Investment Calculator

Photo credit: © iStock/samxmeg
Photo credit: © iStock/samxmeg

Whether you’re considering getting started with investing or you’re already a seasoned investor, an investment calculator can help you figure out how to meet your goals. It can show you how your initial investment, frequency of contributions and risk tolerance can all affect how your money grows.

We’ll walk you through the basics of investing, tell you about different risks and considerations and then turn you loose. Ready to put your money to work?

A financial advisor can help you manage your investment portfolio. To find a financial advisor who serves your area, try our free online matching tool.

6. Dip your toe in the real estate market

Believe it or not, you no longer need a lot of money (or even good credit) to invest in real estate. A new category of investment known familiarly as “real estate crowdfunding” makes it possible to own fractional shares of large commercial properties without the headache of being a landlord.

Crowdfunded real estate investments require larger minimum investments than robo-advisors (for example, $5,000 instead of $500). They’re also riskier investments because you’ll be putting that entire $5,000 into one property rather than a diversified portfolio of hundreds of individual investments.

The upside is owning a piece of a real physical asset that’s not necessarily correlated with the stock market.

As with robo-advisors, investing in real estate via a crowdfunding platform carries costs that you wouldn’t pay if you bought a building yourself. But here, the advantages are obvious: you share the cost and risk with other investors and you have no responsibility for maintaining the property (or even doing the paperwork to buy it!)

I think real estate crowdfunding can be an intriguing way to learn about commercial real estate investing and also diversify your assets. I wouldn’t lay all of my money on these platforms, but they do make an intriguing alternative investment especially in these times of unprecedented market volatility and pitiful bond yields.

Read more: Can You Make Money In Real Estate? Here’s What The Experts Say

Video

#6: Build a Portfolio with Low-Cost ETFs

Risk level: Varies

Exchange-traded funds (ETFs) have made it so much easier to diversify your portfolio. This type of investment is similar to a mutual fund in that you can purchase many different stocks in a single ETF.

How It Works: ETFs let you purchase an assortment of stocks and other securities in one fell swoop. You can invest in ETFs with most of the major brokerage firms, and you can usually do so with low investment fees (or no fees).

Where to Get Started: M1 Finance is one of the best options when it comes to purchasing ETFs. This investing platform offers over 1300 different ETFs that you can trade for free, which is really an amazing deal. Read my full M1 Finance Review.

Who It’s Best For: Investing in ETFs can make sense for any investor. It’s even more beneficial for those with $1,000 to invest because ETFs let you diversify more than you could with individual stocks.

Pros
  • ETFs typically have low expense ratios, and you may be able to invest or trade with no fees
  • You can usually get started with a low account minimum (or no account minimum)
  • Diversify your investments

ConsCome with the same risk as other stock market investmentsYou’ll need to do significant research to find out which ETFs to invest in

Learn the basic investing types

When it comes to investing, you have many options. Before deciding which investment vehicles are appropriate for you, it’ll help if you know what they are, how they work, and why they may be a good fit for your needs.

Learn about investment types >

#10: Beat Your Savings Account

Risk level: Medium

If you’re a buy-and-hold cryptocurrency investor with $1,000 of crypto in your account, you can use this option to earn more interest than you would in a traditional savings account. With a BlockFi Interest Account, you deposit your cryptocurrency and earn a rate of return that accrues daily and is paid out on a monthly basis.

How It Works: A BlockFi Interest Account offers up to 7.25% APY on your crypto deposits, yet the amount of interest you earn depends on the type of cryptocurrency you have. For example, Bitcoin is currently earning 4% APY, whereas the Gemini Dollar (GUSD) can net you the top rate of 7.25% APY. Note that there are no minimum deposits required to earn interest and that there are no hidden fees involved in your account.

Where to Get Started: You can head to BlockFi, which is the cryptocurrency platform that offers the BlockFi Interest Account. Open a new account and deposit your crypto, and you’ll be on your way to earning exceptional rates in no time. Note that, while interest accrues daily, you’ll only be paid interest once per month. Learn more about BlockFi.

Who It’s Best For: This type of account is best for crypto investors who planned to buy and hold already.

Pros
  • No hidden fees
  • No minimum balance to open an account or earn interest
  • Earn a better rate than you would with a traditional savings account

ConsCryptocurrency is volatile in generalInterest is only paid out monthlyYou might be charged additional fees, including fees for withdrawals from your account

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Years to Accumulate

The last factor to consider is your investment time frame. Consider the number of years you expect will elapse before you tap into your investments. The longer you have to invest, the more time you have to take advantage of the power of compound interest. That’s why it’s so important to start investing at the beginning of your career, rather than waiting until you’re older. You may think of investing as something only old, rich people do, but it’s not. Remember that most mutual funds have a minimum initial investment of just $1,000?

Are you investing reasonably?

Now that you understand how investing works, it’s time to think about where you want to put your money. As a rule of thumb, remember that the best risk an investor can take is a calculated one.

But how can you be calculated? How can you distinguish a smart investment from a risky investment? Truthfully, “smart” and “risky” are relative to every investor. Your circumstances (e.g., age, amount of debt, family status) or risk tolerance can help you identify where you fall on the risk spectrum.

In general, younger investors with many years before retirement should have riskier portfolios. That longer time horizon gives investors more years to weather the ups and downs of the market — and during their working years, investors are ideally just adding to their investment accounts rather than taking money out.

Someone at or near retirement, however, is much more vulnerable to changes in the market. If you use an investment account to cover your living expenses, you could be forced to take that money out of the account during a downturn in the market, which would not only shrink your portfolio but also could ensure significant investment losses.

A higher-risk portfolio would likely encompass a significant number of stocks and fewer (if any) bonds. As young investors grow older and need to reduce the risk in their portfolios, they should reduce their investment in stocks and increase their investment in bonds.

The ebb and flow of life will influence your investments more than you may realize. Being realistic about your current financial prospects will keep you clearheaded about where to invest your money.

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What Are NOT Smart Investment Strategies?

Investing in stocks the Rule #1 way is the smartest way to invest and the best way to minimize your risk. There are a lot of other investment strategies out there right now that aren’t very smart. In fact, they’re not really strategies at all but rather gambles.

Investing in Meme Stocks 

It’s not smart to invest in something just because someone on social media told you to. What has come to be called meme stocks are highly volatile stocks whose prices are based on hype, not value. If you are looking for smart ways to invest money, meme stocks aren’t it. 

Investing in Cryptocurrency

Don’t invest in what you don’t understand. For most people, this rules out investing in cryptocurrency.

Even if you do understand it, though, there’s more risk associated with cryptocurrency than almost any other investment because it’s highly unregulated and its future is highly uncertain.

If you want to diversify your investment portfolio, do it the right way, not by throwing money at something just because everyone else is. 

Investing for the Short Term

If you don’t want to own a company for five years, you shouldn’t want to own it for five minutes. Short-term investing strategies, such as day trading and other methods that promise big returns quickly are too good to be true. They’re not only risky but also could hurt you when tax season rolls around. 

3. Open an IRA as well

Employer-sponsored 401(k)s are great, but they don’t offer the same tax benefits as other retirement accounts, which is why opening an IRA is also important.

For starters, you’ll have more control over your account, since you’re opening your own personal IRA rather than going through your employer, who determines your investments for you.

In addition, one of the very best benefits of an IRA (a Roth IRA specifically) is its ability to grow tax-free. Your account will both grow without being taxed and you’ll be able to make tax-free withdrawals starting at age 59½.

Read more: Roth IRAs For Young Adults: Why Starting Early Pays Off

6. Trade options

When it comes to options, Tom Sosnoff at Tastyworks says, “Trade small and trade often.” What type should you trade? There are loads of vehicles, such as FOREX and stocks. The best way to make money by investing when it comes to options is to jump in at around 15 days before corporate earnings are released. What type should you buy? Money calls.

The optimal time to sell those money calls is the day before the company releases its earnings. There’s just so much excitement and anticipation around earnings that it typically drives up the price, giving you a consistent winner. But don’t hold through the earnings. That’s a gamble you don’t want to take if you’re not a seasoned investor, says John Carter from Simpler Trading.

Related: 2 Strategies for Making Money Day Trading With a Bit Less Risk

Why are long-term investments good?

Long-term investments give you the opportunity to earn more than you can from short-term investments. The catch is that you have to take a long-term perspective, and not be scared out of the market because the investment has fallen or because you want to sell for a quick profit.

And by focusing on the long term – committing not to sell your investments as the market dips – you’ll be able to avoid the short-term noise that derails many investors. For example, investors in the S&P 500 who held on after the huge drop in early 2020 were likely able to ride out the short-term bumps that came along with the start of the COVID pandemic before markets turned things around and surged higher once again.

Investing for the long term also means that you don’t need to focus on the market all the time the way that short-term traders do. You can invest your money regularly on autopilot, and then spend your time on things that you really love rather than worrying about the market’s moves.

5. Continue investing

Here's one of the biggest secrets of investing, courtesy of the Oracle of Omaha himself, Warren Buffett. You do not need to do extraordinary things to get extraordinary results. (Note: Warren Buffett is not only the most successful long-term investor of all time, but also one of the best sources of wisdom for your investment strategy.)

The most surefire way to make money in the stock market is to buy shares of great businesses at reasonable prices and hold on to the shares for as long as the businesses remain great (or until you need the money). If you do this, you'll experience some volatility along the way, but over time you'll produce excellent investment returns.

3. Trade commodities

Trading commodities like gold and silver present a rare opportunity, especially when they’re trading at the lower end of their five-year range. Metrics like that give a strong indication on where commodities might be heading. Carolyn Boroden of Fibonacci Queen says, “I have long-term support and timing in the silver markets because silver is a solid hedge on inflation. Plus, commodities like silver are tangible assets that people can hold onto.”

The fundamentals of economics drives the price of commodities. As supply dips, demand increases and prices rise. Any disruption to a supply chain has a severe impact on prices. For example, a health scare to livestock can significantly alter prices as scarcity reins free. However, livestock and meat are just one form of commodities.

Metals, energy and agriculture are other types of commodities. To invest, you can use an exchange like the London Metal Exchange or the Chicago Mercantile Exchange, as well as many others. Often, investing in commodities means investing in futures contracts. Effectively, that’s a pre-arranged agreement to buy a specific quantity at a specific price in the future. These are leveraged contracts, providing both big upside and a potential for large downside, so exercise caution. 

Related: What Starbucks Teaches About Marketing Commodity Products

Having a savings account isn’t enough

Saving money is important, but it’s only part of the story. Smart savers start by building sufficient emergency savings within a savings account or through investment in a money market account. But after building three to six months of easy-to-access savings, investing in the financial markets offers many potential advantages.

How much should you save vs. invest?

Given that each investor enters the market because of unique circumstances, the best answer to how much you should save is “as much as possible.” As a guideline, saving 20% of your income is the right starting place. More is always better, but I believe that 20% allows you to accumulate a meaningful amount of capital throughout your career.

Initially, you’ll want to allocate these savings to building an emergency fund equal to roughly three to six months’ worth of ordinary expenses. Once you’ve socked away these emergency savings, invest additional funds that aren’t being put toward specific near-term expenses.

Invested wisely — and over a long period — this capital can multiply.

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