How To Invest Your Money in 2024

May 18, 2024

0 21 7 minutes read

investors talking about portfolio shutterstock .jpg

Maybe you’ve made a new year’s resolution to start investing. Or you’ve been investing for a while, but you want to know if you should make any changes to your portfolio for 2024. Nobody has a crystal ball, but some investing strategies always ring true. And there are some things we do know about this year that can inform investing decisions.

There are some cardinal rules of investing that will always apply, no matter what the year ahead brings. Here are some of the ones that successful long-term investors live by.

6 Best Ways To Invest Your Money

Here are six of the best ways you can invest your money in 2024.

1. Diversify

One of the cardinal rules of investing is diversification, or not putting all your eggs in one basket. This means that you need to have a mix of different kinds of investments in your portfolio. These are some of the types of investments that should make up your portfolio.

Mutual Funds

Mutual funds are themselves, diversified because they are a ‘basket’ of investment that you buy as a single investment. So, you might buy a mutual fund that consists of 25 or 50 (or even move) stocks. A single share of that mutual fund contains a little bit of each of those stocks. Each mutual fund has a portfolio manager who decides which stocks will be included in the fund and buys and sells stocks in the fund accordingly.

Mutual funds are a good choice for your portfolio; the market had a big run in 2020 and 2021, and the diversification inherent in mutual funds can give you some protection in the event of a downturn.

ETFs

Exchange-traded funds, or ETFs, are similar to mutual funds, in that they include multiple securities. But they trade on exchanges like stocks, so the price can change throughout the day. Mutual funds, on the other hand, are priced at the end of the trading day.

Some ETFs mimic market indexes, which makes them a good choice for investors who want to make market returns. You can buy an ETF that includes, essentially, all the stocks included in the S&P 500 index, for example, or in the Russel 2000 index.

Stocks

Individual stocks can be an important part of your portfolio, but they can be risky. It’s important to “buy what you know,” or stick to the stocks of companies whose business you understand. Warren Buffet famously resisted buying technology stocks for years because he didn’t understand the business they were in. He’s since come around, but even before he invested in tech, he did pretty well.

Bonds

Bonds tend to act as a hedge to stocks – when stocks do well, bonds don’t, and vice versa. But that’s not always the case. Bonds tend to struggle when interest rates are low, as they have been for some time. But with future rate hikes being discussed, bonds might become more attractive in 2024.

Cryptocurrency

Cryptocurrency is an as-yet unproven commodity in the investing world. It’s been very volatile in the past and there’s no reason to think that volatility won’t continue. Keep that in mind when evaluating crypto as part of your overall portfolio.

Certificates of Deposit

A certificate is one way to grow your money for a select term of your choosing. You lock in an APY rate at the beginning of your term until the CD matures–though, note that there are CDs available with variable rates as well. That’s one way to guarantee a predictable rate of return on the money you invest. Watch for early withdrawal penalties if you take out your money before your expected term end,

401(k)

A 401(k) is one way to invest for retirement because your money grows while the tax gets deferred. A plus is having an employer-sponsored 401(k) with matching contributions, so you can maximize your saving potential.

Roth IRA or IRA

Like the 401(k) Roth IRAs also grow your money tax-free, except when you withdraw the money at retirement, that is tax-free as well. That’s because your Roth IRA contributions are made with after-tax dollars. A traditional IRA, on the other hand, does grow tax-deferred, but is taxed during the years you’re contributing to the account.

2. Consider Your Tolerance for Risk

Having the best investments in the world won’t help you if they’re keeping. You awake at night. Before you decide to throw all your savings into cryptocurrency, think about what would happen if market conditions conspired to cut your portfolio in half. If you would immediately sell the rest and put the money in your sock drawer, you shouldn’t be taking that much risk. If, on the other hand, you’d consider a 50% loss to be an opportunity to buy more, your risk tolerance is high and you can stand to be in more aggressive investments.

3. Keep Your Time Horizon in Mind

When deciding how to invest, it’s important to keep in mind how long you have before you’ll need the money. The market always goes up over time, but there are always ups and downs along the way.

If you’re investing money that you will use to buy a house in five years, you don’t want to take a lot of risks. Keeping your money in relatively safe investments will ensure you have the funds for that down payment when you need them.

If you’re saving for the college education of a child who was just born, you can invest a little more aggressively. You can choose your own investments or use a target date fund in a 529 college savings plan. A 529 plan lets you save money and withdraw it tax-free if it’s used for qualified educational expenses. If you choose a target date fund, your investments start more aggressively and become more conservative as the child approaches college age (i.e., the ‘target date’).

If you’re just starting in your career and are saving for retirement, you can take more risks because you have a longer time horizon. If the market were to go south, you’d have time to make up for any losses.

4. Set Goals

You can’t have a successful investment plan without a road map. Your investment objectives will help guide you towards whether you should be buying stocks, bonds, a combination of the two or some other type of investment altogether. While your risk tolerance will help keep you away from investments that are too volatile for you, your objectives will steer you away from investments that won’t serve your goals. For example, if you’re trying to maximize your account value for retirement, you’ll likely turn towards growth investments, like stocks. But if you are more conservative and plan to live off the income from your investments, bonds and other income-generating securities will be more appropriate.

5. Dollar-Cost Average

Since nobody has a crystal ball, it’s impossible to know when an investment has reached a peak — or a bottom. What you can do, though, is to invest regularly and use dollar-cost averaging to improve your returns.

Dollar-cost averaging simply means that you invest a certain amount of money each month (or week, or quarter). Keep the amount the same, regardless of the number of shares that money will buy. In this way, you are buying more shares when the price per share is lower, and fewer shares when the price per share is higher.

Here’s an example. You invest $100 a month in ABC Corp. stock. In January, the stock is selling at $20 a share, so you buy 5 shares. In February, the price drops to $10 a share, but you still invest $100, so you add 10 shares to your portfolio. In March, the price goes up to $12.50 a share, so your $100 buys 8 shares. You now have 23 shares of ABC Corp., at an average price of just over $13 per share. You’re buying more shares when it’s cheaper, and fewer when it’s more expensive.

6. Consult a Professional

Even smart investors don’t have all the answers. If you’re looking to learn about how to invest — or if you want to ensure you don’t make any life-changing mistakes with your money — consult with a licensed financial advisor. Although he or she may not have all the answers either, they have training and experience to help you make important decisions. Most successful advisors also have a firm and/or a team of professionals behind them that can help find solutions for nearly any financial situation. Even if you end up not working with a professional or following their advice directly, getting a second opinion on your own methods can be invaluable.

FAQ

How can I invest money to make money?
- As trite as the expression “it takes money to make money” is, it’s true. You won’t be able to earn investment returns unless you have money to invest. But the good news is that it’s never been easier to invest with a small amount of money and without paying exorbitant fees, particularly in the stock market, where most brokerages now offer zero-commission trading. Beyond the stock market, however, there are numerous assets that can make you money, from bonds and mutual funds to real estate and more.

How should a beginner invest?
- A beginner should invest carefully but consistently. Time in the market is key to investment success, not timing, so it’s important to start as soon as possible and keep investing over the long run. If you were to start investing even $100 per month starting at age 21, for example, by age 65 you’d have just under a million dollars by the time you turn 65, if you achieve a 10% annual return.

Is $100 enough to start investing?
- While it used to be difficult to start investing with $100, there are numerous ways to do it.
- In general, investors need to examine their investment objectives and risk tolerances closely to help them pick the right investment options. If you’re comfortable doing your own thing, research stocks and ETFs that match your investment profile and buy them through a zero-commission broker. If you need some help, consider a robo-advisor, a series of mutual funds/market index ETFs, and/or the services of a full-fledged financial advisor. Start slow, and as you gain more confidence, ramp up your investments.