beginner investor

The 6 Best Ways to Invest Just $100 Per Month This Year

Holly Johnson — Fri, 07 Feb 2020 09:00:10 +0000

The new year is the perfect time to ditch poor financial habits and pick up some new ones. Maybe you decided that this is the year you'll finally pay off high interest credit card debt, or perhaps you're using a budget for the first time in your life. Whatever your goals are, you probably know that it will take time and perseverance to get there.

But how should you invest your money? If you have an extra $100 per month to spare, there's more than one way to build wealth and finally get ahead.

We reached out to financial advisors to find out how they would invest an extra $100 per month in the new year, and here's what they said.

1. Bump up your 401(k) contributions

Colorado financial planner Mitchell Bloom of Bloom Wealth says your workplace 401(k) is a good place to start if your employer offers one, and particularly if you can qualify for an employer match. After all, an employer match you can qualify for is the closest thing to "free money" you'll ever receive at work, so you might as well take advantage.

You can strive to boost the percentage of your 401(k) contributions in order to funnel approximately $100 more into your account each month, but you may also be able to set aside a flat $100 in funds monthly if your workplace plan allows.

Either way, money in a 401(k) plan can grow tax-free and compound over time, and you won't have to pay taxes on distributions until you reach retirement age.

Also note that if you don't have a workplace retirement plan, all isn't lost.

Instead, you may want to "consider using a low-cost advisory firm like Betterment, where they will build a fully diversified globally allocated portfolio model with fractional shares so you can achieve diversification with a small investment amount," says Bloom.

2. Save $100 per month in a Roth IRA

Jeff Rose of Good Financial Cents says that consumers can also consider saving money in a Roth IRA if they meet requirements to contribute. While this type of account requires you to invest money that has already been taxed, your contributions can grow tax-free and compound until you reach retirement age. Once you're 59 ½ or older, you can withdraw money from a Roth IRA without paying income taxes, which is pretty sweet.

In 2020, most people can contribute up to $6,000 to a Roth IRA and traditional IRA account. However, individuals ages 50 and older can contribute an additional $1,000 for the year for a total of $7,000.

Income limits do apply, however. Married couples who file taxes jointly can't contribute to a Roth IRA if they earn over $206,000, and their contributions are phased out for incomes between $196,000 and $205,999. Single filers with incomes over $139,000 cannot contribute, and their contributions will be phased out for incomes between $124,000 and $138,999. (See also: 401(k) or IRA? You Need Both)

3. Save for emergencies

Also, consider saving for emergencies if you haven't already. Financial advisor Jake Northrup of Experience Your Wealth says that your emergency fund should include at least three months of living expenses, but potentially more.

You'll likely want to keep your emergency fund in an account you can access such as a high-yield savings account. While this means your emergency cash won't bring in a huge return, this money can literally save your finances if you face a surprise medical bill you can't pay or experience a job loss.

Further, having a fully funded emergency fund can also help you avoid charging up credit card balances with exorbitant interest rates. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

4. Save for future healthcare expenses in an HSA

Financial planner Taylor Schulte, who is also host of the Stay Wealthy Retirement Podcast, says that assuming an emergency savings fund is in place and high-interest debt is paid off, the best place to put extra cash is into a Health Savings Account (HSA).

"The HSA is the magical unicorn of tax-advantaged investment accounts," he says. "Unlike any other account, they are triple tax-advantaged."

Schulte says this because you can invest up to certain limits on a tax-advantaged basis each year, then your money grows tax-free. When you take distributions in order to pay for qualified healthcare expenses, you won't pay taxes then, either.

There are some requirements in order to use an HSA, however, including the requirement that you have a high deductible health plan. For 2020, the Internal Revenue Service (IRS) defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family, notes Healthcare.gov. Also note that any high deductible health plan's total yearly out-of-pocket expenses must be less than $6,900 for an individual or $13,800 for a family.

Morgan Ranstrom, who works as a financial planner in Minneapolis, MN, says you should strive to keep enough cash in your HSA to pay your insurance's annual deductible in case of unexpected health costs, but beyond that you can invest the rest for long-term growth.

"With regular contributions, potential investment growth, and minimal withdrawals, you'll have an account that may be used to fund medical expenses in retirement without tax penalty," he says. "How great is that?"

5. Pay off high interest credit card debt

While you may not consider debt repayment as an investment, the financial return can work similarly. Note that any debt you pay off is no longer charging an outrageous interest rate, and that means more money in your pocket each month that you can save or invest for the future.

Debt expert Chris Peach, who teaches consumers how to pay off debt through his Awesome Money Course, says you should check to see the interest rate you're paying on your credit cards, keeping in mind that the average credit card APR is well over 17%.

"For most people, getting an 18% return on your investment every year is more like a dream come true than a reality," he says. Fortunately, you can achieve that return by paying off high interest debt and saving the money you would normally pay toward interest each month.

Let's say you have a credit card balance of $10,000 at 18% APR and you've been making minimum payments on this card for years. Making the minimum payment of $200 each month would take you another 94 months to pay off the balance, which also results in $8,622 more in total interest paid, notes Peach.

But what if you were able to invest $100 per month as an over payment on your credit card?

"Though it may not sound like a ton of money, $100 more per month will pay the balance off 47 months earlier and saves almost $4,000 in interest," says Peach. "Not bad for a $100 monthly investment if you ask me."

6. Invest in yourself

Fee-only financial advisor Russ Thornton, who focuses on providing retirement planning for women, says an investment in yourself can also pay off in a big way. "This could be used to buy books, audiobooks, online courses, offline courses, professional associations, personal training sessions, or something else," he says.

If you acquire new or deeper knowledge that could help you perform your job, it could help you get a bigger raise or even a promotion, whereas learning a new skill could help you create a side hustle that could ultimately help you bring in more income.

You could even get involved with a professional association or networking group to build your network, says Thornton. "This could help with your current career or might open doors to new opportunities — both personal or professional."

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Quick Ways to Decide if a Company Is Worth Your Investment

Julie Rains — Tue, 23 Jul 2013 10:24:30 +0000

Stock analysis can be as complicated as you want it to be. There are thousands of data points available to collect and consider. Sifting through this information may or may not be useful to making a timely, sound decision to buy, hold, or sell. While you shouldn't take shortcuts in investing, there are a few key (and easy to understand) indicators that nearly anyone can use to quickly analyze a stock. (See also: 15 Investing Tips From A #1 Wall Street Stock Picker)

There are two main issues to consider when conducting a review. First, evaluate the strength of the company; that is, determine whether the organization is worthy of owning. Then, figure out whether the price of a stock makes its purchase a wise investment decision.

In financial lingo, looking at the company and relevant economic conditions is called fundamental analysis; considering the stock price (and its possible movement in the near term) is referred to as technical analysis. Having bought great companies at too-high prices, I can attest to the need to consider the general health of a company and whether its stock is overvalued or undervalued in the market place.

Here are four easy and useful ways to evaluate a potential investment.

1. See the Company First-Hand

You can learn a lot about a company by visiting its facilities and talking to employees and customers. For example, shop at stores of companies in the retail sector. Notice whether the sales floor is buzzing with people or nearly empty. Look at its merchandise, comparing its branding, quality, and pricing to competitive offerings. Interact with employees to discern how well-trained and helpful they are.

For non-retailers, talk to friends and neighbors who are employees, customers, or vendors to get a sense of how the company operates and treats those who interact with the firm. Try the business's products and services. Ask industry professionals what they think about a company's product quality, service levels, and innovation.

Store visits, chats with employees, etc. can give you insights into an organization's general well-being. While you won't learn all that you need to know, you can contrast the corporate image with reality and determine if the company is worth further investigation.

2. Look at Financial Reports

Locate a company's financial statements to look at key statistics such as revenue, earnings, and cash flow over the past several years.

Access financial statistics directly at the SEC-EDGAR database (enter the ticker and find 10-K filings associated with annual reports). Alternatively, use online tools to dig into financial performance, such as Morningstar.com or Yahoo! Finance, where financial results and trends can be viewed under the Financials tab.

Ideally, you'll discover a company experiencing steady and strong growth with the capability of continuing this trend. Practically, though, finding a company with a perfect record is unlikely, as most have occasional setbacks, especially during recessionary periods. Still, you should look at the financials.

Notice whether:

net income is positive, indicating that the company is generating a profit;
revenue and earnings have grown over time; and
operating cash flow is positive and growing.

Past performance is not a guarantee but can indicate whether a company may continue to grow and deliver strong returns for shareholders.

3. Look at the P/E Ratio

The Price to Earnings Ratio (or P/E Ratio), which is the stock price divided by earnings per share, gives you an idea of whether you'll snag a bargain or pay a premium for the stock. This number might be referred to as the stock's valuation, which fluctuates due to real and perceived value.

Find this ratio for individual stocks at Morningstar, Yahoo! Finance, and Google Finance. Alternatively, look at charts for individual stocks inside the research section of your online brokerage firm.

According to The Motley Fool, "The median stock in the S&P 500 Index has historically had a P/E ratio of about 15." A lower number than average could indicate a good price whereas a higher number might mean the price is too high.

Many factors can affect this ratio, though, such as a slowdown in earnings or expected growth that is reflected in the stock price. Nevertheless, looking at the current P/E of a stock compared to its historical performance as well as its industry peers and the market in general can give you an idea about current valuations.

4. Watch the News

A glance at financial news can give you insights about a specific company as well as its industry and overall market activity, which can impact a stock's value.

You don't have to watch CNBC all day to get basic but meaningful information. Check Bloomberg.com online or via its mobile app or log in to your online brokerage account to receive headlines relating to global economies, view a market snapshot, note analyst ratings, and read company and industry news.

Take in updates about company earnings along with expansion plans and product introductions. Read about the industry's stagnation or rapid growth. Notice how your potential stocks grow or shrink in value based on movement of market indexes, which can reflect general investor sentiment about your picks.

Selecting stocks for your portfolio should involve making general observations, reviewing financial results, and getting a sense of what people are saying about its future. Then, make an investment decision by forming an opinion based on factors likely to affect the performance of the company and its stock price over the long term.

Do you buy and sell individual stocks? How do you evaluate a company?

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This article is from Julie Rains of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How Much Should You Invest?

Xin Lu — Wed, 12 Dec 2012 11:00:31 +0000

"How much should I invest?" is a question frequently asked by savers who want to start making their money work for them. This simple question can actually be quite difficult to answer since there are so many ways to invest and different people have different levels of risk tolerance. Here I will try to answer the question by explaining a few ways to invest and how risky they are, and you can be the judge on what path you should take. (See also: Investments Worth Making With $50 or Less)

Almost Zero-Risk Investments

If you absolutely don't want to lose your money, then you can put it in a high-yield savings or checking account, money market account, certificate of deposit, or U.S. treasury bond. You can put all your money into these investment vehicles and most likely be guaranteed that you won't lose any. The downside is that right now most of these are paying very little interest, so the purchasing power of your money could be eroded by inflation. If you don't have a lot of money and don't want to lose any of it, though, then this is probably the way to go.

Slightly-More-Risk Investments

If you have more than a few thousand dollars to invest and do not want to do too much work, then it is quite easy to just put your money in a mutual fund. However, there are thousands of mutual funds that put money in a variety of investments, and you need to investigate which is best for you. Personally I have invested in one of Vanguard's Target Retirement funds that invests in a variety of index funds. It is a low-cost and low-maintenance option if you want to invest for the long term without having to do much work. However, if you do take this path and you invest in mutual funds that are mostly stock based, you need to know that it is possible for the funds to vary wildly with the ebbs and flows of the stock market. If you tend to panic when you watch your money go down or if you need the money right away, then this is probably not for you.

Investments With More Risk and Work

If you are into research and do not mind watching your investments often, then you can try your hand at building your own stock portfolio by buying individual stocks or ETFs. I have not done this before, but I do have friends and family who like to do technical analysis on the stock market and trade stocks for the short term. They usually park a lot of money in cash and then only place a small portion of their capital on each stock pick or "bet." Many times the stock or ETF is sold within hours or days of their purchase. Some people also trade options, but that's not for beginners. If you want to try your hand at picking stocks, then I would suggest not putting all your money in right away, because it is possible to lose a large chunk in the matter of days. Some people call this speculation, not investing.

Investments With Lots of Risk, Work, and Possible Reward

When you know some investments well, it is possible to invest without putting up any of your own money and instead borrow the capital you need. For example, some real estate investors will borrow 100% of the money they need to buy houses and then either quickly flip the house or rent the house out and then refinance. Other investors borrow the capital for a business and then pay the loan back over years with the business's cash flow. These methods of investing require a lot more work, and if you don't know what you are doing, you are almost guaranteed to lose money. The upside is that if you make money, you are doing it with other people's funds and you can repeat the process and make more money. If you want to go down this path, you would need to do a lot of research and learn about the business you are targeting. You also need to invest quite a bit of your own time.

I have left out a lot of other investing possibilities in this brief article, but the truth is that how much of your time and money you should invest to make more money is completely up to you. That may not be the clear cut answer you were expecting, but what is clear is that if you have saved money, you should probably invest as much of your capital as you can so that eventually you will have an income stream that lets you be financially independent.

How much of your money and time do you invest to make more money?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Great Investments for First-Timers

Tara Struyk — Thu, 29 Nov 2012 10:48:43 +0000

Whether you’re young or not so young, if you haven’t put any of the money you earn into some type of investment yet, chances are you’re pretty intimidated by the whole thing. I’ve been there, and I can appreciate how confusing investing seems. But if you actually peek behind all the stock tickers and complicated commentary on CNBC, what you’ll find is that a lot of investments are pretty simple. And, although it takes a little work to learn and understand these investments, they're totally worth it. Not only is investing a much better way to make the most of your money (compared to, say, stockpiling it in a zero-interest account or, worse yet, just spending it all), but understanding the world of money is the best way to put yourself in control of your finances.

If you haven’t started investing, don’t worry — it’s never too late. Here are seven simple, suitable investments for first-timers to help you get started. (See also: Investing 101: 5 Essential Steps)

1. High-Interest Savings Accounts

The term “high” is definitely relative in this kind of interest-rate environment, but this type of savings account will offer a higher rate than most other bank accounts and can be a good place for a brand-new investor to start. That’s because in order to be a regular investor, you must first become a regular saver. Shop around at local banks and credit unions for the highest interest rate possible, and start making regular contributions to your new savings account. Once you have some money saved, you can look at building a more complicated — and higher earning — portfolio.

2. Certificates of Deposit (CDs)

CDs are savings certificates in which money is deposited for a certain amount of time (usually between three months and five years) in exchange for interest, which is paid when the CD matures. CDs generally have higher interest rates than savings accounts, but once you put the money in, you can’t take it out until the investment matures (at least not without paying a penalty or losing the interest you would have earned). Generally, the longer the CD’s term, the higher the interest rate. The interest on these babies is guaranteed by the institution that provides them, which makes them a simple, stress-free way to give your money a little boost.

3. Money Market Accounts

A money market account is offered by banks and credit unions. It’s a lot like a regular savings account, except that it pays somewhat higher interest and may also have a minimum balance requirement of between $1,000 and $5,000. You can even write checks from a money market account, although the number of withdrawals allowed per month will be very limited. Money market accounts are very safe, but it is still possible to lose money here. Because many money market accounts will charge a fee for going under the minimum balance or over the maximum number of allowable transactions, it is important to manage this type of account carefully.

4. Mutual Funds

A mutual fund is a pooled investment that many investors buy into together. This allows investors with more limited means to invest in a group of different stocks, bonds, and other investments, providing instant diversification (otherwise known as not putting all your eggs in the same basket). Mutual funds can also add some level of management expertise, because the investments are often chosen by a portfolio manager. But while mutual funds are very simple to use, investors should be on the lookout for high fees, often known as management expense ratios (MERs). When looking for a mutual fund, consider buying a low-fee fund that tracks an index — that’s the kind of performance many large mutual funds deliver anyway.

5. Exchange-Traded Funds (ETFs)

One of the drawbacks of mutual funds is that they can’t be traded quickly — and investors will often incur fees when they try. An ETF, much like a mutual fund, is a combination of many different investment assets. However, ETFs are traded on the stock market like stocks, allowing shareholders to respond to changes in the market more easily. ETFs also tend to have lower fees than mutual funds (although they will be subject to trading fees every time they’re bought and sold). Most ETFs aim to match the returns of a market index (like the S&P 500), but watch out for more complex investments like inverse ETFs and leveraged ETFs. These investments carry significant risk, and should be avoided by all but the most experienced investors.

6. Stocks

OK, you got me. Stocks aren’t the simplest investment out there, but they aren’t rocket science either. The thing is, the only thing that will really ever prepare you to invest in stocks is to invest in stocks. Just do it slowly, and take the time to learn as you go. There are many low-cost brokers available now that make trading relatively inexpensive. When you can afford to put a little bit of money toward investing, give it a shot. Yes, it’s possible you’ll lose it, but if you can come to understand why — and eventually apply that knowledge to future stock picks — that’ll be a valuable investment in itself.

7. A Retirement Account

If there’s any type of investment you should be using, it’s a retirement account. Whether it’s a 401(k), IRA, or 403(b), the best way to ensure you have something set aside for your golden years is to start saving now. If your employer offers some kind of matching, take it. If you get a raise, increase your contributions. Whatever you do, making building that fund a habit. Unlike the other investments on this list, retirement accounts are really just accounts. As such, they can generally include a range of different investment types, many of which are found on this list. In other words, if you want to make the most of your retirement account, you’re going to have to know something about investing.

Retirement accounts have many different features and benefits — including tax breaks. You can check out a great overview about the different kinds of accounts here. This is one area of investing that can get pretty complicated, so it may also be worthwhile to consult with a qualified financial planner.

If everything isn’t perfectly clear right now, sorry — that isn’t how it works. I’ve tried to provide a bit of a head start for new investors in terms of where to look, but when it comes to choosing, buying, and managing those investments, the rest is up to you. After all, it is your money.

This article is from Tara Struyk of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: