Best Investment Strategies

What is meant by the concept of best investment strategies? Investors have to understand that there is a difference between wealth and financial independence. Wealth is a matter of disposable income, whereas financial independence means the ability to live as you wish without constant worry about finances. Having a good job is one way toward financial independence, but a job only pays out as long as the employment lasts. To have independence, an investor needs to have their money working for them to produce more income. An investor’s net worth minus their liabilities that generate capital gains, income, and dividends, without the investor’s labor doesn’t determine wealth; it’s a measure of how long they can survive without having to work.

Best Investment Strategies for Financial Independence

The first place to start is having the money to invest in the first place. The more you can invest, the more the return, and if the investor keeps the return invested this money can continue to grow. This is a slow process, and it takes time. There are things an investor can do to speed the process up like cutting expenses, looking for ways to generate more income, and putting this money into brokerage and tax deferred retirement accounts. As the money grows the investor should start looking for bigger investments. This is known as compounding-when the capital gains, interest, and dividends begin to actually generate their own interest starting the cycle again. This is how a $1,000 investment can turn into $10,000 and then grow to over $2,000,000 over 50 years at 12%. This is of course, is preferred, than to reaching retirement age without a way to live independently.

Best Investment Strategies-Understanding Assets

Understanding asset placement is the key to having the best investment strategies possible. Asset placement can work well for an investor because different types of investments can receive different tax treatment. The length of time an asset is held, often determines how the income arising from the capital gains will be taxed. Looking at the same investor portfolio valued at $100,000 and looking at half that amount, $50,000, consisting of bonds earning 8% interest and generating $4,000 a year in interest income, an investor can start to see how asset placement would work. Think of 25% of the portfolio consisting of common stock with high dividends that generate $1,000 per year. The last 25% consists of common stocks with no dividends. In a 35% tax bracket this would save $1,750 each year by placing the higher yielding stocks and bonds in tax-advantaged accounts. (For examples of tax-advantaged accounts, think of 401Ks, IRAs, and certain types of mutual funds in which the capital gains are moved before becoming taxable.)
An investor can quickly see by looking at the market that the best investment strategies are those in which not only the initial investment put to work, but the cycle continues with the money made from investing going back into the cycle of investing.