Have you considered investing but aren’t sure whether you should take the plunge? There have been plenty of stories of people who have become wealthy beyond their wildest dreams. Some invest in the right stock at the right time. People can become a millionaire from nothing. However, how can you know if it is the right stock at the right time? Consider questions such as how much risk you are willing to take. Ask yourself what kind of investment is most aligned with your personal values.
While we can’t guarantee that your investments will be an overnight success, this article will provide you with some worthwhile tips about investments that seem foolish on the surface but are profitable. Check out these ‘foolish’ investments that still make people rich according to Investopedia and Benzinga.
30. A Financial Scheme
The idea of a financial scheme may sound scary on the surface. Yet the fact is that even putting your money into a savings account at the bank is a financial scheme. You are trusting somebody else with your money in good faith that the bank will use that money wisely to generate a return. Sometimes, banks don’t use people’s money wisely as we found out in the 2008 financial crisis.
But the point here is that any time you put your money somewhere other than underneath your mattress, you are technically putting it into a financial scheme. A savings account earns interest because a bank uses that money to finance things, generating extra income for the bank. And other investments such as the stock market also earn interest, though usually in less predictable ways than a savings account at a bank.
It helps if you are cautious of plenty of financial schemes. Pyramid schemes are one of them. These schemes occur when participants recruit other people into the program. They are promised rewards based on how many recruits they bring in. The money from the recruits is used to pay people already in the program.
The program is unsustainable because paying what is promised depends on recruiting more people. If those recruits don’t come, then those who invested will lose money. Further, those who are at the top of pyramid usually embezzle money. Many get-rich-quick programs are pyramid schemes. If you see an advertisement from someone who claims money for nothing then that is likely a pyramid scheme.
If you decide that you’re okay with a pyramid scheme, the riskiest form of investment, you can be guaranteed one thing: you will lose everything you invest. Even if you think that you’re earning money initially, the money is artificial and will disappear as soon as the pyramid collapses.
Moreover, if you are towards the top of the pyramid, you run the genuine chance of serving prison time from embezzling other people’s money. So when you are considering how to make sound investments that will provide substantial results, steer clear of pyramid schemes in favor of the tried-and-true methods.
When you are considering making investments, what you are looking at is building up wealth over the long term. Get-rich-quick schemes may make you appear to be generating wealth very quickly, but a good investment is based on sustained performance over a long period of time.
By investing, you accrue interest based on how well the company you are invested in is performing. If you had invested in Apple in the 1990s or Amazon in the early 2000s, those investments would now be worth hundreds of times what you originally invested. Why? Because those companies have performed exceptionally well over the long term. Those investments will have built up your own wealth over time so that, when you are ready to cash them in, they are worth much more than what you would have earned anywhere else.
There’s always the chance the company you invest in will take an unexpected downturn. And there is also the chance that the economy as a whole may perform poorly as happened in the 2008 financial crisis and again during the 2020 crisis.
The general rule of thumb is that you never invest more money than you’re willing to lose. But that extra $200 you got as a bonus this month? As long as you don’t need it for an emergency, it could be an excellent seed for an investment. Remember that suitable investments perform well over the long term, not the short term. So expect that your investment will decrease in value at times.
Some people are much more adventurous and willing to take more risks. Others are cautious and want to make the safest investments they can. Those who are more cautious will want to invest in low-risk funds. Those who are willing to take on more risk may decide to take on a medium or high-risk funds.
What’s the difference? Low-risk funds tend to yield much lower rewards while high-risk funds tend to deliver much higher rewards at the expense of possibly going under. Many investors build a portfolio that has a combination of low, medium, and high-risk funds.
A broker is a person and/or company that buys and sells investments on your behalf. Some brokerage representatives have much stronger reputations than others. These are more likely to help you buy the best investments to meet your needs. Those with weaker reputations may just be looking for a quick buck and may not know what investments are likely to perform well.
If you decide to use a broker, make sure that you choose carefully. While the fees are something you should consider, don’t choose the cheapest broker just because. Choose the best one to meet your needs.
The rule of 72 is not an exact science. However, it can help you get an estimate of how much time is required for an investment in a particular fund to double. It only works if the fund has a fixed interest rate, so high-risk funds may not operate under it.
To use the rule of 72, take the fixed interest rate and divide it by 72 to determine how many years are required for the investment to double in value. For example, if you are investing in a fund with an interest rate of 10%, divide 10 by 72, and you get 7.2. The investment would take slightly over seven years to double in value.
The original “stock market” referred to a market where livestock (cows, sheep, goats, chickens) were sold to the general public. Today, the stock market refers to people buying shares in a company. When companies decide to sell shares, they are selling bits of their company to the public. If companies buy back their own shares as large companies often do, they buy back ownership of the company.
Those who have a certain amount of shares are often able to vote on the company’s governance issues. That’s why someone who holds 51% of shares is often able to make unilateral decisions. Companies whose shares are spread out among many people tend to have more democratic governance and often make better decisions and have better long-term outcomes.
Many investment companies have mutual funds that investors can buy into. Those funds are managed by professional traders whose incomes are almost entirely dependent on how well they manage the fund. As such, these funds tend to be much less risky. However, there are often high fees associated with mutual funds, and those fees can eat away at the returns that your investment is earning.
One type of mutual fund is an index fund, which invests in an entire index, such as the New York Stock Exchange, Dow, or S&P 500. They tend to have lower fees than other mutual funds, so they are more attractive.
A bear market refers to a market period in which the prices of stocks are falling. People become afraid of their stocks losing value and will often sell them quickly in a bear market. In a bull market, prices are rising, and people are often anxious to buy stocks as soon as they can. One result of a bull market is that costs become artificially inflated, reflecting people’s confidence more than a company’s actual value.
One axiom for investors is that they should buy fear and sell greed. That means that when there is a market downturn and stocks are losing value in a bear market people should buy as much as they can at low prices. When stocks begin gaining value, instead of buying more they should consider selling.
Compound interest refers to the interest that you gain on interest. Say that you deposit $1000 into a savings account that has a 10% interest rate. Suppose the part also includes compound interest, and it usually does. In that case, you earn interest not only on the principal (the $1000 you initially deposited) but also on the 10% interest as it accrues.
While the amount of compound interest may be negligible over the short term of just a few months, it builds up over several years. Over time, you can double your wealth only based on compound interest.
Banks with a solid history of ethical and transparent financial practices (as opposed to the banks that offered the sub-prime mortgages that precipitated the 2008 financial crisis) usually provide savings accounts that promise a specific interest rate, often around 6%. These are some of the most dependable, lowest-risk investments that you can make.
If you want to see your money grow steadily over time without the speculations and hazards of other investments, then you may wish to forego high-risk trading and instead keep your money in a savings account. Those who are willing to take some risk often benefit from having a tangible savings account to hedge the more risky accounts in their portfolios.
A certificate of deposit, or CD, is an account that you can open at a bank or credit union. You deposit an initial amount of money with a guaranteed interest rate, but there is a catch that makes a CD different from a CD. A CD has to be held for a specified time, usually anywhere from six months to five years. After all, the bank is relying on that money for its own investments to finance things like mortgages and car loans.
You can’t touch the money for the specified amount of time without paying a penalty. So while a CD can be an attractive option for low-risk investors who have a savings account, it may not be best for those who lack savings. CDs with longer terms usually pay higher interest rates, and that rate is even higher when compound interest is taken into account.
Money market accounts are investment accounts that, like savings accounts, and CDs, are usually offered by banks, though they can be provided by other institutions, as well. They tend to pay higher interest rates than a savings account, but banks that offer them tend to have higher deposit requirements than for a regular savings account.
If you want to open a money market account, don’t automatically open one at the bank where you have your checking account. Shop around to see which banks are offering the best interest rates. Also, take into consideration how much money you have to deposit to avoid incurring fees as well as how long the money has to remain in the bank before maturing.
A savings bond is basically a loan that you provide the US government and the US treasury guarantees interest on the loan. There are different kinds of bonds you can buy, so you need to do your homework to determine what type of bond is best for you.
A Series I bond earns a fixed rate of interest that considers inflation. It will take five years to mature, and cashing out will incur a penalty. A Series EE bond earns fixed interest over the course of 30 years. You can buy these bonds at face value with no additional fees, so a $1000 bond will cost you $1000.
The lowest risk kind of property investment is the one that you make in your own house. On the whole, property values tend to go up steadily and may depreciate over the short term. Nevertheless, they provide you with the basic need for shelter. In addition to your own property, you can invest in properties in a less risky way than buying a house and flipping it.
A Real Estate Investment Trust, or REIT, allows you to be part of a crowdfunding effort to purchase property that will increase in value. Dividends are above average on top of the interest earned on the increase in property value. Additionally, holders of REITs get tax breaks from the government. REITs can be riskier in regions with unstable housing markets like densely populated urban areas where property values may be artificially inflated. They are more stable in neighborhoods that are not experiencing any housing boom or crisis.
A real estate developer may identify a property they want to purchase and create a plan to increase the property’s value. They want to turn a building into an apartment complex or flip it. If the investor does not have enough funds to buy the property outright, they may try to crowdfund the property.
Those who invest in crowdfunding are buying a piece of property and take a share of the returns. If the developer is a company with a solid financial history, that’s your best chance of getting steady rewards for your investment.
An initial public offering, or IPO, occurs when a company goes public and raises money. Sometimes, IPOs can lead to very high returns for those who invest in them. Yet IPOs carry a lot of risk because the company’s actual value is difficult to determine. It may be artificially inflated by the number of people buying stocks at the IPO, especially if the company making the offering is getting attention.
Snapchat held an IPO in the summer of 2017. It didn’t do as well as people expected because the company’s publicity at the time of the IPO caused its value to be artificially inflated. Companies that are undervalued tend to have better returns on IPO investments. If you are willing to take on the risk of an IPO, steer clear of highly publicized companies like Snapchat and Twitter in favor of those that are less well-known but offer a reliable product.
In terms of investing money, an option is a contract that an investor makes with an investment company to buy investments at a specific price within a fixed period. Options do not necessarily obligate the investor to accept the investment unless specified in the contract.
Options are great for people who are willing to take on risk in the hopes of getting higher returns on their money. But buying options require that you time the market and hope that it behaves in a certain way, so many professionals advise against options. After all, very few could have predicted the chaos of 2020.
A venture capital fund is used to help a startup get off the ground and turn its visions into reality. However, many startups fail, causing investors to lose investments. One primary reason startups fail is that they are run by people who have great ideas and excellent academic qualifications. Yet they don’t necessarily have a viable business model. Great ideas don’t turn into reality unless there are clear and definable goals along with people who have the know-how to reach those goals.
However, some startups become incredibly successful. Consider Airbnb and Uber, along with the many Silicon Valley start-ups that are often dubbed “unicorns” because they succeeded when so many others have failed. The story’s moral is to make sure you do your homework before investing in a venture capital fund. Ensure that whoever is leading the startup has a clear business model in place. Otherwise, you will likely lose that money.
Penny stocks are stocks that can be bought for five dollars or less. They’re offered for such a small price because the companies behind them either don’t have a financial history or have a poor one. However, people who prefer penny stocks can diversify their portfolios quickly by buying up lots of penny stocks from many different companies.
You have to have good risk management skill to invest in penny stocks, and be willing to consider the investment similar to the lottery. The companies behind them have a high chance of failing and trading penny stocks is considered to be speculative. They are usually best used as the cherry on top of a solid investment portfolio that includes many other funds.
Another high-risk investment is in a foreign country. This kind of investment is called a foreign emerging market investment. It is very unpredictable because the hyper-growth the economy is currently experiencing may not last.
Still, the hyper-growth of economies such as India and China offers opportunities to invest in companies that may see stable long-term performance. The economy as a whole may stop and start like a car stuck in rush-hour traffic. Still, reliable companies in well-performing industries may offer more stable, albeit risky, returns on your investments.
A particularly risky way of investing money in a rapidly developing economy is to buy that country’s currency. If it increases in value and manages to hold a sustained amount, investors cash in.
Currency trading is also called forex trading. It’s very risky and often done by professionals who can detect fluctuations in a currency’s value. Those who do currency trading must be aware of how one country’s money is tied to another’s. After all, economies are complicated, interconnected, and very fickle.
Digital currency is also known as cryptocurrency because of how it is encrypted into digital programs. While the idea of digital currency has been around for a long time, it officially began in 2008 with the launch of Bitcoin and the concurrent development of a technology called blockchain. Blockchain prevents fraud in digital currency transactions by timestamping each transaction and sending it to computers all over the world for authorization.
Since the rise of Bitcoin, many other digital coins have utilized blockchain technology and also made the currency essential to a web program that they use. The internet abounds with stories of people who have gotten incredibly wealthy by investing in digital currency. While it is prone to wild swings in value, sometimes on a minute-by-minute basis, it has steadily increased and proven to be a worthy investment for those with a risk appetite.
Ethereum was released in 2015 by computer programmer Vitalik Buterin. It is an open-source computing platform that operates many different programs via blockchain. To use Ethereum, you need Ether, the digital currency that was built to support the program. Ether has steadily increased in value in the years since Ethereum launched in 2015. One reason for the success of Ether is that it built on the Bitcoin model, but with significant improvements.
While Ether is not backed by any government, the way that national currencies are (no digital currency is supported by any government), many experts expect its value will continue to increase. Keep in mind that while digital currencies can be exceptionally profitable investments, they are also extremely risky. Do not invest more in a digital currency than you’re willing to lose. You may become rich beyond your wildest dreams, but you can also lose all of that money very rapidly due to swings in the digital currency market.
Bitcoin was the original digital currency, and its rise in popularity is also what spearheaded the development of other digital currencies, including Ethereum’s Ether. The value of Bitcoin has grown dramatically since being worth less than a fraction of a cent in 2008, and it has long been considered the gold standard of digital currency.
With the growth of other digital currencies, especially those tied to products such as Ethereum, Bitcoin has lost some of its market dominance. Furthermore, it may no longer be the “reserve currency” of the digital world. However, it will remain the iconic digital currency for decades to come. It will likely continue to gain value for the foreseeable future if for that reason only.
One of the primary goals of digital currency and a chief reason why people use it is that it is, by nature, decentralized. There is no bank or treasury holding everything together. The currency is stored in a blockchain over lots of computers worldwide. Some of these computers are satellites. Ripple is the oddity in digital currency. It was designed to facilitate transactions in traditional currency. This notion especially applies between banking institutions.
Many digital currency purists spurn Ripple for its association with banks, but the model has proven successful. Banks are adopting Ripple in Europe, and it is one of the most respected digital currencies in the world of traditional finance. Ripple today is one of the leading digital currencies and will likely continue growing. Investors should be aware that Ripple is still a digital currency and prone to much more volatile swings than traditional currency and other investments.
The Internet of Things is a field of innovation in which machines communicate with each other without human input. This idea started as a speculation and dream but became more and more of a reality. Expected outcomes include refrigerators being able to order food when supplies are running low. It is also an integral part of innovations such as self-driving cars; ideally, vehicles could get and pay for their own parking garage ticket.
The interest in developing smart cities and smart supply chains also relies on the Internet of Things. IOTA is the digital currency for the Internet of Things for making microtransactions between machines as they are communicating with each other. Investors in digital currency consider IOTA to be one of the money to watch and begin making investments.
One myth about digital currencies is that they are only useful for buying digital products through programs such as Ethereum. However, the growth in digital currencies’ real value has led to many of them being accepted by traditional vendors. This acceptance also includes some banks and even universities. Bitcoin has made appearances on the New York Stock Exchange.
Many vendors are still hesitant to accept digital currencies at least in part due to their extreme fluctuations in value. Certain vendors who have taken digital currencies have stopped carrying them and others receive them only when they are performing more stably. Some vendors probably do not accept digital currencies simply because they are not aware of their presence, growth, and value against traditional currencies. Expect to see digital currencies grow in popularity over the next few years, though they’ll remain risky.