10 ways to grow your money – The Fool Motley

You may want to live in a huge, luxurious house and have employees waiting for you to meet your needs, but that probably will not happen, is it? What you may not realize is that you could to have an army of small workers working for you and making you richer: I am talking about dollars.

While you sleep and even when you're on vacation, well-spent dollars can generate more dollars and increase your equity. Here are 10 ways to invest. See which ones you want to act on.

No. 1. Bank savings account

This first way to grow your money is probably the simplest, although most of the time, it is not the most powerful: bank savings accounts. By checking accounts, these days will not bring you much, if any, interest, savings accounts make pay interest, and when interest rates are high, they can pay you a lot. In the 1980s, for example, interest rates were well advanced in adolescence. Today, however, the best savings account rates you will find will be closer to 2%.

No. 2. Certificates of deposit and money market accounts

To get better rates of return than bank savings accounts, you can deposit your bank note in deposit certificates (CDs) or money market accounts, which generally offer slightly higher rates. The problem is simply that you are supposed to leave the money from your invested CD for the full term or pay an early withdrawal penalty. Here are some recent representative CD rates:

Data source: search for the author.

Money market accounts recently offered interest rates of between 2% and 2.2%.

N ° 3. Obligations

Bonds are another way to grow your money to earn interest. There is a wide variety of bonds, with different interest rates and risks. Long-term government bonds often offer better rates than bank accounts and are guaranteed by the US government, which makes them devilish. Bonds sold by the US Treasury Department are called Treasuries. State and local governments issue municipal bonds, while companies issue corporate bonds. (Interest on municipal bonds is often free of federal taxes.) "Non-refundable bonds" are those issued by not-so-strong companies. High-risk bonds have generous interest rates because they need to attract investors willing to assume their risks.

Here are some recent cash rates:

Data source: Bloomberg.com.

Note that investors do not necessarily buy a bond on its first issue and then keep it until maturity, for several years or decades. Instead, bonds are often traded between investors, with prices rising and falling in response to prevailing interest rates. When rates go down, people tend to raise bond prices. After all, if banks offer 2%, a 5% bond will be attractive. As interest rates rise, new, higher interest rate bonds will be more attractive than older, lower interest rate bonds. If you hold a bond until the end of the term, your volatility will generally be low or zero. However, if you are dealing with bond mutual funds or if you buy or sell bonds in the secondary market, know that their prices can go up and down.

No. 4. Stocks

Bonds can be attractive when interest rates are high, and you can keep some even when interest rates are low, just for diversification. But your money can usually be more productive for you when it is invested in stocks than when it is in the form of obligations. The stocks outperformed bonds in 96% of all 20-year holding periods between 1871 and 2012 and in 99% of all 30-year holding periods, according to the study by Wharton Business School professor Jeremy Siegel. Siegel calculated the average yields of stocks and bonds as well as treasury bills between 1926 and 2012:

The data source: Stocks for the long term by Jeremy Siegel.

Actions are one of the best ways to build your wealth. The following chart shows how much your money could grow in them as opposed to other types of investments. Keep in mind that bank accounts will tend to offer relatively low yields, supplemented by bonds, which are usually outperformed by equities. To roughly approximate their returns, this table shows the growth of money at 2% (for bank accounts today), 5% (for bonds) and 8% (for stocks):

Source of data: author calculations.

A simple way to invest in stocks is to use one or more inexpensive broadband index funds. Each follows a particular index, giving you its approximate performance. the Vanguard 500 Index Fundfor example, follows the S & P 500 Index, which is made up of 500 of the largest US companies that together account for about 80% of the total value of the US stock market.

It should be noted that many stocks (as well as expanded market index funds) pay dividends, which is another way for your money to serve you. Dollars invested in dividend paying stocks will generate regular payments. Here are, for example, some recent dividend yields from well-known companies:

Data source: Yahoo! Finance.

No. 5. Real estate

Your dollars can also be productive for you through real estate. If you buy a house with a mortgage, you will build equity in the house over time, provided that the value of the house does not fall. If the value of the house increases, that's it – more value for you.

Real estate is not the sure thing that many people think, though. Yes, a lot of people get it right, but overall, it's not a wealth builder as powerful as stock. According to the detailed data of Robert Shiller, economist and housing expert at Yale, covering a hundred years, from 1890 to 1990, the value of US homes, corrected for inflation, did not change. has not increased much during the whole century. The value of homes has increased since 1990, but from 1890 to 2018, the value of houses adjusted for inflation has only doubled, approximately, and 128 years, it has been a long time since the expectation of a doubling of value .

Over the last 20 years, the value of homes has increased about 4% per year on average – but that's before inflation. The long-term average of inflation is about 3% per annum, this annual gain of 4% being reduced to about 1% on average. It's also an average too – many homes in various locations in the United States actually have lost value over short and long periods. It is better to think of the house you are buying as a valuable property in which to live, and not as a route to wealth. (Think twice before earning money as a homeowner, as it can also offer low incomes and a lot of headaches.)

No. 6. Gold

Many people think that gold is a great investment, and some people to have makes good money with gold, but in the long run, this is not a great wealth creation strategy. Gold is volatile too. Check out some examples of price per ounce:

Data source: onlygold.com.
*Nov. 16 2018.

Admittedly, gold has clearly appreciated from 20 years ago to today, but a few figures show that an increase of $ 870 to $ 1,222 over almost 20 years is the result of a rate average annual growth of 1.7%.

N ° 7. Reimbursement of the debt

Repayment of your various debts is another way to grow your money in an interesting way. Every dollar with which you repay your capital saves you from having to pay interest on it – possibly for many years. Debt repayment produces guaranteed returns.

Imagine, for example, making additional payments of $ 5,000 compared to the principal amount of your mortgage when the interest rate on your loan is 5%. That equates to a 5% return on that $ 5,000, or $ 250 a year. It's even better when you pay a high interest rate debt, like that of credit cards. Repaying a debt on which you pay 25% interest is 25% – a return that would be hard to find elsewhere.

No. 8. Passive income

Another way to grow your money is to establish passive (or relatively passive) income streams for you. Here are some ideas:

• annuitiesIf you pay a large sum to a good insurance company for an immediate fixed annuity, it will pay you a certain amount for the rest of your life. (The amount will depend, among other things, on your age and your interest rates.)
• Residual income and royaltiesYou can take photos and have them available for a fee at sites like shutterstock.com or istockphoto.com. Similarly, you can create and download designs on sites such as zazzle.com and cafepress.com, where people can buy them, print on t-shirts, mugs, and more. Similarly, if you are writing an e-book (which can hold around 6,000 words), you may find that people are interested in buying it, perhaps through: Amazon.com direct editing service. You can also sell models of wedding invitations on Etsy or elsewhere.
• Rent a spaceYou can take a boarder full time or just rent an extra room with a service such as airbnb.com or homewaway.com. If you only do 20 nights a year and you charge $ 100 per night, your pre-tax income is $ 2,000! If your home is in a desirable location, you may be able to rent the entire house for only two weeks in the summer, charging $ 2,000 per week and raising $ 4,000.
• Refinance your mortgageIf you make monthly mortgage payments of $ 1,800 now and can reduce them to $ 1,500 a month by refinancing your home loan at a lower interest rate, you'll keep $ 300 in your pocket each month. Take into account closing costs, however. If you plan to stay in your home long enough to break even, refinancing is worth it.
• Get a reverse mortgage: Reverse mortgages have some disadvantages, such as depriving you of the ability to leave your home to your loved ones, but they are perfect for some retirees who really need income. A reverse mortgage is essentially a loan based on the equity of your home, the amount borrowed does not have to be repaid until you die, or the sale or the cessation of life (maybe to be because you have moved to a retirement home). At that point, the house can be sold to cover the debt – or your heirs can repay it and keep it.

No. 9. Rewards credit cards

We have covered the dark side of credit cards: a pernicious debt with high interest rates. But there is also a good side. If you do not use your credit cards to accumulate debts, you can use some of the best credit cards to generate income for you, with their cash back programs or rewards. Some cards offer flat-rate reimbursement percentages of up to about 2%. Others target certain types of expenses or some retailers. If you spend a lot on Amazon.com, for example, you can get a card that will reward you with 5% cash back, which can be very profitable. Other stores with associated credit cards include Target, Costco, gap, Lowe & # 39; s, TJX, and Wal-Mart. Many offer between 3% and 5% cash back or reduced prices, but also offer other benefits, such as free delivery of items purchased from the sponsoring retailer, while others allow you to return them without receipt. or donate money to a charity every time you use the card. If you travel a lot, you can use travel-related credit cards to accumulate many points and rewards that can be used instead of cash, while keeping more money in your pocket.

No. 10. Strategic charitable donations

Finally, you can use your money productively for the benefit of others – by making charitable donations in the form of money, inventory or property. In fact, there is also a potential financial benefit for you, in the form of a tax deduction.

You can grow your money in many ways. Examine the 10 ways we discussed here and see how many of them could be employed and how much you could accumulate. Hundreds or thousands of dollars can be directed to you through these strategies.