Wise Ways To Invest Money

different ways to invest moneyWhen I started this blog, the goal was paying off credit card and consumer debt. Now my focus has shifted. One of the many great things about paying off debt is that once it’s gone, you have extra money every month!  Smart people don’t increase their  lifestyle or go on  shopping sprees. They invest that money for the future. Unless you are buying from a guy named Bernie who guarantees double digit returns with no risk, there really is no right or wrong way to invest. Just about anything you choose is better than nothing, but that doesn’t mean you shouldn’t try to choose the best investments for your future. This list is in no way all inclusive, but these are some wise ways to invest money.

Investing For Retirement With a 401(k)

If you have an employer plan, usually a 401(k) or 403(b), that’s usually the easiest and best way to invest for retirement. It’s easy because all you have to do is fill out the paperwork and best because money invested is tax deferred. That means you don’t have to pay income taxes now and your money can grow for years. When you do take disbursements from your 401(k), then money is subject to income tax, but hopefully, your tax bracket will be lower at that point.

Never Pass Up Free Money

If your employer offers a match, always take advantage! If someone handed you a hundred dollar bill every month, would you say no thanks? I would put employer matching contributions above just about any other investment because of the free retirement money.

One other  important thing to remember about work 401(k)’s is that contributions often go into a money market account until you choose specific funds for your investments. While you are still saving tax dollars, money sitting in a no interest account doesn’t do much for your bottom line. Put that money to work by choosing stock or bond funds that fit your risk tolerance. If you have no clue, choose a target retirement date fund or put 50% in a total stock index fund, 25% into a bond index fund, and 25% into an international stock index fund. You can always change your allocations later, but make sure not to waste good rates of returns because of unfamiliarity with the stock market.

Self Employed Retirement Plans

For self employed people, there are a variety of options for retirement. Probably the most lucrative are solo 401(k) and SEP IRA plans. You can have a SEP IRA in addition to a 401(k) from a regular job, which makes that plan very appealing for people like bloggers who have normal salary income and self employed income from side hustles.

SEP IRA

With a Simplified Employee Pension or SEP IRA, you can sock away 25% of your self employment income up to $53,000 for 2015. I’m no tax expert so please check with IRS guidelines or with a tax accountant to make sure how much you can contribute.

Solo 401(k)

Since I no longer have access to an employer plan, I opened a solo 401(k) with Vanguard last year. There were some papers to fill out and I had to provide a copy of my articles or incorporation, but it was pretty simple.

The only potential issue with Vanguard is for high earners who already have a tax deferred IRA and want to do a backdoor Roth IRA. Vanguard will not let you roll an IRA into a solo 401(k) to avoid pro rata forms. I’m told that Fidelity does allow this. If that makes no sense to you, it probably doesn’t apply, but if you need that benefit, you might choose Fidelity.

With the solo 401(k), I’m able to contribute $18,0000 this year as the employee and an additional 25% of my income up to $53,000. I don’t make enough money to hit that full amount, but regardless, the solo 401(k) is a great way to defer income tax and build wealth.

Traditional or Roth IRA

You can contribute to a traditional or Roth IRA even if you have a 401(k) or SEP IRA. I won’t go into a huge discussion, but the traditional route might be a good idea if you can get a deduction on contributions. You can always roll it into a Roth down the road if laws remain the same.

The Roth does not offer any tax breaks up front, but then, you’ll never have to pay tax again on gains or withdrawals. If you suspect your tax bracket will be higher in retirement, a Roth is a good idea. I have both types of accounts and use Vanguard. They have been very helpful with converting from a traditional IRA to a Roth, and I love their low cost index funds.

Health Savings Account

I am so happy that we discovered HSA Administrators. By using them for our HSA plan , we can invest our account in stock funds. I would max out my HSA before any other account (with the possible exception of employer match 401(k) money) because of triple tax advantages. Since moving our HSA from a regular old savings account to Vanguard a year ago, we’ve earned hundreds of dollars in interest and dividends. All tax free forever if we use it for health care expenses!

Non-Retirement Investing

Betterment

Because we like diversity, we put some of our money in non-retirement investments. I really like Betterment because it’s easy. You can read my one year review here. The fees are reasonable, especially if you can contribute at least $100 a month. They rebalance for you and help with tax harvesting once you have a large enough account. We use Betterment for our index fund investing outside of tax deferred accounts.

Motif Investing

My other new favorite is Motif Investing. If you want to invest in individual stocks without losing a chunk of your investment in trade fees, this is the place. You can choose up to 30 stocks for a one time commission of $9.95! Motif also makes it easy to get young investors or those ambivalent about the stock market into picking stocks. It’s almost as fun as filling out a NCAA tourney bracket!

The Best Time To Start Investing

The best time to start investing was years ago. The second best time is today. If you aren’t putting your money to work, get started! With technology, it’s so easy to save for retirement. No more visits to a stuffy office and no more filling out lots of forms. It only takes the initiative and willingness to commit money not spent on necessities toward the future instead of spending on things you probably don’t need and won’t want in a few years anyway.

What are your favorite ways to invest? Are you someone who takes advantage of investing opportunities or do you find ways to talk yourself out of it?

 

Image: Freedigitalphotos.net/Miles

 

Written By
Sydney White is a Texas-born stay at home mom who enjoys spending time with her family, bargain hunting and, of course, writing. She is currently the editor-in-chief of Snipon.com.

12 Comments

  1. We take advantage of the 403(b) match and are at 10% with the 403(b). I would like to be able to put more into our Roths but it doesn’t seem to make sense when we are paying interest on credit cards. Oh, how I would love to be able to contribute to them all!

  2. Great post and I wrote a post with similar suggestions a few months back. It’s awesome how many different ways you can invest. I have a lot of fun investing my HSA and continue to funnel money into the investment portion of it. Since we finally are having a good year health-wise (knock on wood) with no surgeries, it’s nice to see the amount go up. I think the challenge isn’t choosing where or how to invest, but coming up with the money to invest. Not knowing exactly where to invest is a good problem to have!

    1. Having enough money is an issue, but I think people could probably invest more than they think if they really put their minds into it and make it a priority.

  3. This coming year, we’re going to focus on making up for lost time with our retirement accounts. I’ll be opening a SEP in addition to my Roth. I’m an S-corp, so I can only put in 25% of the salary I pay myself. But that would still be around $12,500. We can also open a Roth in my husband’s name.

    Another investment will be a rental property. We’ll need to save for at least three or four years, but I think it would be an excellent thing to have in retirement.

    1. The SEP is a great idea. I love rental property, but it did take us a long time to save up and find the right property to get started down that road.

  4. I love HSA administrators! I wish we could still contribute to our HSA. We no longer can since we joined a healthcare sharing ministry. Fortunately, we have a bunch of money in there. Hopefully it will continue to grow over time if we don’t have to use it for medical bills.

    1. I would be really sad if we had to raid our HSA, but it makes me feel more secure knowing it’s there. I do worry that our plan will get cancelled and we will be in the same boat you’re in insurance wise. I guess we’ll save as much as we can in the HSA while we have the chance.

  5. I don’t really care how people invest, but I want to see them investing, so whatever mode works for them, works for me. I have had my investment accounts in one place for years, but I have thought about trying other sites like Betterment or Motif. My problem is that I love consolidation and hate having accounts all over the place, so that prevents me from making a change, but I am thinking about doing something similar to you and opening up an account for my son on Motif.

    1. I like having everything in one place as well, and Vanguard is easy, but I do think investing outside of tax deferred accounts works better with some of the other platforms available currently. Since we aren’t investing tons outside of retirement right now, I don’t want it all taken away by fees!

    1. Yes, being diversified is a must. Which, btw, is why NO ONE should allow a huge chunk of their 401k to remain in employer-contributed company stock.

      But being diversified can mean very different things. Take my portfolio, for example. It is 100% stocks. Which some people would jump up and down at, screaming I am not diversified. But my perspective is different. My stock portfolio is set up so that no company’s stock represents more than 5% of the portfolio’s book value. To me, that’s diversified.

      Different strokes for different folks.

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