investments that make money | Design Your Finances

Wealth management or investment management is the process of financial planning which aims to protect, grow and distribute financial assets.

Wealth management starts with taking charge of your personal finance. It has its own challenges and most of the time it’s catching up or busy paying off debt. We all work hard for the money, but we certainly want to make sure the money works at least twice as hard as we do.

There is so much information that supports the fact of early investing, saving and preparing financial goals, but in all honesty, it is overwhelming to decipher all the different forms of investment securities. Below is a list of various methods of investing and the vehicles used to invest, though it’s not exhaustive hopefully it provides some helpful information.

Investing is the cornerstone of wealth creation, and the right investment choices can pave the path to financial success and security. In this blog post, we will explore 11 top investments that have the potential to generate wealth. Whether your goal is to save for retirement, build a nest egg, or achieve financial independence, these insights are designed to equip you with the knowledge to make informed investment decisions. By understanding the potential risks and rewards of each investment option, you can create a diversified portfolio that aligns with your financial goals and aspirations, setting the stage for a more prosperous and secure financial future.

Please, with any financial information do your research and consult a financial advisor.

Options

Simply, options are buying and selling of contract securities with an aim to make a profit. An option is a contract that gives the buyer the right to buy or sell a security, such as stock or exchange-traded fund (EFT) within a specific period of time. The price of an option is called a premium, options are commonly used in the stock market, futures, forex, and other markets. Most investors use contract options to hedge positions for both buying and selling the stock.

Call Option – is the buyer who has the right to buy the stock at a certain price

Put Option – buyer has the right to sell the stock at a specific price before it the options expire.

Strike Price – this is when buyers can exercise their right to buy or sell at the strike price

Annuities

This type of investment is between you and the insurance company, where the company makes periodic contributions to you sometime in the future. You can purchase the annuity in a single transaction or make a series of payments known as premiums. There are varying forms of annuities which include fixed, variable and indexed.

Fixed Annuities

You have a guaranteed rate of return, and the payout of your payout rate is based on your age, life expectancy, and prevailing interest rate. Even though the annuity states fixed, the annuity can change over time, it is best to understand your contract. The payout can be for an entire lifetime or you can choose another time period. Something important to note is your taxes, assets in a deferred fixed annuity, your investment grows tax-deferred.

Variable Annuities

This form of investment allows you to select from various investment choices, such as mutual funds. The variable annuity rate of return changes with the stock, bond and money market funds, in addition, the variable funds are also compared to mutual funds because of the similar investment features. The structure of a variable annuity offers three basic features, which include:

a death benefit
annuity payout payout
tax-deferred treatment of earnings

Variable annuities do not provide any guarantee that you will earn a return on your investment.

The best approach is to fully understand all the terms, fees, expenses and additionally the prospectus.

Indexed Annuities

This type of investment includes both fixed and variable annuities. They offer a minimum guaranteed interest rate, additionally, this type of investment is more complex in regards to the other two. They are also known as “equity-indexed annuities” or “fixed indexed annuities” mainly because they have characteristics of variable and fixed annuities. Index annuities are not simple to understand and one of the complexities is that there are several methods to calculate gains, this may be difficult for investors to compare one indexed annuity to another.

Best approach before purchasing an index, it is best to fully understand each feature and how it works, as this may have a greater impact on our retains.

Bonds

A bond is simply a loan that an investor makes to the corporation, government or any other organization and in exchange, they get paid an interest rate over the specified amount of time.

The structure of a bond is similar to a lender and a borrower. There are many different types of bonds and the quality of “borrowers” varies as well, such as corporate bonds, municipal bonds, treasury bonds or agency bonds. Bonds also carry various risk factors some of them include interest rate risk, call risk, default and credit risk. All these risk factors are associated with the possibility of you losing your money.

Just a simple rule of thumb, when interest rates fall, bond prices rise, and when interest rates rise, bond prices fall. Make sure you evaluate the quality of your bond, as all bonds are not valued the same, therefore different credit ratings.

Related articles:

Mutual Funds

This type of investing offers diversification to an investment portfolio and offer various advantages instead of purchasing individual stocks or bonds. A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities.

The money is used to purchase various securities instruments such as stocks, bonds or short-long term investments. You can find more details of a mutual in a document called a prospectus which includes investment strategies, risk profile, management or fees. Here is how mutual funds works, any profits achieved are shared after expenses, and the payments to its shareholders are known as income distributions.

Capital gains are achieved after selling an investment in its portfolio at a profit and are passed to shareholders (you) as capital gains (after expenses are deducted) You would have to pay taxes on the fund’s income distributions, unless if you have a tax-deferred or tax-free account. Best to communicate with your tax advisor or financial advisor of what is the best option for you to take.

Exchange-Traded Funds (ETF)

Exchange-traded Funds (ETF) are a combination of mutual funds and conventional stocks. This may be a bit confusing since the investment vehicles are similar. Below are the distinguishing factors of ETF’s being pooled investments, they offer the investor an interest in a professionally managed and diversified portfolio investments. ETF’s shares can be bought throughout a trading day at varying prices.

There are many different types of ETFs and they are not created the same.

Most ETFs are registered with the SEC as investment companies, but keep in mind that ETF’s that invest in commodities, currencies (and other investments) are not registered investment companies. The management style can either be active or passively tracked. Passively managed ETF’s aim to achieve the same return as the index that they are tracking.

Stocks

This is the most known form of investment when you buy into a company, that is buying stocks or shares of that company. There different types of stocks but the main ones are preferred stock and common stock. Preferred stock is when you get dividends and the common stock does not issue dividends.

When you evaluate the stock, the EPS (earnings per share) is one indicator of the company’s current strength. To either buy or sell the stock one would need a brokerage account and the stockbroker at the firm will have to execute the trade for you.

Roth IRA

There are many types of investment account and a Roth IRA offers multiple benefits and has set rules one should follow. Contributions in a Roth IRA and investment earnings grow tax-free, meaning there’s no tax on your Roth IRA withdrawals in retirement. Unlike in a Traditional IRA, withdrawals in retirement are taxed as income. Roth IRA can be opened at a brokerage or bank and you can make a selection of what type of investments to make, such as mutual funds, stock, bonds etc.

Benefits of a Roth IRA

You can withdraw the money you contributed without tax or penalty at any time, with no restrictions, because you’ve already paid taxes on that money. (be mindful of this rule because you can be penalized if you withdraw earnings on your investments, but not contributions)

There is no age limit to opening a Roth IRA, but there is a limitation in what you can contribute each year

This is one of the most advantageous reasons for opening a Roth IRA, your money grows tax-free and the withdrawals are tax-free as well.

401(k)

401(k) is an employee-sponsored retirement option. Usually, an employer matches your contribution up to a certain amount, for instance, every dollar you put into your 401(k) an employer can match every dollar up to a certain amount.

401(k) Facts below

You have less control of investment strategies and or options
Just like Roth IRA, there are yearly imposed contribution limitations.
Distributions in retirements are taxed as ordinary income unlike Roth IRA
It has a high annual contribution limit (there is a maximum contribution limit the government sets each year)

Most financial advice supports the fact that when it comes to 401(k) do not leave free money on the table, contribute up the amount your employer is matching and the rest fund your Roth IRA as your money will grow tax-free.

Summary

There are many types and ways to invest your money in, the most imperative aspect is to research, determine your level of risk tolerance and start investing. The best approach is to understand the rules, especially, contribution limits, withdrawals and or penalties.

Cheering To Your Success
Brenda | www.DesignYourFinances.com
Let’s Connect on Social Media! | Pinterest |

.–

QUOTE OF THE DAY

11 Top Investments that Create Wealth