Best income investment: Endless Income Stream 2021
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How to make best income Investment while Retired
What do you call a person who is happy on Monday? Retired. As you sit there daydreaming of the day you won’t need to clock in day in and day out, remember this: retirement isn’t a question about what age you want to retire, it’s at what income.
To come up with your retirement plan, you’ll need a financial strategy to save and invest your earnings until the day they’ll be able to cover your expenses when you call it quits.
Best Retirement Plan Options in Canada
There are plenty of ways that Canadians can plan and save for retirement. Here are several tools you can use to build up your nest egg.
Registered Retirement Savings Plan (RRSP)
The Registered Retirement Savings Plan is a popular tax-sheltered retirement savings account for Canadians under 71 who have earned an income and filed a tax return to build RRSP contribution room. Your contribution room is based on 18% of your earned income from the previous year, up to a maximum contribution limit set for the given tax year. Any of your unused contribution room can be carried forward indefinitely.
RRSP accounts can hold all types of investments including stocks, ETFs, bonds, and GICs. Each year, the amount you add to your RRSP can be claimed as a tax deduction to reduce your taxable income. Making a contribution doesn’t mean you have to claim your deduction in that tax year, that can be carried forward too. Depending on your current income.
It might make sense to wait until you’re in a higher tax bracket to claim your deductions. Any withdrawals from your RRSP must be reported as income and will be subject to taxes at your marginal rate come tax time.
Tax-Free Savings Account (TFSA)
A Tax-Free Savings Account is highly flexible tax-sheltered account that can be used to save for the future. Don’t just think of it as a high-interest savings account for an emergency fund like its name might suggest. Anyone 18 or older with a valid social insurance number (SIN) can use their TFSA to purchase stocks, bonds, ETFs, and other investments. Unlike the RRSP, TFSA contributions are made with after-tax dollars and are not deductible for income tax purposes.
The amount you can contribute is defined by the TFSA contribution room limit set by the Government of Canada each year. Any investment income earned or changes to investment value in the account is tax-free, even when it’s withdrawn, and you can make withdrawals at any time. If you’ve never contributed to a TFSA, you would have $75,500 of contribution room in 2021. Keep track of your contribution room limits in your CRA’s My Account because any overcontributions will be taxed at 1% per month.
The Canada Pension Plan (CPP)
The Canada Pension Plan is a retirement pension that provides a monthly, taxable benefit to help supplement your income when you retire. To be eligible to apply for and receive benefits from the plan, you must be at least 60 years old and have made at least one valid contribution to the CPP. If you qualify, you will receive the CPP retirement pension for the rest of your life.
The amount you receive from the CPP depends on how much you contributed to the plan, the length of time over which you made those contributions, and when you decide to start receiving payments. While the maximum amount you can receive is $1,203.75, Canadians receive an average of $689.17 due to different variables that affect the government’s calculation. Most CPP beneficiaries receive much less than the maximum payment, with the average coming in at about 60%, so plan accordingly.
Old Age Security (OAS)
Old Age Security is a benefit program funded by general tax revenue that provides monthly, taxable payments to Canadian seniors. To be eligible to receive benefits, you must be at least 65 years old, a Canadian citizen or legal resident when your OAS application is approved, and have lived in Canada for at least 10 years since the age of 18. Service Canada will send you a letter when you turn 64 to let you know you’ve been enrolled.
If you don’t receive the letter, you’ll have to apply. To receive the maximum benefit ($615.37 per month in 2021), you must have lived in Canada for 40 years. If you haven’t lived in Canada long enough to qualify for the maximum amount, you can still receive a partial benefit.
If you earn a high income in retirement, your OAS will be subject to a recovery tax of fifteen cents for every dollar over the defined threshold. In 2019, this OAS “clawback” applies to anyone whose net income is over $77,580 to a maximum of $126,058, where you stop receiving OAS altogether.
Canadians typically receive the first OAS payment during the month after they turn 65 but you can choose to delay receiving payments until you’re 70. Each month you choose to delay increases your OAS payout by 0.6%. If you wait the maximum of 60 months before receiving OAS, your monthly payment will increase by 36%.
Guaranteed Income Supplement (GIS)
The Guaranteed Income Supplement is an additional monthly, non-taxable benefit available to low-income seniors. In most cases, Service Canada will send you a letter the month after you turn 64 to let you know you’ve been enrolled.
If you don’t receive the letter, you’ll have to apply. In 2021, single, widowed, or divorced seniors can receive a maximum of $919.12 per month. This amount is reduced as you earn more income and disappears once your income reaches $18,648. Additional GIS supplements apply if you have a spouse or common-law partner.
Employer-sponsored Pension Plans
An employer pension plan is a registered plan that can provide you with a source of income during retirement. There are two main types of employer pension plans: a defined benefits plan, and a defined contribution plan. Take advantage of the opportunity to supercharge your future income potential if your employee offers either of these options.
In a defined benefit plan, contributions from both you and your employer are pooled into a pension fund that is managed on your behalf. When you retire, you will get a fixed amount that’s calculated based on your salary and the number of years you contributed to the pension. The amount you receive in retirement will not change, regardless of how the investments perform.
In a defined contribution plan, both you and your employer contribute a defined amount to your pension plan each year. Your employer may match a percentage or dollar amount based on what you contribute.
In some plans, the money in the plan is invested on your behalf. In others, you can have a say in choosing how your money is invested. The amount you get when you retire will depend on how well your investments perform over time.
Though everything that has been mentioned so far consists of retirement plans, accounts, and investment vehicles that are available to you from others, don’t discount any retirement income that you can generate for yourself. These alternate income streams can also help take care of you well into retirement.
Some options include proceeds from your business, income from rental properties, a windfall from downsizing your real estate, or slowly drawing down on investments in non-registered accounts.
How to Invest for Retirement
Investing for retirement might seem wildly complicated. Thankfully, advances in fintech have simplified the game and made investing more accessible than ever. If you’ve never invested before and are looking for somewhere to start, consider a ‘set it and forget it’ approach with a robo advisor. If you’ve got skin in the game and are comfortable with a self-directed approach, an online broker can have you covered.
A robo advisor is a digital platform that provides automated investment management services driven by algorithms that track market performance using low-cost exchange-traded funds (ETFs). Since they require minimal human supervision, robo advisors are often inexpensive and don’t require a lot of money to start investing. The best robo advisors in Canada, for example, include industry-leading contenders like Wealthsimple.
The best discount online brokers in Canada provide easy access to financial markets through digital platforms with features that cater to both passive and active investing styles. Whether you’re a novice investor or a seasoned day trader, online brokers have the tools and data you need to make informed decisions.
Wealthsimple Trade, the first fully commission-free self-directed trading platform in Canada, will let you buy and sell equities for free. If its features and research capabilities aren’t to your liking, Questrade offers a comprehensive feature set that includes more account options, detailed analysis tools, and the ability to buy ETFs commission-free.
How Does Retirement Work in Canada?
Retirement comes when you’ve built up enough savings to generate an income that will sustain your lifestyle when you’re no longer working. Once you leave the workforce, you’ll start to draw down on your savings (instead of your paycheque) to cover your expenses. Depending on your situation, you could start drawing down from your TFSA, RRSP, or your employer-sponsored pension plan. When you reach the age of 65, you would could eligible to receive CPP and OAS.
How Much Do I Need to Retire in Canada?
Wondering how much it’ll take before you can retire? The truth is it depends. The amount you need to retire will vary based on the age want you to stop working and the lifestyle you want to lead. The sooner you plan to retire, the larger your savings will need to be to cover the time where you don’t plan on having an income. If you’re accustomed to living in luxury, travelling in style, and eating caviar with a butler on standby, you may need to bump up your savings to match your lifestyle expectations.
There are several different rules of thumb that might help you guestimate the amount that you’ll need to ride off into the sunset. Let’s assume you had an annual income of $100,000 when you retire.
Some retirement experts would suggest you need an income of 70% (or $70,000) per year in retirement. Some might say you need ten times your final salary, or $1,000,000. Others swear by the 4% rule, where a withdrawal of $40,000 per year on your $1,000,000 in investments would be enough (adding on the roughly $30K/year from CPP and OAS could give you a $70K annual income). That said, a personalized retirement plan from a financial planner can help you decide how much you need to safely retire.
When Should I Start Planning for Retirement?
Assuming a 5% return on investment and a $10,000 contribution to your savings every year starting at age 25, you would have accumulated $1,278,397 at 65 thanks to the magic of compound interest. If you started saving the same amount at age 30, you’d only have $707,605 at 65. Your 30-year-old self would be half a million short and have to set aside more each year or save for longer to reach the same retirement goal.
The best time to start saving for your retirement is the moment you start earning an income. But let’s be realistic, life can sometimes get in the way. The second-best time is now.
How to Start Planning for Retirement
If you’re interested in planning for retirement, here are a few steps that’ll get you set off on the right foot.
1. Calculate your Guaranteed Income
The first step is to add up all the income you think you’ll receive in retirement. That’s everything from your retirement accounts, including your TFSA, RRSP, employer-sponsored pension, savings and other investments. Don’t forget to factor in your CPP and OAS benefits. Remember that you’ll pay taxes on RRSP withdrawals and your annual income may trigger OAS clawbacks. The Canadian Retirement Income Calculator can help you estimate your retirement income.
2. Estimate Retirement Expenses
Next, you’ll want to estimate all of your retirement expenses. Include all costs from necessities like housing, food, transportation and debt payments to discretionary expenses like hobbies, travel and charitable contributions. This budget planner will help give you an idea of the monthly costs you’ll want to account for.
3. Calculate the difference
Finally, subtract your monthly retirement expenses from your monthly guaranteed income. If your income is greater than your expenses, you could be well on your way to retirement. If your expenses are greater than your income, you’ll have an idea of how much more you’ll need to make up before you can retire.
15 Types of Investments: What Will Make You the Most Money?
Cash and Commodities
Cash and commodities are typically considered low-risk types of investments, so if you’re new to investing or risk-averse, one of these options could be a good place to start.
Keep in mind that low-risk types of investments also tend to have low returns. That’s definitely the case with some of these investment types…
Yes, you can invest in gold and other commodities such as silver or crude oil. In fact, the practice of investing in gold goes way back, but that doesn’t necessarily mean it’s a great investment. Gold is a commodity so its price is based on scarcity and fear, which can be impacted by political actions or environmental changes.
If you are investing in gold, be aware that your protection against a price drop, your moat, is based on external factors so the price can fluctuate a lot, and quickly. The price tends to go up when scarcity and fear are abundant and down when gold is widely available and fear is abated.
If you think the world is going to be a more fearful place in the future, then gold could be a good investment for you.
Takeaway: The thing to remember is that betting on commodities such as gold is usually just that — betting. It’s not Rule #1 investing unless you KNOW that scarcity is going to create a demand for gold and drive up the price.
2. CDs and Bank Products
Bank products are investment types offered by banks that include savings accounts and money market accounts, which are similar to savings accounts but typically earn higher interest rates in return for higher balance requirements.
A CD, short for certificate deposit, is another type of bank product. When you purchase a CD you agree to loan the bank an amount of money for a designated amount of time and interest.
CDs are an extremely low-risk investment, but with low risk, comes low reward. Most banks offer CDs at a return of less than 2% per year, which is not even enough to keep up with inflation.
Takeaway: Don’t waste your time on CDs. While they can be a safe place to save your money and get a little more interest than you would in a savings account, they aren’t a great place to grow your money.
Cryptocurrencies are the newest type of investment. They are unregulated digital currencies bought and sold on cryptocurrency websites.
Cryptocurrencies such as Bitcoin or Dogecoin have gained a lot of interest in recent years as an investment vehicle. However, they remain an incredibly risky investment due to many unknown factors; there is the possibility of government regulation and the possibility that the cryptocurrency will never see widespread acceptance as a form of payment.
How to Invest in Bitcoin
In the same way that you are able to exchange US Dollars for any other currency such as Yens or Euros, you can also exchange your USD for cryptocurrencies.
Though cryptocurrencies aren’t technically part of the Forex market, the mechanics of investing in cryptocurrencies is very similar, and the hope of cryptocurrency investors is that the value of those cryptocurrencies goes up against the dollar, and they are relatively simple to buy online.
Takeaway: Someone who invested in Bitcoin in 2013 and sold it today would certainly make some incredible profits. The problem is that there’s no way to time the cryptocurrency market. Bitcoin and other cryptocurrencies could continue to dramatically increase in price, or they could drop to zero.
Take my advice and stay away. At this point, no one knows for sure what the future holds for cryptocurrencies, so investing in cryptocurrencies is little more than speculation.
We don’t invest in things we don’t know. That’s not investing, that’s gambling.
Bonds and Securities
Bonds and securities are other types of low-risk investments. Bonds can be purchased from the US government, state and city governments, or from individual companies. Mortgage-backed securities are a type of bond typically issued by an agency of the U.S. government, but can also be issued by private firms.
4. U.S. Savings Bonds & Corporate Bonds
When you purchase any kind of bond, you are loaning money to the entity you purchase it from for a predetermined amount of time and interest.
Bonds are considered safe and low risk because the only chance of not getting your money back is if the issuer defaults. U.S. saving bonds are bonds backed by the U.S. government, which makes them almost risk-free.
Governments issue bonds to raise money for projects and operations, and the same is true for corporations who issue bonds.
Corporate bonds are slightly riskier than government bonds because there’s more risk of a corporation defaulting on the loan. Unlike when you invest in a corporation by purchasing its stock, purchasing a corporate bond does not give you any ownership in that company.
Takeaway: A bond might only net you a 3% return on your money over multiple years. This means that when you take your money out of the bond, you’ll have less buying power than when you put it in because the rate of growth didn’t even keep up with the rate of inflation.
There is nothing “safe” about running out of money in retirement because your rates of return couldn’t keep up with inflation. It’s not worth it to put your money in bonds.
5. Mortgage-Backed Securities
When you purchase a mortgage-backed security, you are once-again lending money to a bank or government institution, but your loan is backed by a pool of home and other real estate mortgages.
Unlike other bonds, which pay the principal at the end of the bond term, mortgage-backed securities pay out interest and principal to investors monthly.
Takeaway: While they can be a type of income investment that provides steady returns, mortgage-backed securities are one of the more complex investment types, and so should be avoided by beginner investors.
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Investment funds are made up of a pool of money collected from multiple investors that are then invested into many different things including, stocks, bonds, and other assets. The collection of investments typically tracks a market index.
6. Mutual Funds
A mutual fund is a type of investment fund operated by a money manager who invests your money for you, and attempts to get good returns.
Mutual funds are typically made up of a combination of stocks and bonds, however, they carry less risk because your money is diversified across many stocks and bonds. You’ll only reap rewards from stock dividends and bond interest, or if you sell when the value of the fun goes up with the market.
When it comes to value, while mutual funds are built and managed by so-called “financial experts”, they typically have a hard time beating the market, especially when you factor in the fees that the money managers charge to those who invest in their fund.
The truth is, you shouldn’t care whether you beat the market or not. Your financial skill is judged by whether you’re living comfortably when you’re 75.
Rule #1 investors expect a minimum annual compounded rate of return of 15% a year or more. If we can get that, we don’t care what the market did because we’re going to retire rich anyway.
Takeaway: You’ll have a much easier time (and more fun!) learning how to invest your own money rather than relying on some mutual fund manager who can’t beat the market.
7. Index Funds
Similar to mutual funds, index funds are one of the types of stock investments that diversifies your investment across multiple stocks. The difference between index funds and mutual funds is that index funds are passively managed, not overseen by a money manager.
Because index funds are passively managed, there are less fees involved, which means you have the potential for slightly higher returns than with a mutual fund. However, your returns will be based totally on how well the index your fund is tracking does.
Given that most major indexes are used to track the overall movement of the market, indexes perform about as well as the overall market does in the very long term. In other words, they tend to yield an average return of about 7% per year.
While this isn’t as high as the returns you can achieve through successfully picking individual companies with the right research, it IS a respectable return that is considerably higher than the interest rates of a savings account or the return rates of bonds.
When you invest in an index, you’re essentially betting your money on the future of America. If you’re confident the American economy will keep growing, you’re probably going to come out ok.
The problem here is that if you put your money into an index, and we go into a recession, the market could be down for a significant amount of time. If you’re invested in an index, that means your portfolio will also be down. That’s another plus of investing in individual companies. The really great ones tend to perform, even in times of recession.
Takeaway: If you don’t want to do the work (and reap the rewards) of learning to invest in individual companies, an index fund is a good “put your money in and forget about it” option that will typically generate better results than a mutual fund.
8. Exchange-Traded Funds
Exchange-Traded Funds, or ETFs as they’re commonly called, are similar to an index fund in that they track a popular index and mirror its performance. Unlike index funds, though, ETFs are bought and sold on the stock market.
Because ETFs are traded on the stock market, you have more control over what price you purchase them at and will pay fewer fees. Your reward is completely dependent on how well or how poorly the index you invest in performs.
You can minimize your risk by investing in an ETF that tracks a broad index such as the S&P 500.
Takeaway: Simply putting your money in an exchange-traded fund like the S&P 500 (SPY), a collection of the 500 biggest companies in the market, allows you to profit from the market’s growth without having to pay fees to a fund manager. Aside from investing in individual companies (Rule #1 Investing), this is the best option beginner investors have available.
The Stock Market
There are a number of ways to invest in the stock market. As I mentioned above, you could invest in a stock market index, or you could invest with stock options, or—and this one’s my favorite—you could invest in individual stocks.
9. Individual Stocks
Stocks are “shares” of ownership in a particular company. When you purchase an individual company’s stock, you become a partial owner of that company. That means when the company makes money, so do you, and when the company grows in value, the value of your stock grows as well.
When the price of a company’s stock goes up, the value of the owner’s investment in that company goes up. The owner can then choose to sell the stock for a profit. However, when the price of a company’s stock goes down, the value of the owner’s investment goes down.
Stock owners can also receive rewards via dividends if the company chooses to distribute earnings to their shareholders.
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On average, the entire stock market grows at a rate of about 7% a year, but it is possible to achieve much higher returns by investing in hand-selected individual companies. You can minimize the risk of your investment value going down by purchasing shares of stock in only wonderful companies at prices that guarantee a big return. That is the Rule #1 way
Takeaway: Among the many things to invest in, stocks are my personal favorite and by far the most rewarding. The most successful investors invest in stocks because you can make better returns and retire a lot faster by doing so than with any other investment type. Warren Buffett became a successful investor by buying shares of stocks, and you can too.
Investing in stocks the Rule #1 way is the best way to grow your money over time. If you want to learn more about investing in individual stocks, here’s course 101.
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10. Stock Options
When you purchase an option in a company, you are betting that the price of that company’s stock will go up or down. Purchasing an option gives you the option to buy or sell shares of that company at a set price within a set timeframe without actually owning the stock.
Options are incredibly risky. As with most high-risk types of investments, there is potential for high returns, however, there is also the potential for great loss, especially if you don’t know what you’re doing
With a PUT option, you’re agreeing to SELL a stock when it gets to a certain price at a specific time. With a CALL option, you’re agreeing to BUY a stock at a certain price at a specific time.
PUT options are similar to an insurance policy. You get them at a set price, over a certain period of time and sell the stock regardless of the price. Investors generally buy PUTS when they are concerned that the market will fall. This is because a PUT gives you the right to sell a stock at a fixed price, and it will typically increase in value if the price of the underlying stock starts to drop.
CALL options have a market price, referred to as a premium. You pay the premium of the call option to secure the contract to buy the underlying stock.
Investing in CALL options is a fantastic way to generate cash flow and reduce basis on companies we already own.
Takeaway: In addition to stocks, options are a good choice if you are looking for high-return types of investments. However, I don’t recommend investing in options for beginners. Learn more about options here.
There are two major types of retirement accounts: a 401K and an IRA. Both accounts are made up of cash you put aside and then invest in various ways.
The risk and reward of retirement accounts are completely dependent on what they are invested in, which can vary greatly. In addition to these retirement accounts, annuities are another investment time that you may want to consider as part of your retirement plan.
A 401k is a retirement account offered by your employer. The big benefit of this retirement option is that your employer may offer a “match”, which is when they will put in the same amount of money into your account that you put into it up to a certain percentage.
Typically, there are a limited amount of investment options for 401Ks, most of which are mutual funds, which means your retirement is in the hands of a money manager.
The Big Problem with 401ks
All of the money invested in a 401(k) ends up in mutual funds. The problem is that these mutual funds almost always fail to outperform the market average.
In other words, simply putting your money into an index such as the S&P 500 and leaving it there with zero management would still net you more returns than you are likely to see when you invest in a 401(k).
The reason why mutual funds fail to outperform the market once again goes back to the fact that the managers of these funds charge a considerable fee for their services. Once this fee is deducted, any returns that the manager was able to yield beyond the overall market’s performance are quickly diminished.
Remember, diversifying your investment portfolio does not inherently mean that you are lowering your potential for risk.
Takeaway: My problem with a 401K is that most of them force you to invest in mutual funds. This means your retirement is in the hands of a money manager.
401ks are not something that should be avoided in all situations. An employer match that doubles your investment is almost always worth it. However, they should not be relied on as your sole means of investment.
Stick to the employer match. Investing any more than that in a 401k is just a wasted opportunity.
An IRA is an individual retirement account you can set up for yourself. In terms of IRAs, there is traditional, which is tax-deferred, and Roth, which is tax-free. Did you hear that? A Roth IRA is tax-free! The money you invest in a Roth IRA is taxed before it is invested, so when you take it out during retirement you aren’t taxed on the income from your investments.
With both an IRA and a Roth IRA, you have more control over where you invest your money than you do with a 401K. You can choose to invest the money in these accounts in individual stocks, bonds, ETFs, and mutual funds.
The more control you have over your investments and the more diversified they are, the less risk.
Takeaway: No matter who you are or where you work, a Roth IRA is one of the best things to invest in because you can have total control over what it is invested in and your money grows tax-free! Max it out and invest it the Rule #1 way.
Annuities are a contract between an investor and an insurance company where the investor pays a lump sum in exchange for periodic payments made by the insurer. They are typically used to supplement income and lock down a steady, monthly payment during retirement.
There’s no real risk to annuities, but there’s no real chance of return either. They are simply a way to set aside income for retirement, not ensure growth.
Takeaway: While annuities may be helpful for some retirees, they are not an ideal investment option for beginner investors or a way to grow your money.
There are a variety of ways to invest in real estate: homes, flip houses, business buildings, apartments, farms and trailer parks, to name a few. While the options are many, the price of entry is high, but there are a couple of ways to get around this…
Property such as buildings for business operations, land, and homes is often an expensive investment, which easily crowds out investors with less capital. However, crowd-funded real estate investment opportunities are beginning to pop up, providing new types of investments for those who want to invest in real estate but don’t have the cash.
The hardest part about investing in real estate is finding a property that you can purchase with a margin of safety. If you can do that, you can make some decent returns investing in property. You can make money by buying the property at a below-market rate and selling it at full price, as well as by renting or leasing the property to tenants.
Takeaway: The various types of property investments can all be good types of investments as long as you treat them the same as any other Rule #1 investment. This means the property should have meaning to you, have a moat, good management, and be purchased with a margin of safety.
While it’s possible to find a great deal on real estate, it might be easier to invest in the stock market, make the same returns or better, and not have to deal with having a bunch of rental properties to take care of.
15. Real Estate Investment Trust
A Real Estate Investment Trust, or REIT, is similar to a mutual fund in that it takes the funds of many investors and invests them in a collection of income-generating real estate properties. Plus, REITs can be bought and sold like stocks on the stock market so they can be cheaper and easier to invest in than property.
Takeaway: Without having to buy, manage, or finance any properties yourself, investing in a REIT reduces the barriers of entry common to property real estate investment.
You don’t need a lot of money and you don’t need to worry about maintaining the properties. While you won’t make as much money from property appreciation, you can receive a steady income from REITs.
What Are the Worst Types of Investments for Beginners?
While you want to know what to invest in, it may be even more important to know what not to invest in.
A good rule of thumb as a beginner is if you’re putting a lot of money into it but not getting anything out of it other than a bunch of debt or an ego boost, it’s a bad investment. This includes expensive cars, fancy interiors, and other items that decrease in value over the period of time you own them.
While fancy material things may help you keep up with the Jones’ on your block, the benefit is ultra temporary. It’s so important to live within your means and spend your money wisely so you can afford the life you want in the future.
Avoid these common money traps and you’ll have more money for the good things to invest in both now and in the future.
Takeaway: Putting your money into expensive possessions or setting it in a savings account because you think it’s “safe” will only hurt you in the long run. None of these are investments—they’re money traps. Like cars and boats, money sitting in a savings account is losing value over time. Put your money into the only type of investment that’s guaranteed to make you money—the stock market.
What Are the Best Types of Investments for Beginners?
Here are six investments that are well-suited for beginner investors.
- 401(k) or employer retirement plan
- A robo-advisor
- Target-date mutual fund
- Index funds
- Exchange-traded funds (ETFs)
- Investment apps
1. A 401(k) or other employer retirement plan
If you have a 401(k) or another retirement plan at work, it’s very likely the first place you should put your money — especially if your company matches a portion of your contributions. That match is free money and a guaranteed return on your investment.
You can contribute up to $19,500 to a 401(k) in 2020 (or $26,000 if you’re 50 or older), but that doesn’t mean you have to contribute that much. The beauty of a 401(k) is that there typically isn’t an investment minimum.
That means you can start with as little as 1% of each paycheck, though it’s a good idea to aim for contributing at least as much as your employer match. For example, a common matching arrangement is 50% of the first 6% of your salary you contribute. To capture the full match in that scenario, you would have to contribute 6% of your salary each year. But you can work your way up to that over time.
When you elect to contribute to a 401(k), the money will go directly from your paycheck into the account without ever making it to your bank. Most 401(k) contributions are made pretax. Some 401(k)s today will place your funds by default in a target-date fund — more on those below — but you may have other choices.
To sign up for your 401(k) or learn more about your specific plan, contact your HR department.
2. A robo-advisor
Maybe you’re on this page to eat your peas, so to speak: You know you’re supposed to invest, you’ve managed to scrape together a little bit of money to do so, but you would really rather wash your hands of the whole situation.
There’s good news: You largely can, thanks to robo-advisors. These services manage your investments for you using computer algorithms. Due to low overhead, they charge low fees relative to human investment managers — a robo-advisor typically costs 0.25% to 0.50% of your account balance per year, and many allow you to open an account with no minimum.
They’re a great way for beginners to get started investing because they often require very little money and they do most of the work for you. That’s not to say you shouldn’t keep eyes on your account — this is your money; you never want to be completely hands-off — but a robo-advisor will do the heavy lifting.
And if you’re interested in learning how to invest, but you need a little help getting up to speed, robo-advisors can help there, too. It’s useful to see how the service constructs a portfolio and what investments are used. Some services also offer educational content and tools, and a few even allow you to customize your portfolio to a degree if you wish to experiment a bit in the future.
3. Target-date mutual funds
These are kind of like the robo-advisor of yore, though they’re still widely used and incredibly popular, especially in employer retirement plans. Target-date mutual funds are retirement investments that automatically invest with your estimated retirement year in mind.
Let’s back up a little and explain what a mutual fund is: essentially, a basket of investments. Investors buy a share in the fund and in doing so, they invest in all of the fund’s holdings with one transaction.
A professional manager typically chooses how the fund is invested, but there will be some kind of general theme: For example, a U.S. equity mutual fund will invest in U.S. stocks (also called equities).
A target-date mutual fund often holds a mix of stocks and bonds. If you plan to retire in 30 years, you could choose a target-date fund with 2050 in the name. That fund will initially hold mostly stocks since your retirement date is far away, and stock returns tend to be higher over the long term.
Over time, it will slowly shift some of your money toward bonds, following the general guideline that you want to take a bit less risk as you approach retirement.
4. Index funds
Index funds are like mutual funds on autopilot: Rather than employing a professional manager to build and maintain the fund’s portfolio of investments, index funds track a market index.
A market index is a selection of investments that represent a portion of the market. For example, the S&P 500 is a market index that holds the stocks of roughly 500 of the largest companies in the U.S. An S&P 500 index fund would aim to mirror the performance of the S&P 500, buying the stocks in that index.
Because index funds take a passive approach to investing by tracking a market index rather than using professional portfolio management, they tend to carry lower expense ratios — a fee charged based on the amount you have invested — than mutual funds. But like mutual funds, investors in index funds are buying a chunk of the market in one transaction.
Index funds can have minimum investment requirements, but some brokerage firms, including Fidelity and Charles Schwab, offer a selection of index funds with no minimum. That means you can begin investing in an index fund for less than $100.
5. Exchange-traded funds (ETFs)
ETFs operate in many of the same ways as index funds: They typically track a market index and take a passive approach to investing. They also tend to have lower fees than mutual funds. Just like an index fund, you can buy an ETF that tracks a market index like the S&P 500.
The main difference between ETFs and index funds is that rather than carrying a minimum investment, ETFs are traded throughout the day and investors buy them for a share price, which like a stock price, can fluctuate. That share price is essentially the ETF’s investment minimum, and depending on the fund, it can range from under $100 to $300 or more.
Because ETFs are traded like a stock, brokers used to charge a commission to buy or sell them. The good news: Most brokers, including the ones on this list of the best ETF brokers, have dropped trading costs to $0 for ETFs. If you plan to regularly invest in an ETF — as many investors do, by making automatic investments each month or week — you should choose a commission-free ETF so you aren’t paying a commission each time.
6. Investment apps
Several investing apps target beginner investors.
One is Acorns, which rounds up your purchases on linked debit or credit cards and invests the change in a diversified portfolio of ETFs. On that end, it works like a robo-advisor, managing that portfolio for you. There is no minimum to open an Acorns account, and the service will start investing for you once you’ve accumulated at least $5 in round-ups. You can also make lump-sum deposits.
Acorns charges $1 a month for a standard investment account and $2 a month for an individual retirement account. Our unsolicited advice: Max out that IRA account before you start using the standard investment account — there are tax perks to the IRA that you don’t want to miss.
Another app option is Stash, which helps teach beginner investors how to build their own portfolios out of ETFs and individual stocks. Stash carries just a $5 account minimum and has a similar fee structure to Acorns, though balances that top $5,000 are charged 0.25% of that balance per year, rather than the flat fee.
TOP 20 SAFE INVESTMENTS WITH HIGH RETURNS
Summary: Want to know how to invest money? In this part of the article, you’ll learn about 20 safe investments with high returns. Topics include low-risk investments, high yield investments, low risk-high return investments and where to invest money to get good returns.
CAN AN INVESTMENT BE SAFE?
To be perfectly transparent, no investment is 100% safe from all risk. Because of fluctuating markets and a sometimes unpredictable economy, it’s hard to say which single investment is the safest. However, there are some investment categories that are much safer than others.
Low-risk investments carry a reasonable expectation that you may break even or incur a small loss. On the flip side, higher-risk investments can offer much better returns. Finding low risk, high yield investments is a tall order. That’s why we’ve come up with a list of 20 safe investments with high returns. That said, no matter where you decide to invest your money, make sure your portfolio is diversified in order to minimize your overall risk.
WHAT IS A SAFE INVESTMENT?
A few safe investment options include certificates of deposit (CDs), money market accounts, municipal bonds and Treasury Inflation-Protected Securities (TIPS). That’s because investments like CDs and bank accounts are backed by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. If the bank isn’t able to pay you back, you’ll get your money back from the FDIC. I’ll break down each of these safe investment options in the sections below.
HOW & WHERE TO INVEST MONEY TO GET GOOD RETURNS IN 2021
There are many investments where you can get good returns, including dividend-paying stocks, real estate and businesses. While these investments can produce high returns, some are much safer than others.
Deciding where and how to invest money to get good returns in 2021 should be based on your short-term and long-term financial goals, timeframe, tolerance to risk, and how much money you currently have in the bank.
These individual factors should make it easier to determine where to safely invest your money while still earning returns that will help you reach your financial goals and build lasting wealth.
20 SAFE INVESTMENTS WITH HIGH RETURNS
Next, I’ll break down 20 safe investment options with good or decent returns.
INVESTMENT #1: HIGH-YIELD SAVINGS ACCOUNT
Key Takeaways: Savings accounts are insured by the FDIC, which means your money is 100% safe. Most high-yield savings accounts offer 2% guaranteed returns. While this return may seem minuscule compared to other investment options, it’s actually a great deal because of the risk level.
Best For: Stockpiling money into your emergency fund and investors looking for no risk investment options. As stated above, any losses up to $250,000 is backed by the FDIC, making high-yield savings accounts the star of no risk investments. It’s also an extremely liquid investment–so if you need quick access to your money, you won’t incur a penalty or fee.
The national average for savings account interest rates is just 0.1%. If your current bank doesn’t offer a high-yield savings account with around a 2% return, consider switching banks or opening a separate high-yield account.
INVESTMENT #2: CERTIFICATES OF DEPOSIT (CDS)
Key Takeaways: CDs should produce higher returns than the majority of savings accounts. But this type of low risk investment offers less flexibility because pulling your money out early will result in a penalty.
Best For: A longer term investment for money that you won’t need for the near future and financially stable investors looking to minimize risk.
CDs or Certificates of Deposit are very similar to savings accounts in that they are insured by the FDIC and carry absolutely no risk. However, CDs differ from savings accounts in a big way–liquidity.
When you invest in a CD, you are committing to an investment timeframe. The timeframe can vary from one month to one, two or even five years. If you choose to access the cash before the agreed upon timeframe, you’ll have to pay a penalty. To make up for the lack of access to your money, most CDs offer a higher rate of return.
INVESTMENT #3: HIGH-YIELD MONEY MARKET ACCOUNTS
Key Takeaways: Much like a savings account, MMAs are also one of the safest ways to invest money because it’s FDIC-insured. The main difference is the option to write a certain number of checks every month.
Best For: Money you may need infrequent access to and investors wanting more flexibility than a savings account.
Most of the time, money market accounts come with better returns than savings accounts. They offer more liquidity and some allow you to use checks or a debit card to access the account. Many people choose to have a high-yield savings account along with a MMA and here’s why… Let’s say you only make deposits to the account and write one check a month for rent. Because MMAs can offer better interest rates, it would make sense to utilize both. Shop around for the best returns on MMAs as well as CDs and high-yield savings accounts.
Investor Tip: The FDIC insures up to $250,000 per bank, per person. So if you have multiple accounts with a combined amount over the limit, that money is not insured.
INVESTMENT #4: TREASURY SECURITIES
Key Takeaway: Treasury securities are fully backed by the U.S. government, similar to the protection offered by FDIC-insured bank accounts. They are issued by the government to raise money to pay for projects and debt.
Best For: Money you will not need to access before the maturity date of the bond; any funds that are over the $250,000 FDIC limit; investors looking for a safe investment with higher returns in exchange for flexibility.
Treasuries will operate a lot like CDs in that there’s a set interest rate and date of maturity. The date of maturity could range from one month to 30 years. During the investment period, you will receive regular “coupons” or payments from the interest and the entire principle amount once the bond reaches maturity. These securities are some of the safest investments out there.
Three types of securities offered by the U.S. government include:
Treasury Bills or T-bills have a short-term maturity date of one year or less and aren’t technically interest-bearing. They’re sold at a discount, but upon maturity, the government will pay you its market value.
Treasury Notes or T-notes carry longer-term maturity dates of two, three, five, seven and 10 years. Note holders earn interest every six months at a fixed rate. Upon maturity, the government will pay you the face value of the note.
Treasury Bonds or T-bonds come with the longest maturity date of 30 years. These bonds will pay you interest twice a year and market value once it reaches maturity.
Bonds are basically structured loans made to a large organization. They carry a higher risk but offer a higher return potential.
T-bills, T-notes or T-bonds are bonds issued for government debt and guaranteed by the U.S. government.
It’s important to note that you can’t take your money out of a treasury bond prior to the maturity date, not even for a fee. You can, however, sell the bond on the secondary market and try to access your money that way.
INVESTMENT #5: GOVERNMENT BOND FUNDS
Key Takeaways: Government bond funds are essentially mutual funds that invest in debt securities. These funds are sponsored by the U.S. government as a way to pay off debt and fund other projects.
Best For: low-risk investors; beginning investors; and individuals seeking cash flow.
While debt securities are a low-risk investment because they’re backed by the government, the fund itself is not. As such, it’s impacted by inflation and fluctuating interest rates.
INVESTMENT #6: MUNICIPAL BOND FUNDS
Key Takeaways: Municipal bond funds are issued by state and local governments and invest in several different municipal bonds or munis. Generally, any earned interest is not taxed federally and may even be exempt from state and local taxes.
Best For: Investors just starting out looking for a way to diversify without having to research individual bonds. These funds are also great for cash flow investors.
The only risk associated with municipal bonds is in the event of default. When the bond issuer defaults or is unable to make income or principle payments, you may lose a portion or all of your investment. While cities and states rarely go bankrupt, it can happen. However, it’s an extremely safe investment with fairly high returns.
For this reason, owning several bonds within a municipal fund is a great way to spread potential risk and diversify. Investors also have the flexibility to sell or buy shares every business day, making municipal bonds another highly liquid investment.
INVESTMENT #7: SHORT-TERM CORPORATE BOND FUNDS
Key Takeaways: Just like governments, corporations can also issue bonds to investors to raise money. Investors can decrease risk through buying shares of short-term bond funds. These short-term bonds have an average maturity of one to five years, making them less exposed to changes in interest rates.
Best For: Investors willing to take on a little bit more risk to get higher returns; investors looking to diversify their bond holdings.
Corporate bonds act much like municipal bonds or munis but are a bit riskier and usually earn a bit more interest. However, there are lots of options to invest in corporations that are financially solid. If you stick to investing in big public corporations like Google, Amazon or Apple, you’ll minimize the likelihood of losing your money because it’s very unlikely these companies will go bankrupt in the near future.
Additionally, corporate bonds can be bought or sold each business day, making them a more liquid investment.
INVESTMENT #8: DIVIDEND-PAYING STOCKS
Key Takeaways: Buying stock in individual companies is riskier than the previously described low risk investments, however dividend-paying stocks should produce regular returns regardless of up or down markets.
Best For: Individuals seeking long-term, passive income producing investments; and younger investors looking to reinvest the money earned from dividends for portfolio growth.
Dividends are regular cash payments to invested shareholders of a corporation. Owning individual stocks within a company increases your risk because your entire investment is at the mercy of that company’s success or failure.
Dividend stocks become less risky when you buy into companies with a long history of financial stability and success. These “top tier” corporations that offer consistent cash payments will be your safest bet.
INVESTMENT #9: GROWTH STOCK FUNDS
Key Takeaways: Growth stock funds invest in a diverse set of growth stocks, as opposed to a single growth stock. In turn, decreasing the risk of a single growth stock dropping and hurting your entire portfolio.
Best For: Beginner and even expert investors who wish to further diversify their portfolio. Investors willing to take on more risk for significantly higher returns.
Growth stocks are one portion of the stock market that has performed well long-term. Many tech companies that are growing fast offer growth stock options, but they rarely distribute cash to investors, like dividend stocks. Rather, most companies choose to reinvest the cash in their business for continued growth.
Growth stock funds remove the need to evaluate and select individual growth stocks. Instead the fund is actively managed by expert managers who choose a diversified set of growth stocks to invest your money.
Keep in mind that any type of investment in the stock market carries a certain level of risk. However, utilizing a professional should reduce the risk of buying a bad growth stock. These types of investments are also highly liquid, giving investors the flexibility to move their money in and out.
INVESTMENT #10: S&P 500 INDEX FUND/ETFS
Key Takeaways: The S&P 500 Index Fund is made up of the 500 largest companies in America. Buying funds that are made up of hundreds of stocks and keeping it long-term, will minimize a lot of the associated risk and produce stronger returns compared to bonds.
Best For: Long-term investing; young investors with time to weather fluctuating markets; those looking to grow their money faster than bonds and banks can produce.
Investing in the stock market is an entirely different realm of risk. That’s because stocks are inherently more risky than most bonds due to a volatile market. On any given day, you could double your investment, or lose it completely.
However, there are ways to decrease risk by using index funds or ETFs to diversify your portfolio. By investing in hundreds or thousands of companies, you are spreading your risk out across different markets, making this a reasonably safe investment with high returns.
INVESTMENT #11: REAL ESTATE INVESTMENT TRUSTS (REITS)
Key Takeaways: REITs are companies that own and manage real estate.
Best For: Investors who want to own real estate but without the hassle of managing the property; investors looking for passive income or cash flow; retirees.
The REIT market is made up of a number of sub sectors that investors can choose from. Popular sectors include housing REITs, commercial REITs, retail REITs, hotel REITs, etc.
Investing in an REIT that is publicly traded on major exchanges instead of a private fund is the safer investment option. Look for REITs with a long history of a continually rising dividend as opposed to funds with the best current returns.
Cash from REITs can be taken out any time the stock market is open.
INVESTMENT #12: RENTAL HOUSING
Key Takeaways: Buy and hold real estate is a long-term investing strategy. Inflation actually helps the rental housing market by eating away debt while increasing the value of assets.
Best For: Buy and hold investors seeking long-term growth; building wealth for retirement.
Real estate investors can enjoy higher annual income from rising rents due, in large part, to inflation. It’s like getting an automatic pay raise every year. Additionally, history has shown that home values have consistently increased along with inflation and even exceeded it. In many areas around the country, homes will appreciate 1.5 times faster or more than the rate of inflation.
Interested in learning more about investing in rental properties? Or want to become an investor yourself? Visit our sister website that specializes in real estate investing to learn how.
Just like other types of investments, real estate comes with its own set of risks. The housing market can fluctuate. We experienced the harshness of a fluctuating housing market during the Great Recession of 2008, where foreclosure rates skyrocketed due to a number of factors I won’t get into.
On the other hand, real estate investors who choose to invest in strong, growing markets, often overlooked for the glitz and glam of big market cities, minimize their risk exponentially. Although buying a rental property requires more cash upfront, you won’t lose your entire investment because it’s a physical asset with (hopefully) appreciating value. This helps make real estate a relatively low risk, high return investment. Keeping a property in your portfolio long-term can continually generate more and more passive income each year.
Owning rental property is one of the least liquid investments out there as you’ll have to sell in order to recoup your cash.
Investor Tip: You need to decide if you want to manage the rental property yourself or hire a management company. The good news is, most expenses related to a rental property manager are tax deductible.
INVESTMENT #13: NASDAQ 100 INDEX FUND
Key Takeaways: The Nasdaq 100 is a fund made up of 100 of the most successful and stable companies. Investors can buy shares of the fund and spread risk across different 100 companies.
Best For: Individuals who want to create immediate portfolio diversification; owning shares in all the companies in the index fund; beginner investors.
The Nasdaq 100 Index fund has some of the best tech companies in the world. That means they are highly valued and thus susceptible to stock market fluctuations. As with other public index funds, your money is easily accessible any business day.
INVESTMENT #14: INDUSTRY-SPECIFIC INDEX FUND
Key Takeaways: Industry-specific index funds allow investors to choose an industry you’re interested in, rather than evaluating individual companies within that industry.
Best For: Investors passionate about a specific industry who wish to diversify risk exposure without having to analyze individual companies; beginners and advanced investors.
If the industry you invest in does well, then the entire fund will likely do well, too. On the other hand, if one industry drops, most or all of the companies in the industry will follow suit. Thus decreasing the benefit of fund diversification.
Cash may be accessed any day the market is open.
INVESTMENT #15: TREASURY INFLATION PROTECTED SECURITIES (TIPS)
Key Takeaways: TIPS offer lower returns, but the principle amount invested will go up or down in value depending on inflation rates during the time period you hold the bond.
Best For: Cash you won’t need access to before the maturity date of the bond; any funds over the FDIC-insured limit of $250,000; investors who wish to have no inflation-based risk within their portfolio.
Because the majority of investment options we’ve covered in this article do not account for changes in inflation, TIPS are a low risk investment option that adjusts along with inflation. So if inflation goes up, your money will too. Returns may be modest compared to higher risk investments, but your money will stay level with inflation rates.
As with other treasuries, if you decide to sell prior to your maturity date, your risk will inevitably increase.
INVESTMENT #16: ANNUITIES
Key Takeaways: There are different types of annuities, but ultimately an investor is making a trade with an insurance company. The insurance company is taking a lump sum of money in exchange for a rate of guaranteed return.
Best For: Investors looking to stabilize their portfolio long-term; risk-averse retirement savers seeking higher returns along with a protected principle.
There are fixed annuities (with a fixed rate of return) and variable annuities (with the rate of return partially determined by stock market health). Whenever you are getting a guaranteed return, it’s usually a very safe investment. Annuities are backed by the insurance company that holds the annuity, much like the Federal government.
INVESTMENT #17: REAL ESTATE CROWDFUNDING
Key Takeaways: A relatively new way to invest in different types of real estate is called crowdfunding. The best real estate crowdfunding companies pool money from investors in exchange for a portion of a project or multiple projects.
Best For: Investors looking to get into real estate investing, but don’t want to own or manage an entire property.
Real estate crowdfunding is a great way to enjoy all the benefits of owning real estate, without having to maintain or manage property. Effective crowdfunding companies have a proven track record of low-risk investments, such as single-family homes or apartment buildings in good neighborhoods and growing markets.
This investing strategy decreases risk and provides a more predictable return, making it one of the top low-risk high return investments available.
INVESTMENT #18: CREDIT CARD REWARDS
Key Takeaways: Using a credit card with cash rewards is a low risk investment that’s often overlooked. Some of the best credit cards out there offer much better returns than you might earn with a CD or online savings account.
Best For: Individuals already using a credit card to pay bills; investors looking for the closest thing to “free money.”
Credit cards are frequently perceived as something consumers should avoid, due to high interest rates and insane amounts of debt. In reality, as long as credit cards are used wisely, they can offer great cash back rewards and yield higher returns than many investments offered by banks.
Capital One Quicksilver, Wells Fargo Cash Wise, Chase Freedom and Bank of American Cash Rewards are some of the best cash back credit cards on the market. Yet another safe investment with decently high returns.
INVESTMENT #19: PEER-TO-PEER LENDING
Key Takeaways: P2P lending allows investors to lend their money to others. Also known as crowdfunding, returns from this type of investment come from interest over the lifetime of the loan.
Best For: Investors with enough cash reserves to “lend” money or to buy into a portion of a loan and earn interest based on a set rate; new investors looking for low minimum investment requirements.
People lending other people money has been happening for centuries. Peer-to-peer lending is just that; an investor lends his or her own money to a borrower, with the agreement that the loan will be repaid to the lender, over a specified time period, plus interest. Interest rates for P2P lending varies based on perceived risk, projected inflation and the length of the loan.
P2P lending is considered a relatively low risk, high return investment option. While lending will definitely diversify your investment portfolio, it’s important to understand that these loans are unsecured. So if a borrower defaults on their loan, it could hurt your return. The good news is, there are different levels of risk associated with each loan, so you can decide how much risk to take on.
INVESTMENT #20: MUTUAL FUNDS
Key Takeaways: A mutual fund is where investors pool their money to buy stocks, bonds or other assets. These funds are a cheaper way to diversify your portfolio against a single investment’s loss.
Best For: Saving for a long-term goal, like retirement; convenient exposure to higher stock market returns.
Mutual funds allow investors to buy into different companies that fit under a set criteria. These companies may be in the tech industry or corporations offering high-paying dividends. Mutual funds let investors choose an investing niche to focus on, while spreading risk across multiple investments.
Money within a mutual fund is easily accessible, but requires a minimum initial investment from $500 to thousands of dollars.
WHAT’S NEXT? GROW & PROTECT YOUR MONEY
Finding safe investments with high returns is one of the best ways to protect and grow your money to build lasting wealth. You may want to keep most of your money into super safe investments, like high-yield savings accounts, CDs and US Treasury securities. But if you are looking to get better overall returns, start by investing small amounts of money in bonds, dividend-paying stocks, REITs, real estate or P2P lending. That way, you’ll enjoy higher returns offered by lower-risk investments.
Best Investments That Will Pay You a Monthly Income
Are you looking for the best smart investments that pay monthly income? In this post, I’m going to show you where to invest your money to get a monthly income and maximize your profit return.
nIvesting your money is a well-known secret of the rich and wealthy.
Here are 7 ways you can invest for monthly income.
1. Investing in Real Estate For Monthly Income
Real Estate is one of the best ways to invest your money, and for a good reason. That’s because you can financially benefit from generating wealth appreciation and equity building. Also, through renting, you can generate passive income; providing you with a steady cash flow every month.
I think everyone should aim to own at least one house or property; for investment purposes.
In most cases, investing in real estate requires a significant amount of cash upfront to get started. That being said, there are a few ways you can make smaller investments to earn monthly income using real estate.
Do you have a spare room available? If so, you could list that room on Airbnb to generate some monthly income.
If you live in a busy town or city, this can be a great way to earn some extra cash flow each month; without having to invest much upfront.
Many wealthy individuals invest heavily in real estate for property appreciation. For them, being a landlord and renting a property may be more hassle than it’s worth.
If you’re starting and you don’t have much cash to invest; you can partner up with someone who does have the money, but lacks the time. That way, they can enjoy the benefits of house appreciation and equity over the years, and you can earn monthly cash flow from renting out the property — a win-win for everyone involved.
PRO TIP: Use the extra income you earn from these strategies to invest in other investment strategies to create a compounding passive income machine.
2. Start Your Own Online Business
As you have probably already guessed, investing in an online business is my favorite way to earn monthly income. For me, it’s been the most lucrative investment strategy.
The great thing about this method is that it requires very little money to get started, perfect for first-time investors.
There are tons of great ways to invest your money or time to generate monthly income online. Here are a few of my favorite ideas.
I decided to invest my time and money into blogging many years ago. Last year I made over $100,000 from blogging. I love blogging because it gives me so much freedom to enjoy life and spend time with my friends and family.
Starting a blog requires no knowledge or prior experience, and it’s super affordable to get started.
Did you know with a few clicks and a small investment, you can create your own online store?
Sites such as Shopify and Etsy TK, have made it easier than ever to set up an eCommerce business. If you have a product idea or service you think you can sell to make a profit, this could be the perfect investment to earn a monthly income.
Don’t have a product to sell? Don’t worry; you can earn income by selling someone else’s product. This is known as dropshipping.
Dropshipping is fantastic because it means you don’t need to invest in any stock or deliver any goods.
Just think, Amazon & eBay have built massive eCommerce empires applying a similar business model.
With affiliate marketing, you earn a commision for selling another person’s product or service. When you’re an affiliate, you don’t have to worry about stock, deliveries, customer service, or refunds. You’re simply the middle man who is paid for recommending products.
Some of the biggest websites in the world are making money from this method. Check out these affiliate marketing examples.
I love the concept of affiliate marketing, and it’s one of my top investments that pay monthly income. I have made a lot of money from recommending the products and services I use myself.
If you don’t have much money, but you have your time to invest, affiliate marketing could be the perfect strategy for you.
If you’re interested in learning how to get started with affiliate marketing, I have put together a FREE 7-day email course. This will teach you how to make money with affiliate marketing without having to spend a dime.
I will share with you the exact template I use; which is already proven to generate income every month! Here’s what you will learn:
How to Build a Kick-Ass Email List
What Affiliate Offers Should You Promote?
Creating Email Marketing Automation That Actually Converts
Where & When Do You Make Money?
Best Way to Drive High-Quality Traffic to Your Funnel
3. Invest in High Paying Dividend Shares
Some of the world’s wealthiest people, such a s Warren Buffet TK, have made their riches from high paying dividend shares. In a nutshell, dividends are a payout that companies make to their shareholders (usually every quarter), as a sign of appreciation for investing and holding their stock.
If you choose wisely, over time, investing in high paying dividend shares can be a great investment strategy.
However, it does require some knowledge to pick the right shares to invest in and a great deal of patience. Also, you will need to invest a significant amount of money to see any noticeable return.
That being said, I do think it’s one of the safest and best long-term monthly income investments for retirement.
The trick to this method is to re-invest the dividends you earn. This will have a compounding effect; leaving you with a nice sum of the money for when you retire.
4. Digital Investments That Pay Monthly Income
You’ve probably heard of Bitcoin. The cryptocurrency is rapidly growing in both popularity and Price. And with the current financial strains on the economy, the demand for a new digital currency takeover is becoming more and more likely.
I personally use Coinbase; as it’s the most trusted platform to both buy and sell cryptocurrencies.
Since investing, my Bitcoin has grown in value, technically paying me for each month I hold my investment.
If you would like to start investing in Bitcoin, sign up to Coinbase and you’ll receive $10 worth of free Bitcoin!
Peer to Peer Lending
Peer-to-Peer lending, also known as P2P, is when an individual lends money to another individual or company via an online website that matches lenders with borrowers. In basic terms, a person is loaning money to another person, in the hope of a more substantial return on investment.
Peer-to-Peer lending is an investment strategy that usually offers a more significant interest percentage; which means a better return on the money you lend. And, you COULD make a high ROI and monthly income from it. However, just like all investments, nothing is guaranteed, and you could get back less than you originally invested.
If you want to learn more about P2P lending, check out the following resources: TK
Trading foreign currencies is a method many people are using to bring in a monthly income. It is possible to make huge returns on your investment in a relatively short amount of time.
Although this requires only a small initial investment to get started (most start at around $500), it does require skill and knowledge to see success.
The people who successfully earn a monthly income from Forex Trading have invested their time into learning how it works; as well as investing in the systems that help to automate the process.
A bond is a loan an individual will give to a company or organization in return for interest. You will gain interest (usually at a fixed rate) over several years. These are called coupons. You’ll also receive your original loan back on an agreed date.
Bonds are usually considered one of the safer investment strategies; however, there is still small risk involved. The riskier the company you have bonds with, the more chance the company will default before your loan in return. To compensate for this, the higher the risk, the greater your potential return will be.
You can also invest in government bonds, which involves less risk; but equally and lower potential return. Low-risk bonds are an excellent investment for retirement.
It’s important to note that bonds are a long term investment strategy; that requires a large amount of cash upfront.
6. Social Media
When you think about where to invest money to get monthly income, I bet social media doesn’t spring to mind. But, think about the many social media influencers and stars who were wise enough to invest their time and energy into social media when no one else was.
The good thing is, it’s not too late. There is still massive potential to grow a social media following which could end up paying you a monthly wage.
Build an Instagram Account
Instagram is currently the world’s most popular social media platform. As of today, there are over 1 billion active users on the platform, and it’s still growing. If you can capture just the smallest fraction of the attention on Instagram, you can easily earn a monthly income.
Making money on Instagram is not as hard as you think, and you don’t need thousands of followers. You simply need to know how to target a specific niche,
Start a Youtube Channel
Youtube is another excellent investment; that could easily provide you with a monthly income.
Millions of Youtube videos are watched every day. If you invest the time to grow your own Youtube channel, over time, it could turn into a reliable source of passive income.
If you’re interested in starting your own Youtube channel, check out these useful resources:
How Do You Make Money From YouTube?
Secrets to Making Money on Youtube (No filming & no website required)
Do you want to make money from Youtube with no filming, marketing, or website required? Watch this video!
7. Invest in People
This is one of my favorite investment strategies, and it’s the one that is often overlooked. Investing in people could be one of the most rewarding investments you’ll ever make. Heres what I mean:
Invest In Yourself
Self-investment will always give you the highest return. In vesting in yourself was one of the biggest lessons.
You should invest your time, energy, and money into your health and well-being, happiness, and of course, education.
Invest in Other People
Just think of TV shows such as Shark Tank or The Apprentice. Some of the richest guys in the country are seeking to invest in other people.
Investing in others will often require a significant amount of cash available, and most likely, a great deal of patience. But, if you have the funds available and you invest in the right person, the potential return is enormous!
Investments That Will Pay You a Monthly Income FAQ
What are the best monthly income investments for retirement?
First of all, I’m not a financial advisor. When it comes to significant investments, such as a retirement fund, I strongly recommend seeking professional advice from a financial expert. That being said, I’m happy to share my view.
When it comes to investments for retirement, a few questions come to mind.
What is your current age?
How much money do you currently have available to invest?
What age do you plan on retiring?
And, what does retirement look like for you?
The truth is that ALL 7 of the investment strategies listed above can work well. However, these four questions will have a significant impact on the plan that will work best for you. This is because some methods require large sums of capital upfront; others need more time.
Investment Ideas For Low And Middle Income Earners
As the discrepancy in income between the rich and not rich continues to grow, the opposite is actually occurring in the variety of investment ideas for low and middle income earners. There are plenty of investing options and strategies available for those of us with low and middle incomes.
You might be holding off investing money because you think you can’t afford it. You can!
This article will tell you how even a little bit of money set aside each month can grow into a healthy nest egg for you and your family. You’ll get ideas about how to invest with a little bit of money, and how to invest on a low or middle income.
For starters, you can now open your own online discount brokerage account. This allows you to buy stocks and index funds for lower the cost of hiring a financial advisor.
With the growth of the internet, researching investment ideas for beginners and investment ideas to retire early is possible for everyone.
However, with differences in income, it makes sense that there will be differences in investment strategies.
Investment Ideas For Low Income Earners
If you don’t have a lot of money to invest it seems natural that your strategy would be to not take any risks with the money you do have. But, with the right budgeting strategies, saving and investing money is possible for this income group. It comes down to making choices about how you want to live.
Traditional low-risk savings options, like a savings account, no longer pay a high enough interest rate to keep up with the rate of inflation. This means you are essentially losing money leaving your savings in one.
So how to you make what money you can afford to invest grow?
Find An Investment Option With Low Fees And Minimums
When money is tight, it is even more important that none of what you invest goes to waste. An easy way to do this is to invest using a discount brokerage or a robo advisor. Look for a brokerage or robo advisor that has a low minimum investment amount…ideally $0. Both options allow you to hold your money in account types such as RRSPs, RESPs, TFSAs and more.
An online or discount brokerage lets you buy and sell stocks online using your trading account. This method of investing in the stock market yourself reduces the cost of a traditional brokerage. You can build your portfolio using low-cost Exchange Traded Funds (ETFs). There is a higher risk involved because you need to do some research as to which funds you want to buy.
Another good investment idea for low income earners is a robo advisor. A robo advisor uses a combination of a computer algorithm and human advisor to create an investment portfolio for you. You will fill out a questionnaire about your risk tolerance and a robo advisor will invest your money into ETFs.
The management fees are slightly higher than with an online brokerage, but still far less than using a financial advisor.
To narrow down your options, look closely at the investment fees you’ll need to pay:
Inactivity Fee – some brokerages require you to make a certain amount of trades a year to avoid a fee. This could be as little as only once or twice or year, but it could be more.
Account Transfer Fee – this is the amount that you will be charged by your bank to move your money into a new brokerage or robo advisor account. Many online firms and robo advisors will reimburse you.
Management Expense Ratios – these are fees you’ll pay to cover the costs of managing your investment account. They are expressed as a percentage. You’ll pay anywhere from 0.10% with a discount brokerage to 0.75% with a robo advisor.
Pay Yourself First
Set up automatic deductions from your paycheck or bank account on the day you get paid. Have a set amount of money transferred directly into your savings and investment accounts.
Common advice is to set aside 10 % to 15% of your take home income. However, if you are struggling to stretch your paycheck that may seem impossible. To begin, start by setting aside $25, then increase that when and if you can. The important thing is that you start!
Decide If Your Money Should Go Into A RRSP Or A TFSA
You want your savings to be invested in an account that is earmarked for long-term savings but is still accessible. You’ll either want to contribute to a registered retirement savings plan (RRSP) or a tax free savings account (TFSA). Both investment vehicles have their advantages depending on your individual circumstances.
Registered Retirement Savings Plan
RRSPs were introduced by the Government of Canada as a tool for Canadians to save for retirement. The money you contribute into an RRSP can be held in several accounts.
Some of which are:
stocks and bonds
exchange traded funds
guaranteed investment certificates (GIC’s)
The benefits of a RRSP are that the money you contribute in a year reduces the amount of income tax you need to pay that tax year. The RRSP is a tax deferred account meaning that you contribute to it with pre-taxed money but you’ll be taxed on that money when you make withdrawals in the future. The rules around when you can withdraw money are also stricter.
To read more about RRSPs, click on Canadian blogger Emily’s article – RRSP Everything You Need to Know.
Tax Free Savings Account
The tax free savings account is another legitimate tax savings option for long-term savings, now that the total contributions limit has reached $69,500. In fact, the long-term tax savings of the TFSA could outweigh the immediate tax savings of the RRSP.
The money you invest is after-tax income, meaning you’ve already paid income tax on it. However, you won’t be taxed again when you make withdrawals.
Any investment gains made in your TFSA are not subject to taxation…ever. Even upon withdrawal. If your portfolio grows well within a TFSA…that could be a lot of tax free money.
Where the TFSA beats the RRSP is that the money in your RRSP will be subject to tax upon withdrawal. However, you will probably be retired and therefore in a lower income bracket and hit with less tax.
Read here for an in-depth comparison between the RRSP and TFSA.
A general guideline is if you are young and your income is low, contribute to a TFSA first. You will get more benefit by contributing to an RRSP later in life when your income is higher and you are in a higher tax bracket.
Investment Ideas For Middle Income Earners
For the middle class, the dream of retiring comfortably with a hefty investment portfolio is possible. The key is to live within your means in the present.
Here are some investment ideas to set you up for a wealthy retirement.
Start Saving Money Early And Stay The Course
This advice holds true for any income group looking to build a robust nest egg. For middle income earners, the amount you can afford to save now has a better chance of resulting in a six or seven-figure egg.
If you are in your twenties or thirties, start by investing 10% of your net income. That will be about $276 per month on a $40,000 salary. Up your contribution 3% annually and earn 6% return and you will hit $1,000,000 by your mid-sixties.
If you are past your thirties, saving $1 million is still doable, but your monthly contributions will need to start at $1,300 for a 45-year-old.
Contribute To A Pension And A RRSP
In order to retire rich, you need to make a serious commitment to saving money each month. Putting money aside and living on less has to become a way of life.
If you are a salaried employee, set-up automatic payroll deductions and join any savings programs (pension plan, group RRSP, stock purchase plan) your workplace offers. Many employers will match at least part of your contributions. Every time you get a salary increase, increase your contribution amount.
Everyone, with or without a pension program, should also contribute to an investment account such as a RRSP. Aim to max out your RRSP contributions each year. Most Canadians don’t do this. It will take discipline to reach this goal.
The RRSP contribution limit is %18 of your income. If you earn $50,000 per year, that works out to $750 per month.
Remember, the amount you contribute will reduce your taxable income…an added benefit for middle class earners.
Buy The House And Car You Can Afford
As a general rule, you should spend no more than 30% of your monthly gross income on housing. If you are a renter, that includes utilities. If you own a home, that number includes the interest on your mortgage, property taxes, and maintenance.
Purchasing a big house is tempting, especially if you have a family and want each child to have their own room. But, you’ll have a difficult time reaching your retirement goals if you are bogged down with expensive mortgage payments indefinitely.
The same holds true when purchasing a car. Unlike a house which can appreciate in value and be considered an investment, a car is worth less the more you drive it.
If you have the extra money after putting aside your savings goals each month, than go ahead a buy a fancy car. But, if you can’t contribute the necessary amount each month into your RRSP, try driving a used vehicle.
Have An Investment Plan
Now that you are spending less than you earn each month, it is important that you put your extra money into savings. However, in order to retire with $1 million, your money needs to grow.
A standard savings account will only earn you around 1% interest. This will not get you to your goal. Therefore, like the above investment ideas for low income earners, you need to find an investment option with low fees.
The right solution for you will be the one you are comfortable with for the long term.
Build A Diversified Investment Portfolio
Canada’s mutual fund fees and expenses are high. The average funds management fees are over 2% per year. These costs make earning a 6% return on your retirement savings tricky.
As discussed above, there are good options for those of us willing to manage our own investments. Using an online brokerage or robo advisor can help you build a diversified portfolio of stocks and bonds without the 2% fee.
Invest In Real Estate
There are two different ways to invest in real estate in Canada.
Active investors invest by owning their own principal residence, owning a rental property, or flipping a house.
Passive approaches to real estate investing include options such as Real Estate Investment Trusts (REITs) and buying stock in companies that own income earning real estate. Choosing a passive approach is obviously less work and requires less of a start-up investment.
Make A Budget – Investment Ideas For Low And Middle Income Earners
Whether you are working with a low income or middle income, before you invest you need to balance your budget. It is hard to set aside money for savings if your are spending more than you earn. Without a budget, many of us are left at the end of the month wondering where our money went.
Creating a budget based upon your income and keeping track of your expenses allows you to determine what extra money is left for savings.
An important step when making a budget is to make a list of goals. Determine what you are saving for and how much money can you set aside each month to reach those goals. Goals keep you motivated.
For a step-by-step guide on how to make a budget, read our How to Make A Budget post.
If you need a free, printable budget planner and expense tracking worksheets to help you out, fill-in the quick form below and they will immediately arrive in your inbox. They are simple to use and help you to include all the expenses you might otherwise forget.
If you haven’t yet started a budget or if you are having difficulties organizing your current budget plan, don’t worry, I have a great new resource to help you. I’ve designed The Family Budget Planner to help my family, and yours, build a practical, time-saving budget plan.
No other budgeting planner is specifically designed to help families manage their finances. It will help you set goals for your money, track your income and expenses, pay-off debt, monitor your savings, and, of course, create a workable budget plan.
The Family Budget Planner is created with family living in mind and includes savings and spending trackers just for the kids. I have 4 young daughters, so I wanted to make a budget planner that includes all the kid’s expenses. There is also a mini-budget sheet for children to use – what a great way to teach kids about money!
If you are the kind of person who likes to have a ready-made plan (with all the organizational tools you’ll need) laid out before you, then The Family Budget Planner is designed for you. Get it and get ready for a sunnier financial future.
When it comes to investing, the playing field isn’t entirely even yet. There are some investment options only available to very high income earners. Private equity assets refers to businesses not traded on the stock market. To invest in private equity and hedge funds you need to have serious money that most of us don’t…a minimum $1 million for hedge funds.
However, that doesn’t mean your investments won’t preform as well as the high-ticket options. In fact, hedge funds aim for huge gains and come with the cost of huge fees. In fact, there are many years in which they have failed to out-perform the stock market like promised.
So, don’t buy in to the notion that you need to already be rich to invest and retire rich. There are good investment ideas for low and middle income earners out there.
Just get started now, follow some of the ideas listed here, and keep with it!