Long-term investments are always a bit difficult to wrap your brain around. Saving for some nebulous future that you may never see can sometimes feel like a total waste of money that you could really use right now. After all, we’re still mired in a recession and every penny counts. On the other hand, people these days are living longer. Whereas reaching the age of 55 was considered a major achievement a hundred years ago, it’s much more common these days to see the elderly hitting and surpassing a century of life. Considering that by the time we reach retirement age there won’t be any social security left, you pretty much have to plan to take care of yourself. This means you’re going to have to stretch every dollar that you earn now in order to sustain your lifestyle down the road when you’re no longer capable of working. And since it’s still difficult for those over 65 to continue to hold a job (despite the fact that they may be alive for decades to come), you don’t want to ignore saving now only to find yourself running low on funds late in your twilight years. For that reason, it’s important to invest wisely so that you can make your money work for you. Here are just a few ways to invest in your future that could pay off big. And the best part is, they don’t require a huge expenditure now.
1. Investment portfolio. A savings account is great for a rainy day, and you should certainly think about socking some money away for the inevitable expenses that you can’t foresee just now. But let’s face it; you’re lucky if you’re earning more than 1% annually on a savings account through your bank. So you need to consider giving up some of your liquid assets to start a portfolio. The trick to sustainable growth through years of investing is to diversify. By splitting money between stocks, bonds, mutual funds, and so on, you stand to earn anywhere from 4-12% annually on your money. And even if one area hits rock bottom, you’ll still have money to play with.
2. Self-directed IRA. You might not be aware of the fact that you can take control of how your retirement funds are invested (since your investment firm generally does it on your behalf), but with a self-directed IRA, you can do just that. By rolling over your retirement funds into this type of account, you have the option to invest your money as you see fit. A lot of people use it to invest in a business that they have either started on their own, joined as a partner, or wish to support (as in a business started by a family member or friend). Of course, there are restrictions. For example, you can’t hold controlling interest in any business that you choose to invest in. And you should definitely keep your investments diverse. But you stand to do very well if you put your funds into a business that becomes successful since you will get your money back, plus interest, as well as a percentage of earnings.
3. Roth IRA. This type of individual retirement agreement provides an excellent method for beefing up your retirement funds even as it saves you money now. By funneling some of your earning into a Roth IRA, you can effectively supplement your 401K for the future (since you can’t touch the money until you hit retirement age).
4. 401K. The best way to save for your future is still the 401K provided by your employer. Contributing to this account is easy because it comes right out of your paycheck (so you don’t even notice the money is gone) and it is pre-taxable income, meaning you’re also paying less in taxes. And don’t forget to see if your company offers a matching program so that you can maximize your contribution by putting in the percentage of your pay that the company is willing to match for you. It’s free money!
5. Real estate. Okay, there’s no denying that purchasing property is expensive. But with the housing market still scraping the bottom of the barrel, now is a great time to invest in a home if you can swing it. You don’t want to try flipping in this economy, but if you can get your hands on a nice house in good neighborhood (or several) and sit on it for a few years, you’re going to see a huge return on investment down the line. Just make sure you don’t get in over your head with the mortgage.
–
Mike Thimmesch writes for J.G. Wentworth, the market leader in cash for structured settlements.
A Roth Ira is not pre-tax, and is not deductible.
I think that real estate is where a lot of money is these days if you have the have the money to invest. And if you lease this property to rent, your return investment more than pays your original investment.