offers certain tax advantages to help you save for qualified education expenses.

But be aware that you can only use the funds from a 529 plan for qualified education payments.

So before getting started, make sure you do your research to determine if a 529 plan is worth it for you and your family.

4 Key things to remember

Before jumping into the first strategy that catches your attention, I encourage you to reflect on your goals and personal circumstances.

It will help you find a strategy to start investing that aligns with your long-term objectives in life, minimizes risk, and maximizes returns.

To set the stage for picking an investment strategy, consider the following:

1. Set financial goals

What do you want to achieve with this money?

For example, some financial goals could be to save for retirement, buy a home, pay off debt, or invest for the future.

Once you have set your financial goals, you can explore the best investment options to help you achieve them.

2. Outline a time horizon

How long do you plan to hold onto your investment?

Is it a short-term savings goal (such as saving for a house) or a long-term goal (such as building a retirement nest egg)?

Your investment time horizon will influence the types of investments you choose.

3. Understand your risk tolerance

How much risk are you comfortable taking to earn higher returns?

Are you okay with the ups and downs of the stock market, or do you prefer more conservative investments with lower risk?

Understanding how risk averse you are and your risk tolerance can help you choose the right investment strategy for your needs.

4. Diversify your investments

Even if you think you’ve found the best way to invest $20k, you don’t want to put all your eggs in one basket!

Instead, consider diversifying your investments across various asset classes, such as stocks, bonds, real estate, and commodities.

It can help reduce your overall risk and potentially increase your returns over the long run.

Don’t forget to do your research

Once you determine a strategy that aligns with your answers to the questions above, you can research the options available within the specific investment strategy of your choosing. For more help, check out our list of the best investment websites you can leverage.

Here are some key questions to consider when researching potential investments:

What are the tax implications?

For example, take the time to consider: Will you be subject to capital gains taxes or other taxes on your investment returns?

Understanding the tax implications of your investment can help you make smarter decisions and maximize your after-tax returns.

How has the investment performed historically?

Now, it’s time to do a little research. Look at how the investment has performed over time. How does it compare to similar investments?

While historical performance is never guaranteed, it can be a valuable indicator of future potential returns.

How is the investment managed?

Who manages the investment? Importantly, what is their track record?

Do they have a clear investment strategy? Are they aligned with your financial goals?

Before deciding what to do with 20k, ensure you know what type of management your investment will have and who will manage it.

What are the company’s corporate values and social impact?

Does the company behind the investment clearly commit to social responsibility and sustainability? Do their values align with your own? Do they positively impact society and the environment?

Choosing investments supporting your values will help you protect your peace of mind and improve the world.

Are there investment fees?

What are the fees associated with the investment? How do they compare to similar investments?

Remember that high fees can reduce your overall profitability.

What do market trends and indicators look like?

What is the current state of the market?

In other words, understand the difference between a bear and bull market.

How does this impact the investment you’re considering? Are there any potential risks or opportunities you should be aware of?

As always, research all potential risks before you decide how to invest $20k.

Expert tip: Starting a business is a great way to invest 20k

If you’re trying to figure out what to do with 20k to make it grow, you could also consider using this money to start a business or a side hustle. If you’re not sure where to get started, there are a lot of different ideas for side hustles out there.

You can earn money blogging, or become a graphic designer. Maybe you’ll start a cleaning business or consider learning about freelance marketing.
While you may not want to pour ALL of your saved-up $20k into starting a side hustle or business, you may choose to use a portion of it.

For example, you can use part of your savings to pay for equipment or take courses on how to launch your business. If you’re looking for new income stream ideas, starting a business or even a side hustle could prove profitable in the long run.

What can I do with 20k to make more money?

If you want to use your 20k to start making even more money, one of the best things you can do is build passive income streams.

For example, you may try starting a side hustle, launch a business that can eventually run with minimal input from you, and/or invest in real estate, stocks, bonds, or other assets.

Is $20,000 a good amount to invest?

$20,000 is a great amount to get started investing! If you want to keep things simple, consider investing your $20k in a 3 fund portfolio, AKA the lazy portfolio. That said, you can learn how to start investing with just a little money.

What is the best thing to invest $20,000 in long term?

There is no single best investment for the long term. Rather, the best investment for your $20k will vary depending on your own financial goals and risk tolerance.

One popular option for many people is investing in real estate, dividend stocks, and/or bonds with a brokerage account.

What is the best way to invest 20k short term?

If you want to be able to easily access your investment in the short term (i.e., in less than five years), then you’ll want to consider highly liquid investments, such as high-yield savings accounts, CDs, ETFs, or money market funds, etc.

Above all, you’ll want to avoid non-liquid (or illiquid) assets, like estates, collectibles, or other intangible assets.

Articles related to investing

If you gained valuable investing knowledge from this article, check out these posts next!

• Should You Pay Off Student Loans Or Invest?
• The Difference Between Savings And Investment: Does It Matter?
• How To Grow Your Money: 7 “Must Do” Tips
• How To Start: Passive Real Estate Investing

The best way to invest $20k depends on you!

Investing $20,000 can be a smart way to set yourself up for financial stability in the future.

By taking the time to carefully consider your financial goals, investment time horizon, and risk-tolerance level, you can choose the investment strategy that suits you best—and it won’t be the same for everyone.

Whether you opt for stocks, bonds, real estate, or other investment vehicles, it’s essential to research, stay informed, and make thoughtful decisions that align with your personal core values and goals.

So, use the knowledge and tools you have learned here to make informed decisions about the best way to invest $20k. Above all, don’t forget: Starting early and staying committed to your goals is the key to wealth accumulation.

The post The Best Way To Invest $20k appeared first on Clever Girl Finance.

Think you don’t have enough money to start investing? Think again! You can learn how to start investing for beginners today, even if you start your investing journey with just $100.

Although you might start out by investing small amounts, it can be a turning point in your finances. Investing money for beginners doesn’t have to be hard either!

When you decide to start investing, the most important part of the process is educating yourself. Learning how to invest for beginners will help you ease yourself into it and avoid common mistakes. Once you have a better understanding of investing, you will feel more comfortable as an investor growing your investments over time.

If you are reading this, then you are in the right place to get started. In this post, you’ll learn about how to start investing for beginners. And this information applies whether you have just a little money to invest or a lot of money to invest!

(P.S. As a woman, studies show you can be an amazing investor!)

What is investing?

When you decide to invest your money, you are choosing to put it into a vehicle with the goal of receiving a return down the line.

At some point, you hope that the money you put into an investment will grow. In most cases, you plan for little ongoing involvement on your part once you’ve invested the money.

Although most people associate investing with the stock market, there are many different types of investments. For example, you could invest in real estate or your own business. Ultimately, you’ll figure out your own investment style as you go.

No matter what assets you choose to invest in, you hope to earn money on that investment in the future.

Why is investing important?

Investing is one of the best ways that you can grow your money for the future. However, investing is not the same as simply saving money. Let’s look at a few reasons why investing is so important.

Investing can beat inflation

Saving money is an important place to start building a better financial future. However, your savings are diminished each day by the powers of inflation. Although your savings account might have the same balance ten years from now, that money will not have the same purchasing power that it has today.

Investing may seem like an expense, but really, with successful investments, you should be getting all that money back plus more. With investing, you are able to grow your money over time and keep the powers of inflation at bay.

Historically, the stock market has provided returns between 6% and 7%, with inflation factored in. Those returns can grow your savings dramatically over time.

Compound interest grows your money

The power of compounding can add to your nest egg. If you choose to reinvest your earnings over the course of many years, you’ll benefit from the compounding effect. Compounding is a process that grows your money over time by reinvesting your investment earnings.

Your money is always working for you

If you are just starting your journey of building wealth, then investing can help you reach your long-term goals faster. Instead of trading your time for money in order to build wealth, you can have your money work for you.

When your money starts to earn money through your investments, you won’t be completely dependent on your day job or your savings.

When should you start investing?

Before we dive into how to start investing, let’s talk about when you should start investing. Investing strategies typically involve a long-term timeline. With that said, the best time to start investing is as soon as possible.

The sooner you are able to start investing, the more time you’ll have to allow your investments to grow. Even when you’re investing for beginners with small amounts, it will add up over time.

Generally, you will use these investments to fund your retirement. So it is a good idea to start as soon as you can. You’ll want to give your investments plenty of time to build your wealth.

Learning how to start investing is an extremely important part of your financial journey. However, there are a few things that you should tackle before you start investing. Let’s take a closer look.

After you pay down high-interest debt

Paying off debt is the first step as you start thinking about investing for beginners. If you have any debt that is draining your resources each month, then you should focus on paying that down first.

Specifically, aim to knock out any high-interest debt, as this debt costs you the most as a result of compounding interest. An example would be high-interest credit card debt.

Once you’ve paid down your debt, you’ll be able to invest more comfortably. 

When you have an emergency fund

Living one paycheck from the edge is not a good feeling. An emergency fund can allow you to enjoy more financial breathing room in your life. Before you start investing, consider building an emergency fund.

Once you’ve paid down your debt and built an emergency fund, then it is time to revisit the topic of how to invest for beginners. If you start young, then the power of compounding can work in your favor. Even if you only have a few dollars to start investing, you should take action as soon as you can comfortably do so.

Keep in mind, if your employer offers a free match on your investments, you definitely want to take advantage of this match ASAP. It is essentially free money!

How to start investing money for beginners

Investing can change your financial future for the better. You don’t need a lot of money to start investing. In some cases, you only need a few dollars to get started.

Of course, you might have a goal of increasing your investments over the long term. But don’t let limited resources stop you from building your long-term wealth.

1. Learn about the different types of investments

There are many different types of investments, and it’s important that new investors understand all of them. Then you can choose the options that are best for you when you create your investment portfolio and financial plan.

Here’s a list of some of the types of investments you’ll encounter as you make financial choices:

Individual stocks

Individual stocks are shares of a company you can buy and have partial ownership.

Bonds

A bond is a type of loan that you can invest in and gain interest and your money back over time.

Mutual funds

With mutual funds, your money is pooled with other investors and used to purchase many different types of investments like stocks and bonds.

Index funds

One of the most popular kinds of mutual funds are index funds. They track a specific stock market index, like the S&P 500. When you buy a share of an index fund, you basically get a little piece of every stock within that index.

ETFs

Also known as exchange-traded funds, these are similar to mutual funds, but are traded on the open stock market.

Target-date funds

A target-date fund is another subclass of mutual funds. They’re designed for investors who have a specific date in mind when they’ll need to use their investment money.

REITs

Also known as Real Estate Investment Trusts, these allow you to invest in income-producing real estate (you are investing in the company that owns the real estate).

2. Create your plan for investing

Next, it’s time to sit down and create your basic plan for investing. Do you have debt to pay off first? Is your emergency fund where you’d like it to be? If so, you’re ready to begin investing for beginners.

As you familiarize yourself with the different types of investments, make sure to research their pros and cons. For instance, investing in individual stocks can be much riskier than a diversified S&P 500 index fund. Figure out what kinds of investments you want to focus on.

Do you already have some money saved up that you’d like to invest? Figure out if you want to put it in the market right away as a lump sum, or gradually by dollar cost averaging.

Lay out your personal goals for investing as well. For most people, one big goal is funding their retirement. But you may have other goals for investing too. Maybe you want to buy a house in ten years. Or send your kids to college. Investing can help you grow your money for those goals too.

We also have a free course to help you create a plan for your future self through investing!

3. Determine how much money you should invest

In this step, you’ll be crunching some numbers! First, you’ll want to figure out how much money you’ll need for your goal. Then, you’ll calculate how much you’ll need to invest over the years to reach that target.

Some experts advise saving 10% of your income for retirement. But is that really enough? It depends on how much you make, when you want to retire, and how much you want in your accounts by then. Here’s how to figure out if 10% is enough.

If your target numbers are a lot larger than the amount you can realistically afford to invest, you’ll need to look into ways to increase your income.

4. Begin investing money into employer-sponsored accounts

You may work for a company, where you likely have access to some employer-sponsored investment accounts. In general, these accounts are aimed at helping you save for your retirement in a tax-advantaged way. Many employers offer a 401(k) or 403(b). 

If your employer doesn’t offer a retirement account, then consider opening an IRA to start saving for your retirement. When it comes to investing money for beginners, these are some of the easiest and most accessible options—and some of the most powerful, too!

5. Try a robo-advisor (a great way to start investing for beginners)

Robo-advisors are one of the simplest ways to begin investing money for beginners. A robo-advisor is essentially a virtual financial advisor. The use of algorithms and technologies eliminates the need for a human financial advisor.

It will provide automated financial management services and tailor your investment recommendations based on your goals. Using one can definitely give you a bit of a shortcut as you learn how to start investing money for beginners.

The benefit of using a robo-advisor is that the fees are typically low, even though you are getting customized portfolio recommendations. It is a great way to get started with building wealth with little money. 

Most robo-advisory firms offer low account minimum requirements and take care of portfolio rebalancing for you automatically.

If you are interested in trying a robo-advisor and want to learn how to invest for beginners with one, then check out our favorite investment apps below:

• E*Trade: An award winning app that makes investing easy.
• M1 Finance: A highly rated app that allows you to automate your investing.
• Wealthfront: Allows you to automatically diversify your portfolio for long-term investing.
• Ellevest: This app focuses specifically on female investors’ goals and takes your values into account for investing.
• TD Ameritrade: Allows you to trade your investments easily.
• Acorns: Allows you to start investing with just $5, and it has the feature of a round-up savings account.
• Betterment: A solid option with automatic investing in index funds.
• SoFi: Begin with just $1 and no management fees.

6. Seek out a brokerage account

If you’re opening an IRA or another personal investment account, you’ll need to do it through a brokerage. There are many online brokers available on the market today. Each offers different services and charges different fees.

As you sift through your options, consider what matters to you most. In some situations, you may want to buy and sell stocks on a regular basis. Transaction fees for this can add up quickly at some brokerage firms. 

In other situations, you might choose to invest in index funds with fees built in. Either way, you’ll want to find a brokerage account that minimizes fees for your investment style.

Many brokerage accounts are set up so you can learn how to start investing with little money. Here are a couple of great online brokers to start with:

• Interactive Brokers: Award-winning broker without the high cost.
• E*Trade: Offers a quick and easy process to open an account.
• Webull: There are no deposit minimums with this well-reviewed broker.
• Charles Schwab: An incredibly popular broker that can help you with your investing needs.
• Fidelity: Known for its decades of investing experience.
• TD Ameritrade: Offers low rates and plenty of investment strategies.

7. Consider certificates of deposit (CDs)

Certificates of deposit (CDs) are a safe place to grow your money if you have a low risk tolerance.

Although you will likely miss out on bigger returns through the stock market, you won’t have to worry about any dips along the way.

CDs can be a particularly good option to save up for short-term goals. If you anticipate needing money in a couple years, you might not want to risk investing it in the stock market, which has periods of ups and downs.

8. Invest in yourself (a big part of how to start investing)

Investing in yourself is just as important as investing in the stock market. You might choose to invest in your financial education, which could save you thousands of dollars over the course of your life.

You might choose to invest in your business, which could allow you to take control of your income. 

Or you could choose to invest in your health. After all, a healthy body makes life more enjoyable. Here are some tips for living a healthy lifestyle on a budget!

9. Continue with investing over time

When it comes to investing money for beginners and seasoned experts alike, consistency is key! The more frequently you invest, year after year, the closer you’ll get to your goals.

These tips will help you stay consistent in life, no matter what habits you’re working on. Whether it’s investing for beginners, eating healthier, or staying organized, consistent action will make all the difference.

Expert tip: Take your time and don’t make impulsive decisions

When you first learn how to start investing for beginners, you’ll be reading through a lot of information. And it might even seem pretty straightforward! Just do X, Y, and Z, and you’re all set—right?

But it’s always different when you’re just reading about something vs. when you’re actually doing it yourself. There are a lot of feelings that can come with the territory of investing and money management.

Maybe your coworker told you about this “hot new stock” and got you really excited about it. Before you invest your hard-earned money, take a pause. Do your own research to decide if it’s really a sound move, or a risky gamble.

Similarly, there could be a day when the market has a slump and lots of people are panic selling. Will you let yourself get caught up in that, or will you stay calm, cool, and collected because you were already mentally prepared?

Since emotions are temporary, try not to base investment decisions on your feelings or what the people around you are saying. Make your plan based on research and facts, and stick to it! This way, you don’t have to be afraid of the stock market.

Investing money for beginners: Where should you invest first?

Now you know about some of the different investing options and how to start investing for beginners. That said, if you’re trying to determine where to get started with investing first, here are our suggestions.

1. Leverage tax-advantaged retirement savings accounts from your employer first

An employer-sponsored retirement plan is the best place to start investing money for beginners. Examples of these account types include 401k, 403b, and 457b. By leveraging tax-advantaged accounts, you can take full advantage of their tax benefits.

Taxes for employer-sponsored retirement account

Usually, your contributions to your retirement account will be taken out of your paycheck before your taxes are deducted (also known as your pretax income). This reduces your taxable income. As a result, the taxes on your income after these deductions (post-tax income) would be lower at the end of the year.

Also, these accounts offer a deferred tax benefit. This means you don’t have to pay taxes on your investments until you start to make withdrawals on the accounts once you reach retirement age (age 59.5). Or at the required withdrawal age set by the IRS (age 72).

2. Set up your own IRA

Next, you can go about setting up a traditional IRA or Roth IRA (Individual Retirement Account). 

If your employer does not offer any type of retirement savings plan, an IRA is a great place to start. These account types also have their own tax advantages, which makes them particularly beginner-friendly. There is a contribution limit for these, according to the IRS, that you should be aware of, though.

Traditional IRAs have the same tax benefits as traditional 401(k)s. Roth accounts are a little different, because you pay taxes on your contributions the same year instead of waiting until it’s time to withdraw. Learn more about Roth IRAs and other 401(k) alternatives here.

3. Open your own brokerage account

Once you’ve fully leveraged the tax-advantaged accounts you are eligible for, you can also open a regular brokerage account. It will allow you to invest any extra money you have after you have maxed out your tax-advantaged accounts.

Keep in mind that while a regular brokerage account is a taxable account, you don’t have to pay any taxes until you actually sell your investments. These types of taxes are called capital gains taxes.

What to remember as you learn how to start investing for beginners

Investing is a great way to build a solid financial future. However, there are some pitfalls to look out for as you learn how to start investing. If you can avoid some of these mistakes, then you stand to save yourself thousands of dollars.

Understand the fees (and avoid them)

When you learn how to start investing and begin looking through funds to invest in, you’ll notice that each comes with a set of fees.

In many cases, the fees can range from 0.5% to 2%. Although that tiny swing in percentage points might not seem like an important detail, it can make a big difference in your portfolio’s growth.

In fact, a 2% fee could add up to hundreds of thousands of dollars over the course of your investing career. When you decide to invest, you should make sure to research the fees and minimize them wherever possible.

Prepare with your risk tolerance in mind

When you choose to invest your money, you should assume that you might lose some of your investment along the way. The market will rise and fall and there are plenty of fluctuations.

Although it historically has risen through the years, that is not an indicator that it will continue to rise steadily. It is likely that there will be some dips along the way.

It is important to understand your risk tolerance and consider that as you invest your money. Take our quiz to gain a better understanding of your risk tolerance. Researching your investments is also key when it comes to assessing risk.

You should also think about your investments in terms of what is a long-term goal or a short-term goal. Make it part of your personal finance plan to know how much you’re investing for the near future and how much for retirement, as this can affect how much risk you take with investments.

Diversify with different types of investments

The best way to mitigate your risk in the market is diversification of your investments. You don’t want to pool all of your investments into one particular company that goes under. 

Instead, you want your investments spread out in many sectors of the market. If one area of the market falls, then you will not be left with a badly sinking portfolio. As you learn how to start investing for beginners, try to get a mix of assets like stocks, bonds, mutual funds, and more.

Two great diversified portfolio types to consider are the three-fund portfolio and the all-weather portfolio.

Rebalance along the way

When learning how to invest for beginners, you should plan to stay on top of your investments over time. Make sure that you are still on track with your objectives and that the timeline still fits into your goals.

The market will rise and fall, you’ll need to rebalance to ensure that you don’t leave all of your eggs in one basket.

Automatic rebalancing can also be a great approach to ensuring your portfolio is always in alignment.

Don’t try to time the market

Remember, investing is a long-term strategy to build wealth. You should not try to time the market by buying low and selling high.

Not even the most advanced investors can consistently beat the market. Instead of looking for short-term wins, focus on long-term goals and gains.

Although you won’t build wealth overnight through the stock market, you can with many years of consistent investing.

Don’t forget about taxes

Remember taxes when you are planning out your investments. There are different strategies that you can use to lower your potential tax burden, but they require careful planning.

If you aren’t sure about the tax implications of your situation, then consider talking to a tax professional.

Don’t wait to invest

Although it is important to educate yourself before investing, you should not wait too long to get started. With investing, you want to have the value of time on your side.

The sooner you are able to start investing, the better, as your investments will have more time to grow. That time could lead to significant growth due to the power of compounding.

Avoid making emotional investment decisions

When you learn how to start investing, you will realize that you have some strong emotions attached to your investments.

After all, you are hoping that these investments will lead to a better future. And many people have a fear of loss that may make investing more challenging.

The stock market comes with highs and lows, and you should be emotionally prepared to weather these storms. When the market inevitably drops, you should not pull all of your money out of the market.

Instead, you should wait until it rebounds and you are ready to make a withdrawal. However, this is easier said than done.

In order to avoid a painful experience, make sure to understand your risk tolerance before you start investing. With that, you can choose investments that are less likely to cause panic in your life. Stick to what makes you comfortable, and always make your investment decisions with a clear head.

Remember, nothing happens overnight

You should not assume that your money will grow overnight when you start investing. In fact, it will rise and fall many times on the way to growth.

As you get started, realize that investing is a long-term strategy for wealth building. But it will not make you rich overnight.

What type of investment style is right for you?

The only person who can determine the best investment style for you is you.

You need to think about how old you are, how long until you retire, and what your risk tolerance is. Beyond that, think of your personality and what makes sense for you.

Robo-advisor options are best for people who like to have a little control over their own investments and like technology. Others who prefer some personal guidance may want to work with a financial advisor to discuss their options. After researching, choose what you’re comfortable with.

How should a beginner start investing?

Here are the key steps summarized when it comes to how a beginner should start investing:

• If your employer offers a retirement plan like a 401(k), talk to HR about setting up contributions.
• Whether or not you have a work retirement plan, you can also open an IRA through a variety of online brokers and invest in that.
• To make additional investments outside of retirement accounts, open a regular investment account with a brokerage firm or robo-advisor service.

These three options will allow you to invest as much money as you want!

Is $100 enough to start investing for beginners? 

$100 is absolutely enough money to start investing for beginners! Many online brokers have low account minimum requirements to make investing accessible to more people. Some don’t have an account minimum at all, so you could even start investing with $10 if you want! 

Furthermore, some brokerages offer fractional shares, sometimes called “stock slices” as a way to invest.For instance, if you want to buy a share of a stock or index fund that costs $200, but you only have $100, this would enable you to buy half a share.

Is $1,000 a good start for investing?

Reaching your first $1,000 invested in the stock market is an occasion worth celebrating! That’s a thousand dollars that can immediately get to work and start growing.

If you want to earn extra money so you can invest $1,000 every month, think about starting a side gig. Here are 30+ ways to earn an extra $1,000 a month.

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• Real Estate Investing For Beginners: Getting Started

These tips make how to start investing for beginners a breeze!

The best way to build wealth through investing is to get started as soon as possible. You can learn how to start investing today! Even if you are just starting with $20, you can build your portfolio over time.

If you want to learn more and make good investment choices, then consider taking our completely free investing course.

You’ll learn more about how to start investing money for beginners, how to research your investments, and how to pick the right broker for you.

And remember that investing is one part of your overall financial health. There are many other things you should also learn about like saving, budgeting, and managing your money. It all fits together like a puzzle—and the picture it shows is a beautiful financial future!

The post Investing Money For Beginners: How To Start Investing Today! appeared first on Clever Girl Finance.

Whether you’ve recently gotten lucky or scrimped and saved for a few years, knowing what to do with 50k is essential. Having money in the bank is a unique opportunity. It means you can grow it and have an even larger safety net.

So, how can you get started, and what are the smartest options? Allow us to take you through what to do with 50k in savings!

How much is $50k and how can you get it?

You may have a significant payout from a previous job or even receive an inheritance from a loved one.

In addition, when you start to cut back, use effective money-saving tips, and use high-interest accounts, you may find that the cents start to turn into dollars fast and you find that you are able to save 50k.

At first glance, $50,000 may sound like a huge chunk of money. If you’re working a minimum-wage job or don’t have a gigantic salary, you could feel it’s out of reach. Or it could be that you are wondering how much 50k a year breaks down to in hours.

What ever your thought process is, the truth is that saving $50,000 is viable for many of us. At the very least, it’s a good goal to have.

And no matter how you have come to have $50,000 in your bank, you need to know how to use it.

What to do with $50k before you invest it!

If you’re lucky enough to have 50k in cash, the obvious move is to invest it.

However, before you look into your options for what to do with the money, getting yourself into a solid financial position is the first step. With that in mind, here are a couple of the admin tasks you should take care of first:

Pay off your debts

It’s much easier to land yourself in debt than it is to get out of it. If you owe money, now is the time to settle things once and for all.

That means learning how to pay off credit card debt fast or repaying outstanding loans.

If you haven’t already got a debt reduction plan, now is a good time to start.

For example, one of the popular strategies that I prefer for paying off debt is to start by paying off high-interest debt, like credit cards.

Sometimes, I can wipe out the debt completely with one large payment. Remember, you need to check the small print of any loans you have taken out.

Paying off debts is rarely a fast process. However, armed with the 50k in cash, you are in a better position than most people.

Figure out a payment plan that works for you—and your other investment plans—and take things from there.

Create an emergency fund

Unless you have a crystal ball, chances are, you can’t see into the future. Since you don’t know what will happen in the months or years to come, you need an emergency fund.

Putting cash aside in case you ever need it will give you a sense of security. Having this pot in place can help you should you face sudden costs, such as:

• Car breaking down
• Losing your job or income
• Facing costly problems in my home
• Needing to travel on short notice

Ensuring the fund is ready and waiting for you will give you the peace of mind you need. When the unexpected happens, you will be in the best position to deal with it.

18 Smart ways to grow $50k in cash

When it comes to what to do with $50k in savings, the important thing is not to let it go to waste. That said, if you are wondering how you can make your money work for you, below are some ideas to get you started. You can also find a wealth of tips in the Clever Girl Finance book, Learn How Investing Works, Grow Your Money!

1. Invest in index funds

If you want to build a successful financial future, you may want to make investing with index funds a part of your long-term strategy.

Index funds are types of stock market investments that follow and track stock market indexes, like the S&P 500, and are typically low cost.

For example, if you invest in an index that tracks the S&P 500, you will be invested in the 500 companies that make up the S&P 500.

When you buy into an index fund, you are essentially investing in every single stock within that fund—without buying individual stocks. It doesn’t end there.

You could also invest in a total market index fund, which splits your money equally across the entire stock market.

The great news about index funds is that because they are not actively managed like mutual funds, the expenses ratios are much lowers which means more of your money can grow!

2. Buy a rental property

$50,000 makes a nice down payment if you want to invest in the property market. One of the most effective ways to capitalize on the market is buying a house to rent out.

While there are additional costs associated with this investment, it could make you a good income.

Before you get started with this venture, consider the logistics of it.

Will you use a management agency to let the property out for you? How “hands-on” do you expect to be? What extra money will you need to maintain the property to a high standard?

If you can answer these questions, you may be in a good position to invest in a rental home.

3. Start a business

Did you know that you could start a business with $50K? If you’ve been thinking about starting a side hustle or business, you can use this money to get things off the ground.

A massive 99.9% of US businesses are small businesses. Read our guide on how to start a business from scratch before you begin planning out your next business venture.

Of course, there’s a whole world of business opportunities out there. You may want to start a business with 50k by setting up a hospitality venture, such as a cafe or a bar.

On the other hand, there’s always the option to start an online store selling bespoke products to a broader audience.

Consider your personal interests and how you can translate them into a startup business.

4. Flip a house

House flipping means buying an old property that desperately needs work, making it over, and then selling it for a profit. Average gross profits on home flips can be quite good.

If I was considering whether this option works for me, I would need to consider how much the renovations will cost, any tradesmen fees, and the price of the property. I will also need a surveyor to take a look at the property before I go ahead and buy it.

I believe that understanding the extent of the work that needs to be done is essential to the investment. 

5. Invest in saving bonds

Next, let’s talk about a traditional way to boost your capital: saving bonds. When you’re deciding what to do with 50K, this is one of the most straightforward options.

Put simply, you buy a bond at face value, wait for it to mature, and then reap the rewards.

If you’re unsure where to start when it comes to investing your money, a saving bond is an ideal option. These are low-risk investments, which means that you aren’t going to lose all of your $50,000 in one unfortunate move. You can rest assured that won’t happen.

One of the biggest advantages of saving bonds is that they are backed by the full faith credit of the American government.

In layperson’s terms, you are not loaning money to a commercial entity but to the government. For that reason, these bonds are considered some of the safest investments for your money. Also, check out more of the best compound interest investments.

6. Boost your retirement savings

Now that you have excess money in the bank, it may be a smart time to increase your retirement savings.

Unfortunately, the truth is that many people out there lack a proper plan. One in four Americans don’t have any retirement savings whatsoever, explains Yahoo Money. If you fall into that category, now is an ideal opportunity to rectify things by creating a sustainable savings strategy.

How many IRAs can you have in your retirement strategy? Believe it or not, you can have more than one, like a Roth IRA or a traditional IRA. Both of these accounts offer tax advantages to help you grow your money over time so you can best protect yourself in retirement.

Take the time to learn the difference between the different types of retirement accounts. Then, look up your contribution limits. Check the yearly allowance for IRA contributions guidelines before you start topping it up.

Other more unique ways to grow $50k in cash!

While real estate, bonds, and retirement investing are all good options for your $50k, there are other ways to use the money. Here are a few ideas:

7. Buy artwork that appreciates

Are you a creative person or just someone who appreciates art? If the answer is yes, you can use your 50k to invest in some masterpieces.

There are many ways to invest in this sector. You can check out the U.S. News guide to buying art as a first port of call.

Consider whether you want to invest in individual pieces, look into fractional share agreements, or even throw your money into an art fund. The more research you do about the art world, the better position you will be in when buying some.

8. Invest in a startup

A startup is a new business that often needs investors to help it grow. You can be part of this!

It can be somewhat risky, but you can increase your chances of success by researching and understanding the startup before investing money.

You can be paid in a few ways, including shares and interest.

Help crowdfund a startup by checking out sites like Wefunder or StartEngine.

9. Invest in farmland

Owning farmland can be a lucrative investment, and it’s one of my favorite investing ideas. You can make money from rent as well as appreciation.

In addition to simply purchasing farmland, you may also choose REITs or crowdfunding to start your investing.

10. Consider cryptocurrency

Cryptocurrency is an alternative method of making money, but it can be profitable.

However, investing in cryptocurrency is not without risk and should be considered carefully.

Cryptocurrency is a new type of digital currency that you can buy. It may not immediately yield a profit, but it may benefit you in the long term. If the prices of crypto increase, you can sell what you own for a profit.

There are a variety of cryptocurrency options. Check out Coinbase to purchase this currency. Popular currency options include Bitcoin, Ethereum and Litecoin.

11. Invest for your children’s education

A great way to invest your money is to start saving for your children’s future with college savings plans.

A college 529b plan is one option for storing money for college because it lets you withdraw the earnings tax-free if they’re used for qualified education purposes.

You might also consider investing in another way, such as opening custodial accounts or even a regular investing option like index funds that you can use later for their education.

12. Buy ETFs

While they seem similar, there is actually a difference between index funds and ETFs, that has to do with the time that they are traded. Exchange-traded funds (ETFs) are an aggregation of stocks, bonds, and other securities.

For this reason, investing in ETFs makes it easier to create a portfolio with diversification than investing in individual stocks.

Another main benefit of ETFs is their very low minimum requirements to get started. It makes them a great option for beginner investors wondering what to do with 50k.

13. Consider real estate investments

Don’t want to buy a house? No problem—you can still try real estate investing for beginners via a real estate investment trust (REIT).

REITs own and/or operate properties like hospitals, warehouses, shopping centers, etc. REITs are publicly traded on stock exchanges, so they’re a great way to get into real estate investing without having to plunk down a down payment on a house—and then maintain that house.

14. Buy certificates of deposit

What is a Certificate of Deposit? Certificates of Deposit (CDs) are savings accounts offered by banks or credit unions.

Basically, you agree to keep your money in that financial institution for a specific amount of time—and they reward you with an agreed-upon APY (annual percentage yield). 

CDs can be a solid portion of your investment portfolio especially for short term savings. But there are both advantages and disadvantages of CDs to consider before investing.

For instance, an advantage is you are guaranteed a specific interest rate and your money is FDIC insured. up to $250,000 A disadvantage if that if you withdraw the funds before the time elapses you may be charged a fee.

15. Open a money market account

There are many different types of bank accounts. To safeguard and grow your $50k, you can also consider opening a money market account.

A money market account offers higher interest rates than a typical savings account.

However, like a checking account, it allows you to write checks.

16. Put money in a high-yield savings account

Investing in the stock market is a great way to help your assets grow. But when figuring out what to do with $50k, don’t forget to maintain an emergency fund!

My idea of a great place to store my emergency fund is in high-yield savings accounts, which offer higher interest rates than typical savings accounts. I’ve found that these account types are also FDIC insured up to $250,000.

17. Invest in dividend stocks

Basically, a dividend stock is any stock that pays out dividends to its shareholders.

Investing in dividend stocks gives you two opportunities to grow your $50k. First, dividend stocks give you the chance to earn income through dividends.

Secondly, dividend stocks can also help you build your overall net worth over time if the stock’s value increases.

18. Contribute to an HSA

An HSA is also know as a Health Savings Account. Importantly, it is a great way to help save for future medical expenses. 

With an HSA, you can both contribute and let your money grow tax-free until you withdraw it to pay for qualified medical expenses.

Pretty much everyone can benefit from an HSA, so if you’re wondering what to do with 50k, it’s well worth learning more about how a health savings account works!  

Expert tip: Diversify your $50k to avoid volatility

One of the best investing tips is to diversify your portfolio. In other words, don’t put all your money in the same place. So if you’re trying to decide what to do with 50k, consider coming up with a few options, instead of just one.

For example, you can keep some money in a high-yield savings account as your emergency fund, invest some money in REITs, and use the rest to buy ETFs.

3 Mistakes to avoid with 50k in cash

If it’s the first time you’ve had this much money or wondered what to do with 50k in savings, you may be excited and want to start using it.

That is completely natural, but you need to slow down. Here are some critical mistakes to avoid:

1. Failing to invest

Having your entire $50,000 sitting in your bank account won’t do you any favors. While it may seem like the obvious move when you don’t know where to start, you are wasting an opportunity here.

You need to be sure that you are making a reasonable return on this money by learning to invest smart. Take a look at our list of ideas or seek independent advice on the issue.

2. Splurging it all on vacations

Fancy heading off to Barbados? What about jet-setting to Dubai? I love vacations, so this is a splurge I have to be aware of!

While we all deserve a treat now and then, spending all your money on a luxury vacation is a mistake. When it’s over, your bank account will be empty, and you won’t have anything to show for it.

That doesn’t mean you have to invest all your money. Splurging a little on yourself can help you get it out of your system.

If there is something that you have always wanted, see if you can afford it. Set aside some cash for vacations and extravagances.

But just because you have $50k doesn’t mean you have to increase your expenses. Instead, remind yourself to avoid lifestyle inflation.

3. Giving the money away recklessly

Be sure to keep your 50K in cash safe! Whether you fall foul to an online scam or are pressured to give your money away to someone you know, there’s no doubt that you will regret doing so.

It’s a sad fact, but when people know you have money, they may try to extract it from you.

While there’s nothing wrong with helping out someone who is genuinely in need—such as a close friend or family member—be aware that people may try to take advantage of you.

Ensure you are practicing how to be smart about money and doing things for the right reason—not because you feel you have no other choice.

How much interest will $50,000 earn in a year?

The amount of interest you can earn on $50,000 in a year depends on what the annual interest rate is. For example, if your annual interest rate is 4%, you could earn $2,000 in interest on $50,000 in a year.

Keep in mind that this number can vary depending on where you invest your money.

Is $50k a lot of savings?

$50k is a lot of savings and definitely an important milestone to celebrate. However, 50k will not be enough to sustain you in retirement, so it’s important to find ways to invest and continue to grow that 50k. 

What is the best investment for $50k?

There is no one best investment for $50k for everyone. But there is one golden rule regarding investing: diversify, diversify, diversify!

So when researching the best investment for 50k, remember to consider a breadth of options, like ETFs, REITs, dividend stocks, etc.

Is $50k too much in savings?

Deciding whether $50k in savings is too much depends on your lifestyle. Generally, it’s recommended to have an emergency fund that equals 3 to 6 months of living expenses. For some people, this may be 50k.

That said, if your living expenses are relatively low, I think $50k may exceed your emergency fund needs. In my opinion, that makes it a good idea to invest at least some of that 50k. 

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• $50k A Year Is How Much An Hour?
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You can create great opportunities by being smart with your $50k!

Knowing what to do with 50k doesn’t have to be challenging. The truth is that this is an opportunity, and you can easily grow your money. You might choose to start a business with 50k, invest, or do something else.

In this guide, we’ve covered some of the most effective strategies you can use to make a good return on the lump sum of money.

Use it as inspiration when deciding what to do with your newfound wealth. You might also want to consider, “Do I need a financial advisor?”, think about using robo-advisors, or get independent advice on what the next steps could be for your savings.

The post What To Do With $50K: 18 Smart Ideas To Grow Your Money appeared first on Clever Girl Finance.

When you want to start building wealth through investments, you might be wary of the complexities associated with traditional stock picking. However, thankfully, not all investments have to be complicated or costly. With low cost index funds, you can grow your investments for a great price, so keep reading to find out more about index funds, what makes them cost-efficient, and learb about 16 popular low cost index funds. 

What is an index fund?

An index fund is a sort of investment fund, typically a mutual fund or an exchange-traded fund (ETF), designed to replicate the performance of a specific market index. These funds aim to mirror the returns of an index like the S&P 500, Dow Jones Industrial Average, or the Nasdaq Composite by holding a portfolio of securities that resembles the composition of that index.

What makes an index fund low cost?

The cheapest index funds generally have very low expense ratios, usually below 0.65%. These expense ratios are how much of the fund’s assets are used for operating expenses.

In other words, if you buy a fund for $100 and it has an expense ratio of 1%, that means $1 of your money will go towards paying for operations every year. 

Unlike actively managed mutual funds, which involve teams of financial experts making decisions about which stocks to buy and sell, index funds operate on a passive strategy. They aim to have a similar performance to a specific market index, for example, the S&P 500 or the Nasdaq. 

Because there is no active management involved, the costs associated with research, analysis, and constant trading are significantly reduced. Because low cost index funds rarely buy or sell securities, they incur fewer transaction costs. This also makes them more tax-efficient, potentially saving you even more money. 

Things to think about when selecting an index fund

While low cost is one factor to consider, there are other things to consider when investing with index funds to ensure they align with your financial goals and risk tolerance:

Investment goals

Think about your goals and determine your investment objectives.

For instance, are you looking for long-term growth, income, or a balance of both? Why do you want to invest in index funds? Knowing your financial goals can help you figure out which low cost index funds make the most sense for you. 

Risk tolerance

Assess how much risk you’re willing to take and how risk averse you are. Different index funds may track different markets with varying levels of risk, but all investing is risky.

If you’re okay with the possibility of losing a good portion of your money for a potentially high return, then certain index funds might make more sense. However, if you don’t want to take any risk, then a more conservative investment fund could be the best solution. 

Overall portfolio strategy

Before you purchase some of the least expensive index funds, consider how they fit into your broader investment portfolio. Your strategy is a type of roadmap to help you achieve your financial goals. Keep your objectives in mind, especially when the market is volatile.

Remember that diversification is key to spreading investment risk.

For example, other types of strategies might be looking at short-term investments, passive investments, or investing in a mix of low and high-risk investments.

Think long term

Long-term investing is the goal for index funds. Make sure your investment horizon matches this strategy.

If you are looking for a short-term investment of, say, less than six months, then another investment vehicle might make more sense for you. 

16 Popular low cost index funds

Index funds are one great way to begin investing in the stock market, particularly if you have stock market fear. Want to start investing in a low cost index fund but aren’t sure where to start? Here are 16 cheapest index funds that you can research.

1. Fidelity ZERO Total Market Index Fund

Symbol: FZROX

Expense ratio: 0.0% 

One of the most unique things about the FZROX is that the expense ratio is 0%. It also charges no commissions and has a zero minimum structure. This makes it among the least expensive index funds.

It was launched by Fidelity in 2018 to capture the entire stock market and includes stocks like Apple and Microsoft. However, like other total market index funds, it is also exposed to the volatility of the broader market. 

2. Schwab Total Stock Market Index Fund

Symbol: SWTSX

Expense ratio: 0.03% 

This fund by brokerage firm Charles Schwab has been around since 1999 and tracks the entire market, as measured by the Dow Jones U.S. Total Stock Market Index. It’s a straightforward, low-cost investment fund that gives investors access to the entire U.S. stock market with stocks like Meta and Exxon Mobil.

It’s a fund designed to give investors exposure to all small, mid, and large-cap companies across the country. 

3. SPDR S&P 500 ETF Trust

Symbol: SPY

Expense ratio: 0.09% 

This index fund created by State Street Global Advisors in 1993 correlates with the performance of the S&P 500.

In other words, if you were to invest in all companies from the S&P 500, like Berkshire and UnitedHealth Group, you would likely get similar results. It gives investors exposure to the biggest U.S. companies. 

4. Vanguard Total Stock Market Index Fund

Symbol: VTSAX 

Expense ratio: 0.04% 

Started in 1992, this fund by broker Vanguard provides exposure to the entire U.S. equity market. That includes both small, mid, and large-cap growth and value stocks.

In other words, it gives investors the opportunity to track all U.S. public companies, including Apple, Tesla, and Facebook. Because of that, it is also more volatile, as the fund is exposed to the overall dips in the broader stock market. 

5. iShares Core S&P 500 ETF

Symbol: IVV

Expense ratio: 0.03% 

The IVV is another index fund created by brokerage company BlackRock in 2000 that invests in large U.S. companies. It is a low cost fund giving investors exposure to 500 of the largest U.S. companies by market cap.

It’s usually for investors wanting long-term exposure to larger companies, and can be great if you’re wondering, “is now a good time to invest?”

6. Fidelity 500 Index Fund

Symbol: FXAIX

Expense ratio: 0.015% 

Fidelity created this fund in 1988, and it also aims to track the returns of the S&P 500. It keeps track of the performance of the largest companies which make up the S&P 500, which is great if you prefer a straightforward approach to investing.

7. Fidelity U.S. Bond Index Fund

Symbol: FXNAX

Expense ratio: 0.025% 

If you want to invest in bonds instead of stocks, the FXNAX does just that. Another fund by Fidelity started in 1990, it follows the price of debt securities in the Bloomberg U.S. Aggregate Bond Index.

In other words, it invests in U.S. debt, including government and corporate debt and mortgage-backed securities. 

8. Vanguard Real Estate Index Fund

Symbol: VGSLX

Expense ratio: 0.12% 

This index fund by broker Vanguard from 2001 invests in real estate investment trusts (called REITs) like Public Storage and American Tower Corp.

While real estate can be expensive, a real estate fund is one way to get exposure to the housing market without needing to buy your own property and it can be especially helpful when learning real estate investing for beginners. 

9.  Fidelity Real Estate Index Fund

Symbol: FSRNX

Expense ratio: 0.07% 

The FSRNX index fund by broker Fidelity aims to get returns that correspond to the total return of REITs and other similar real estate investments.

Created in 2011, it includes exposure to companies like Crown Castle and Public Storage. Like the VGSLX, this index fund is geared towards investors who want exposure to the real estate market. 

10.  Fidelity Total International Index Fund

Symbol: FTIHX 

Expense ratio: 0.06% 

Another Fidelity fund, the FTIHX index fund, gives investors exposure to international markets. That includes established markets like Europe and other developing markets like India.

Started in 2016, it’s designed for investors who want to diversify their investments outside of the U.S. 

11.  BNY Mellon Core Bond ETF

Symbol: BKAG

Expense ratio: 0.0% 

With no expense ratio, the BKAG is among the cheapest index funds. Started by investment manager BNY Mellon, its goal is to track the performance of the Bloomberg U.S. Aggregate Total Return Index.

12.  Schwab S&P 500 Index

Symbol: SWPPX

Expense ratio: 0.02% 

Like a lot of other funds on this list, the SWPPX index fund by broker Charles Schwab also tracks the S&P 500. This fund started in 1997, captures about 80% of the current market capitalization across the country, meaning your investments are exposed to a good chunk of the U.S. economy. 

13.   Vanguard Growth Index Fund

Symbol: VIGAX

Expense ratio: 0.05% 

This index fund by broker Vanguard focuses on U.S. companies that tend to grow quicker than the broader market. Created in 2000, it focuses on large-cap growth stocks, which means it can be a bit more volatile than other broader indexes and doesn’t always follow broader market movements. 

14.  SoFi Select 500 ETF

Symbol: SFY

Expense ratio: 0.19% 

While the SFY index fund does have a higher expense ratio than some other funds on this list, at the moment, the expenses are waived. That means you can invest in this low cost index fund at no extra cost for the time being.

The SFY fund was created by broker SoFi in 2019 and is made up of the 500 largest U.S. companies, but the amount invested in each one varies based on the growth rate of the company. 

15.  Vanguard S&P 500 ETF

Symbol: VOO

Expense ratio: 0.03% 

This ETF by broker Vanguard began in 2010 and invests in stocks that are in the S&P 500. Like other index funds focused on the S&P 500, it aims to track the index’s return.

In other words, the VOO index fund tries to have the same return as the top 500 U.S. companies. 

16. Vanguard Total Bond Market Index Fund

Symbol: VBTLX

Expense ratio: 0.05%

This index fund by broker Vanguard covers the U.S. bond market. Created in 2001, it invests in a number of investment-grade bonds, such as U.S. Treasuries and mortgage-backed securities.

It invests in a variety of bonds to represent the fixed-income market and can be thought of as a core bond index fund.

Expert tip: Look for investments with consistent track records

When investing in index funds, focus on consistency and reliability, especially when learning how to invest with little money. Look for funds that have a long track record of closely tracking their respective indices and have a history of decent returns.

In addition, carefully consider different factors like the index funds dividend yield, expense ratio, and fund size and make sure it matches up with your individual investing goals.

What is a low cost index fund?

Low cost index funds are a way to provide broad exposure to a particular segment of the financial markets without the high fees associated with more traditional investments.

A low cost index fund is a passive investment vehicle created to replicate the performance of a specific market index while keeping expenses minimal. Index funds are known for having low expense ratios.

Additionally, index funds do not rely on active stock selection, market-timing strategies, or buying individual stocks. Instead, they hold a diversified portfolio of securities that mirror the composition of the chosen index.

Are low cost index funds worth it?

Low cost index funds are often considered a smart choice for investors seeking broad market exposure with minimal fees. Over the long term, the lower costs can significantly impact returns, making them a worthwhile investment.

For this reason, including them in your portfolio can help to keep it diversified and inexpensive.

Is the S&P 500 a low cost index fund?

No, the S&P 500 is an index, not a fund, so it can’t be traded in directly. It’s a stock market index that represents a group of 500 of the biggest publicly traded U.S. companies. It serves as a benchmark for the overall performance of the U.S. stock market.

However, it’s possible to invest in the companies that comprise of the S&P 500 by investing in low-cost funds or ETFs that track the index. 

Can I purchase index funds with only $100?

Yes, it is possible to buy index funds with $100. Many index funds have low minimum investment requirements, for $100 or even less.

This accessibility makes them suitable for a wide range of investors learning how to invest with little money.

Some financial institutions also offer fractional shares of investments, which allow investors to buy a part of a share for even less than $100.

Articles related to index funds and investing

If you learned something new from reading about inexpensive index funds, check out these other articles next!

• Index Fund Investing: How it Works And Best Funds
• The Difference Between Index Funds And ETFs
• How to Grow Your Money: 7 “Must Do” Tips
• The 3 Fund Portfolio: Simple Investing That Works

Find the best and cheapest index funds for you!

If you want to start investing but aren’t sure of the best way, investing in a low cost index fund could be a good way to start.

Additionally, some of the least expensive index funds allow investors the chance to diversify their holdings. Investing in an ETF or index fund is a simple and easy way to learn how to start investing. 

Just remember that investing comes with risk. Keep working toward your long-term financial goals and even check out examples of financial goals to keep in mind and consider your risk tolerance before you start investing in low cost index funds. 

The post 16 Popular Low Cost Index Funds appeared first on Clever Girl Finance.

On your road to building financial wealth and developing your financial wellness, one of the most important things to remember is to diversify, diversify, diversify. Diversifying includes broadening your investment portfolio to include highly liquid investments.

Liquid investing offers the opportunity to build your wealth while keeping your funds easily accessible. With the help of liquid investments, you can steadily grow and track your net worth without tying up all of your funds in an inaccessible investment opportunity.

Not sure where highly liquid investments have a place in your portfolio? Here’s your primer on the subject, along with some of your best options to consider to get started!

What is the definition of liquidity?

To fully understand what liquid investments are, it helps to understand liquidity.

What does liquid net worth mean, and what does liquidity mean? Liquidity means you have a sufficient amount of accessible liquid assets that you can easily convert into cash. E.g., your liquid net worth, when you add all of your liquid assets together and subtract your liabilities.

Liquid investments are types of investments that you can smoothly convert to cash. 

For your day-to-day life, this basically means you have enough cash (or cash equivalents) on hand so you can pay all your expenses on time without bills piling up.

The ease of access makes a liquid investment a great place to store your emergency fund. Another useful purpose for a liquid investment is a place to build your savings as you work towards a major purchase, such as a car or a down payment on a home.

On the other hand, an illiquid investment would require you to relinquish regular or easy access to the funds in favor of a higher potential return. It could also mean that if the investment has a short term decline, you may lose money if you liquidate it at that time.

Highly liquid investments 101

As you know, liquid investments are assets that can easily be converted into cash in a short amount of time with little to no decrease in their value. Highly liquid investments, on the other hand, are simply assets that can be most easily and quickly converted into cash.

You may also hear highly liquid investments referred to as cash equivalents. This is because people can usually have confidence that they can easily exchange their liquid investments for cash at any time, whenever they need.

But there’s more to liquid investments than just being cash equivalent.

Factors that make an investment liquid

In order for an investment to be a highly liquid investment, it must meet a number of factors:

1. The asset must be in an established liquid market.
2. The asset must maintain a large number of readily-available, interested buyers.
3. The asset must be able to be transferred easily and securely and also maintains its value.

Why are highly liquid investments important?

If you’ve done any reading about why personal finance is important and how to strengthen your personal finances for today, tomorrow, and the future, then you’ve undoubtedly read about the importance of investing in retirement accounts, which is different from liquid investing.

But while fattening up your retirement accounts and investing smartly to plan for retirement savings should certainly be a top priority, you also need to think about the here and now.

Being prepared for the near future makes highly liquid investments very important.

Low-risk investing for the near future

Owning liquid investments means that you can pay for your living expenses today. It also gives you a comfortable cushion to prepare you to pay for any emergencies that may come your way.

Liquid investments are a great tool when you’re saving for a short-term financial goal. This means you can incrementally grow your funds and then still easily access the cash you need in the near future. It also gives you an opportunity to learn how to start investing but with low risk.

How near is the near future? Liquid investments are a good option when you want to be able to use that cash in less than three years.

The easy access to cash makes highly liquid investments a great option for saving for things like an emergency fund, a down payment for a new house, or a wedding.

The downside to highly liquid investments

Remember the first rule to investing: diversify, diversify, diversify.

Although liquid investments can be very advantageous and should definitely make up a portion of your overall investment portfolio, you definitely do not want to rely solely on liquid investments to build your wealth.

What’s the catch with highly liquid investments?

Well, the more liquid an asset is, the less its value will increase over time.

For example, suppose you’re saving up for a big purchase in the near future.

You may choose to maintain some funds in cash, one of the most highly liquid investments. But over time, the cash won’t be able to compete with inflation. Inevitably, its purchasing power will decrease as the years go by.

This is why preparing for retirement is about more than just saving cash—it’s about investing wisely with various types of investments.

To grow your wealth over time and build long-term financial health, the key is to have a mix of different assets. These assets include highly liquid investments, among others, like passive real estate investing or even investing in cryptocurrency.

As with all financial choices, there is a balance between risk and access. You’ll need to decide for yourself which portion of your portfolio will be curated as liquid investments.

12 Highly liquid vs short term highly liquid investments

Of course, not all liquid investments are the same. Some assets are more liquid than others.

For instance, there are highly liquid assets and short term highly liquid assets.

The biggest variable among liquid investments is the time to conversion. Which just means how easy it is and how long it takes to convert an asset to cash. And the easier it is to convert an asset to cash, the more liquid it is.

Short term highly liquid assets and accounts

Short term highly liquid investments can be accessed quickly and easily. They may be switched to cash within a year or less, although you can hold onto them as investments for longer if you want.

1. Cash

Cash is the most liquid asset among short term highly liquid investments. You can either hold the physical currency yourself or easily access it via ATM withdrawals.

The downside to cash is that you aren’t earning any interest, so it will be difficult to keep up with inflation.

2. Treasury bills and treasury bonds

Treasury bills, also called T-bills and treasury bonds or T-bonds, are highly liquid assets that are some of the most stable kinds of bonds, as the United States government itself backs them up. Holding on to the bond will earn you interest up until the maturity date.

But if you need cash fast, you can also sell them sooner, making them incredibly versatile.

3. No-penalty certificates of deposit

Wondering what is a certificate of deposit? It’s a way to save money and earn interest at the same time through your bank, but in a relatively risk free way. You leave your money in the account for a set time and earn interest.

With certificates of deposit (CDs), you can usually earn higher interest rates than you would with a standard savings or checking account. The catch? It’s usually more difficult to withdraw from a CD before its maturity date.

But if you invest with a no-penalty CD, you can tap into your funds more easily as a short term highly liquid investment, without having to pay a penalty if you withdraw early.

4. ETFs

With exchange-traded funds or ETFs, you can invest in multiple stocks instead of the stocks of just one company. But don’t forget—ETFs are just as volatile as the market.

There’s no telling whether your ETFs will be worth more or less when you’re ready to sell them. But you are able to sell them freely whenever you need the cash i.e. ETFs can be traded anytime during the trading day from 9.30am to 4pm EST. This makes them an important liquid investing option.

5. Money market funds

These are mutual funds that invest specifically in highly liquid, near-term investments. Investors will turn to money market funds because they offer high liquidity with very low risk, so they’re a great option if you need to save for a short-term goal.

Money market funds should not be confused with a money market account, which is a sort of savings account that also allows you to earn interest.

6. Interest-bearing checking account

Checking accounts come in second after cash as being the most liquid asset. While checking accounts aren’t usually a place for investing, there are some options that offer interest.

Some offer up to 5.3% APY, so it is worth considering if you need access to funds, but you don’t want to forego the opportunity to make some interest.

7. High-yield savings accounts

A high-yield savings account will also offer a high interest rate, but it will be slightly less liquid.

For example, banks may restrict your number of monthly withdrawals.

But it is still relatively easy to withdraw your money with this type of account, and you can find many accounts with a competitive APY.

Mid to long term highly liquid assets and accounts

Mid to long term highly liquid assets and accounts can still be accessed relatively quickly and easily but often not as fast as those listed above. They are an important part of a diverse portfolio or an all weather portfolio, and you should consider a few of them.

8. Certificates of deposit

We already know that CDs are a great option for a highly liquid investment. If you don’t need a short-term, highly liquid asset, you can forgo the no-penalty CD for a traditional option. Terms from a CD can range from 6 months to 5 years.

You can decide in advance how long the term is before you can remove your funds from the CD.

CDs can earn you a good APY, sometimes up to 5.35%!

9. Individual stocks

Individual stocks are some of the easiest investments to liquidate—but they are also the most volatile. Meaning you may face a loss if you need to liquidate your assets while the stock market isn’t in your favor. It’s important to learn how to research stocks before you begin investing.

Since they are volatile, stocks are not the safest choice for building an emergency fund, but they are still an important part of building a diversified portfolio, especially with liquid investing.

To get started with buying stocks in companies, you might talk with a financial professional, set up a brokerage account, or choose a robo advisor. And there are different stock options, such as individual stocks and also stock mutual funds or ETFs.

10. Funds (Index funds and Mutual funds)

A lot of investors like investing in funds like index funds and mutual funds because they offer an easy way to diversify your investments. A fund can invest in an aggregate of bonds, stocks, etc., by grouping your money with other investors’ money.

The catch is, though, that with index funds and mutual funds only trade once per day at the close of the market, making them slightly less liquid than ETFs or stocks. Mutual funds are also known to have higher management fees than index funds.

11. Taxable investment accounts

Taxable investment accounts can hold stocks, bonds, ETFs, Index funds and mutual funds. You can open this kind of account via a brokerage. Once you sell your assets, they’ll be available as cash, usually within days.

Remember, though, that your assets will be vulnerable to market conditions, so you may have to sell them at a loss in some cases.

12. Precious metals

While not a popular choice for investing, precious metals can actually be both liquid and illiquid investments.

Whether they are liquid or not depends on several things, including where you store your metals and how readily you can find dealers to make an exchange for cash.

Expert tip: Know your risk tolerance

Before you decide to invest any money, you need to know how comfortable you are with risk. Take some time to evaluate if you prefer low risk options like bonds, CDs, and high-interest accounts, or if you are okay with riskier investments such as stocks.

Ideally, you should have a good mix of different types of investments, but you need to know what will work for you and what won’t before you begin.

When does it make sense to pursue a liquid investment?

It makes sense to pursue a liquid investment when you may need to tap into the funds at short notice.

With that, these investments are best if you are saving for a big purchase or want to have quick access to cash as a part of your emergency fund.

They have their place in any financial planning process. But you should also consider illiquid investments that could provide higher potential returns.

What is the most liquid investment?

The most liquid of all the assets you can have is cash, and the most liquid of investments that hold cash and are still highly liquid include interest bearing accounts, no-penalty CDs, bonds, ETFs, and money market accounts.

These all earn interest and give you the option to easily withdraw funds, but some are more volatile than others.

What is liquid vs non liquid investments?

A liquid investment vs non liquid investment is defined by how easy it is to withdraw your money. Liquid investments make it easy to get cash quickly.

Non-liquid ones are not as easy to withdraw from, and there may be fees involved in some cases.

With a non-liquid investment, you may be forced to accept less money than you’d like for a sale if you’re thinking, “I need money desperately!” as is the case with real estate, etc. And getting cash will be a slower process.

Then there are illiquid assets (or nonliquid assets). While illiquid assets can make up a very valuable part of your overall portfolio, you can’t easily convert them to cash or sell them without taking a loss on the sale.

Examples of illiquid assets might be collectibles, estates, or other intangible assets.

Are liquid investments better?

There are some circumstances where liquid investments are better, including if you need the cash quickly or aren’t sure when you will need it.

But non-liquid ones also have their place, especially when it comes to growing your money long term and you should have a combination of both for a diversified portfolio.

What does it mean to be highly liquid?

Highly liquid means that you can easily convert the investment to cash without losing money in the process. You should be able to get your money back in a fairly quick and convenient manner.

Having highly liquid assets is a smart idea when you want to make some interest but also have access to your cash at all times.

Articles related to highly liquid investments

If you enjoyed reading about investments, read these articles next!

• What Does Liquid Net Worth Mean And How Do You Calculate It?
• Overall Net-Worth VS Liquid Net-Worth: There’s A Difference!
• 10 Most Useful Personal Finance Ratios And How To Apply Them
• What Are Investable Assets And How Can You Build Yours?

Meet your financial goals with highly liquid investments!

Liquid investments make up a key part of any healthy financial portfolio. You can leverage them to achieve your short terms goals while adding additional diversity to your investments.

Start by doing your research on the different types of highly liquid investments, including short term ones, and then chose one (or several) to invest in. You can then add on additional investments as you feel more comfortable.

As mentioned, having these investments is an essential part of any portfolio, but it is just one step in the process of getting rid of financial insecurity. Continue to learn more about how investing works and how to build your financial wellness.

The post 12 Highly Liquid Investments To Have appeared first on Clever Girl Finance.

When you’re new to investing, it can seem like there’s a lot of information to learn. But you have to start somewhere—so you might as well start with the best investing websites right off the bat!  

These days, the best investment websites don’t just throw you in the deep end to figure everything out yourself.

Instead, they equip you with the knowledge and tools you need to make investment choices and use their platforms successfully. From educational resources to trading simulators to robo-assistants, the best investing websites have a ton of useful features to discover.

So let’s explore six of the best investment websites for beginners and understand how to use them for research and analysis to learn how to start investing!

But first, why are these the best investment websites?

What makes the best investment websites the best?

Different people often have different criteria for selecting the best investing websites. So that means it’s important to know which factors they care about and why. 

For instance, one person might deem the best investment research websites to be ones that tell you things like, “This company is hot right now! Buy this stock today!”

Personally, I tend to stay away from investment analysis sites like that because data has shown that picking individual stocks is rarely the most successful way to invest. Even professional hedge fund traders tend to under-perform index funds, according to CNBC!

So you should be wary of information that promises or implies that you’ll be able to get rich quickly with a certain stock or by day trading. (Learn more about the advantages of investing with index funds!) 

In this article, we’ll focus more on the best websites that make it simple to start investing and then grow your financial knowledge.

We’ll be looking for things like:

• Educational resources, as well as investment tools
• A user-friendly layout
• Free or at least low fees
• Updated features
• Options for both automated and manual investing
• Great analytics to help you monitor your results/progress
• Solid security & privacy
• Mobile app access
• Responsive customer support

With this in mind, let’s get started!

6 Best investing websites for research (and taking action!)

As we go over the six best investment websites, we’ll be looking at a few different things.

First, we’ll see what kind of resources are available to help beginners build their investment strategies.

Then, we’ll look at the features that stand out in each of the best investing websites.

Finally, we’ll sum up what makes the site a great choice for beginner investors. 

Most of the websites below have educational resources and options to turn your new knowledge into reality by opening your own accounts. So that means if any of these platforms stand out to you, you can start your investment journey as early as today!

1. Fidelity

Fidelity is one of the most popular investment firms out there—and for good reason! Founded in 1946, it’s a well-established firm with a great track record and a diverse range of investment options.

For instance, they have their own collection of index funds with no expense ratios or minimum investments (AKA cheap and accessible for beginners)!

In addition, it offers a user-friendly platform with research tools and learning resources for investors of all levels. 

Fidelity research & education

You’ll find a diverse range of resources on Fidelity, including articles, videos, webinars, and more.

The Fidelity Learning Center features insights on investing, retirement planning, and other financial topics. Topics can be as basic as “What Are Stocks?” and range to more complex strategy talk.

Other research tools on the platform include stock search tools, market analysis tools, and independent research reports. 

Fractional share investing

Invest in high-priced stocks and funds with smaller amounts of money.

Retirement planning tools

Fidelity provides retirement planning tools, including calculators, educational content, and retirement income planning help.

Robust mobile app

Want to manage your investments on the go? Fidelity’s mobile app provides easy access to account management tools.

Robo-investing through Fidelity Go

Fidelity Go is great if you’re interested in a “set it and forget it” investing strategy. Personalized robo-advisors like Fidelity Go are also a cheaper way to have your investments managed for you.

Is Fidelity good for beginners?

Whether you’re new to investing or you’re ready for the next level, Fidelity is a great place to gain knowledge.

The Fidelity Learning Center provides valuable content to help beginners understand investing concepts, while the user-friendly platform and mobile app make it simple to jump in and start your own accounts.

2. Charles Schwab

Another important name in the brokerage space, Charles Schwab was one of the first firms to push the industry toward low-cost trading.

In order to make investing more accessible to all, they got rid of trade commissions entirely in 2019!

In addition, their recent acquisition of TD Ameritrade means users will benefit from the best features and resources from both platforms.

Charles Schwab research & education

Charles Schwab offers a huge array of educational content through its Insights & Education section, covering investing strategies, market updates, retirement planning, etc. They even have an original podcast called Choiceology.

Schwab also provides its clients access to third-party research reports and tools. The brokerage offers webinars, workshops, and online courses to help investors improve their skills.

Once the merger with TD Ameritrade is complete, Schwab investors will also have access to courses and resources from its Education Center. Also moving over is TD’s popular thinkorswim platform which offers paper trading and in-depth technical analysis tools. Paper trading is a simulation of trading without using real money.

Schwab intelligent portfolios

Schwab Intelligent Portfolios is a robo-advisory service that creates diversified portfolios based on how risk averse you are and your goals.

Global trading

Schwab provides access to international markets and foreign currency trading.

Schwab stock slices

Stock slices are Schwab’s version of fractional investing—buy partial shares of popular stocks for as little as $5.

Thematic investing

Align your passions and values with your investments with Schwab’s “thematic stock lists” feature. From sustainability to artificial intelligence, this lets you invest in the future you want to see.

Is Charles Schwab good for beginners?

Charles Schwab is one of the best investing websites for beginners, offering a mix of educational resources and tools.

For instance, its robo-advisory service simplifies portfolio management, and the educational content helps beginners grasp trading basics. The platform is easy to use for various skill levels, though beginners may find the range of features a bit much initially. Schwab also has a well-reviewed mobile app. 

3. Vanguard

Vanguard is well known for its focus on low-cost index funds and ETFs.

In addition, one thing that really sets it apart is that there are no private owners or shareholders—the owners of Vanguard are its clients.

Founder John Bogle set it up this way in order to ensure that Vanguard’s interests would always be aligned with the interests of its investors. 

Vanguard research & education

Vanguard’s educational focus is on long-term investment principles and cost-effective strategies. While it doesn’t offer as many tools as some other brokers, the site provides investors with a library of research and educational articles, webinars, and calculators to help them understand key investment concepts.

Ownership structure

As mentioned in the intro, Vanguard is client-owned, meaning its funds are owned by the investors in those funds.

Low-cost index funds

Vanguard is known for pioneering low-cost index fund investing, helping reduce overall investment expenses, and encouraging a patient, long-term investment philosophy.

Vanguard personal advisor services

The company offers a hybrid robo-advisory service combined with access to human financial advisors.

Portfolio watch feature

A tool that analyzes your portfolio to make sure your investing strategy matches your goals so you can follow your dreams. 

Is Vanguard good for beginners?

Compared to some of the other sites on this list, Vanguard’s website and features are more basic.

However, Vanguard’s simple interface and focus on long-term investing may be good for beginners looking for a passive investment approach. It’s mainly designed for buy-and-hold investors who don’t necessarily need the most modern features. (Luckily, it is modern enough to have its own app!)

4. InteractiveBrokers

InteractiveBrokers is known for its advanced global trading platform and a broad range of investment options, including stocks, options, futures, and more.

It caters to active traders and offers competitive pricing, advanced charting tools, and global market access. Of course, they also let users trade on the go through the IBKR Mobile app.

InteractiveBrokers research & education

Even though it’s on the advanced side, InteractiveBrokers makes the list because of its financial education platform at Trader’s Academy. If you want to really deepen your knowledge of investing, this is a great resource. 

The courses at Trader’s Academy are very thorough and explain the theories underlying each concept. You can learn about everything from economics to how the US labor market works, to options and stocks, and much more.

There are also courses that relate specifically to using the InteractiveBrokers platform if you’re interested in giving it a try.

Comprehensive investment variety

You can trade almost any type of investment here, even more niche things like investing in cryptocurrency.

Paper trading

Users who have approved, funded investing accounts can also open paper trading accounts to learn and experiment.

Advanced trading tools

Although this is less important to beginners, the platform is famous for its powerful trading platform with advanced features, including customizable algorithms.

Impact dashboard

Impact dashboard helps conscious investors build a portfolio that matches their values.

Is InteractiveBrokers good for beginners?

As a brokerage, InteractiveBrokers is almost certainly the least beginner-friendly option on this list. After all, it has a complex interface and a focus on advanced trading tools.

However, their Trader’s Academy is a standout when it comes to educational resources. Since you don’t even need an IB account in order to access the courses, it’s worth checking them out.

5. Merrill Edge

Merrill Edge is the online brokerage of Bank of America. It offers a solid array of $0 minimum investment options and research tools on a user-friendly platform.

It’s a good option for Bank of America customers for its seamless integration with the bank’s services and its accessibility to a variety of financial products.

Merrill Edge research & education

In partnership with Morningstar, Merrill Edge has developed an Investing Classroom. Here, you’ll find a series of short courses on stocks, funds, bonds, ETFs, and portfolio types. This makes it one of the best investing websites.

Courses also come with quizzes, which you can use to gauge your knowledge or test what you’ve learned. Don’t miss the webinar series, which covers topics from financial psychology to sustainable investing.

In their Tools & Calculators section, you’ll find resources to help you crunch the numbers for college planning, retirement goals, and general personal finance. Users also have access to the BofA Global Research platform, which provides research reports, market insights, and analysis from Bank of America. 

Bank of America integration

This brokerage seamlessly integrates with Bank of America accounts, providing easy transfers and account management.

Preferred rewards program

BofA members who enroll in preferred rewards get banking benefits (e.g. an interest boost on savings and credit card bonuses).

Merrill guided investing

This is an automated investing service that will help you build and rebalance a portfolio that fits your goals.

Is Merrill Edge good for beginners?

If you’re already a Bank of America customer, using Merrill Edge should feel natural and familiar. Its trading tools may be a little more basic compared to other platforms, but if you’re a long-term investor, you don’t need anything fancy. You can also manage your accounts and investments through the Merrill Edge app.

6. Investopedia

This last one is a little different because it’s the only one that isn’t a brokerage, but it is one of the best investing websites! Investopedia is one of my favorite sources of financial knowledge.

It has a wealth of educational articles, recommendations, and news about current market events. No matter what subject they’re covering, the goal is to simplify concepts in a way that anyone can understand.

Investopedia research & education

Essentially, the whole Investopedia site is about research and education.

Content ranges from simple concepts like stocks and bonds to more advanced things like technical analysis. Their mix of information with real-world examples and interactive tools helps make the investing process easier, empowering newcomers to make informed decisions. 

Comprehensive educational resources

What sets Investopedia apart is its ability to simplify complex financial terms and concepts, making them easily understandable for beginners.

The resources on Investopedia are accessible to individuals at all levels of expertise in finance who have money goals.

Realistic stock market trading simulator

The platform offers a highly realistic stock market trading simulator that helps users practice trading stocks, options, and ETFs using virtual money. This experience helps users learn how to navigate the dynamics of the market without real financial risk.

Up-to-date market insights

Investopedia provides up-to-date market news, analysis, and trends, keeping readers informed about the latest developments in the financial world. This feature enables investors to stay aware of market shifts and, in turn, make more informed investment decisions.

Is Investopedia good for beginners?

Overall, Investopedia is a good starting point for beginners to build a strong foundation in the world of investing. And their stock market simulator is free, so give it a try!

Expert tip: You can use more than one investing website!

In the past, many investors picked one brokerage, kept all their investments there, and stayed loyal to it forever. Today, you’ve got options with the best investing websites!

Want to do your research on Investopedia, start a retirement account at Fidelity, and keep a “fun money” account at InteractiveBrokers? You can! Or, you can experiment with a few different sites and choose your favorite once you have more perspective and experience.
 
Before you open any new account, make sure to read the terms and conditions so you’re aware of any potential fees or restrictions. Once you have an account (or two or three), be sure to monitor it regularly to make sure your goals are on track.

How can I invest $1,000 right now?

The best way to invest $1,000 right now is to take a look at your current financial situation and your immediate goals. Let’s check out a couple of examples!

First, if you don’t have an emergency fund, then use the $1,000 to start one! Here’s a quick guide on creating an emergency fund and why it matters.

However, if you’re carrying high-interest debt, like credit cards, it might make more sense to pay extra on that if you’re unsure whether to pay off debt or save. (This way, you’ll save money on future interest payments!)

If you already have an emergency fund and minimal debt, then it’s time to invest! I suggest starting by opening a retirement account to build retirement savings, like a personal IRA or a 401(k) through your work. These accounts are available at many of the best investment websites listed above!

Once you have an account, use the above-mentioned research and education tools to figure out what stocks, bonds, or funds to buy with your $1,000 within the account.

Where to invest 100 dollars in stocks?

Whenever you find yourself with an extra $100 to invest in stocks (or even an extra $20), you can use that money to help build your financial future! One great option is to invest in fractional shares of index funds or ETFs.

Let’s say that you’d like to invest in a certain ETF, but it costs $200 per share, and you only have $100. At brokerages that allow you to buy fractional shares, you can use that $100 to buy half a share of your chosen ETF. This way, you don’t have to wait to get the investments you want!

Here are some other ideas for how to maximize small investments and invest smart. 

What is the most trusted investment company?

Some of the largest and most trusted brokerage firms include Fidelity, Vanguard, and Charles Schwab. Trust is crucial when you’re deciding where to keep your money. If this is a big consideration for you, stick with one of the tried-and-true options!  

On the flip side, it’s usually better to avoid the newer, shinier investing apps that don’t have an established track record yet. Here are some signs an investment app isn’t trustworthy.

Articles related to the best investing websites

If you enjoyed reading about investing websites, check out these other articles about investing!

• Investing Money For Beginners: How To Start Investing Today!
• Popular Low Cost Index Funds
• Real Estate Investing For Beginners: Getting Started
• Invest Smart: How To Maximize Small Investments

Pick the best investing website for you and get started!

Now that you have an idea of the best investing websites to use for research, analysis, and trading, it’s time to make your own plan!

Start by learning how to start investing and make a game plan. You can also enroll in free CGF courses on investing and business to continue growing your financial knowledge.

The post 6 Best Investing Websites For Beginners: Research And Analysis appeared first on Clever Girl Finance.

Whether you received a large bonus at work or a windfall from a family member, you’re probably not complaining if you suddenly have an extra $100k. But while the extra wealth might be helpful to your financial situation, you likely still have a lot of questions and may be wondering how to invest $100k. There are lots of options, depending on what you value and your finances.

There are many ways to invest $100,000, from real estate to starting your own business. Keep reading to learn how to invest 100k and what you can do to help your money grow even more over time.

What to do with $100k: 4 Investment ideas

Tempting as it may be to spend your 100k on a lavish vacation or a new luxury car, the more practical idea is to put your money to work for you.

Investing your money can help it continue to grow over time, ultimately giving you even more wealth than before. This can be a big benefit in your lifetime, but it also helps build generational wealth for your descendants.

Let’s take a look at four investment ideas for your $100,000:

• Retirement accounts
• Real estate
• Brokerage accounts
• Savings accounts

1. How to invest $100k for retirement

Approximately 62% of Americans between the ages of 18 and 29 have a retirement account, according to The Motley Fool. However, they also state that only 30% of them feel prepared for retirement.

If you have a retirement account, adding 100k could be a big step in funding your retirement income. If you don’t already have a retirement account, your $100,000 is a great way to get started with a leg up toward retirement savings.

But adding money to your retirement account isn’t just about increasing your income in retirement — it’s also a good way to potentially save on taxes. Your windfall may come with a hefty tax bill, depending on how you got the money. By investing your 100k into retirement savings, you may be able to save on taxes.

For example, you exceeded all of your sales goals this year and earned a 100k bonus. You might be able to save on next year’s income taxes by maxing out your 401k. If you’re wondering, “Should I max out my 401k?” it reduces your taxable income, which in turn lowers your tax bill.

It’s important to note that you probably won’t be able to invest your full 100k into retirement savings alone.

Retirement accounts generally have contribution limits. Contributions to a 401k account are limited to $23,000 in 2024, according to the IRS, for example.

Contribution limits might mean you have to invest part of your 100k elsewhere, but investing in retirement is still a great place to start.

Common retirement accounts

There are three common types of retirement plans: 401k, individual retirement accounts, and defined benefit plans.

A 401k is an employer-sponsored plan that lets you contribute part of your paycheck directly to the plan. The plan is managed by your employer, which can limit your investment and management options and lead to higher fees than other types of accounts.

Individual retirement accounts (IRAs) are owned by individuals, meaning you have full control over your account. Your employer is not connected to your IRA, and you can choose almost any type of investment you like (depending on where you open your account). Fees on IRAs tend to be lower than other account types because you can choose low-fee or no-fee investments.

However, contribution limits are lower, which makes it difficult to quickly build wealth through contributions.

Finally, a defined benefit plan — most often called a pension — is an employer-sponsored plan that makes regular payments to retired employees.

The plan is owned by the employer, who uses their own formula to determine retirement payments. The formula generally takes into account the employee’s time with the company and salary.

Defined benefit plans are most often funded by the employer, but the rise in the popularity of the 401k means fewer companies are offering pensions than in the past.

2. Investing $100k in real estate

When it comes to investing 100k, real estate investing might be at the top of your list. One of the biggest barriers to entry to making money in real estate is the initial investment. Buying a house to rent out, for example, could take some serious upfront capital.

That’s why finding yourself with 100k could be a great time to start real estate investing. Real estate uses real property — from single-family homes to commercial buildings — to generate income, usually through rental or lease payments.

Depending on how you invest your money, passive real estate investing can even be a passive income stream that doesn’t require hands-on management. After all, who wants to get maintenance calls from tenants in the middle of the night?

Real estate investing for beginners, however, might be overwhelming. Luckily, you don’t have to go out and buy a four-plex building to start investing.

There are several ways to get started in real estate without buying a property on your own, including real estate investment trusts or REITs.

Direct real estate vs. REITs

Buying a house, apartment complex, or commercial building to rent for income is often referred to as direct real estate investing or investing in real property. There are a lot of upfront and recurring costs to this method.

For one, you’ll have to purchase the property and make any necessary repairs or renovations. Even after renting the property, you’ll need cash to cover maintenance, taxes, insurance, and other ongoing costs. And, of course, the property could potentially lose value over time.

The biggest benefit to direct investing, however, is the chance for higher payouts. By owning the building outright, you don’t have to share profits. You might also be able to make money quickly by flipping properties.

That being said, owning real property — even with a property management company — can be a big hassle. A real estate investment trust, which you may also know as a REIT, is a company that owns real property, like a hotel or office building, and provides a real estate investment option for people who don’t want to own their own properties outright.

REITs offer ownership shares of their portfolio of real estate to investors, much like a company stock. As an investor, you purchase shares in the REIT and receive dividends from the company’s profits. You can also sell your shares to make a profit if the price goes up, just like a stock.

Investing in REITs lets you get into real estate investing without the high startup cost. They also give you an easy way to diversify your investment portfolio.

However, you won’t have control of the properties the REIT company owns or the price of rent. The lack of direct involvement in REITs might make it feel more like stock investing than real estate investing.

3. How to invest $100k in a brokerage account

If you’re wondering what you should do with 100k, a brokerage account will likely be part of your investment plan.

A brokerage account is an investment account which lets you buy and sell stock market assets like stocks, bonds, and funds. Unlike retirement accounts, brokerage accounts have no contribution limits.

However, brokerage accounts also don’t typically have tax advantages like retirement accounts.

The good news is that investing in a brokerage account is one of the simplest ways to build wealth. Even better, the money you earn isn’t tied to retirement, so you can access your money without penalties at any age.

As you grow your investment portfolio, you’ll begin to earn portfolio income from dividends and interest.

In most cases, brokerage investing is a fairly hands-off method of investing. This is especially true if you hire a financial advisor or use a robo-advisor to automate your investment decisions.

Figuring out how to invest 100k in a brokerage account comes down to personal preference. You’ll want to consider your risk tolerance and how you want to make money (dividends vs. buying and selling shares) when choosing investments.

Typically, there are five types of investment vehicles in a brokerage account:

• Stocks
• Bonds
• Mutual funds
• Index funds
• Exchange-traded funds

Stocks

Stocks are pieces of ownership of a specific company. Each piece of ownership is called a share. You can buy and sell shares to make money, typically by buying at a low price and selling your shares at a higher one.

Investing in stocks may allow you to earn big profits, but you have to pick the right ones. A person who invested in Google, Apple, or Amazon when the stocks first became available likely made a large profit from selling the shares within the last few years.

However, there’s no proven way to pick a stock that will make it big. You might also choose a stock of a company that goes out of business, leaving your investment nearly worthless. This chance of loss is why stocks are considered the riskiest type of investment. But you can learn how to research stocks to improve your chances of success.

Bonds

A bond is a loan you make to an organization, often a government entity. The bond issuer, such as a city government, uses your bond purchase to raise capital.

In exchange, the organization agrees to pay you back with interest for a specific duration. You’ll receive a set interest payment, meaning you can calculate the rate of return on your investment.

The downside to bonds is the low rate of return. Many bonds offer low interest rates, which could limit your ability to grow significant wealth through bond investing.

On the other hand, bonds can be a low-risk investment option as many government-issued bonds are backed by the entity offering them.

Mutual funds

A mutual fund is basically a managed portfolio of bonds, stocks, and other assets. It can be a good way to diversify.

The benefit of mutual funds is the ability to invest in lots of different assets without having to individually pick each one. This also means mutual funds tend to be slightly lower risk than individual stocks because you’re spreading out the risk among many stocks.

The drawback of mutual funds is their fees, which tend to be higher compared to other investments like ETFs.

Additionally, you might only have access to certain mutual funds within a retirement account, like a 401k.

Index funds

Index funds are technically a sort of mutual fund, but they’re considered passively managed funds, states Forbes. This means an index fund isn’t being actively managed by a fund manager who picks specific assets.

Instead, index funds try to follow what a market index does, for instance, the S&P 500.  The fund holds stocks of companies within the chosen market index. When the market goes up, the index fund tends to rise in value.

Without a fund manager, index funds tend to have lower fees than their managed counterparts. While index funds tend to build wealth slowly, they tend to perform very well over a long time. This makes investing in index funds a great low-cost, low-management option if you’re deciding how to invest 100k for the long term.

ETFs

Exchange-traded funds, also called ETFs, are similar to mutual funds in that they’re a portfolio of assets sold as one unit. Like mutual funds, you can get access to multiple investments while buying and sharing shares of an individual ETF.

Additionally, ETFs tend to work like index funds specifically because they’re built to track certain market movements.

For example, you can choose ETFs related to certain industries.

While ETFs are built similarly to mutual funds, they trade more like stocks. Mutual funds have one price per day, whereas ETFs can be purchased and also sold throughout the day, and the price will fluctuate with the market. ETFs also usually have lower fees than mutual funds.

4. Savings accounts and other liquid investments

While you can make a lot of money investing in real estate or even the stock market, you could also potentially lose money.

Additionally, these assets may make it more difficult to access cash quickly, such as in an emergency.

The solution? Keep some of your money in highly liquid accounts such as checking, savings, or money market accounts. While stocks, bonds, and other investment options are considered liquid assets, having a protected cash fund can help you get the money you need quickly without the chance of it losing value.

These types of accounts are typically interest-bearing, so you’ll still make some money from your deposits.

In addition, keeping money in an FDIC-insured bank means you won’t lose money if something happens to the bank up to a certain amount.

The general recommendation for cash accounts is to keep around three to six months of living expenses for emergencies. This amount lets you have enough for unexpected expenses without losing potential returns by holding too much money in cash.

Expert tip: How 100k keeps earning money

Leverage the power of compound interest with your 100k! Wondering how does compound interest work? Compound interest is the money you earn from your already-earned interest.
This means you earn interest on the total amount in your account, not just your initial deposit.
So if you invest your 100k, over time, it will continue to provide interest indefinitely in some cases.

5 Factors to consider before deciding how to invest $100k

There are a few things you’ll want to do before choosing what to do with 100k. Taking the time before investing will help you choose the investments that make the most sense for your financial situation.

Before investing your money, here are five factors to consider:

• Make a plan for your money
• Pay off debt
• Build emergency savings
• Diversify your portfolio
• Know your tax situation

1. Make a plan before deciding what to do with $100k

Having $100,000 is a life-changing amount of money for many people. The possibilities of what you can do with your money may seem endless, but it’s worth taking a step back before investing.

Take the time to think about what you want to do with your money by asking yourself these questions:

• What do I hope to gain from my investment? Money? Assets like real estate?
• What is my risk tolerance?
• Do I know the tax implications of my investments? Do I owe taxes on the money I received?
• What are my long-term financial goals? Early retirement? Pay off my mortgage? Put my kids through college?
• Is there anything I want to spend part of my 100k on before investing it?

Without a solid investment plan in place, you run the risk of investing your money in a way that will lose money.

For example, you get excited about a new company and put all of your money into their stock. The company doesn’t perform as well as you hoped, and your investment value falls.

In addition, investing without a plan doesn’t always have catastrophic consequences. If you invest your money without a plan for it, you might simply end up with investments you don’t enjoy or don’t want to deal with.

Say you are buying a house to rent out, and you become a landlord. After a few years, you realize you’re not making much money from the property, and you don’t enjoy being a landlord.

This is why it’s essential to think about what you want to do with the money before jumping in to something without researching.

2. Deal with debt before investing $100,000

Debt can be an unfortunate part of life, and a lot of Americans have it.

A study by TransUnion found that the average credit card debt balance per consumer is around $5,733. That debt can quickly eat into returns on investments if not dealt with first.

By paying off debt — especially types of debt such as high-interest debt with credit cards — before investing your 100k, you can take your earnings from your investments as pure profits. If you leave your debt to keep growing, your overall investment earnings will be reduced by your debt plus interest.

For instance, suppose you have $10,000 in credit card debt and have $100,000 to invest. The credit card interest rate is 15% per year, and you expect to make 6% in gains from your investments.

If you don’t pay off your credit card debt, you’ll have $1,500 in additional interest added to your credit card balance. Your investments made $6,000 in interest.

$6,000 – $1,500 = $4,500 in profit

On the other hand, let’s say you pay off the $10,000 you owe and invest the remaining $90,000. You wouldn’t have any interest costs because you’ve paid off the credit cards.

However, you’ll make $5,400 in earnings from your investments.

By paying off your debt first, you’ve almost made an additional $1,000 from investing. Over time, these additional earnings will really add up.

3. Build emergency savings

Do you have a rainy day fund or emergency fund with at least three to six months of living expenses?

If not, filling your emergency fund should be your top priority when choosing how to invest 100k.

An emergency fund is a cash account you can use to easily access money in — you guessed it — an emergency.  Common financial emergencies where you might need cash include:

• Home repairs
• Car repairs
• Medical bills
• Divorce
• Losing your job
• Unexpected travel (such as to visit a dying family member)

To calculate how much emergency savings you need, you must first determine your monthly expenses.

Add up your monthly recurring expenses, such as mortgage or rent, car payment and insurance, average utility bills, cell phone bills, and average credit card bills. You’ll then take the total of your average monthly expenses and multiply it by how many months’ worth of savings you hope to have.

For example, your total monthly expenses average $4,000. You want to have between three and six months of savings, so you’ll need to put $12,000 to $24,000 into your emergency fund.

Generally, the best place for an emergency fund is a high-yield savings account. These give you easy access to your money, as you can usually tie them to a checking account at the same bank for instant transfers.

Additionally, by opting for a high-yield account, you’ll earn interest on your emergency savings, further growing your rainy-day fund.

4. Diversify your portfolio

Does the thought of losing even a small amount of money on the stock market give you the shivers? Or, do you have no problem losing some money with the hopes you’ll make more overall?

These situations refer to your risk tolerance or how much risk you’re willing to take on in your investments. Those with lower risk tolerance generally invest in lower-risk assets with the hope they won’t lose money and will make steady but smaller earnings.

Someone with a higher risk tolerance might be willing to invest in a riskier asset, such as an unproven stock, in the hopes that the returns will be higher than other investments.

Regardless of your individual risk tolerance, it’s recommended that you do what you can to lower your risks when investing. One of the easiest ways to lower investment risk is to diversify your portfolio.

Diversifying a portfolio means investing in a range of assets to offset the individual risk of any single asset.

For instance, if you only invest in newly-released stocks, you’re at a higher risk of losing your money if all of those companies go bankrupt.

On the other hand, you could invest some money in stocks, some in bonds, some in index funds, and some in ETFs across various industries. This widens your portfolio’s ability to bounce back after an individual company or market sector loses value.

5. Understand the tax implications

Depending on how you get your $100,000, you may have a hefty tax bill to look forward to. Some scenarios, such as receiving a life insurance benefit payout, are not typically taxed, explains the IRS.

In that case, you’ll have the full $100,000 to invest how you like.

However, if you get 100k from a bonus at work, severance payment, or other type of income, you can expect to owe taxes on the money.

For example, if you receive a $100,000 year-end bonus in the form of a check, you’ll be taxed 22% for federal taxes, or $22,000, according to CNBC Select. That leaves you with $78,000 to invest — a fair bit lower than the 100k you started with. You may also owe state taxes on your bonus in addition to federal taxes.

It’s always a good idea to talk with a tax expert when you come into a large sum of money. They’ll help you determine if you owe taxes and the amount and may be able to provide strategies to help reduce your tax bill.

You should also consider tax implications after you decide what to do with 100k. Depending on how you invest the money, you may have to pay taxes on the earnings.

Short-term gains vs. long-term gains

Capital gains is the term for the money you make on the sale of an investment. Let’s say you buy stocks for $100 and sell them for $200. You made $100 in capital gains on your investment.

These gains can be short-term or long-term, depending on how long you own the asset.

• Short-term gains: Profit made on assets held one year or less.
• Long-term gains: Profit made on assets held over one year.

When you sell an asset, you often have to pay capital gains taxes. This tax is higher for short-term capital gains and lower for long-term capital gains.

In many cases, you can save money on taxes in your investment accounts by keeping your assets for over a year.

Investing $100k over time

In most cases, it’s best to avoid investing all of your money at once. That’s because markets fluctuate over time. Even if you invest in a variety of assets, you could be investing at a high point in the market.

Instead, consider investing your money over time. You can keep the balance of your 100k in a high-interest savings account to help it make money while you slowly invest it.

An easy way to automatically invest over time is a strategy called dollar cost averaging. Dollar-cost averaging works by investing a portion of your money at regular intervals. This strategy reduces the risk of trying to “time the market,” which often doesn’t work for the majority of investors.

In addition, dollar cost averaging lets you purchase more shares when prices are less expensive and fewer shares when prices are more expensive, leading to a lower average cost per share.

Do I need a financial advisor to invest $100k?

If you’ve unexpectedly received $100,000, you may wonder, “Do I need a financial advisor?” – well it can be a good idea. Financial advisors can help you invest 100k, as they help their clients invest, save, and manage their finances.

In many cases, a financial advisor is like a personal finance coach who can help you better understand your financial situation. They can help you navigate your investment options and develop a financial plan that works for you.

On the other hand, financial advisors could be expensive, depending on their fee structures. They’re also not the professional you likely need if you have tax questions.

In that case, you should seek out a tax professional such as a CPA (Certified Public Accountant).

How should I invest $100,000 to make $1 million?

To invest 100k and make $1 million will take time and patience, and the ability to invest for the long-term. It’s unlikely to happen overnight without potentially devastating risks.

Long-term investing strategies, such as investing in index funds, are often the preferred way to increase the value of your portfolio without inviting a high level of risk.

How can I invest $100k to create passive income?

Investing 100k for passive income is possible if you consider businesses that run themselves or start investing. Passive income is a type of strategy that lets you earn money without actively working. You’ll continue to earn while you eat, sleep, or read the best side hustle books.

But most passive income streams require a lot of work to get started — or a lot of cash. Luckily, if you’ve found yourself with 100k, starting a passive income stream could be a quick way to make extra money.

1. Buy vending machines or ATMS

You can buy vending machines or ATMs and place them at various businesses or locations for a fee, like rent. When someone uses the machine, the money they spend (or ATM fees) is your revenue. You then regularly check the machines for money — and to restock products or cash — to collect your profits.

This stream isn’t perfectly passive since you’ll have to physically visit the machines for maintenance, restocking, and collecting profits.

However, you could hire someone to take care of the day-to-day operation of your business.

2. Purchase a laundromat

Owning a laundromat lets you earn money as long as people are using the machines. There are a lot more expenses in owning a laundromat than other types of passive income ideas, such as utilities and machine maintenance.

However, laundry services are an ongoing need for almost everyone, making a laundromat a relatively safe investment.

3. Flip domain names

Did you know you can buy and sell internet domain names, sort of like stocks? You might consider starting a side business doing this.

It works by buying a domain name you think someone will want for their business.

For example, the person who first purchased “apple.com” was likely able to sell it for a large profit when the technology company needed the domain.

Although many big-name domains are already bought and paid for, you can still make money flipping domains. There are even marketplaces where you can easily buy and sell domain names directly.

4. Rent out quality items

Say you decide to buy a luxury car with your 100k. You can still make money on your purchase by renting out your vehicle for a premium.

And this strategy works with any high-quality items you own. Are you into designer handbags? You could rent them out to people looking for a bag for an event. Other items to rent out include high-quality power tools or yard equipment, an RV, sporting goods, or quality baby equipment.

5. Buy a successful business

A common passive income idea is to simply purchase an already profitable business. You take over ownership and continue to let the business run as it has been to make money.

Unfortunately, it takes quite a bit of upfront capital to do this. Luckily, if you have 100k to invest, you could likely find an existing business within that budget or qualify for a business loan with a 100k down payment.

How much interest can you earn on $100k?

If you’re earning compound interest on your 100k investment, there’s almost no limit to how much interest you can earn on 100k.

However, how much you’ll actually earn in interest depends on a few factors, including where you invest the money and how often you withdraw funds.

For example, if you put your 100k in a typical savings account, your interest rate might only be about 0.5% per year, explains the FDIC. Even with compounding interest, you’re unlikely to make a large amount in interest earnings.

Creating a diversified portfolio of investments, however, could yield a much higher interest rate.

Articles related to investing $100k

If you enjoyed reading this article about how to invest 100k, check out these other articles about investing!

• Investing Money For Beginners: How To Start Investing Today!
• How To Turn 10K Into 100K
• How To Start: Passive Real Estate Investing
• How to Grow Your Money: 7 “Must Do” Tips
• How to save $100k: I did it in three years

Leverage these tips on how to invest 100k for your future!

Figuring out what you should do with 100k can be a daunting — and exciting! — task.

If you’ve found yourself with $100,000 to invest, your first step should be to make a plan for your money. You may want to talk with a tax professional and financial advisor to help create an investment plan that will help you maximize returns on your investments.

Remember to take your time deciding about your 100k, and be sure that the investments you choose are the best ones for you that will bring you financial success.

The post How To Invest $100K? 4 Investment Ideas appeared first on Clever Girl Finance.

Saving for college expenses can be difficult and takes a lot of time. Many choose to save through a 529 plan to make the process easier. But is a 529 plan worth it? And is it a good idea for you?

Most American parents aim to save just over $55,000 for their children’s college expenses, and 529 plans make up 30% of college savings accounts.

We’ll explain the basics of the 529 plan system as well as where to open an account, and the 529 withdrawal rules. We’ll also go over the pros and cons of 529 plans. Then you can make an educated decision about your child’s education savings.

What is a 529 plan?

A 529 plan is a type of education savings plan that helps families prepare for future education costs. Also called qualified tuition plans, 529 plans offer tax advantages and savings benefits for those saving for higher education expenses.

Money in the account is generally put into investment funds that could help build savings faster than a savings account alone.

Additionally, the earnings in the account can be withdrawn tax-free if they’re used for qualified education expenses. The potential for tax savings makes a 529 plan an attractive method for budgeting expenses for college students.

Who are 529 plans for?

Anyone can open a 529 plan. After opening an account, any money you put into it is meant to be used for education costs for the named beneficiary on the account.

Generally, parents and grandparents are the owners of the account, and their child or grandchild is the beneficiary.

However, a big benefit of 529 plans is the ability for anyone to contribute. This makes it easy for family and friends to add money to the account (which can be one of the best 18th birthday ideas) or they can also add money for holidays.

Where to open a 529 account

Most 529 plans are administered by states and their agencies. Every state and Washington, D.C., offer at least one form of a 529 savings plan. Some educational institutions also sponsor 529 plans of their own.

You can choose to open an account from any state, regardless of where you live.

However, residents who open a 529 plan sponsored by their state may receive tax advantages when contributing to accounts.

In addition, some states offer lower fees and administrative costs to in-state residents.

You should consider both in-state 529 plans and out-of-state plans when deciding where to open a 529 account. Be sure to weigh the potential tax savings from your resident state plan with attractive benefits from other states.

You can look up and compare your state’s plan with the College Savings Plans Network search and compare tool.

For example, if your state offers aggressive tax savings on state income tax by using your state’s 529 plan, it may make sense to use this plan.

If, however, your state doesn’t offer tax benefits through its plan, you may want to choose a state plan with better investment choices.

How to open a 529 education savings account

Opening a 529 plan is usually as simple as finding the state’s plan administration website and filling out a form.

Plans sold directly by their administering state are known as “direct-sold” plans, or you may also choose to work with a financial advisor through an “advisor-sold” plan. Advisor plans still work with state 529 programs, but you’ll generally leave the day-to-day management of the account to your financial advisor. Advisor plans also usually have standard investment planning fees.

What are the pros of a 529 plan?

Is a 529 plan worth it, and what are the important pros and cons of 529 plans? When choosing any type of savings or investment account, you’ll want to consider the benefits and disadvantages. Let’s take a look at the advantages of opening a 529 plan.

Potential for significant tax benefits

By far, the biggest benefit of a 529 plan is the potential for tax savings. Depending on your state, you might be able to save money on state taxes by contributing to your resident state’s plan.

Many states offer tax deductions or credits for contributing residents. Colorado, for example, lets residents filing single tax returns deduct up to $22,700 per beneficiary for the 2024 tax year, according to College Invest. It’s worth noting that there are no federal tax deductions and no credits for investing in a 529 plan.

However, you can still experience great tax savings even if you open a plan outside of your state. Funds you earn in a 529 plan grow tax-free, so you won’t have to pay taxes on the earnings in the account. This tax deferment helps your money grow faster, as you won’t have to pay taxes on investment earnings while the funds are in the account.

When it is time to withdraw money from the account, you might still get to take it out without paying taxes on it. You can withdraw money from a 529 plan for use toward a qualified education expense tax-free.

Generally, qualified education expenses include things like college or trade school tuition, textbooks, and required class supplies.

Flexible education savings

A 529 savings plan gives you flexibility in addition to tax benefits. Anybody can open a 529 account, regardless of income, and name a beneficiary to their account. You can even name yourself as the beneficiary to your account to start saving as soon as possible.

The beneficiary you originally choose isn’t set in stone, either. You can change the beneficiary on your account to better fit your financial plans.

For example, you open an account for your first child and then start wondering, “Should I have another baby?” You choose to have a second child, and your firstborn receives a large scholarship to college. You no longer need all of the money in the 529 account for their education expenses.

You can change the beneficiary on the account to your second child without penalty. Now, your second child has access to the funds in the account to cover education costs.

Easy to set up and maintain

I personally like the idea of this plan because you don’t have to do a lot to manage a 529 savings plan. Once you open the account, you can usually “set it and forget” if you want to, which is a big plus when considering, “Is a 529 plan worth it?”.

Most plans let you assign automatic contributions, such as a monthly transfer of money from your checking account into the 529 plan.

In addition, most 529 plans offer targeted investment options based on your child’s anticipated college years.

While targeted investment funds lower the number of investments you have access to in the account, they make it much easier to manage your 529 plan money. Targeted investment funds generally use your child’s age or estimated college entrance year to create a mix of investments that fit the timeline to create a risk profile for your needs.

As your child gets older, the plan automatically readjusts investments in the fund to better meet current needs.

For example, a newborn has approximately 18 years before they head to college. A target fund for this child might include riskier investments with the potential for higher earnings because any losses would have years to correct themselves.

High contribution limits

Contribution limits for 529 plans are very high.

Many of these limits are upwards of $200,000 or more, according to The College Investor, meaning most families won’t fear hitting the limit.

What are the cons of a 529 plan?

Although 529 plans have a lot of benefits, they also come with certain drawbacks. Get to know the downsides of a 529 plan to better understand if a 529 plan is worth it for your family.

Can only use funds for education without incurring penalties

A 529 plan can help you save up significant funds for your child’s education. However, the funds can only be used for certain educational expenses.

If you decide to use the funds in a 529 account for non-education costs, you’ll have to pay taxes on the earnings. Using 529 funds for non-education expenses negates the tax-free benefit of the account.

In addition, you’ll also pay a tax penalty for withdrawing the funds without using them for education expenses. This penalty could cut into the earnings you’ve made through investments.

Drawbacks to state tax benefits

Not all state 529 plans offer the same types of tax benefits. Most give residents who use their plans a tax deduction or credit for contributions.

If you live in a state without income tax, however, you won’t receive the benefits of someone in a state with income tax. Since those in non-income tax states often pay higher property or sales taxes, a state 529 plan may not be the best fit.

Additionally, you should consider your future plans before committing to a 529 plan.

Say you open a 529 plan in your current state to take advantage of the state tax benefits. Your career, however, takes you to a new state within a few years. If you change your 529 plan, this could affect your investments, fees, and taxes.

Limited individual investment control

Having a low-maintenance account can be a big benefit for some parents — and a major drawback for others. Most 529 plans have a limited number of set investment options for your funds.

If you’re a hands-on investor, this limit on your control over your investments could be frustrating.

Without self-directed fund options, you have to accept the investment choices of the plan.

Instead of a 529 plan, you may want to consider opening custodial accounts or a brokerage account to use the money for education expenses. You may not get the tax benefits of a 529 plan, but having control of individual investments could lead to potentially higher returns.

Potentially high fees

Almost every 529 plan has administrative and investment fees. These fees help cover the cost for the state agency or institution to run and manage the plan. Choosing an advisor-directed plan also generally increases the amount you’ll pay in fees.

As you’re comparing your state plan to other plans, be sure to carefully consider the costs of the plan. Plans explain their fee structures and the fees you’ll pay for certain investment types in the fine print of their offerings. Going over the potential fees of a plan will help you determine if a 529 plan is right for you.

Expert tip

A 529 plan is a great way to save for future education costs for many families. This is because it offers flexible education savings with nearly no contribution limits, all while offering a done-for-you approach to investing.

That said, I recommend doing your research specifically around the tax benefits for different state plans a well as the associated fees. This will help you make an informed investment decision for your 529 account.

Is it possible to lose money in a 529 plan?

Yes, you can lose money in a 529 plan. When you learn how to start investing, there’s always a possibility you’re putting your money at risk.

529 plans are often called savings accounts, but they are almost always used for investing money in the stock market. Investments in a 529 fund could potentially lose money, just like any other investment. This might leave you wondering: is a 529 plan worth it if you could lose money?

The good news is that many 529 plans use a low risk tolerance to determine their fund allocations. Low risk tolerance means your plan puts your money into funds that have historically lower chances of losing money, though the potential is still there.

What happens to 529 if the child doesn’t go to college?

If your child doesn’t go to college, you can use the money for other education costs. Many parents mistakenly assume they’ll have to pay penalties on withdrawals if their child chooses not to attend college, but 529 funds aren’t only for traditional four-year university costs.

Other ways you can avoid paying taxes and penalties on 529 withdrawals if your child doesn’t go to college include:

• Switch the beneficiary to another family member who is attending college or another higher education program.
• Use funds for trade school tuition or a two-year program.
• Cover the cost of K-12 private school tuition.
• Use up to $10,000 to pay off student loans.

How do I withdraw my money from my 529 without penalty?

You can withdraw money without penalties by using it for qualified expenses. Any money you withdraw from a 529 account to use toward qualified education expenses for the beneficiary is generally tax and penalty-free.

Most people know that college tuition is a qualified expense, but qualified expenses might also include:

• Tuition and fees for both college and vocational or trade schools.
• Up to $10,000 per student in tuition and fees and elementary and secondary schools.
• Up to $10,000 toward student loan debt.
• Room and board, including off-campus housing up to on-campus housing costs.
• Food and meal plans.
• Textbooks and required class supplies.
• Computers, so long as they are a requirement for students.

There are many different ways to use funds from a 529 in a qualified withdrawal.

It’s important, however, to be careful when you withdraw funds to not overdraw and to know the 529 withdrawal rules. The money you withdraw from the account must go directly to the cost of higher education. Waiting too long to pay a bill or holding funds for a future expense could lead to paying penalties.

For example, say your child’s yearly tuition is $10,000, which the university bills per semester in $5,000 increments. You would want to avoid withdrawing the full $10,000 at the beginning of the year to pay the tuition bill to avoid paying a penalty on the $5,000 in funds for the second semester tuition bill.

Instead, you should withdraw $5,000 when the first bill comes in and the additional $5,000 when the second bill arrives.

How many times a year can you withdraw money from a 529 plan?

There is no limit to how many times a year you can withdraw money. While you should be careful when you withdraw funds from your 529 account, the good news is you can make unlimited qualified withdrawals from the account. Making more withdrawals throughout the year might also make it easier to keep track of which withdrawal was going to certain expenses.

What amount of time does money have to be in a 529 before you can take it out?

There are generally no restrictions on how long your money has to be in a 529 account before you can withdraw it.

Some states and individual plans, however, may have requirements on how long the account must be open before making a withdrawal. Be sure to check with your plan and the 529 withdrawal rules to see how long the account must be active before removing funds to avoid fees.

Education savings account vs 529: Is a 529 better than a savings account?

A 529 and an education savings account are comparable, but one isn’t better than the other.

State 529 plans aren’t the only savings account for college expenses.

The most common alternative to a 529 plan is a Coverdell Education Savings Account (ESA). Like 529 plans, ESAs help parents save for college expenses for their children.

An ESA is very similar to a 529 plan. Both accounts let you save and invest funds for the college expenses of the beneficiary — which both types of accounts let you change. And just like 529 plans, ESA accounts let you withdraw earnings for the account tax-free if the money goes to qualified education expenses.

Differences between an education savings account and a 529b

However, there are three main differences between an education savings account vs 529 plan:

• ESAs give you more control over your investments, letting you invest in mutual funds, stocks, and bonds.
• Unlike 529 plans, ESAs have annual contribution limits as well as upper-income limits.
• 529 plans don’t have age restrictions for beneficiaries, while money in an ESA must be used or the beneficiary changed to a younger family member by the time the first beneficiary turns 30.

Either a 529 or a savings account could work for you. In general, an ESA has more restrictions regarding contributions and timeline for use.

This might make it seem like a 529 plan is the best option, but that’s not always the case. The ability to mostly self-direct your investments in an ESA could make it the better choice for some parents.

Other alternatives for college savings

Other alternatives include custodial accounts for your children. In a custodial account, you are the owner of the account for the benefit of your child until they turn 18 (or 21 in certain states). After they come of age, the account moves into your child’s full possession.

Wondering if a 529 plan is worth it? Both ESAs and custodial accounts could be a good alternative if you feel a 529 plan isn’t for you, such as if you move states often or want to have more control over your investments.

Articles related to 529s and other other savings accounts

If you enjoyed learning about whether a 529 plan is worth it, you’ll like these articles:

• An Overview Of Custodial Accounts And How They Work
• How To Create A College Student Budget You’ll Actually Use
• 10 Financial Tips For When You Start A Family
• How To Create An Aggressive Savings Plan (And Why Consider It)

Is a 529 plan worth it for education planning?

Generally, we at Clever Girl Finance believe a 529 plan is an excellent way to save for future education costs. Many families find the ease of opening and maintaining their accounts — along with the tax savings — to be worth it to save for college.

If you’re considering opening a 529 account for your child or grandchild, we recommend considering these questions to help you decide if it’s worth it:

• Do you have other education savings in place?
• Do you have a backup plan for the funds if the child doesn’t go to college or doesn’t need the funds, such as securing a scholarship?
• Will you need the funds for other types of expenses outside of education costs?

After considering these questions, you should have a clearer view of whether or not a 529 plan is worth it for your family.

Whatever you decide, it’s always a good idea to plan ahead for your child’s future by saving for education, regardless of the type of account you choose. It is also equally important to consider your retirement savings and other investing goals, so you can create a healthy money story for yourself and your family.

The post Is A 529 Plan Worth It? appeared first on Clever Girl Finance.

You’ve read all the books and watched all the Youtube videos but you still don’t know where to start. Sometimes, when it comes to your personal finances, it can be hard to apply generic advice. And that’s probably why you’re asking the question: do I need a financial advisor?

Financial advisors are financial professionals that guide clients, using their expertise, on what to do with their money and how to meet their long-term goals. To offer this, many advisors complete specific training and hold professional certifications.

Maybe you’re in a bit of a financial fix or have bad money habits. Or perhaps things have been going really well, and you want your money to work a little harder for you.

Either way, this article will take a deep dive into what it takes to work with financial advisors. You’ll learn about the different types of advisors, what they do, and when you might need them.

Is it really necessary to have a financial advisor? How to know

Hiring a financial advisor can be costly. So let’s first answer the question, “Do I need a financial advisor?”.

There are some life situations when you should definitely seek professional guidance. These include the following:

You can’t figure out your personal finances on your own

For some people, managing money is more than a chore. You might fall into this category if you’re already asking the question do I need a financial advisor? And that’s OK.

We all have activities where we shine and others not so much. Some people love cooking, doing dishes, or creating art. Others love managing money. 

If you don’t fall into this last bucket, you’re one of many, and hiring a financial advisor is probably a wise move.

When you’re just starting out on your personal finance journey

If you’re new to understanding how to set intentions for your finances, it can be overwhelming. You can learn about the stock market, bonds, budgeting, retirement planning, and saving. The list is endless. So, financial advisors do help un-muddy the waters for you.

When should you get a financial advisor? It is often a good idea to seek professional financial advice as a beginner. Remember, though, that it can cost you hundreds of dollars and more.

With access to information online, it is advisable to do your own financial research first. If you’re still stumped, then you can take the leap and hire an expert.

You have complex financial considerations

If your finances aren’t straightforward, when should you get a financial advisor? Perhaps you’re dealing with major life changes, such as finding out how to prepare for divorce or bereavement.

In cases like these, outside counsel can help you navigate money worries and major life events. These can include complex family matters, multiple financial accounts, or managing cash flow from multiple sources of income.

At any time in your life, whether you’re in your 30s, 40s, or beyond, you may have a major life change, and your finances could look different. It could be anything from a large pay raise to a new baby to sudden monthly expenses.

A financial advisor can coach you on what steps to take next, regardless of what is happening with your circumstances.

When you receive a lump sum of money (such as an inheritance)

If you’ve acquired a large amount of money and you aren’t sure what steps to take, a financial advisor can be helpful. They can guide you on savings and investment decisions and help you decide on some goals for the money.

That way, you can be sure that your finances are being handled correctly, the way that you want, and make a plan so you don’t spend the money without thinking.

When don’t you need a financial advisor?

All money priorities and circumstances are unique. There are instances where you may not need a financial advisor:

You’ve automated your finances

Have you decided to automate your finances so you’re hitting your savings and investment goals? It sounds like you’re already in good shape.

Many people in this bucket have set up a simple investment plan. It will automatically rebalance with little to no need for making adjustments. Here’s an example of a financial plan to ensure you are on track.

You’re looking for tax help

Tax help should not be confused with financial advisory help. While they both deal with your money, the professionals involved are completely different.

A Certified Public Accountant (CPA) is best equipped to support all your tax needs. A CPA who is also passionate about financial planning will be able to touch on your bigger financial picture while homing in on your taxes.

So if you need to make a tax plan, these professionals will be more helpful.

Expert tip

A financial advisor should help guide you in the right direction with your money. Working with one can be a good idea in some cases.

But be sure that you are making the best financial decisions for you at all times, not just following advice. Take time to think things through and make smart choices, whether you work with a financial advisor or not.

Types of financial advisors

So, do you need a financial advisor? To help you decide, let’s look at the different types of advisors for your money.

Robo advisors

A robo-advisor is also known as a digital money advisor. They provide advice based on complex algorithms linked to your personal profile.

A robo-advisor can make automatic investments for clients, and this is great if you have a simple portfolio. But be aware there’s zero human supervision in the process.

Robo-advisors work best for passive investing. And the great news is you only need a small opening balance to get started. It makes robo-advisors highly accessible to everyone.

For a more hands-on approach, hiring a human financial advisor is in your best interests. This person will become your go-to financial resource.

As you might expect, though, the hands-on approach comes at an expense.

Financial planner (CFP)

A financial planner will help you reach your money goals and also works with you on your current finances.

A CFP stands for Certified Financial Planner (Certified by the CFP board), which is what you should look for if you decide to go this route. This person must pass an exam and complete coursework related to financial planning, and they are also a fiduciary, meaning they put the client’s best interest and financial needs first.

Wealth manager

A wealth manager can advise you about your money, and they typically work with wealthy people with high net worth. They focus on investing, estate planning, and other aspects of wealth.

If you have a large amount of money or are trying to grow your wealth, consider this option.

Registered representative

A registered representative may also be a financial advisor, and they are able to purchase and sell securities for the clients they represent. You can rest assured that they have the knowledge to help you, as they are required to pass extensive tests.

Registered investment advisor

A registered investment advisor can offer you guidance about your money. It can be either a person or a company, and they offer help with your investing options.

A registered investment advisor is also held to specific fiduciary standards, which may give you some peace of mind. This is not a requirement for some other types of advisors.

What type of advisory services do financial advisors offer?

A financial advisor serves many purposes. But their primary goal is to help you plan for your future.

They offer guidance on how to save money, what financial accounts you should open, or how to build an investment portfolio if you want to know how to start investing properly. They also advise on how to think through risk, buy a home, and plan your estate (find out more with this estate planning checklist).

How much does a financial advisor cost?

Your financial advisor will use a fee model. The options are usually a flat fee, an hourly rate, or a percentage-based fee.

However, the fee you pay will also depend on whether your advisor operates in-person or online. As you might expect, in-person financial advisors tend to be more expensive.

In-person financial advisors’ fees

When working with an in-person financial advisor, you’ll come across different payment options. Here are some common ones.

Flat fee

Some advisors charge a flat fee. It can range anywhere from $1,500-$3,000 to make your financial plan, to a much higher amount.

With this, you will get a personalized financial plan built to suit your and your family’s needs. It can be useful because having a plan can help you take action.

Percentage-based fee or fee-only

Some charge a percentage-based fee, which is a percentage of the amount you have invested.

An example would be a percentage of your assets under management. The percentage is typically about 1%.

Hourly fee

Lastly, in-person advisors may offer an hourly rate that can range anywhere from $200 – $400 per hour. But, with this type of package, you won’t receive any follow-up or support. You’ll be on your own to put the plan into action.

So, this works best when you are comfortable with handling your own finances. And you must have the discipline to follow through.

Online financial advisors’ fees

Online financial planning offers a lower fee structure. Fees are based on the assets under management, i.e. a percentage-based fee structure, and can range from 0.20% to 0.35%.

There is typically no requirement for large amounts of money to open such an account.

Online financial advisors include platforms like Betterment and also Wealthfront. These give you access to a personal financial plan and ongoing investment guidance.

What to look for in a financial advisor: 5 Question to ask

If you are ready to seek out a financial advisor, here are some key considerations to keep in mind.

1. What is their fee type?

Hiring a financial advisor can cost you hundreds, if not thousands, of dollars. So, it’s crucial to do a ton of research before you commit to a specific advisor. You’ll want to understand exactly how the fees will work for your financial situation.

Fees may differ by state and level of service. The key to remember is that the simpler your investment needs are, the less you’ll have to pay.

If you are just starting out and need basic investment management, then paying $1,000 for an advisor is a lot.

However, if you’re further along with more complex needs, that amount might make sense.

2. Do they have the right certifications and credentials?

Credentials matter. When you sign on with a new advisor, you’re trusting that person to help you build a secure financial future.

A financial advisor needs to have the right certifications and title, for instance, being a registered investment advisor. You should also look for someone who is a fiduciary.

So, the question, in this case, is not so much do I need a financial advisor, but rather do I need this financial advisor?! The right advisor will have successfully fulfilled the requirements of the Financial Industry Regulatory Authority (FINRA).

If you’re looking for a financial planner, you’ll want to work with someone who has a Certified Financial Planner (CFP) title. This will mean that the individual has successfully fulfilled the CFP Board’s requirements – education, exam, experience, and ethics – to receive this designation.

3. Do you work well with them?

When dealing with any advisor in life, a relationship built on trust matters. But when it comes to personal finance, this matters even more as this could impact your entire future.

As you search for a financial advisor, have as many live conversations with them as possible. Do your research and ensure you trust and can depend on the person fully.

Look for reviews, and if you can, ask for referrals. The more aligned you are in mission, values, and strategy with your advisor, the more rewarding it will be to work with them.

4. How does communication work?

If you’re hiring an in-person financial advisor, be clear on how much access to them you’ll have.

Will they be available to answer your phone calls or respond to your emails quickly? How frequently will you be able to meet face-to-face? Make sure these expectations are set before you sign with them.

5. What’s their investment philosophy?

If you have strong opinions on the impact of your investments, then make sure you choose a financial advisor who aligns with your values and understands your risk tolerance or how risk averse you are.

For example, if you prefer to invest ethically, then ensure your advisor is able to choose investments that will use your dollars positively.

Where can I find a financial advisor?

If you’d prefer to deal with an in-person financial advisor, in most cases it makes sense to choose someone local to you. If you’re looking for a reputable financial advisor in your area, check out the following ways to seek out a professional you can trust.

Via personal referral

Nothing beats the power of a referral, as it provides reassurance. You’ll know that someone you trust has received great value from working with the advisor.

In addition, it gives you first-hand proof that the advisor is reliable and has proven success.

But don’t stop there. A referral is only one piece of the puzzle. You’ll want to make sure the advisor provides 5-star treatment to everyone he/she encounters.

Be sure to do your research, and you can even check online for complaints filed to FINRA (the financial regulatory body).

From online reviews

The internet has opened up ways for us to ensure checks and balances are in place before signing up for services. The biggest way the internet helps is through reviews.

As you look at the profiles of financial advisors, look at their personal reviews as well as the reviews of the organizations they are affiliated with.

If you see any concerning feedback but are still particularly interested in working with the person, be sure to ask them about this when you’re interviewing them. You never want to blindly sign up with a money advisor.

At your local bank or financial institution

Work with your local bank or financial institution if you’re looking for a vetted financial advisor. This option will reassure you that you’re dealing with a reputable institution.

When you work with an advisor from your local bank, you’ll pay standard market rates similar to independent advisors. Another benefit is some advisors offer more than investment advice. They can also help with the importance of life insurance.

Are financial advisors the same as investment advisors?

Financial advisors wear many hats, and they may specialize in different areas. Some may call themselves investment advisors.

But, the main aim of each advisor is to provide financial planning services that help you set and meet your financial goals.

Financial advisors also support clients with guidance on investments and retirement accounts like your IRA. They’ll devise plans to support your specific requirements. For example, college savings, retirement savings, estate planning, inheritance, or business finances.

Your advisor may also educate you on insurance policies and investments. 

Investment advisors, on the other hand, tend to specialize in securities.

Remember, anyone can say that they’re a financial advisor, but you want to look for someone who has the credentials and professional designations to prove they can really help you with your money.

How a financial planner is different from a financial advisor

Both a planner and an advisor can help you with your money. But they aren’t exactly the same.

A financial planner takes an interest in the financial goals you want to accomplish over many years and helps you set up a plan to get there.

On the other hand, an advisor can do this as well, but they may also help you with insurance, investments, etc. They may focus more on the investing aspect of wealth.

The main differences between the two are that a planner focuses on meeting your financial goals. An advisor is someone who can help you with this but also other aspects of your financial health.

Is it okay not to have a financial advisor?

Yes it’s ok not to have a financial advisor – not everyone needs one. If your finances are automated, or you already have a great money plan in place, a financial advisor may be an unnecessary expense.

While having an advisor can be helpful for some, especially those with complicated financial situations, it is by no means the right choice for everyone.

Is it better to have a financial advisor or do it yourself?

If your financial situation is easy to manage through automation and/or budgeting, you may be able to handle your money on your own. Especially if you understand financial literacy basics and investing.

On the other hand, if you have a large sum of money to deal with, or you’re trying to grow your wealth, and it seems complicated, you can benefit from the advice of a professional.

Do you need a financial advisor if you don’t have a lot of money?

It could benefit you to work with a financial advisor even if you don’t have a lot of money. You might have a lot of questions about money or are new to managing your finances and an advisor could help.

Then again, dealing with a smaller amount of money may be easier to manage by yourself. You may be able to handle your finances independently through a budget and basic investing skills.

What types of financial advisors should you avoid?

If your advisor is costing a lot of money that you don’t feel is worth it, or you have concerns that they aren’t putting your best interests first, you should avoid them.

You may also choose not to work with someone if something just feels off.

For example, if you notice any red flags like a lack of communication.

Article related to financial advice

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• Do You Have To Spend Money To Make Money?
• How To Manage A Large Sum Of Money Or Financial Windfall In 11 Steps
• How To Manage Your Money: 19 Tips To Do It Right
• 7 Financial Literacy Basics We All Need To Know

Do you need a financial advisor? Leverage these tips to decide!

If you feel stuck and aren’t sure which way to go, knowing when should you get a financial advisor may not be a bad idea.

And if you’re just starting out in your financial journey and have been asking the question, “Do I need a financial advisor?” then the chances are that a professional may help to put your mind at ease and help you learn how to be better with money.

But as you gain more education and experience, you’ll gradually feel more confident to own the management of your finances. Remember, if you come across any bumps in the road, you can always return to your financial advisor for the latest advice to help you reach your money goals.

The post Do I Need A Financial Advisor? Here’s How To Decide appeared first on Clever Girl Finance.

You work hard for your money, and it’s only right for your money to return the favor! Leveraging the best compound interest investments is essentially a way for your money to make money. These investments are widely recognized as one of the most powerful tools for growing money over the long term. 

There’s even a popular quote that says: “Compound interest is the eighth wonder of the world.” It’s often attributed to Albert Einstein, but the fact-checking jury is out on whether that’s accurate.

Either way, if you don’t have time for a trip to Machu Picchu or the Great Wall of China, the wonder of compound interest can change your life no matter where you are!

With the right strategy and a mix of the best compound interest investments, you can take advantage of the power of compound interest and maximize your returns. Let’s learn about how it works and nine of the best investments for compound interest!

9 Best compound interest investments

If you’re looking for ways to start growing your money, this list is a great place to start! Here are nine of the best compound interest investments and how to start leveraging them. 

1. High-interest savings accounts

High-interest (also called high-yield) savings accounts offer one of the safest, easiest, and best investments for compound interest. In my opinion, everyone should have one!

Many traditional savings accounts barely pay any interest. If you look up the savings account interest rates at most brick-and-mortar bank chains, you might find numbers that are awfully close to zero…like 0.01% APY. Interest that low won’t compound very fast.

High-interest savings accounts, meanwhile, can offer yields that are exponentially higher than the national average. Normally, you’ll find these accounts at online banks or local institutions rather than nationwide chain banks. Since online banks have lower overhead expenses than their brick-and-mortar counterparts, they can invest more money into paying high yields to customers. 

Even better? Many of these banks offer daily compounding on the interest you earn. That means every single day, the interest you earned yesterday is calculated as part of your balance.

Then, that interest will immediately start earning interest too! All interest you accrue will usually be paid as a lump sum at the end of each month. 

How to invest in a high-interest savings account

You can find high-yield savings accounts at many different banks and credit unions. Consult Investopedia’s list here to see which savings accounts currently offer the highest yield. Be sure to also read up on the terms and possible fees for each one. 

2. Certificates of deposit (CDs)

If you have savings that you aren’t going to need in the immediate future, consider investing in CDs! Not the music kind, though—the “certificate of deposit” kind.

So, what is a certificate of deposit? CDs are essentially fixed-term, fixed-rate investments that require the investor to deposit a certain amount of money into the CD for a specified period of time. That could range anywhere from a few months to 5+ years.

Usually, the longer the term, the higher the interest rate will be. When the CD matures, the investor can either cash it out or reinvest the funds in another one.

Generally, CDs offer higher interest rates than savings accounts (but not always—make sure to compare your options). They usually also pay compound interest; you’ll have to check the individual terms to see how often it compounds.

The downside of CDs is that they aren’t as flexible as savings accounts. You can’t just withdraw whenever you want and may face early withdrawal penalties if you want your money before the savings term is complete. (On the flip side, this can “force” you to save money, which is helpful if you struggle with impulse spending!)

How to invest in a certificate of deposit

Many banks and credit unions also offer CDs to customers seeking a higher-interest alternative to savings accounts. Investopedia also has a list of the highest current CD rates, so that’s a great place to start your research. Decide how long you’re willing to have your money locked up and choose accordingly.

3. Treasury bonds or notes

The U.S. government offers a variety of bond and note investments through TreasuryDirect. These are safe and stable investment choices that let you lock in a good rate for the future.

Also called T-bonds, treasury bonds are extremely long-term investments with terms of 20 or 30 years. Treasury notes (T-notes) come with shorter terms of 2, 3, 5, 7, or 10 years. You can decide to sell bonds and notes before they mature without facing a penalty.

Both T-bonds and T-notes come with a fixed interest rate, paid every six months until maturity.

However, unlike with many other compound interest investments, the interest doesn’t automatically get added to the principal amount. Instead, it gets paid to you directly. That puts the compounding decisions in your hands. 

If you own T-bonds or T-notes and want to make your interest compound, save up your interest payments and use them to buy more bonds or notes. You can buy them in increments of $100, so as soon as you’ve earned $100 in interest, you can get a new bond and keep the interest accruing!

For those who want their interest to compound automatically, check out EE or I savings bonds. EE bonds come with fixed interest, while the interest on I bonds can change every 6 months based on the inflation rate. 

How to invest in treasury bonds or notes

Start by creating an account on TreasuryDirect if you don’t already have one. This is the simplest and most direct way to research current rates and make purchases.

You can buy EE or I savings bonds anytime. If you want T-bonds or T-notes, you have to wait for specific bond auction dates to buy them.

4. Corporate bonds & bond funds 

The government isn’t the only place you can get bonds. Corporate bonds are debt securities that individual companies issue. Bondholders essentially loan money to these corporations to help finance their growth and operations. In exchange, they receive regular interest payments. 

Bond funds are similar, but instead of investing in one bond from one company, you’re investing in a pool of bonds managed by an investment company. This helps diversify your investments, which reduces the risk you might face from any one company defaulting on their debt.

Traditional bonds don’t offer compound interest, although you can choose to reinvest your profits in more bonds or bond funds. Zero-coupon bonds are an exception to this rule. When you have a zero-coupon bond, you don’t get paid periodic interest.

Instead, the interest compounds over the term of the bond, and you receive everything as one lump sum on the maturity date.

How to invest in corporate bonds & bond funds 

You’ll need an account at a brokerage (e.g. Vanguard, Fidelity, etc). There, you can purchase bonds and bond funds, as well as stocks and other types of investments. Bonds are a simple way to learn how to start investing.

5. Money market accounts

A money market account (or MMA) is another type of interest-bearing account offered by many financial institutions. It shares an acronym with “mixed martial arts” and might be just the thing to get your money into fighting shape!

MMAs traditionally function like a kind of hybrid between checking and savings accounts. Like a checking account, they may allow you to use a connected debit card and write checks. Like a savings account, they tend to pay higher interest rates, and you can expect interest to compound on a daily or monthly basis.

Some money market accounts have minimum deposit requirements, which makes them a bit less flexible than the average savings account.

However, there are also plenty of MMAs without strict requirements. These can be a great alternative to traditional savings accounts! 

How to invest in money market accounts

Check out which banks are offering the best rates on money market accounts right now. Review the terms and benefits of each one to decide if you’d like to open an MMA.

6. Peer-to-peer (P2P) lending opportunities

With most of the best compound interest investments on this list, you aren’t doing any direct lending. Instead, you’re engaging with a middleman (like a bank or investment firm) to handle the loan logistics while you just provide money. With peer-to-peer (P2P) lending, it gets a lot more personal.

Through a P2P lending platform, you lend money directly to individuals or businesses that need it. In exchange, of course, they pay you interest on the loan. You can harness the power of compounding by reinvesting that interest in other loans or investments.

P2P lending can offer attractive interest rates compared to some of the other options on this list.

However, you also face an increased risk. If any of your borrowers default on their loans (aka stop paying), you’re the one who absorbs that loss. 

Many peer-to-peer lenders enjoy having a more personal involvement in their investments compared to simply buying stocks and bonds.

For instance, it can be satisfying to help fund a business with a mission you care about and watch them grow.

How to invest in peer-to-peer (P2P) lending opportunities

Find a trustworthy P2P lending platform that works for you. Some have strict requirements for their investors, like a certain income or net worth. Here are some of the most accessible P2P lending platforms for investors.

7.  Dividend stocks

These next few investments are a great example of compounding growth since they don’t technically pay interest. I mentioned dividend stocks earlier, so let’s learn more about them now.

Dividend stocks are just like other stocks: they’re shares of a publicly traded company. The value of a dividend stock can go up or down at any time, depending on the market and the company’s performance. 

What sets dividend stocks apart is that they regularly distribute a portion of their earnings to their shareholders in the form of dividends. You can turn this into a compounding investment by reinvesting your dividends to purchase more shares, which in turn leads to an increase in your overall dividend income over time.

However, you should note that there’s no guarantee a company will continue paying dividends. They could decide to reduce their dividend payout or even eliminate them in some circumstances. Plus, the company’s stock could go down, so it’s best not to rely on this as an income source.

How to invest in dividend stocks

You can buy dividend stocks through any stock market brokerage. Or, you can diversify your risk by purchasing shares of dividend funds (which contain a variety of different dividend stocks).

Dividend funds may pay you dividends as income or may automatically reinvest the money so it can compound.

8. Index funds and ETFs

Index funds and exchange-traded funds (ETFs) are very similar investments. They’re both collections of stocks, bonds, and other securities that track an underlying index (the biggest example is the S&P 500 index). 

The main difference is that ETFs are easier to buy and sell throughout the stock market trading day just like stocks on the open market. Index funds are only available for trading at the end of the day trading price. They are also typically bought directly through the fund company and may have higher barriers to entry (like minimum investment amounts).

Investing in index funds and ETFs is widely considered one of the smartest financial moves you can make. That’s because both of them have diversification built right in.

If you buy a total-market fund, you can essentially own a little piece of the entire US stock market!

Many brokerages allow you to set up automatic dividend reinvesting, allowing your investment to grow over time through the power of compounding. 

How to invest in index funds and ETFs

You can buy ETFs through any brokerage or stock trading app. Index funds are available through their providers; most major brokerages have their own index funds. Learn more about investing with index funds to see if it’s the right choice for you.

9. Real estate/REITs

Do you have a passion for property? Investing in real estate could yield a higher return than other investments, and it can also provide a steady income stream. 

Traditional real estate investments require a larger amount of capital upfront since you’ll need to buy properties and get them rental-ready.

Whether you buy residential or commercial property, you’ll earn income by leasing your property to tenants. Reinvest your profits by improving your properties or purchasing new ones.

If landlord life doesn’t sound like your thing, don’t worry! There are simpler ways to invest in real estate. REITs, or real estate investment trusts, offer a way to invest in real estate assets through the stock market.

By law, REITs have to distribute at least 90% of their taxable profits as dividends to the shareholders. You can reinvest these REIT profits to compound your investment.

How to invest in real estate/REITs

To invest in real estate or REITs start by doing your research. For real estate, explore locations, property options, and financing options. You’ll also need to do some math to figure out the potential profit margins. REITs can be purchased at a brokerage just like you would index funds.

It all depends on what kind of investing you want to pursue! Discover more about real estate investing for beginners and decide how to build your wealth.

Expert tip

You can choose from multiple investment options. But the main point is that your money isn’t just sitting there – it’s creating more money for your future. You can start off simple with a high-interest savings account and then work up to more complicated investments later once you feel that you understand the process.

It may also be a good idea to diversify your money by placing it in a few different compound interest investments, especially if it’s a large amount.

What is compound interest?

In the most basic terms, you can think of compound interest as “the interest you earn on interest.”

But how does compound interest work? To help establish our foundation, it helps to understand what exactly interest is. Interest refers specifically to the cost of borrowing or lending money.

If you’ve ever had a loan, you’re familiar with paying interest. Earning interest is a lot more fun, though! 

So, how do you earn interest? Let’s say you decide to store your money in an interest-bearing account at a bank.

The bank then uses your money to make money via lending and pays you a percentage of the interest while also keeping some profit for themselves. On your end, you don’t have to worry about lending risk: your money is secure thanks to FDIC deposit insurance, and you’ll receive regular interest payments. 

Compound and simple interest

Interest generally comes in one of two forms: compound or simple.

When an investment pays compound interest, each interest payment you earn gets added to the original amount you put in (your principal). Then, the next interest payment is calculated on that new total (principal + accumulated interest).

This process continues indefinitely, allowing you to make more money from your investments in the long run as the interest earned compounds upon itself. (We’ll look at an example in the next section!)

Compounding can happen faster or slower depending on how frequently interest is calculated and applied to the investment. Interest could compound daily, monthly, quarterly, semiannually, or annually. The more often it compounds, the faster your investment will grow.

The opposite of compound interest is simple interest. This means that interest is only calculated using the original principal amount. Accumulated interest is not added to the calculation.

How does compound interest grow your money?

The simple answer: with compound interest, your money makes money, then that money makes money too! That translates to constant, automatic growth.

Investing example

Here’s a quick example of how it works:

First, you invest $1,000 into an account that pays 5% APY (annual percentage yield). To keep it simple, we’ll say the interest is paid yearly, and you don’t add any new funds to the account as time goes by.

At the end of year 1, you’ll earn $50 in interest, so you will have $1,050 in the account.

During year 2, you’ll earn interest on that new balance of $1,050. That means you’ll earn $52.50, and your balance will increase to $1,102.50.

Interest for year 3 clocks in at $55, continuing to increase your balance.

This process will continue until you withdraw the money or something else happens, like a drop in interest rates. If you don’t touch the money and the rate remains the same, each interest payment should be more than the last.

As you can see, compound interest makes your money grow without any extra effort from you. You didn’t have to do anything except save money in the right type of account and give it time.

How long will it take to double your money?

The amount of time it takes for compound interest to double your money depends on several key factors: the rate of return, the length of the investment, and the frequency of compounding. You can use a compound interest calculator to easily crunch the numbers.

For example, if you invest $1,000 in an account that offers a 5% rate of return, and it compounds monthly, it would take a little over 14 years to turn that into $2,000. Doubling it to a 10% interest rate would cut that to just over 7 years. 

If you continue making contributions to the account on a monthly or yearly basis, your money will obviously add up a lot faster!

Is compound interest the same as compound growth?

People often use the terms “compound interest” and “compound growth” interchangeably. However, there is technically a difference. Compound interest is essentially “the interest you earn on interest.”

Compound growth, on the other hand, factors in the “interest that you earn on interest” and represents the average rate of growth on your investments based on the reinvestment of interest earned and dividends, as well as investment appreciation over a period of time e.g. multiple years.

One thing to keep in mind when it comes to compound growth is that all investments can grow, but not all investments pay interest. e.g. Some investments earn dividends and can appreciate.

For example, Let’s say that instead of investing in an interest-bearing account, you buy dividend stocks. You still get regular payments based on a set percentage rate, which can then be reinvested to help you buy more stocks or earn more money.

However, the money you get from dividend stocks isn’t technically “interest”—it’s a “dividend yield.” Which is an annual payment to shareholders based on the current price of the investment.

Since compound interest and compound growth have a similar mechanism, our list of best compound interest investments will include multiple investment types, not strictly interest-bearing ones. As long as they’re expected to grow regularly and allow you to reinvest the money, these investments can all help compound your wealth!

Articles related to compound interest investments

If you enjoyed this article on compound interest investments, check out this related content:

• How Does Compound Interest Work For You?
• How to Invest In Dividend Stocks For Beginners
• What Is Dividend Investing And How Does It Work?
• Investing Money For Beginners: How To Start Investing Today!

Choose the best investments for compound interest for you!

What are the best investments for compound interest for your situation? That part’s up to you! For the best results, you can leverage a mix of the best compound interest investments. 

To start, I recommend opening a high-yield savings or money market account to store your emergency fund. You can also use these for any other savings you want to keep stable and easily accessible, like sinking fund categories.

After that, you can open a retirement savings account and start filling it with investments like dividend funds, ETFs, bonds, etc.

You can decide to devote any extra money to treasury bonds, real estate investments, CDs, P2P lending, or whatever else makes sense for your financial situation.

No matter what direction you go in, it’s important to do your research before investing.

There are risks associated with all types of investments, and you want to be confident in your choices. (Take our quiz to find out how risk-averse you are.) Knowledge is power, so keep researching and learning more!

The post 9 Best Compound Interest Investments appeared first on Clever Girl Finance.

Let’s talk about saving money for your child via custodial accounts and education plans. Different types of custodial accounts for minors can help you save for your child’s future. Here’s how they work!

Parent-owned custodial accounts for minors are a great way to pass on generational wealth to your children or grandchildren.

In addition to being useful for education, custodial accounts have multiple purposes, from college to wealth building. A child’s parent or a grandparent is most likely the person who will set up a custodial account.

College is obviously a large expense, and custodial accounts and 529b plans may be the answer. Parents are making saving a priority.

The Saving For College survey found that 40% of parents had saved up over $30,000 for their kid’s college. However, only 7% of parents feel that they have enough money saved up for college costs.

What is a custodial account?

A custodial account is fairly easy to figure out. It’s simply an investment account that an adult controls for minors who are under the age of majority, which is 18 (in some states, 21).

In my custodial accounts, I can invest funds in the stock market for the financial goals I have set. Saving for my children’s college student education is one of them.

There are a few very important factors to keep in mind with custodial accounts for minors. They include the following:

Your child might need to pay taxes on any income the account makes

Income from interest, dividends, or capital gains, may need to be included in your tax returns or your child’s tax returns. (It’s best to clarify this with a qualified tax accountant.)

There are tax rules around monetary gifts you give your child

The rules are complicated surrounding gift taxes. You may be able to give away a certain amount of money a year as a gift, such as 18,000, without paying taxes.

However, there are many rules that apply, and asking an accountant is the best course of action.

The money does not have to be used for college

A big advantage of the custodial brokerage account is that the beneficiary can use this money for anything. It’s not directly tied to your child’s education.

It also means that it isn’t limited to just tuition and fees like college savings plans. But do keep in mind that this could also impact financial aid eligibility for your child.

Types of custodial accounts for minors

There are a few types of custodial accounts that you can choose from. Choose the one that works best for you and makes the most sense for your financial situation.

Uniform Gift to Minors Act

With a UGMA, the custodian can make investment choices and put the money in bonds, stocks, mutual funds, ETFs, and other investing options. It can be very beneficial if you’re saving up for large future expenses.

Withdrawals need to be for the minor the account is for

A great feature about these is you have the ability to make a withdrawal of money from this account, as long as it benefits the minor the account is for. Which may come in handy to pay for education before college or other expenses for your child.

No formal trust is required

A main advantage of UGMA accounts is that you don’t need to set up a formal trust. You can use the money you deposit in this account to invest in your child’s future, and they are simple to set up.

Not tax-deferred

An important thing to note is that this type of account isn’t tax-sheltered, which may affect your decision.

Uniform Transfers to Minors Act

UTMA accounts are quite similar to the UGMA. The one major difference that you’ll notice is what makes up the account. 

Property can be part of the account

The UTMA can include property. You can give real estate, jewelry, and other items to the beneficiary of the account. It’s a good option if you have property or assets like a car or a home and you want to someday transfer ownership to your kid.

Not tax-deferred

As with a UGMA, the UTMA is also not tax-deferred.

Education savings accounts

There are a couple of options for savings accounts, specifically for education. Here’s what you need to know.

529b plan

With a 529b plan, you can set aside funds for your child’s future college student budget expenses, i.e., tuition, books, and other educational costs. These funds can only be used at accredited 2 or 4-year colleges, vocational and technical schools, or at eligible foreign colleges.

Unlike custodial accounts, there are contribution limits with the 529 plans. Contribution limits are typically between $300,000 and $500,000 depending on the state.

529b’s are typically set up by the state, but you can open a 529b in a state different from your primary residence. Some states offer special tax deductions if you open a 529b in the state where you live.

That said, you want to make sure you are aware of all restrictions on the account, including where your child can attend college. You also want to be aware of the fees and costs you will be paying compared to the tax deduction you will get. Here are some of the benefits of a 529b account to help you answer the question, “Is a 529 plan worth it?”

Money grows tax-deferred

The main benefit of having a 529b in place for your child is the tax benefit. Once you begin making contributions, your earnings can grow tax-deferred. Those distributions will not be taxed by the federal government if you use the money for qualified education expenses (which is the purpose of the 529b).  

Withdrawals can be made at anytime

You may take money out of a 529b at any time for any reason. However, if you don’t use the money towards your child’s college education costs, then you will have to pay income taxes and also a 10% federal tax penalty.

The money is invested

Since the 529b is a state-sponsored program, your money is typically invested on your behalf by established brokerage firms. You can open your 529b account in various funds and pick what plan works best with your objectives for your child’s college savings.

One of the most popular approaches for how to start investing for college is selecting funds based on the age of your child.

One approach starts out investing more aggressively, but as your child approaches college age, the mix of investments gets more conservative, i.e., more money in cash and bonds vs. funds.

Alternatively, you can create your own investment mix from the brokerage firm’s available portfolios in their 529b plans.

Remember, with a 529b plan, the money still belongs to you, whereas with a custodial account, the funds belong to the child.

My story with 529b plans

As a mom to twins, one of my financial goals is to support my kids when they go to college. To achieve that goal, I have put a couple of things in place to support this plan.

They include splitting up the college savings for each of my children between custodial brokerage accounts and 529b plans.

For example, I chose the New Hampshire 529b plan, although I live in New Jersey. At the time of writing this, my state does not offer any sort of tax deduction or incentive around the 529b.

However, under the New Hampshire plan, my kids can go to college anywhere in the country.

About 33% of families are saving for college using 529 plans or other college savings plans. They are great educational resources. A state or state agency sponsors these plans and provides tax-advantaged savings.

Almost every state has at least one plan, and you can even opt into an out-of-state one if you’d like.

Coverdell Education Savings Account (ESA)

A Coverdell ESA can help you pay for educational expenses for your child, including more than just college.

Covers elementary through high school

You can also pay for other educational costs from elementary through high school using this type of account. 

It may come in handy to fund an account like this, especially if you plan on sending your child to expensive private schools or if you think their education costs will be high even before college.

Tax-free distributions

Distributions to a Coverdell Education Savings Account are tax-free as long as they do not surpass the beneficiary’s qualified education expenses. The distributions can be used for expenses like tuition and fees, as well as for a computer, books, and other school supplies.

Similar to a 529b you can open an ESA with a brokerage firm and your contributions are invested. You can find more contribution information on the IRS website.

Expert tip

There isn’t one perfect solution for saving for your child’s future. Consider options for education e.g. scholarships and grants, as well as other ways to save e.g. looking at 2-year vs. 4-year colleges.

Communicate with your family and your kids about these financial decisions so they know what to expect and how to prepare for this money when the time comes.

Best custodial accounts for minors

If you don’t know where to begin looking for the right accounts, here are some of the best custodial accounts for minors from reputable companies.

• Fidelity
• Vanguard
• Merrill Edge

The above options all offer a simple process to transfer ownership of the account to your child. There are also lots of investment options including ETFs and mutual funds. And very importantly, you can manage the accounts from your mobile device.

Other options to save for your child’s future

There are a couple of other options if you want to go another route with saving.

Custodial 529 plan

A custodial 529 plan is a combination of a 529 plan and a custodial account. But the child is both the beneficiary and the account holder. It can help you save for college and other big expenses for your kid’s future.

Prepaid tuition plan

Prepaid tuition works similarly to a credit system. You essentially prepay future tuition and fees at today’s costs.

The stipulations set by the plan you have (e.g., covers tuition for only a specific university) limit your funds. These are becoming less common.

Joint savings accounts

A joint savings account is a great opportunity to start saving up money and also teach your children about how finances work. Your kid can have a supervised bank account, so you are aware of all spending.

You may also open a checking account for your child, depending on what you want to use the money for.

It’s a simpler option if you want to start teaching your kids about money and you’d like to begin saving for their future, but you aren’t ready to commit to a custodian or 529b account yet.

Roth IRA for Kids

Want to help your kid prepare for retirement early? Everyone knows that the more time an investment has to grow, the more money you can potentially make. 

Roth IRAs give you the opportunity to save for your child’s retirement tax-free. While it may seem like retirement is a bit too far in the future, this can be an excellent way to help your child build wealth over time.

What is better 529 or a custodial account?

A 529 is a great option for education. But the other hand, a custodial account for minors helps with education, as well as other purposes.

Your kid may use the money for various things, such as purchasing a home. Or they can avoid finding out how to start a business with no money by using the savings from their custodial account.

So there is more flexibility with a custodial account, but if you’re sure that college is in your child’s future, a 529 also works. If you’re still unsure, consider consulting a financial advisor.

Are custodial accounts a good idea?

A custodial account may be a smart way to pass on generational wealth and help your child with college and educational expenses.

However, to determine if it’s the right choice for you, you need to look at your own financial situation.

First, are your finances in a good place for you to start investing for your child’s future? Do you have emergency savings and retirement savings? If so, and you have the means to add money to an account for your child, custodial accounts for minors can be a good idea.

However, also remember that the money will be your child’s once it is added to the account. You will no longer be able to use the money for anything, so be sure that you can afford this first.

Can parents take money from custodial accounts?

Any money transferred into a custodial account now belongs to your child, and you are essentially the custodial manager.

Meaning legally, you can only use the funds in this account for expenditures that benefit your child, not yourself. You cannot withdraw this money and use it for whatever you want.

Should you open a custodial account for your child?

It’s a personal choice that has to do with your budget and finances, as well as your child’s plans for the future. You may prefer a custodial account if your kid is undecided about going to college or if you’d like the option to pay for more things than just education.

In addition, custodial accounts are a good idea if you plan on giving your child any sort of property like real estate.

What happens to custodial accounts after 18?

Once your child reaches age 18 or age 21, they are no longer a minor and will gain full control of the account.

The specific age of 18 or 21, when your child is no longer a minor, depends on the state you live in. That said, it’s important to start teaching your children financial responsibility as early as possible.

Topics like how to manage credit card debt and balancing school and work as a college student are key lessons you can teach your child for their financial success!

Related posts to custodial accounts

• The Best Investments For Teens And How To Start
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• Financial Literacy For Teenagers: Key Money Tips For Teens

Save for your child’s future starting today!

As college expenses continue to rise, it’s important to take steps today with custodial accounts for minors or educational savings accounts to help your child get an education without worrying about the debt burden of how student loans work.

If you are a new mom or preparing for a baby, it’s not too early to start. And if you’re years behind, don’t worry; it’s never too late, either.

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Whether you want to start a family farm or build a home with built-in privacy, a plot of land can be the perfect solution. Although you may already know some of the details involved in buying a home, learning to buy land cheap is a totally different beast.Want to learn the ins and outs to start your journey to land ownership? Here’s what you should know about buying land.

How to buy land cheap

Whatever your reasons for purchasing land, here are the steps you’ll need to take.

1. Do your research to find the right spot

The ‘right spot’ will vary widely based on your unique goals.

For example, let’s say you want to create a family farm. In that case, you’d need to consider the soil type based on the type of crop you wish to grow.

Additionally, you should think about the acres of land you’ll need to create a financially viable farming operation. Plus, what water sources are available on the plot of land in question.

But if you are planning to build a house on a piece of land, the factors you’ll need to take into consideration are very different. A few things to keep in mind are the property’s utilities hookups, road access, and also the number of trees on the property.

Although it could be easy to overlook the importance of the number of trees on a lot, a single tree can cost hundreds of dollars to remove. With that, it is an important factor to consider if you are planning to build real estate on this lot.

Details to consider before purchase

As you do your research about a particular property, don’t overlook the small details. The upfront homework will save you many headaches in the future. After all, you want to know exactly what you are getting yourself into when you move forward with a land purchase.

Other things you want to consider are property taxes, property boundaries, proximity to national parks or cities, and other important details.

It can be exciting to dive right into a property. But an important part of learning how to buy land cheap is learning how to do your due diligence on any potential property before making an offer.

2. Know how to pay for land

Whether or not you have a particular piece of land in mind, it is important to work out how you plan to pay for the land.

Pay in cash

One of the most popular strategies when buying land is to pay in cash. Unfortunately, many lenders consider a vacant piece of land more of a risk than if you were only trying to figure out how to save up for a house and buy one.

And with that higher risk, lenders will also provide less favorable terms to borrowers, leading to a higher interest rate than you want to pay.

Bank or credit union

Of course, not everyone can afford to pay for an entire property purchase in cash. And that’s okay! There are other options.

For example, a bank or credit union may be willing to facilitate a land loan.

The terms of the down payment and amount of years for the loan can vary.

USDA loan

Another popular way to fund land purchases is through the USDA loan. The U.S. Department of Agriculture provides these loans to borrowers that intend to build their private residence on the land.

As a government program intended to promote rural community development, these loans are fairly accessible with minimal credit score requirements.

The catch with USDA loans is that not every plot of land will qualify. To see if the area you are interested in qualifies for USDA loans, explore your options on their interactive map.

Seller financing

A final option to facilitate your land purchase is seller financing. Although this is not an option in all situations, it can be a good opportunity if the seller is motivated to complete the property sale quickly.

Seller financing can come with risks for both parties. With that, it is a smart idea to get an attorney involved to finalize the terms of the deal in writing.

Expert tip: Take your time to research the best place to buy land

Finding the right place to buy land takes a good amount of time. Your decision may take months so be prepared for the time it takes. It’s also important to remember that there are many options for paying for or financing land. e.g. paying in cash, leveraging banks or credit unions, U.S Department of Agriculture loans, seller financing, and more.

Where is the best state to buy land?

Now that you have a better understanding of what it takes to buy land cheap, where should you buy it? Is there a best state to buy land? The answer will vary dramatically based on your unique situation and will depend on your particular wants.

Although some states tend to have higher prices for land, some parts of the United States are more affordable. Here’s a list of some of the cheap states to buy land, according to Zippia:

1. Wyoming

The average price for an acre of land in Wyoming (WY) is $1,558, making it the cheapest option for buying land. The state is well known for its national parks, which is a positive if you love nature.

2. New Mexico

New Mexico (NM) has plenty of places where you can buy land for cheap prices, with an acre costing $1,931 on average.

Compass Land USA explains that the cheapest counties include Torrance County, Luna County, and Valencia County, among others. New Mexico is home to the city of Albuquerque, as well as many outdoor spaces.

3. Nevada

Nevada (NV) has some of the least expensive lands, with the average being about $2,116 an acre. If you enjoy hot weather in the summer and deserts, this can be a good place to buy.

4. South Dakota

South Dakota (SD) costs only $2,135 per acre on average. It’s one of the best places to look for land if you want to find the cheapest prices. It’s also a great place to see sights like Mount Rushmore and state parks.

5. Montana

Montana (MT) is a great place to buy land if you’re looking for open spaces and plenty of wildlife. The average price for an acre is $2,283.

Although they didn’t make the top 5, some other states that have relatively good prices for parcels of land include Arizona, Arkansas, Colorado, Oregon, North Dakota, Nebraska, and Idaho.

In contrast, some of the most expensive states to buy are New Jersey, Rhode Island, Connecticut, Massachusetts, Maryland, California, and New York, among others. Though it is worth noting that you may be able to find affordable land in some of these states, depending on the location.

Tips when deciding where to buy

Sometimes it isn’t about wanting to buy land cheap. Though you can still look for a good deal! Here are other factors to consider in your search.

Determine the type of land you want and the climate

To start with, you need to decide what type of land you want. Do you want a beachfront lot or a mountainside abode?

Consider in which type of climate you would prefer to purchase the land. Are you looking for an arid plot in the desert? Or a tropical location near the beach?

This will determine what part of the country you consider when choosing land. Start listening to yourself and consider what is important to you before buying.

Consider how you will use the land

Additionally, you should nail down what you want to use the land for.

Do you plan to build a residence on it? Or are you simply planning to use the vacant land for farming, hunting, fishing, camping, or some other outdoor activity? The answer will dramatically impact the type of lots that will work for your situation.

If you are planning to build a home, the lot needs to be buildable. Rethink Rural explains that you’ll need a soil test to see how well it absorbs water, as well as have the ability to build an access road. In addition, consider easements, issues with water, and any ordinances.

Research any county restrictions

Look into the restrictions surrounding the property. Depending on the county, you may run into zoning issues that could prohibit your intended use.

Additionally, consider any hazards in the area that could affect the safety of a potential building.

For example, a flood-prone lot is likely not the best candidate for a primary residence. When you want to buy land cheap, this point is really important.

Factor in the costs

Finally, consider the costs associated with your intended use. Although you may be able to afford the land, it is important to look beyond the start-up costs of the cheapest land.

If you plan to build a home, map out those costs ahead of time to encourage better budgeting and be prepared. If you plan to start a farm, don’t forget to factor in the equipment costs associated with that choice.

How to shop around for land

Ready to start shopping for the best state to buy land? Here are some places to start your search:

Landandfarm.com

On Landandfarm.com you’ll find farms, ranches, residential lots, and recreational plots on this site.

Landwatch.com

Landwatch.com you’ll find farms, ranches, homesites, hunting land, and more available through this site.

Zillow.com (for lots)

On Zillow, you can choose to search only for residential lots through the filtering feature with Zillow. This site is especially useful if you want to build a home on your lot.

Is land a smart investment decision?

Yes, land can be a smart choice, but it depends on individual factors. If you have the money, know what you’ll do with the land, and are able to devote the time and energy necessary, then yes, it can be a good decision.

The importance of savings and preparation cannot be overlooked with this.

How much does land cost?

Land varies extremely for an acre, depending on where you buy. The location you choose will determine the price.

Is it better to buy land based on cost or preference?

You should actually think about both of these things when buying. Try to get a good deal, but also buy land that you want in a location you like. Don’t only consider the cheapest place.

More articles related to buying land cheap

If you enjoyed this article on how to buy land cheap, check out this related content:

• Is It Cheaper To Build Or Buy A House?
• The Best Physical Assets To Buy
• How To Get Started With Building Assets
• Real Estate Investing For Beginners
• Real Estate Leverage: What It Means

Leverage these tips on how to buy land cheap!

If you want to buy land cheap, you now know that it’s a bit more nuanced than buying a home. Luckily, the perfect plot of land is out there waiting for you to make your move.

But remember to go through a financial planning process first. Consider taking one of our free courses to help you create a financial foundation that will help you move forward with this next step confidently

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