Investing is widely recognized as the best way to build wealth over time. There are many options when it comes to investing, and some of these options will perform better than others over time. Stocks, bonds and real estate are some of the more common ways people invest their money.
Diversification is key when it comes to increasing a person or a family’s nest egg. Diversification comes about when a portfolio invests in multiple companies or in different asset classes. One of the best ways to achieve instant diversification is through mutual funds or exchange traded funds, also known as ETFs. These funds are effectively baskets of stocks, bonds or funds. One fund, Vanguard’s Total Stock Market Index Fund includes literally thousands of companies, and each investor will own a small sliver of each.
Building wealth is not usually a set-it-and-forget-it proposition. It’s necessary for most people to continue investing money each and every week or month over the long haul. Getting started early is the key to building long-term wealth because of the power of compound interest. An investment of $1,000 at age 21 will double five times over a 40-year period if an investor sees a 9 percent return. The initial $1,000 investment would then be worth around $32,000. Any additions to the portfolio will increase this number.
Immediately Double An Investment
One of the best ways to immediately double an investment is through 401(k) matching funds. Many companies will offer matching funds for employees who take part in the company’s 401(k) plan. Common levels of matching are 50 or 100 percent of the first 6 percent of a person’s income. This means that a person who earns a very ordinary $50,000 salary would invest $3,000 and get an additional $3,000 from the company given a 100-percent match. Effectively, the employee has doubled his or her investment immediately. Over time, as compounding works its magic, a person who continues to invest in this manner will have a nice nest egg. When looking to save through a 401(k), it’s important to look for solid funds that have long-term success with fees on the low end of the scale. Less than 0.50 percent is ideal.
Building wealth takes time, but utilizing the best ways to invest money can help the process along. Diversification is key. Additionally, taking advantage of free money like that offered through 401(k) matching funds is the best way to build wealth quickly.