It’s the thing to do these days–the social norm. Let’s say you got a thousand dollar bonus from work and you want to be sure not to flounder this windfall of cash on a new TV, but rather invest it. This is a great thing to do with spare cash as most people would likely spend it almost immediately. However all investments are not equal. While you can choose to buy one or two shares of Googke and you may make money, there are better options to make money without risking much.
The first and most obvious thing that people seem to miss is that interest earned and interest not paid are equal in terms of their result on your bank account. We tend to value a successful investment as much more due to the feeling of accomplishment that accompanies it but in the end, if you can avoid paying 10% interest, it is the same as earning 10% interest, and usually avoiding interest can be attained with no risk of any other possibility.
Let’s still assume you got your thousand dollar bonus from work and want to put it to good use. But you also have a mortgage and a balance on your student loans each 10 percent annual interest rate. You probably have a payment plan set up for each of these so there is no use of contributing more capital this month since the payments have already been taken care or right? No, not right. By decreasing the balance you will be able to generate a consistent 10 percent on that bonus for the remaining years on your payment plan. This will allow you to pay lower payments or pay off the principal sooner–each of which I’m guessing are attractive to you.
What’s more is that this is risk free investment. For those who are not the most savvy on the investment lingo, let me lay this out for you. When you invest in a stock or even a government bond you are gambling to some degree. You think, or hope, you will gain money but there is no guarentee. You may stand to lose money. Usually the slimmer the chances of losing money the lower return. In order to attain an interest rate like 10 percent you need to take on quite a bit of risk in the market. This means that it is very rare to consistently get that sort of return as many times your investment will not work out. When I say paying off a debt is a risk free investment I mean there is only one outcome that can come out of it, a 10 percent return.
However we all don’t have these underlying liabilities we need to pay off. While we would obviously prefer to not be in debt we are missing out on this opportunity to increase our wealth risklesslky. The good news is there are other non market investment oipportunites that can often be more profitable than stocks. One of these is real estate. If you have some capital to invest you can use the banking and mortgage systems to your advantage. If you buy a house and rent it out you can manage to acquire the house for far less than market value. You simply need to use your capital as a down payment and use the revenue from rent to pay the monthly mortgage payments. With this strategy you can own the house completely in less than 10 years. At this point you can sell the house for a large margin or continue to rent it out for consistent cash flows indefinitely.
All in all while the stock market provides great opportunity for saving and investment it smart to look at all possible alternatives. Stocks sometimes may be the best option but often there are better options. By looking at all of your options you can insure you are getting the most out of your hard earned money.