For novice investors the task of choosing how to invest money can be a daunting one. High-risk securities may yield higher profits, or more severe losses. Low-risk investment options are safe, but tend to take time to yield returns. With only a small amount of capital to start with, how is it possible to make money investing? Using safe, low-risk investment tools which mature within one year, to begin with can create more money for more diverse options later on.
Diversification — combining a variety investments — is the ultimate goal. Exploring low-risk, short-term options such as money market funds, treasury bills, and certificates of deposit, is a way to gradually make money while investing, and have the freedom to diversify in the future.
Why Money Market Funds Work for Novice Investors
Money market funds are one investment tool that novice investors can use to make money. They by nature involve safer investments of usually less than one year, with losses being extremely rare. In fact, these funds are required by law to put their money into low-risk securities which are basically backed up by cash. They are however not federally insured, and can possibly show losses with poor performance.
A money market fund takes the diversification of a mutual fund, where a number of different investment opportunities are pooled together, with the short-term, low-risk nature of the money markets. Using almost sure bets, such as commercial paper, treasury bills, and banker's acceptances, they are a great option for many investors, including those new to investing who want to put their money where they know there will be a return.
Make Money Investing in Treasury Bills
Treasury bills are another way to almost definitely make money investing. They are often one of the safe investment options within a money market fund. A treasury bill, or T-bill, is a government issued security, which expires in a relatively short amount of time. Treasury bills can be bought and held for a period of days, or weeks, up to one year, with the term ending on a specified date.
There is no interest earned on treasury bills. Money is made by purchasing a bill at a discount rate, and then redeeming it for face value on its maturation date. For example, a treasury bill may be purchased for $90, although its face value is $100. Therefore, there would be a net profit of $10.
Safe Investing with Certificates of Deposit
Certificates of Deposits, or CD's are another easy way to make money investing. For a CD, also called a time deposit, money is invested into a bank. An agreed upon interest rate is paid for a set period of time; during that time the money cannot be withdrawn. CD's last for anywhere from one month to five years. Banks may offer competitive rates as CD's have to compete with other low-risk money market investment tools. Thirty days or six months in a time deposit can yield a profit for money that may have otherwise been simply sitting in a bank account, accruing only a small amount of interest.
Benefits of Safe Investment Options
This strategy is ideal for someone who has money to invest and time to wait, but not enough finances to absorb losses. It is true that it will yield a small amount of money relative to more aggressive strategies, but it is a plan that can make a riskier portfolio less risky one or two years in the future. Use the money earned on money market funds, treasury bills, and time deposits to develop a new, more flexible plan later on. Take the time while money is being earned to research other options, possibly become more familiar with the market, so when that amazing, diversified investment strategy is developed a year later, possibly with the assistance of a personal finance planner, decisions can be backed with the fruits of patience.
Sources:
Securities and Exchange Commission
Levinson, Marc. "The Economist: Guide to Financial Markets." Third Edition (Bloomberg Press, 2003).
"What low-risk investments will give me steady income?" (Investor Education Fund).
Brenna Coleman - Brenna is a freelance writer focusing on natural health and beauty. She has written hundreds of articles, helping readers find ways to ...
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