Smart ways to invest your money
Here on TodayTrader, you can find educational financial content about all kinds of different asset classes and interesting investment opportunities. We cover traditional asset classes like stocks, real estate or precious metals. In addition, we also help you understand more recent ways of investing money like P2P Lending, Robo-Advisors or high-risk investments like cryptocurrencies.
A popular choice for investors who seek low-cost, automated investment opportunities are Robo-Adivsors. Robo advisors use computer algorithms to set up a customized, diverse portfolio and wealth management strategy based on your personal financial situation.
Start a Business
Starting your own business can be one of the best decisions in your life. If you have an interesting and solid business idea, investing in your own business idea can pay off way more than other investment opportunities. Your own business can be a way to financial freedom.
Pay off debt
Having debt usually is the opposite of financial freedom. If you want a guaranteed return on investment, paying off your debt usually is the best investment decision you can make. Once you’ve paid off your debt, you can start working on your investment portfolio.
Top 15 Ways to Invest Online for Beginners
The investment world is full of opportunities for all type of investors, ranging from small retail players looking to generate income and to make their net worth grow, to HedgeFunds aiming for more complex and sophisticated investments through all asset classes.
Ever until the first 3 quarters of the 20th century, investing in the financial markets was kept for the wealthy and rarely seen as a close possibility for any retail investor looking to allocate small amounts of capital. Things started to change on the last inning of the century as more and more brokers started to realize of all the market share they were leaving behind by not taking retail money (also because of their extremely high fees).
- 1 Smart ways to invest your money
- 2 Top 15 Ways to Invest Online for Beginners
- 3 What you should know about investing:
- 4 These are the top 15 ways to invest online for beginners:
- 4.1 1. Stocks
- 4.2 2. Fixed Income (Bonds, Treasuries, Notes)
- 4.3 3. Robo-Advisor
- 4.4 4. P2P Lending
- 4.5 5. ETF – (Exchange-Traded Fund)
- 4.6 6. REITs – (Real Estate Investment Trusts)
- 4.7 7. Crowdfunding
- 4.8 8. Investment Apps
- 4.9 9. Commodities
- 4.10 10. Options
- 4.11 11. Futures Contracts
- 4.12 12. A 401K or extra retirement plan
- 4.13 13. Currency Investing (Foreign Exchange)
- 4.14 14. Cryptocurrency
- 4.15 15. Certificates of Deposit (CDs)
- 5 Conclusion
- 5.1 Latest content about investing
- 5.2 Stock Market Crash – How to prepare for the next bear market to minimize the impact on your portfolio
- 5.3 Finviz Review – Free stock market scanner for professional traders and investors
- 5.4 Momentum Trading – Introduction and strategies for momentum traders and investors
What you should know about investing:
There are many different vehicles that could be used for investing, ranging from very sophisticated and technical strategies to beginner-friendly investing mechanisms that could be put to action with a small capital and little to no experience at all.
Before choosing an investment vehicle or an asset class to start investing, it is important for investors to understand that even with a market full of opportunities to profit and capitalize from every day, investing is not a get-rich-quick scheme but a long term road for financial freedom and stability. Just like money is there to be made every day, there is also risk inherited with investing and investments should be made around risk management and proper portfolio management rather than money making, with a solid plan and a good strategy, money will come but not otherwise.
It takes time and patience to enjoy the fruits of labor. When you plan for the future, good things can happen.
According to the Oracle of Omaha, Warren Buffett, one of his personals secrets and advice for anyone looking to start investing is to focus on sectors of the stock market or vehicles that they find interesting and that provide excitement since it will make it easier to enjoy the upsides and downsides and will help with the patience side of investing.
When it comes to investing and trading the right approach is to look for growth in the long run, this does not mean that you have to keep any investment for years but that the benefit from investing through the years is what will boost your net worth, this is a lifetime marathon and not a sprint.
For anyone with a valid license, it is possible that they remember how strange it felt the first time they step into the driver’s seat and drove a car, it was simply not natural at all. With Investing and Trading especially, it is exactly the same, its a new experience that time and practice will become natural and not forced at all. Continuing with the analogy of the driver, you most probably did not learn how to drive using a racecar and for the same reason you should not start your trading and investing career in derivatives or with complex options strategies, but eventually, you could.
These are the top 15 ways to invest online for beginners:
The US Stock Market alone represents the largest equity market in the world with a value of over $30 trillion as of January 2019. The biggest advantage of stock investing is the diverse selection of possible stocks to pick, providing a unique opportunity to own a small/big position in all sectors of the US and even global markets and their economies.
Stock trading is a very wide term since it can refer to many different types of stocks that might follow or work under the same logic but with very specific characteristics, an example of this is the difference between Blue Chip Stocks and Penny Stock.
- 1. Blue Chip Stocks: This is mature and stable companies with a track record of profitability and a well-developed business model. An important characteristic of these stocks is that they typically tend to hold value relatively better than the rest of the market since traders and investors have a higher level of confidence in them. There are two major classes of Blue Chip Stocks:
- ● Income or Dividend Stocks: Dividend stocks are usually mature companies that have structured business models that allow them to pay quarterly dividends based on their earnings. These are great for long term investors looking to generate income from their portfolios, especially for investors that don’t have the time to research the market on an intraday basis.
- ● Growth Stocks: These are companies that investors follow with high expectations for growth and also strong guidance on returns and financials. Since the price of a stock is based on their future returns, and how it might perform in the future, this type of company usually has a very high price compared to their earnings (PE Ratio). The main focus of the management team of this type of company is to reinvest the revenue generated into making the company growth, for this reason it is common for growth stocks not to pay dividend to their investors, but instead compensate them with strong capital gains due to the growth of the value of the stock as the company increases in price.
- 2. Penny Stocks: There is not an official definition of what it is considered to be a penny stock, according to the SEC it is seen as any traded stock with a price per share under $5, but this is something that on the practice changes between exchanges and brokers. This class of stocks offers some of higher levels of return but at a higher risk since it is also one of the most volatile types of security out there, considered by many as widow makers for the impact it may cause to a portfolio.
As more investors turn their look into the equity market, brokers have adapted their business models to allow them to also profit from the fees generated by retail investors. Eventually due to the saturation of brokers in the market and the offer of trading accounts, the fees related to this type of investments decreased considerably to the point where there are brokers that would let you trade for free or with fees as little as $1 per single trade.
Fixed Income instruments represent loan(could be seen as an I.O.U.)s made by an investor to a borrower that is typically a corporate or a governmental player.
An investor can invest into bonds expecting to hold the asset until maturity, where the principal is paid in full and to cash from the interest (could be fixed or variable) paid during the duration of the Bond, another way is to buy and sell like any other asset class, trading and profiting from prices in the change of the asset generating capital gains and at the same time profit from the coupons paid while holding.
An influential factor for the price of Fixed Income assets are the interest rates, generally, hikes in interest rates tend to affect the prices of bonds in an inverse way. The most common types of Bonds are:
- ● Treasury Bonds
- ● Other US-Backed Securities
- ● Foreign Bonds Backed by another economy
- ● Investment Grade Corporate Bonds (High Quality)
- ● High-Yield Bonds (Junk)
- ● Mortgage-Backed Bonds
Not all investors have the capacity to hold bonds until maturity or simply to buy enough bonds to properly diversify the value of their portfolio, for this reason,n it is also possible to acquired bonds trough specialized ETF that invest in all the different types of Fixed Income securities. Some examples are:
- ● iShares Barclays 20+ Year Treasury Bond Fund (TLT)
- ● iShares Barclays 10-20 Year Treasury Bond Fund (TLH)
- ● Shares Core Total USD Bond Market ETF (IUSB)
- ● PIMCO Total Return ETF (BOND)
- ● Vanguard Mortgage-Backed Securities ETF (VMBS)
- ● iShares iBoxx $ High Yield Corporate Bond Fund (HYG)
For many decades financial advisors have used mathematical and statistic algorithms to allocate, manage and optimize their client’s assets. What started as a very rudimentary tool to complemented decision making deviated to a model where these robot-like algorithms are offered to the public without little to no intervention, in some cases completely eliminating the figure of a human asset manager overseeing the portfolio.
It was not until after the dust of the financial crisis have settled in 2008-2009 that the figure of the Robo-advisor become more common in Wallstreet and the US. There are currently more than 100 companies worldwide offering their services, and as of January 2019 Robo-Advisors worldwide have more than $285 billion in assets under management.
Wealth management research firm MyPrivateBanking estimates that a hybrid of Robo-Advisors and human advisors could manage up to 10% of all investable wealth by 2025.
4. P2P Lending
Peer-to-Peer lending allows individuals to solicit and obtain loans directly from another individual, eliminating the figure of the middleman or of any financial institution. P2P Lending websites offer a platform where investors and borrowers are connected and all the rates and terms of the transaction are set.
It is important to understand that this type of lending offers an opportunity for individuals that otherwise would have had trouble receiving a loan from a regular source of funding like a bank, for this reason, interest rates are based specifically on the creditworthiness of the applicant.
Just like P2P offers a great opportunity for borrowers with a very poor credit score, the platform awards individuals with great credit scores with interest rates that are lower than those offered by banks.
These are investment funds that are traded on stock exchanges just like a regular stock. They provide a more macro investment opportunity by allowing traders to invest in specialized ETFs that track specific sectors and even asset classes.
There are many different types of strategies for ETF trading, a perfect example is an investor looking to benefit from a strong equity market across sectors, he/she might take a shot investing in a total ETF that has investments in all major companies across sectors in the US equity market, this way they would able to profit from the overall movement of the market and not a single stock.
ETFs provide excellent benefits for investors that do not have the time capacity to do research between sectors, or that simply want to focus in a specific sector for growth. Please note that this type of asset is also commonly used for institutional as a hedging mechanism.
Since they are traded like stocks, a similar account size would be desired(most of the brokers offer the same treatment for ETF as if they were regular equities).
This type of fund allows small and big investors to own a stake of real estate that otherwise they might have not being able to invest in due to its size and price. Since they operate like in exchanges the same way ETFs and Stocks do, they are considered as very liquid assets.
There are 3 basic types of REITs:
- 1. Equity REITs – The fund buys properties and rent or leases them later, generating income
- 2. Mortgage REITs – The fund buys or gives mortgages and profit from the interest generated in the loans
- 3. Hybrid REITs- Profit from both owning and lending
In order to qualify under special IRS considerations, REITs must pay at least 90% of their profits in dividends which makes them an attractive investment to generate income in every portfolio.
Since they are traded like stocks, a similar account size would be desired(most of the brokers offer the same treatment for REITs as if they were regular equities).
Following a similar path to what P2P Lending does, Crowdfunding looks to connect possible investors to new business ventures, promoting entrepreneurship and also expanding the pool connections from whom an entrepreneur can raise money.
Just like with Hedge funds, equity crowdfunding used to be very strict since it would be required of an accredited investor with at least $1 million in net worth or an annual income of $200,000 to legally invest in new ventures. After an act that was initially introduced in 2012 by the Obama Administration, and later approved by the SEC, in it investors were removed of several restrictions on investments and regulations for crowdfunding were proposed after.
Now non-accredited investors can invest in equity crowdfunding up to a limit of 5% of their annual income.
8. Investment Apps
A the world of Fintech grows, there have been several new companies offering their investment services to the general public, one of them in particular “Acorns” which offers the possibility to round payments done with a debit card in order to save the money from the rounding in a portfolio that could be tailormade to the risk profile and appetite from the investor.
This business model provides the integration of a savings account with the ability to automatically invest in a Robot-advisor model, all in the same App.
Commodities are basic goods needed fas inputs for production of secondary goods and in some cases services, these assets are traded and are also interchangeable for other commodities. There are several different ways an investor can get into commodities for trading or long term holding:
- 1. Buying the raw and physical commodity, for example buying gold bullion or coins
- 2. Investing in futures that track the stock price of the asset, profiting from price changes of the asset
- 3. Buying Electronic Traded Products (ETPs) or ETFs that track the sector or the spot price
An important characteristic of this sector is that not all brokers offer access to them, or not to all of them since there are several types of commodities that are not followed in a big manner by speculative investors. There is a wide range of commodities that are available for trading, some of the different types are:
- ● Metals (Gold, Copper)
- ● Energy (Crude Oil, Nat Gas)
- ● Livestock (Lean Hogs, Cattle)
- ● Agricultural (Corn, Soybeans)
Is with Options where the risk level truly increases, just like its name says you are buying the Option to buy or sell a specific security at an X price on a Y date, premium and prices on options will change and fluctuate based on the movements of the underlying security it covers. The risk in options because heavy movements in any asset can make the price of the option to go to zero faster than you can imagine, killing premium.
Options are used for hedging and also for heavy speculation in the market, in most of the cases it would be needed for any interested investor to understand deeply the underlying asset, its sector, and asset class before looking to add an extra layer of complications with options.
Since options have an expiration date, they have a time decay that takes down the premium of the option as it gets closed to its expiration date, this means that options are assets that add another graphic to them since investors need to calculate the remaining premium at any time and understand that during the last 5 days, unless the underlying asset is moving and the contract gets in the money, it will eventually be expired worthless with a zero price.
The options market is a offers a variety of assets like stocks, currency, commodity, bonds, and other more technical assets to buy options from, the strategies are limitless with options. A trader should eventually dig into the world of options once it has gain confidence in their trading and also experience with other assets.
The returns of this specific class could be in the hundreds% per position. Depending on the asset, option prices can be very low meaning that there are accessible for investors to look into as part of their strategy.
11. Futures Contracts
Futures work as contracts with an obligation for the buyer or seller to deliver an asset at a predetermined date in the future at the settled price, some specific contracts may require the physical delivery of raw assets in the case of commodities but its most common for futures to settled in cash.
Just like with options, investors can buy and sell their positions before expiration, allowing them to profit from swings in prices and to speculate from the markets.
The most traded and liquid Future Contracts are:
- ● S&P 500 E-mini (ES)
- ● 10 Year T-Notes (ZN)
- ● Crude Oil (CL)
- ● 5-Year T-notes (ZF)
- ● Gold (GC)
- ● EuroFx (6E)
12. A 401K or extra retirement plan
Investing can be an active or passive task depending on the person and its profile, some people just can’t take the required time to look for stocks and watch market news constantly, this is were a retirement plan or any other type of passive investment works great.
Many companies offer to match a portion of your contributions to your account, it’s free money! As of 2019 individuals are allowed by law to contribute up to $19.000 a year (25,00 if you are 50 and older).
401Ks have a cap but not a minimum, investors can allocate 1% of their paycheck every month and still be under the tax benefits of these saving and investing mechanism.
Typically 401K accounts are managed by funds or target dated mutual funds, which means that your money won’t go flat until you retire, interests are being made and your money is growing within time as if you were investing in a mutual fund but with a tax incentive and with extra money from your employer.
The Top Best 401Ks Providers for 2019 are:
- ● Best for Low Operating Costs: Charles Schwab
- ● Best for Small Employers: Employee Fiduciary
- ● Best for Combined Services: ADPBest for Low-Cost Fund Options: Vanguard
- ● Best for Consultant Services: Fidelity Investments
- ● Best for Flexibility: American Funds
13. Currency Investing (Foreign Exchange)
FX is one of the most popular investment vehicles for both institutional investors and retails for many reasons, some of them being high liquidity, diversity of pairs to look for and the ability to trade electronically from anywhere in the world in a fast and controlled environment.
One of the key elements that make currency investment so great for active investors is the ability to obtain high leverage, meaning that they could borrow X times their account value and with this expand their buying power beyond their account value, allowing them to trade bigger transactions at a lower margin.
Most Traded Currency pairs (by %):
- ● EUR/USD (23.1%)
- ● USD/JPY (17.8%)
- ● GBP/USD (9.3%)
- AUD/USD (5.2%)
- USD/CAD (4.3%)
Virtual currencies have been the worst nightmare for many wealth managers and financial advisors since the rally of 2017 and later its cliff jump. As mentioned before, cryptocurrency refers to a virtual currency that uses cryptographic coding as a security and safety measure, making it untraceable and extremely difficult to counterfeit. Another key point to understand is that many of these cryptos run as decentralized systems based on blockchain technology that is distributed through a network of computers.
Cryptocurrencies can be bought through exchanges just like many other securities, it is important for trader and investors to understand that this is a new technology that is far from being fully adapted and that has a very low commitment of traders due to all the uncertainty that surrounds it, making it an investment with high potential but also high risk. If you are planning on investing even after the disclaimer from above, please consider to sizer appropriately your position according to your risk profile and the diversification of the overall portfolio.
It is better to be late and size up a position later, than going all in and having to wait through heavy drawdowns that might never pullup again.
The most important Cryptocurrencies by market capitalization are:
- ● Bitcoin (BTC) $71.6 Billion
- ● Ethereum (ETH) $14.6 Billion
- ● Ripple (XRP) $12.9 Billion
- ● EOS $ 3.8 Billion
- ● Litecoint (ETC) $8.85 Billion
- ● Bitcoin Cash(BCH) $3 Billion
15. Certificates of Deposit (CDs)
CDs are savings certificates with a fixed interest rate and also a fixed maturity date. During the period the deposit, there is restricted access to the funds until the maturity at which the investment principal is given back to the investor. Credit Deposits are usually issued by commercial banks and they are insured by the FDIC for up to $250.000 per individual.
CDs, provide an option of investment for people looking to profit from their cash positions without having to risk in any other asset asides allocating their money to a bank.
As human beings we all have dreams and desires we want to accomplish, from owning our own house to maybe traveling or simply being financially free, Investing at a young age provide limitless possibilities in the future to come, making many of these dreams a possibility with time. As investment options become more and more obtainable and easy access to the common public, there is no reason for one to start investing at their own pace.
To the contrary of what many believe, it is possible to invest with basically any account size since there are hundreds if not thousands of investment vehicles to choose from, and with that prices for investing.
It relies on each of us to make the decision and start thinking about our future, nowadays is possible to start a portfolio and generate income passively from anywhere in the world.
If you have any question regarding this topic or other please leave in the comments below, I will be sure to respond you.