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In this economically and financially pro era, earning money is not the issue faced by the people. Instead, saving and investing the money earned is.

To understand how to go about saving our hard earned money we must first understand the concept of diversification of money. This means spreading your money and financial resources for maximum profit. 

The most important factor in being a successful investor is not the stocks and funds you pick. Share on X

Successful investing depends on:

• ​​Choosing proper asset allocation – the overall mix of bonds, stocks, and cash you hold in your portfolio.
• Making and sticking with an automatic investment plan – this way you avoid making terrible, emotionally-charged decisions—like selling at the bottom of a market crash.

​Also, choosing where and how to invest, depends upon your financial goals and when you hope to achieve them.

• Short-term goals – are things you plan to do within the next five years.
• Medium-term goals – are things you plan to do within the next 5-10 years.
• Long-term goals – are ones where you’re won’t need the money for ten years or more.

With this in mind, we will now take a look at the 6 most common ways to invest your savings. Each with their own unique timeline, earning potential and risks. Knowing these will help you decide which ones are right for you.

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#1 Moving your savings into a bank

Banks offer the service of a checking or savings account for clients. A savings account is an interest-bearing deposit account held at a bank or other financial institution. This only provides a modest interest rate. 

Financial institutions that offer savings accounts may limit the number of withdrawals you can make from your account each month. They also may charge fees unless you maintain a certain average monthly balance in the account.

These savings accounts can provide interest rates ranging from 2% to 5% per year depending upon the country of investment. Saving accounts do not require a maintenance fee in most cases, and the risk factor is nil.

These investments are usually made for long term financial goals and for moderate increment of the principle amount.

#2 Individual stocks

Stocks are an equity investment that represents part ownership in a corporation. It entitles you to part of that corporation’s earnings and assets. 

Common stock gives shareholders voting rights but no guarantee of dividend payments. Preferred stocks provide no voting rights but usually guarantee a dividend payment. 

If you decide you want to venture out and buy individual stocks, it’s recommended that you take a slow and steady approach. This way you may be able to reduce some of the risks associated with this kind of investment. The main risk being wildly betting on stocks without a plan, leading to heavy losses.

It’s important not to be afraid of the stock market. It really is one of the best places to grow your money. Provided that you keep a cool head and stick to your investment plan. Share on X

#3 Bonds

Investment Bonds are debt instruments in which the authorized issuer owes the bond holders a debt. Depending on the terms of the type of bonds, the authorized issuer is obliged to pay interest and/or repay the principal at a later date upon maturity. 

In simpler terms, a bond is a formal contract to repay borrowed money with an interest at fixed intervals. Investment bonds are a way to raise money. 

When you purchase any type of bond (government, convertible, callable, etc.), you are lending money to the issuer. This may be a corporation, the government, a federal agency or any other entity. In return, the issuer promises to pay a specified rate of interest during the life of the bond. The issuer also repays the face value of the bond when upon maturity of the term. 

Generally, they will be more stable than share-based investments but in some circumstances they can be more volatile. Particularly when interest rates are changing.

Bonds issued by major governments and companies are generally more stable than those issued by emerging markets or corporate issuers. Share on X

In the event of an issuer experiencing financial difficulty there may be a risk to some or all of the capital invested.

#4 Mutual funds

A mutual fund is a type of professionally managed investment that pools your money with other investors. The fund’s managers then use the pooled money to buy securities for the group. 

It’s best to start out investing in mutual funds or exchange-trade funds rather than individual stocks and bonds. At least until you get your feet wet.

These types of funds enable you to invest in a broad portfolio of stocks and bonds in one transaction rather than trading them all yourself. They’re not only safer investments (because they’re diversified), but it’s often far less expensive to invest this way. 

However, mutual funds are subject to market risks, reinvestment risk, changes in political, economic environment and government policy. There is no assurance or guarantee that the objectives of the scheme will be achieved.

#5 Real estate

Real estate investing makes millionaires (just look at Donald Trump), but you don’t have to be a millionaire to start investing in real estate.

Investing in real estate is a long-term investment that investors invest in for cash flow (the money you make from rental properties every month after all expenses are paid). Cash flow will also increase over time because rents will go up with inflation while your mortgage payments stay the same. 

Like any investment, though, it’s important to know the risks. 
And to consider if you have what it takes to be a landlord.

#6 Pension Plan

A pension plan is a retirement plan that requires an employer to make contributions into a pool of funds set aside for a worker’s future benefit. The pool of funds is invested on the employee’s behalf, and the earnings on the investments generate income to the worker upon retirement.

In addition to an employer’s required contributions, some pension plans have a voluntary investment component. A pension plan may allow a worker to contribute part of his current income from wages into an investment plan to help fund retirement.

Some of the above investments are fixed-income while others are market-linked. Both fixed-income and market-linked investments have a role to plan in the process of wealth creation.

Market-linked investments help in navigating the volatility and in the process generate high real return. The fixed income investments help in preserving the accumulated wealth so as to meet the desired goal. 

For long-term goals, it is important to make the best use of both worlds. Have a judicious mix of investments keeping risk, taxation and time horizon in mind.