How to Invest Money & Make Money

To invest money and make money you must choose financial products carefully to suit your risk tolerance and time horizon. It is impossible to predict whether financial markets will go up or down in the future. As result, you minimize your exposure if you invest in a wide variety of financial products; this allows for your investments to make money while taking precautions in case of a bad economy.

Instructions

1. Determine how much money you can invest. This should not be money that you need to pay bills or will need to spend in the next year. Investments are designed to grow over time. They must be allowed this time to appreciate. You don't necessarily need all the money you want to invest when you begin. Depositing a portion of every paycheck into investments is a wise way to make money.

2. Divide your investing money into three categories. The first is long term money that you want to invest for retirement. The second is medium term money that you want to invest for a large expense that is many years off. This can be a child's college education, a car or a down payment on a house. The third is short term investment money that you plan to spend in one to five years.

3. Take advantage of tax breaks offered by 401(k), traditional IRA and Roth IRA retirement plans for your long term money. They allow tax deductible contributions or tax free growth. This will save you thousands of dollars in taxes by the time you retire. 401(k) plans are offered by some employers. They deduct money from your paycheck before taxes are removed and put it in a 401(k) account that grows tax free. Individuals open IRAs. Traditional IRAs offer a tax deduction on contributions for qualified investors. Roth IRAs allow investments for qualified investors to grow tax free. Long term money should be invested in growth stocks and mutual funds. It should be moved to more conservative investments as retirement age approaches.

4. Invest medium term money in no load growth mutual funds. These are funds that contain hundreds of stocks, bonds and other financial products. Each one has its own investing philosophy. The longer you have until you will need your money, the more aggressive mutual fund you can choose. No load funds do not charge fees to buy or sell shares, but charge small management and maintenance fees. A good option is index funds that reflect a segment of the overall financial market. They are not actively managed, so have even lower fees. If you are investing for education, consider a 529 plan. They are offered by states and allow investments to grow tax free if used for educational purposes.

5. Focus on income for short term money. It is unwise to expose money that you will need soon to high levels of risk. Invest this money in conservative stocks that pay high dividends. The share price won't grow much but you will be paid money periodically for every share you own. Bonds also provide regular income and are good investments for the short term. For extremely safe investments, choose certificates of deposit and money market accounts. They pay a small amount of interest but there is no risk to your principle investment.