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Is It Better to Save or Invest Your Money?

When building wealth, it is important to understand the similarities and differences between saving and investing your money. Knowing when to save and when to invest your money is a key part of your wealth building plan.

Let’s start from the top. Basically, saving money is putting money aside on a regular basis. You spend less money than you earn and put the rest in a savings account at your bank. This should be an automatic part of your monthly budget. Remember, saving money is an important part of being financially successful.

Investing is taking this a step further, and putting money into the stock market by buying stocks, bonds, mutual funds, or other investment vehicles. Investing is absolutely imperative in building long-term wealth.

What Is Investing?

Once you have a good amount saved, you can begin investing money. Investing is the way that you will begin to really grow your money and begin to build wealth. For example, if you keep your savings in a savings account, the amount of interest you will earn will be very small. However, if you invest in mutual funds or stocks, your rate of return will be much higher.

The big difference? The stock market fluctuates, and it’s never a sure thing that you’ll earn money. In fact, you can lose money in the stock market, so be sure to keep that in mind when investing.

You will eventually come to the point where your investments make more than you are contributing each month. Your wealth really begins to grow at that point.

What Should I Invest In?

When you begin to build wealth, it is important to spread your risk. Mutual funds are an easy way to diversify your portfolio. These funds are spread out over many different stocks so that if one company fails, you do not lose everything. Another good idea? You should have your money invested in more than one mutual fund. You don’t need to have 20 mutual funds, but three or four is a good start.

If you feel confident with investing in individual stocks, be sure that you spread your investments over a wide variety of companies, businesses, and sectors of the market (For example, do not invest all your money in tech.) It is not enough to invest in different companies if they all in the same industry because sometimes entire industries can take a hit.

You may consider investing in other things. One example is real estate. This can bring you a good passive source of income. Real estate also tends to increase in value over time. However, do not do this until you are ready to purchase in cash, and can pay for any repairs or unexpected expenses out of cash flow. It also may require more work on your part, depending on how you choose to rent it out and whether or not you use a property management company, which can cut into your rental property earnings.

Real estate can be a great investment, but it also has its risks. Much like the stock market, property values can go up and down.

When Should I Start Investing?

Most financial advisers recommend that you wait to start investing until you have paid off the majority of your debt. However, this really depends on your interest rate. If you are paying a 0% interest rate on your debt, it may make more sense to begin investing before it’s paid off, since you can earn a greater percentage in returns. (The average rate of return on the stock market is around 7%.)

It’s also a good idea to have a solid emergency fund saved before you begin investing. You should have money in your emergency fund that relatively liquid and easily accessible, without paying a large penalty. A money market account at your bank is a safe place to put this.

Investing can help you build wealth. But keep in mind that you won’t be able to truly build wealth – and increase your net worth – until you spend less than you earn and get out of debt. That’s why it’s still wise to stick to a budget, so you can save and invest effectively.

Who Can Help Me Start Investing?

So you’re ready to invest, but you’re not quite sure where to start. A good first step is to meet with a financial advisor.

A financial adviser can explain the different types of investments that are available to you. He or she can explain the risks and the potential gains to help you find investments that you are comfortable with.

Another option is to select an online brokerage site or robo-investor. The fees are lower and if you know the types of investments you want to make, you can save money in the long run.

One final thing to keep in mind: Investing is a long-term strategy for building wealth. It’s important to be patient, and ride out the times when the market is not doing well. Once you do this, then you can truly be on your way to building net worth.

Original – BY MIRIAM CALDWELL

10 Habits to Develop for Financial Stability and Success

Just like any goal, getting your finances stable and becoming financially successful requires the development of good financial habits. I’ve been researching this topic extensively in the last few years in my quest to eliminate debt, increase my savings and increase financial security for my family. I’ll talk more about these habits individually, but wanted to list them in a summary (I know, but I’m a compulsive list-maker).

Here they are, in no particular order:

  1. Make savings automagical. This should be your top priority, especially if you don’t have a solid emergency fund yet. Make it the first bill you pay each payday, by having a set amount automatically transferred from your checking account to your savings (try an online savings account). Don’t even think about this transaction — just make sure it happens, each and every payday.
  2. Control your impulse spending. The biggest problem for many of us. Impulse spending, on eating out and shopping and online purchases, is a big drain on our finances, the biggest budget breaker for many, and a sure way to be in dire financial straits. See Monitor Your Impulse Spending for more tips.
  3. Evaluate your expenses, and live frugally. If you’ve never tracked your expenses, try the One Month Challenge. Then evaluate how you’re spending your money, and see what you can cut out or reduce. Decide if each expense is absolutely necessary, then eliminate the unnecessary. See How I Save Money for more. Also read 30 ways to save $1 a day.
  4. Invest in your future. If you’re young, you probably don’t think about retirement much. But it’s important. Even if you think you can always plan for retirement later, do it now. The growth of your investments over time will be amazing if you start in your 20s. Start by increasing your 401(k) to the maximum of your company’s match, if that’s available to you. After that, the best bet is probably a Roth IRA. Do a little research, but whatever you do, start now!
  5. Keep your family secure. The first step is to save for an emergency fund, so that if anything happens, you’ve got the money. If you have a spouse and/or dependents, you should definitely get life insurance and make a will — as soon as possible! Also research other insurance, such as homeowner’s or renter’s insurance.
  6. Eliminate and avoid debt. If you’ve got credit cards, personal loans, or other such debt, you need to start a debt elimination plan. List out your debts and arrange them in order from smallest balance at the top to largest at the bottom. Then focus on the debt at the top, putting as much as you can into it, even if it’s just $40-50 extra (more would be better). When that amount is paid off, celebrate! Then take the total amount you were paying (say $70 minimum payment plus the $50 extra for a total of $120) and add that to the minimum payment of the next largest debt. Continue this process, with your extra amount snowballing as you go along, until you pay off all your debts. This could take several years, but it’s a very rewarding process, and very necessary.
  7. Use the envelope system. This is a simple system to keep track of how much money you have for spending. Let’s say you set aside three amounts in your budget each payday — one for gas, one for groceries, one for eating out. Withdraw those amounts on payday, and put them in three separate envelopes. That way, you can easily track how much you have left for each of these expenses, and when you run out of money, you know it immediately. You don’t overspend in these categories. If you regularly run out too fast, you may need to rethink your budget.
  8. Pay bills immediately, or automagically. One good habit is to pay bills as soon as they come in. Also, as much as possible, try to get your bills to be paid through automatic deduction. For those that can’t, use your bank’s online check system to make regular automatic payments. This way, all of your regular expenses in your budget are taken care of.
  9. Read about personal finances. The more you educate yourself, the better your finances will be.
  10. Look to grow your net worth. Do whatever you can to improve your net worth, either by reducing your debt, increasing your savings, or increasing your income, or all of the above. Look for new ways to make money, or to get paid more for what you do. Over the course of months, if you calculate your net worth each month, you’ll see it grow. And that feels great.

Original – By Leo Babauta

How to buy, sell and invest in gold

Learn more about gold and how you can start investing today.

Global stocks crashed in 2020 as a result of the unexpected coronavirus pandemic, and the historic volatility has led investors all over the world to seek safe places to put their money.

For centuries, gold has been a popular store of wealth. In turbulent times, you might notice people talking about gold as an investment. After the initial panic subsides, you often see the price of gold rising while other stocks are falling.

If you’re interested in investing in gold, there are three main routes to do so:

What’s in this guide?

  1. Buy gold mining stocks
  2. Gold ETFs
  3. Buy solid gold
  4. Compare providers for access to gold ETFs and more
  5. How much is gold worth now?
  6. Why is gold a “safe haven”?
  7. Bottom line

Buy gold mining stocks

One option is to invest in gold mining firms. You can find some of the largest firms listed on the S&P 500, including Newmont Mining (NEM) and Freeport McMoRan (FCX). Many other miners — the smaller firms are call junior miners — are also widely available through normal brokerage accounts. Through investing in mining stocks, you’re directly linking your capital to the success of these companies, and the changing value and price of gold.

While heavily correlated, the performance of gold mining stocks will not perfectly match the price of gold. Unlike the resource itself, companies are subject to a number of external factors such as employees going on strike, geo-political implications for the area, natural disasters and business decisions. In addition, because the cost of mining is often high, there’s usually a price point where increases in the gold price can influence the profit margins for gold miners exponentially rather than linearly. For instance, if the cost of mining is $1,000 per ounce, then a 13% increase in the price of gold from $1,150 to $1,300 actually represents a 100% jump in profits for the gold miner.

Pros

  • You can pick and choose a range of stocks individually in your brokerage account, and cash out when you want.

Cons

  • Like any investment, mining stocks are not immune to risk.

Gold ETFs

ETFs are another option worth considering. ETFs give access to a whole load of assets without having to put all of your money into one or two firms.

Simply, ETFs allow investors to minimize risk while taking advantage of the performance and general popularity of a particular sector — in this case, gold.

There are several gold-based ETFs to choose from, covering a whole host of different companies within the industry. There are mining companies, exploration companies, as well as the actual asset itself. Gold ETFs are a pretty good choice for those who are new to investing, as well as those looking to secure their portfolio.

Pros

  • ETFs allow for instant diversification across the whole gold industry, at a low price.

Cons

  • By placing your money in an ETF, you are trusting your gold portfolio to a preselected list of companies, so you naturally relinquish some control over the split of assets.

Buy solid gold

For some people, part of the appeal of gold is being able to hold it. If you’re one of those people, then the good news is that buying solid gold has never been easier. While you can buy gold directly from the US Mint, most investors do business with a local dealer or reputable online broker.

Gold is available in a variety of coins, ingots and bars as small as half an ounce and as large as 400 ounces. While the US Mint has produced numerous collectible gold coins in different themes, the standard gold bullion coin is called the Gold American Eagle. Other common gold coins include Canada’s Gold Maple Leaf, South Africa’s Gold Krugerrand, China’s Gold Panda and Australia’s Gold Kangaroo.

Pros

  • You have a tangible asset which is yours to hold, store or pass on to someone else.

Cons

  • You will need to factor in the cost of secure storage and insurance if you plan to build up a stockpile of gold. These costs will stack up over time, even if the value of your gold decreases.

Gold bars

Stack of gold bars Image: Getty

Gold bars generally range in size from 1/10 of an ounce to 1 kg (2.2 pounds), but there are also bars up to 500 ounces available. However, remember that precious metals use troy ounces and one troy ounce equals 31.1 grams.

There are two types of gold bars: cast bars and minted bars. Cast bars are produced by pouring molten gold into an ingot mold, while minted gold bars are manufactured via a minting or stamping process. Cast bars are cheaper to produce, but minted bars look better and are generally easier to sell.

Gold coins

Stacks of gold coins Image: Getty

Mints around the world also produce gold bullion coins. Typically smaller than bars and ingots, they’re generally considered to be a more convenient option for many investors. Not only are they cheaper to buy, but they also make it easier to liquidate a small portion of your investment when you need cash. Coins contain between 1/10 of an ounce and 1 ounce of pure gold.

These coins also have a nominal monetary value and can be accepted as legal tender in the country where they’re made.

How much is gold worth now?

How to safely store gold

Once you’ve purchased your gold, you’ll also need to find a safe place to store it. There are several options to consider, including the following:

  • Bullion dealers. Many gold dealers will also offer a storage service where you can keep your gold bars or coins for a fee, so ask about the storage options available when you make your purchase.
  • Safety deposit boxes. You can rent a safety deposit box at a bank to securely store your gold bullion.
  • Secure vault storage. For high-level security, you may want to research vault storage companies near you and the storage options they offer.
  • At home. You can also choose to store your gold at home. This obviously may not be as secure as some other options, so you may want to get a home safe installed. You’ll also need to update your homeowner’s insurance to make sure your precious metal is covered by your policy.

Why is gold a “safe haven”?

There are many reasons people view gold a safe haven for investors. For example:

  • Gold is a physical asset
  • It is not easily created or destroyed
  • It does not change (it is resistant to oxidation; gold looks the same hundreds of years from now)
  • It has cultural and historical value — gold predates modern currency and has always been seen as beautiful and special
  • Governments have turned to gold in times of financial crisis, which in itself adds to gold’s stability

What is a safe haven?

A safe haven investment is typically stable in times of market volatility. A safe haven is also useful for investors looking to diversify their portfolio, decreasing exposure to riskier assets or investments.

Bottom line

If you’re searching for ways to protect your wealth or diversify your investment portfolio, gold may be a practical solution.

But first do your research to make sure you know the costs of storage and security, as well as understand that returns may not match those provided by other investments. This will help you make an informed decision about whether buying gold is the right choice for you.

Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

Original – Charlie Barton