If you ever decide that you want to get the most out of your money and start building wealth you may decide to speak with a financial guru of some sort. When you do you may end up with an answer like this:
"Make your money work for you."
It's no secret these days that you should make your money do all the work while you stay home to social distance and reap the benefits.
The real question is how do you begin to do that? How do you put your money to work? Well, the secret answer is in order for your money to work for you it has to earn interest. When your money earns interest it grows and you end up with more than what you started with. However, all interest-bearing accounts are not created equal and if you put your money in the wrong one at the wrong time you could end up taking two steps forward and 5 steps back.
So in the interest of you bearing all the interest you can. Here are the three ways money grows.
Fixed accounts are accounts that grow at a specific set rate. These accounts aren't typically known for their growth though. They are the most popular because they are safe. They offer the individuals that invest in this product security.
Fixed accounts are accounts that are usually offered at the traditional bank, like a Certificate of Deposits (CDs). Many people invest in CDs because they just want to do something! But in they’re doing they don’t want to lose anything so they put money in a CD because they believe these are the only other options.
The average rate of a CD is about 0.55%. Not even 1%. So you see it grows! Very Minimally, however, the true upside to this account is that it’s protected from losses.
2: Variable Accounts
Variable accounts are more commonly attached to the phrase "High-Risk High Reward". The upside to these accounts is that they have the ability to increase someone's wealth dramatically with their upside potential! However, the downside is just as much you can earn you can lose if you don't lock in what you have gained.
The most popular variable accounts are accounts tied to the Stock Market. Like Mutual Funds, ETFs, or the popular 401k accounts most people invest their retirement in for safekeeping until they're ready to use it.
Yes, because your 401k is tied to the stock market it is a variable account which earns interest on the money you invest and because it also participates in 100% of the stock market gains it also participates in 100% of the losses; you can lose a large portion of your retirement.
3: Index Accounts
Index Accounts are like a hybrid of the first two accounts. They have the protection of a Fixed account, which is referred to as principal protection, while also having the upside potential of a variable account. The only downside to the structure if you can call it a downside is that you get approximately 80% of the gains. So you may be wondering wait if I get 80% of the gains what percent of loss do I have to incur. I'm glad you asked!
Indexed accounts are set up so that you don't have to experience loss! 80% of the gains and 0% of the losses! These accounts are like the hidden gem of the financial world because they aren't widely discussed in mainstream media for whatever reason, but they are here and they are here to stay.
Just as there are three different accounts that you can put your money in to grow it there isn't a one size fit all account. Which account you choose definitely depends on your risk tolerance and where you are in your wealth-building journey. My recommendation is if you're at the beginning stages of investing or wealth building start with the indexed accounts because it gives you the option to get started with minimal risk. Once your financial foundation is solid you can become more well rounded and diversify.
If you are curious to know how you can specifically start making your money work for you schedule a no-obligation consultation by going to the Services tab and make your appointment.
See you soon Bosses and Bossettes. Make sure you find a way to Boss Up today!