If you have come this far it is because you have been asking yourself “What can I invest my money in to multiply it?” That means that you have been looking for a way to be responsible with your resources and improve your financial situation. Well, congratulations!
You can pat yourself on the back for that, since not everyone thinks the same. In fact, recent research carried out in the United States showed that only 15% of families directly own shares in the stock market.
So, if you’re looking to invest the money you’ve managed to accumulate to grow your wealth, read on to find some investment options that might work for you. You will surely find useful information.
How to multiply my money?
If you have searched for information about investments, you have surely heard that investing is putting money to work to generate more money. The question you might ask is: How can my money multiply? The answer is compound interest.
Compound interest refers to the interest you earn on the interest. Confused? In other words, compounding your interest means periodically reinvesting your earnings instead of spending them on trivial things.
For example, let’s say you have a €100 investment that pays you 4% annual interest. After a full year with your funds in said investment, you will have earned €4.
At this point you have two options: spend those €4 on a chocolate bar or compound your investment. Let’s say you’re overcoming your candy addiction, so you decide to reinvest your profits.
Brilliant. That means your investment capital for the new year will be €104 instead of just €100. At the end of the second year, interest will be calculated on €104, earning you €4.16. That’s 16 cents more than the first year.
Yes, a few cents may not seem that much of a difference. However, over time, repeating this process over and over again in a disciplined manner will lead you to multiply your money exponentially. You can do the math yourself and you’ll see why Albert Einstein said that compound interest is the eighth wonder of the world.
When does my money multiply?
We already know how your money generates more money. Now, before asking yourself “What can I invest my money in to multiply it?”, you would probably like to understand at what point in your investment that will happen.
To understand how quickly your money will multiply you can use the well-known Rule of 72. This is a tool that helps you calculate how many years it will take for your investment to double at a specific interest rate.
It all consists of dividing 72 by the annual interest rate (or rate of return). This way you will obtain the number of years it will take you to keep your money in a specific investment to multiply it by two. The formula is the following:
72 / i = t
i = Interest rate
t = Time in years to double your investment
Taking the previous example, we can calculate that 72 / 4 = 18. So, an investment of €100 with a rate of return of 4% would take 18 years to transform into €200.
It may be a little discouraging to know that you have to wait 18 years for your investment to multiply. Nevertheless, it is worth emphasizing that this growth of your money will happen without you lifting a finger. All you have to do is allow the interest to capitalize.
The Rule of 72 is also very useful when deciding where to invest your money. You can use it to compare different investment options and see which one best suits your financial goals.
What to invest in to multiply your money
If you’re looking to invest your hard-earned money, be sure to choose alternatives that allow you to use compound interest to your advantage. Here you have some options.
High Yield Savings Accounts
If you are a beginner investor looking to use your money to multiply it with as little risk as possible, a high-yield savings account may be a good start for you.
The main benefit of this type of account is that you can take advantage of compound interest while enjoying the security of having your money in a savings account. You will be able to withdraw your money in case you need cash for any eventuality, although you may have to maintain a certain balance in the account. Make sure to find an option with the right requirements for you.
The downside to a high-yield savings account is that, despite compounding interest, its earnings may not be enough to mitigate the effects of inflation. To counteract the constant rise in prices, you should probably opt for investment options that multiply your money faster (more on that later).
Bonds
When looking for where to invest money so you don’t lose it, bonds are generally a good choice. Bonds are a type of loan you can make to a company or the government. Consequently, the borrowing entity will reward you for allowing them to use your money.
Bonds can be a good choice if you are looking to multiply your money in the long term. However, they may carry relatively greater risk than high-yield savings accounts. This is because the price of a bond can vary throughout its useful life, depending on interest rates in the economy.
What to invest money in to multiply it faster
Those options sound good, but I would like to be able to speed up the process. What can I invest my money in to multiply it faster?
Options such as savings accounts and bonds allow you to multiply your money with the effect of compound interest. But if you feel confident enough to take it a step further, you can take greater advantage of the compounding principle. There are other alternatives that provide you with higher returns and allow you to reinvest your profits.
Dividend stocks
Dividend stocks are issued by companies that periodically reward their shareholders for trusting them with their money. By investing in dividend stocks, you will receive monthly, quarterly, or annual payments.
To multiply your money using compounding, you will have to reinvest those dividends each period. In this way, your share of the company as a shareholder will continue to increase and the dividend payments you receive will become larger and larger.
If you are looking to invest your savings money in dividend stocks you can look for a group of stocks called “Dividend Aristocrats”. These companies are recognized for having increased their dividends for at least 25 consecutive years. Their businesses are usually more stable and their stock price is not as volatile. They are a good choice if you are looking to capitalize on your income in the long term.
In any case, whether they are “aristocrats” or not, dividend stocks are an excellent alternative if you are looking for something to invest your money in. Not only will you receive payments repeatedly, you will also be able to profit as the underlying stock continues to increase in value.
Real Estate Investment Trusts
You may have heard about real estate investment trusts without realizing it. They are better known as REITs.
REITs are companies dedicated to managing the ownership of real estate. By investing in REITs, you can earn profits from real estate operations without purchasing physical properties. Great, right? Typically, these companies pay out at least 90% of their taxable income to their shareholders in the form of dividends annually.
As with other investment instruments, to multiply your money invested in REITs, you must continue to continually capitalize the dividends you receive.
If you have been wondering “What can I invest my money in to multiply it?”, you can easily invest in REITs through ETFs. REIT ETFs are investment funds focused on the real estate sector. These allow retail investors to invest in REITs easily and quickly.
If your investment goals relate to retirement or long-term goals, REIT ETFs are probably the best option for investing in real estate.
How to start investing
If you are reading this you probably already have some knowledge about the world of investments. But if you have no idea how to get started, don’t worry. You can read our article that will teach you how to invest from scratch.
Now, remember we were talking about dividend stocks and real estate ETFs? You can easily invest in these and other instruments through the FlexInvest platform.
FlexInvest is an all-in-one investment portal that gives you access to hundreds of stocks from the best companies in the world. There, you can find dividend stocks that appropriately fit your investment portfolio.
On the other hand, if you are more interested in exploring the world of real estate, you can buy investment funds focused on REITs. These investment instruments are known as ETFs and are also available on FlexInvest.
The best thing about FlexInvest is its fractional share option that allows you to start investing with as little as €5. Whether it’s dividend stocks or real estate ETFs, you can invest with less than the price of a cup of coffee.
Additionally, another advantage that FlexInvest has is that it helps you collect your dividends and reinvest them automatically. This way, you won’t have to worry about checking your investments every day. Just make sure you find the right instruments to invest your money in and FlexInvest will take care of the rest.
Before you take a look at everything FlexInvest has in store for you, be sure to check out the rest of our articles. Surely you will find something else that can help you have a successful journey.
