Simple Investing With
Best Ways to Invest Money for Busy People
Are you looking for some simple investing ideas? Many people don’t have enough money to adequately fund an investment account. Others lack time or investing savvy to manage an investment portfolio.
If you understand the importance of saving money for financial freedom, then you probably also know that parking your money in a savings account isn’t going to help you achieve your goals very quickly.
Consider this. According to the savings interest calculator, if you save $50 a month in a savings account with a 1% interest rate, you will have almost $13,300 after ten years.
If instead you invested the money and averaged a conservative 6% return, you would have over $23,200!
Difficulties with Investing
Even though the returns from investments can be attractive, there are a few reasons that investing doesn’t work very well for many people.
Some people don’t have enough money to adequately fund an investment account. One challenge of investing with little money is to meet the minimums required to invest by most mutual funds.
Even if an investor is able to meet the minimums, he or she may not have enough to build an adequately diversified portfolio.
Others don’t have the time or expertise to select good investments or monitor their progress. It is easy to buy a stock or make an investment in mutual funds based on recommendations from TV, friends, magazines, or websites.
However, if you make an investment based on a tip, how do you know whether the investment fits in with the rest of your portfolio? How do you know when you should sell the investment?
Without adequate knowledge and research, these issues often lead investors to do just the opposite of “buying low and selling high”.
Simple Investing in Balanced Funds
Fortunately, there are a few simple investing methods available. Portfolio diversification is of utmost importance when considering how to invest money.
You need to spread your risk around between various companies and asset classes instead of putting all your eggs in one basket.
For instance, if you purchase shares of stock in only one company, your risk is high. If anything adverse happens to that company, the value of your shares could plummet.
In order to mitigate this risk, a simple investing idea is to purchase shares of a balanced fund.
A balanced fund is a mutual fund which invests in a mixture of stocks and bonds. Some funds are more conservative than others. There are many balanced funds available, so it is important to do some research before selecting one. Also, there are many resources that specialize in rating mutual funds.
One disadvantage of balanced funds is that they usually require a minimum investment of $1,000 or more. Another disadvantage is that the fund managers can sometimes deviate from the targeted investment mix of stocks and bonds.
Simple Investing in Index Funds
Investing in index funds is another simple investing idea. There are several of these types of funds which are based on a variety of underlying indexes. This makes it easy to assemble a portfolio that has a good mixture of asset classes.
An advantage of index funds is that if you buy them as exchange-traded funds (EFTs), you aren’t subject to the minimums that are required by mutual funds. This removes the barrier of having little money to invest.
A disadvantage is that you must decide which funds to purchase and in what proportion. You will need to do some research to find the ideal risk versus return with which you are comfortable.
Simple Investing with Betterment
offers an even easier investing solution. All you really need to determine is how long you are planning to hold your investments and what level of risk you want to take. They handle the portfolio allocation for you.
Betterment allocates your investment between two investment baskets. One basket is comprised of treasury bond ETFs and the other of stock ETFs. If you determine you want to take more risk in order to achieve a higher return, more of your investment is allocated to the stock basket. If you want to be more conservative, more is allocated to the treasury bond basket.
Not sure how much risk you want to take? Betterment guides you with a great tool that lets you slide your allocation percentage between stocks and treasuries. As you slide, there is a graph that shows you a range of forecasts of returns over your timeframe. If you move the slide closer to treasury bonds, you will see the range of outcomes narrow and your return will be more predictable.
If you move the slide closer to stocks, you will see the range between low and high returns expand, illustrating that the return potential and risk is greater.
You simply work with the slider until you find the combination of potential risk and return with which you are comfortable. There is a demo of this tool that you can try out before you even open your account.
Here are the benefits of Betterment:
- It is simple to use, yet fully transparent. Even though all you need to do is work with the slider, you can see the list of ETFs in which your money will be invested.
- There are no minimum investment requirements. This is great if you have little money to invest.
- Betterment automatically rebalances your portfolio to keep it in line with your desired allocations. This allows you to truly set your allocation and forget it. You only need to change your allocation when your risk tolerance, time horizon, or goals change.
- The costs are relatively low. The annual management fee is in the range of .3% to .9% depending on your investment amount.
If Betterment sounds like a simple investing solution that may be right for you, I encourage you to check them out.
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