Many people want to begin an investment program. The reasons vary: some are lured by the dream of quickly making a lot of money; others are interested in a systematic, long-term approach to wealth creation. Those in the first category often end up disappointed. If, however, you are in the latter category of desiring to improve your long-term financial well-being, then the following strategies may be right for you.
Investment Strategy 1: Open a High Yield Savings Account
Although not technically a form of investing, opening a high-yield savings account is a good first step. The reasons are as follows:
• You do not put any of this money at risk
• You build up a fund for emergencies, and
• You can use this account to fund other long-term wealth-building investments.
At this time, interest rates are extremely low. Bank savings accounts do not pay much interest. That is why it pays to do a little work to try to find savings accounts that offer the highest yield for savers. You may find good opportunities on the Internet using the keyword “high-yield savings accounts”. Remember, the purpose of this savings account is not an ultra-high rate of return but rather the protection of the capital you are beginning to save.
Investment Strategy 2: Build A Portfolio of Dividend-Paying Stocks
Your next step is to construct a portfolio of well-run dividend-paying stocks. This will be your principal vehicle for wealth generation. You will be looking for companies that pay 3 percent or more in dividend yield, have been in business for decades, and are well-run cash-flow machines. Among the companies that may find their way into your portfolio are telephone and communications firms, electric utilities, energy companies, and food and beverage makers.
Initially, you may be daunted by individual stock selection. That is why, at first, your best bet is to invest in a mutual fund of dividend-paying stocks. A mutual fund is a beautiful tool: You pool your investment capital with other investors and immediately own part of a diversified collection of good, dividend-paying stocks. Furthermore, all decisions regarding which stock issues to invest in are handled by the fund’s manager. Investment companies such as Fidelity, Vanguard, and Schwab have very good choices for mutual funds in this category.
Your goal will be to systematically invest a certain amount of capital into this investment on a regular basis, say monthly or quarterly. In addition, you will re-invest all dividends and capital gains that the fund produces into even more shares. Over time, your dividend income will keep increasing.
Investment Strategy 3: Invest in Your Continuing Financial Education
Your third investment strategy is to invest in your financial education. You must keep abreast of current financial trends and additional ways to invest that appear sound and risk-averse.
For example, another conservative way to make a good investment income is to invest in real estate. You can buy rental properties outright if you have enough money. A better way, at least for the beginner, is to invest in Real-Estate Investment Trusts (REITs). Learning about REITs would be part of your continuing financial education.
Conclusion
These three strategies can form a sensible, low-risk plan for investment success. May the investing gods be with you!