The future tends to look brighter when you know that some of your income is being steadily invested in one or more time-tested, wealth creation vehicles. The key is matching the amount of time you want to spend to your interests and your overall financial goals to find the type of investments that are right for you.
Your employer can automatically funnel a few bucks from each paycheck into a retirement plan. If you’re a two-income household, you can double your investment power. For example, if your employer offers a 401k retirement plan, and you can invest, say, five percent of your income, that five percent can be automatically deducted from your paycheck and moved into the plan where the money will be invested and managed for growth. Your employer may even match some contributions you make to your 401k plan.
Your bank can be a good first place to talk to someone about investing in stocks, bonds or mutual funds. Setting up an automatic withdrawal from your checking account into a mutual fund, for instance, is a way to put your money to work for you. The Federal Deposit Insurance Corporation, or FDIC, does not insure money that is invested in stocks and mutual funds. Still, if you read a mutual fund’s prospectus – which your broker is required to give you before you invest – you’ll see investment options including lower-risk money market funds, higher-risk bond funds and a variety of stock funds. Websites such as ShareBuilder or E*Trade can be useful if you’d rather look into this type of investing without your bank’s help.
Your own talent or passion can be a worthy investment. Writers, filmmakers and musicians, for example, earn money by creating products that can generate royalties for years to come. Making crafts, woodworking, gardening, cooking, organizing, even designing websites or mobile apps, are just some passions that can be turned into home-based businesses with minimal capital investment to start. You can also capitalize on others’ creations. Sites such as Clickbank let you sell digital information products by content creators as an affiliate. Marketing your endeavor on social media sites such as Facebook and Twitter requires more time than money. A home-based business takes research and commitment, but can be personally and financially rewarding.
Your neighborhood may hold some nice investment property deals. Real estate investment takes research and help from an attorney or real estate agent. An investment property is a property you buy then fix-up in order to rent out to tenants or resell for a profit. This type of investment can take a lot of work. However, according to The New York Times, property prices in 2012 are the lowest they’ve been in nearly a decade. Along with higher demand for renting, the value of real estate in 2012 may be on the rise.
401(k) retirement accounts let you have money taken out of your paycheck so that you can save for your golden years. One of their key benefits is that the money comes out before taxes do, unless it’s a Roth 401(k), so you effectively get to spend less to save more. While many 401(k) accounts offer limited choices of investments, there are ways that you can use your 401(k) to invest in properties.
You might have investments in real estate in your 401(k) without realizing it. Some 401(k)s include real estate investment trusts, mutual funds or even direct ownership in buildings as part of their holdings. While you aren’t owning a building yourself, you are participating in the investment property market indirectly. If you have the ability to choose your own investments from a broad-enough pool, you can look for ones that are tied to real estate or buy your own shares in real estate investment trusts, funds or even in companies that are tied to the real estate industry.
If you have a self-directed 401(k) account or can roll over your funds into a self-directed account, you will have more latitude to choose your investments. With a self-directed account, you get the opportunity to put just about any investment you want into your 401(k), including investment property. While using a self-directed account to buy real estate can be complicated, if you follow the Internal Revenue Service rules, you can do it. One of the key requirements is that the property truly be an investment — buying a beach home as an investment and spending a week annually in it for vacations won’t work.
Another way to use your 401(k) to buy investment property is to take out a loan from it. If your employer allows it, you could borrow up to half of your balance, or $50,000 from your 401(k), whichever is less. You can then use that money as a down payment on an investment property. If you do this, though, you have to pay the money back within five years and, while you’ll essentially be paying the interest to yourself, your money will be taken out of the other investments in your 401(k), so your returns could suffer.
If you don’t want to or can’t transfer your money to a self-directed account, you could also cash out your 401(k) and use the money to invest in real estate if your employer will let you. Doing this, though, can be expensive. You will have to pay taxes on the money that you take out, and if you’re under age 59 1/2, you will also have to pay an additional 10 percent penalty unless you meet certain exceptions.