Maybe your goal is to retire with $1 million to your name. Or maybe you want to reach that milestone a lot sooner — say, by age 40, or 45.
It’s no secret that to accumulate wealth, you’ll need to spend less than you earn and bank the difference. But saving money isn’t enough. You’ll also need to put your money to work by investing it. And here are a few smart ways to do that.
1. Load up on index funds
Index funds are passively managed funds that track different market indexes. An S&P 500 index fund, for example, will aim to match the performance of the S&P 500 itself.
Index funds are a good bet for building wealth because they allow you to benefit from broad market gains without having to put in the time to research stocks individually. They also offer the protection that comes with having a diverse portfolio.
2. Invest in dividend stocks
Dividend stocks can be an important tool on the road to building wealth. Not only do dividend stocks have the potential to gain value over time but, as the name implies, they share the wealth via quarterly payments that you’ll then have the option to reinvest.
3. Look at real estate
Investing in physical properties isn’t for the faint of heart, but if you want to become wealthy, it’s a smart thing to consider. An income property could work very similarly to dividend stocks in that you’ll have the potential for that asset itself to appreciate in value over time, but in the meantime, you’ll collect regular payments (in this case, rent) that you’ll then have the option to reinvest.
If the idea of owning property doesn’t sit well with you, there’s another way to invest in real estate — buy REITs, or real estate investment trusts. The great thing about REITs is that they’re set up to pay dividends from the income they generate, so like income properties, they could be an ongoing source of cash. Plus, REITs tend to follow their own pattern so that they’re not necessarily impacted during periods of general stock market volatility (though that’s not always the case). Or, to put it another way, if you build a portfolio of stocks and REITs, you’ll buy yourself some built-in protection against market downturns by having that diverse mix.
4. Put some money into bonds
If you’re fairly young, you’ll want to mostly focus on lucrative investments like stocks and real estate that do carry some risk. But it also wouldn’t hurt to invest a small portion of your money in bonds, which carry some risk, but less. Like dividend stocks and REITs, bonds are a good way to secure a steady income stream via semiannual interest payments. That’s even more money you can reinvest.
While saving money is clearly an important step on the road to growing wealth, it isn’t enough. You’ll also need to commit to investing steadily if want to get rich in your lifetime. But as you can see, you have numerous options for doing so, and the sooner you start, the sooner you’ll reach your goal.