Each one of us thinks or talks about money on a monthly, weekly, daily, sometimes even hourly basis. Most of the time it’s equal parts good and bad. As business owners, employees and freelancers, we work for our money. We tend not to question the one-way nature of this particular relationship: work hard and you’ll reap the rewards. Simple, right? But what if you could tilt the scale so that your money worked for you? How can you get the financial gods to work in your favor?
Let’s talk about how you can make your money work for you.
Get yourself a solid savings account
In the unlikely event that you’re unfamiliar, a savings account is a bank account where you store money and earn interest on that money. You’re earning interest because the bank is using your funds to loan money to other people.
Storing money in an account is not a recent idea. You do that in a checking account. And in a retirement account. And your wallet. (There once was this wildly popular thing called “cash,” and it was often carried in a handbag or small wallet). The difference between a savings account and most other accounts is that your money earns interest while remaining extremely accessible.
A checking account, for instance, offers you instant access to your money for making purchases, but rarely generates any additional money (also known as interest) at all. On the other end of the spectrum, a savings account is extremely inaccessible (you may have to pay taxes and/or penalties for early withdrawal) but the funds you’ve deposited in it have the potential to grow and grow.
How does a savings account make your money work for you? It splits the difference. It’s a place for you to save your money for use at a later date or as an emergency fund. If a short-term need arises, you can immediately transfer some of your savings to a checking account to make a purchase and get out of a jam. Plus, your money’s earning money without you doing anything… except not taking it out ideally.
A savings investment account is also worth considering as they often have higher interest and lower fees compared to regular savings accounts.
Opening a savings account is easy. You just need identification, money and to fill out a few forms. Online savings accounts can be opened much quicker than traditional savings accounts, meaning your money can get to work much more quickly.
Learn about passive investing
Passive investing involves leaving your money alone for a long period of time in an account that seeks to mirror, rather than outperform, a market. The philosophical underpinning of the strategy is that if you just leave money alone in low-fee market hugging accounts and ignore any and all market ups and downs, passive investments will provide fantastic investment growth. Therefore, a passive fund is an investment vehicle that is not actively managed by an investment advisor.
Whereas active funds employ people in order to plot to outperform the greater market, passive funds seek to mirror a certain financial sector or index. By investing in a representative array of stocks that automatically readjust based on how the component stocks perform, a passive fund will directly follow the performance of the sector or index.
The great advantage that passive funds have is that since there are no humans crunching numbers and tearing their hair out to decide which securities to buy and sell in order to outperform the market, their management fees tend to be considerably lower — it’s not uncommon for a passive fund to have an expense ratio of .2% or less. If you favor the hands-off approach of passive investing, it can be a great way to make your money work for you.
Invest in exchange traded funds or with a robo-advisor
An exchange-traded fund — ETF for short — is an investment fund that lets you buy a large basket of individual stocks or bonds in one purchase. You could say that the ETF is a relative of a mutual fund. But index based ETFs have one big advantage over their actively managed cousins: lower fees. It’s not unusual for a mutual fund to charge a 1% annual fee; ETFs usually charge less than half that — between 0.05% and 0.25% is the normal range.
Maybe you’ve already heard that ETFs are a great, low-cost, high performing way to make your money work for you. But maybe you also wonder how a person would go about investing in them. Well, it depends on how familiar you are with investing, and what you want to pay in fees. The rise of robo-advisors allows anyone to invest in ETFs without needing to know anything about investing.
If you know a lot about financial markets, and buy and sell securities on your own, you can find an ETF that suits your financial goals and buy it. To do that, you’ll need a brokerage account. Any major brokerage will allow you to buy any existing ETF, not just their proprietary ETFs. They will, however, likely charge a fee for every trade you make.
Another option is to buy your ETFs through a traditional financial advisor. The disadvantage is you’re going to pay relatively high fees. Most traditional investment advisors make their living by charging you a percentage of any money they manage. That fee can run counter to one of the main advantages of the ETF. ETFs may charge extremely low fees, but financial advisors charge their fees on top of what the ETFs charge.
Lastly, you can buy ETFs through an automated online investment service. Such services charge management fees on top of what the ETFs charge too. The major advantage of an automated online investment service is that it offers the institutional knowledge and guidance offered by traditional advisors, for lower management fees.
How do ETFs make your money work for you? Well, you can buy and sell them like a stock. Also, they’re safer than buying individual stocks. One company’s fortunes may go down, but it’s less likely that the value of lots of companies will be quite as volatile. It’s even safer when you invest in a portfolio of several different types of ETFs, so that if one part of the market goes down, you’ll still be invested in other parts. By spreading the risk, you’re increasing your chances of positive performance.
Invest in You
Investing in yourself is one of the best returns on investment you can have. Whether it’s investing in learning a new skill, developing yourself personally or professionally, tapping into your creativity or hiring a coach, it’s crucial to give to yourself as well as to others.
Each of us has a different interpretation of self-investment. Many of these interpretations undoubtedly overlap: we’re sure many people have convinced their parents that hours spent playing Fortnite represent self-investment! In the leanest sense, however, self-investment includes a range of potential undertakings. Some are universal in their appeal and access, while others depend on one’s own personal circumstances. One thing’s for sure: there’s a way for everyone to invest in themselves.
Learn a new skill (or improve an existing one)
Network (you don’t know who you’ll meet and how these connections can pay it forward)
Read books across a range of genres
Stop procrastinating (we’re all guilty of it, right?!)
Take care of your health
Take courses that pique your interest, on a personal and professional level
Travel cross country/continent/around the world if possible
We could go on and on and on, but each person’s idea of self-investment can vary wildly. How does investing in you make your money work? It’s the best kind of investment.
We’re certainly a tad biased, but we think the best home for anyone that’s looking to invest in their present (or future) self is Wealthsimple. We offer state of the art technology, low fees and the kind of personalized, friendly service you might have not thought imaginable from an automated investing service. Get started investing with Wealthsimple today.
