Do you want to make $1 million? Invest $500 per month for about 40 years, assuming a six percent return on your investment. Investing your money, if done correctly, can be an extremely effective tool to build wealth. The sooner you start, the more time you have to take advantage of compound interest.
Personal Finance Expert Chris Hogan, in an article on the Dave Ramsey website, recommended investing 15 percent of your gross income.
Start by investing in an employer-sponsored 401(k) retirement account, if your employer offers one. Many companies match a percentage of their employee's retirement contributions, which is money an employee does not have to spend to save for retirement. With a traditional 401(k), an investor does not pay taxes on the money until it is withdrawn. Employees under age 50 can contribute up to $19,500 annually, according to the Internal Revenue Service.
Hogan also suggested using a Roth IRA to save for retirement. A Roth IRA, according to Vanguard, is an account that allows investors ages 59.5 and above to withdraw money without owing federal taxes. Individuals making less than $139,000 and couples earning less than $206,000 jointly can contribute to a Roth IRA.
After saving for retirement, investors can look into other ways to build wealth, such as using a brokerage or Robo-advisor to invest money. Investors can also manage their accounts.
A Robo-advisor uses a computer algorithm to manage accounts. Many brokerage accounts and Robo-advisor managed accounts will have fees, which can cut into your earnings.
The Motley Fool recommends comparing the costs and researching services, including trading platforms, and access to research firms, when selecting the right brokerage for you.
However you choose to invest your money, you want to be sure your investment is diversified, meaning your portfolio includes several different types of investments. According to Fidelity Investments, diversified investments can help manage risk.
Fidelity Investments recommended that one stock make up no more than five percent of your total portfolio, to have a blend of small, mid and large-cap stocks, from several sectors and from several geographic locations.
According to The Motley Fool, a diversified portfolio can include large-cap U.S. stocks, small-cap U.S. stocks, real estate investment trusts, bonds, and foreign stocks.
Check on your portfolio at least once a year to ensure it is growing at the rate you want it to be. While some people believe you need thousands of dollars to begin investing, this isn’t true! Some brokerages do not require minimum deposits to open accounts and others boast no-fee trading. If you have any disposable income, investing today can help you build wealth to save for large purchases, such as buying a house, or for retirement.