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Money Is A Seed

Updated on February 11, 2016
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I've been an independent financial planner for several years now. I try to keep my advice as objective as possible.

Plant money today to have more tomorrow.

We can basically do two things with our money. We can use it for production or consumption. If we use it for consumption it's gone. We'll have whatever we buy, but the money is in someone else's hands. To get ahead in this capitalist system we must put our money into things that appreciate and throw off income. This is no easy feat. We are relentlessly pressured everyday to buy and get into debt. Just turn on the radio or TV sometime, and you'll see what I mean. This is not the path to financial independence! Money making money is! Some things we can put our money into are bonds, precious metals, stocks, mutual funds, real estate, annuities, private businesses, and bank accounts. The three I would like to cover more in depth are real estate, mutual funds, and stocks.

Everyone needs a place to live. It's not a want. It's a need. Real estate is a way to have your money appreciate and pay you income if you rent it out. This can take a pretty good size nut to get going. One reason why real estate is a good way to build wealth is leverage. That's using other people's money to make money. Leverage goes both ways though. You can also get into financial quicksand much more easily when playing with money that doesn't belong to you. Real estate is something I haven't personally done, so I would research it thoroughly and jump in at a small level if you're going to do it. This is the hardest of the three, and most people realistically won't end up doing it. If you're going to be a landlord I would say start small, read a lot, talk to people, save your money, and carry adequate insurance.

Mutual funds are the way most people invest in the financial markets. Index mutual funds are different in that they own a group of stocks, REIT's, or bonds, have much lower expenses, don't trade assets in the fund much, and have passive management. In other words they don't have a manager siphoning off returns and trying to beat the market. They are a good way to invest a small amount monthly, say $100, into the fund at a time. This is called dollar cost averaging. A mutual fund is an entity that owns stocks, bonds, money market instruments, real estate, and precious metals. In my opinion index mutual funds are the best holding tank for most people's money. You can access almost any investment through a mutual fund whether active or index. An exchange traded fund is a little different than a mutual fund. They trade on the open market and can be bought in real time like a stock so they have a supply and demand element. Traditional mutual funds aren't affected by supply and demand. The net asset value is what determines how much they are worth. NAV is the value of the assets in the fund put together. Most people have mutual funds in their 401K's and 403B's. A good way to divvy up your money would be to buy index funds that hold the whole stock market, bond market, and a real estate investment trust or REIT fund for real estate exposure.

Individual stocks that pay rising dividends are my personal favorite. A stock is a piece of a business. It's good to remember that and think like a long-term owner not a trader. This method requires more research and time than just buying index or actively managed mutual funds. Most people don't want to be bothered with it. Once you've found 10 or so stocks you like it's good to go in big. What I mean is it's best not to diversify but concentrate your investments in just a few companies. A company that is stable and has been around a long time with a rising dividend is what you want. I won't make individual stock recommendations. That's for you to research on your own. You could open a taxable brokerage account with any number of companies out there. Reinvesting your dividends into more shares accelerates your wealth building.

Real estate, mutual funds, and individual stocks can all increase your wealth over time. This can lead to more choices in life as time goes on. In other words more freedom. Start today and start small with one of these techniques and build your own money war chest.

© 2013 Blair Williamson, ChFC®

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