The Best Ways to Invest Your Money in 2022, According to the Experts

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Investing can be a great way to save a retirement fund, down payment fund, or college tuition. The longer the time your money has to grow, the less you need to invest.

It is best to start investing as soon as possible, even today if you can. Start by making sure that your high-yield debt is under control and that you have an adequate emergency fund (money that you can access quickly if you lose your job or experience an unexpected event).

Historically, investments easily outperformed inflation – even with the normal ups and downs of the market. You just need to know how to spread your risk and choose the right methods to grow your money.

We asked the experts, and here are the best investments to grow your money today.

Why and when to invest?

First, let’s look at when to start investing.

“Your money pays off over time when you invest. This is how you build wealth’, says Katharine Perrycertified financial planner and advisor at Fort Pitt Capital Groupan asset manager in Pennsylvania.

Pro tip

Before investing, it is important to understand your risk tolerance, timeline and which account to use. For many people, that could mean cheap index funds in a Roth IRA account until retirement.

Before you start investing, make sure you have your emergency fund in order. That way you have access to cash if a problem arises. A good place to store an emergency fund is in a high-yield savings account.

Once you have some cash reserves and your high yield debt is under control, there is no time like the present to start investing.

“The old adage says it’s time in the market, not to time the market. Invest as soon as possible,” says Perry.

These are the best places to start.

The best investments in 2022

Index funds (ETFs or mutual funds)

Experts recommend low-cost, diversified index funds. These are funds with low expense ratios or fees that are great for all investors. An S&P 500 index fund is a great place to start. It tracks the top 500 companies in the stock market. Index funds are a safer investment than trying to pick individual stocks because they broaden your investments across hundreds of companies. This process works well if you don’t have the time or interest in selecting individual stocks. In addition, this strategy tends to generate higher returns over time.

There are several index funds to choose from, including those based on a specific industry, timeline, or sector of the market. You can buy an index fund that is an exchange-traded fund (ETF), which behaves like a traditional stock with market fluctuations during the day, or a mutual fund that closes at the end of the market day. Despite their minor differences, either one could be a good choice. Just pay attention to the fees and investment minimums. EFTs are generally an easier starting point for beginners because of their lower costs and minimums.

Other types of investment strategies

As an investor, you may decide to add other types of investments to your portfolio. Types of securities you can add can carry higher risk, but can complement your index funds. Whatever other securities you decide to add, make sure you align them with your investment goals and do some research before you are sure what you are investing in.

Small Cap Stocks

A small-cap stock is a share of a company with a market capitalization of less than $2 billion. These stocks can be a way to invest in companies that are ready for long-term growth and quick profits.

Adding small-cap stocks to your portfolio through an index fund is a good way to incorporate small-cap stocks into your investment strategy. A popular small-cap index fund is the Russell 2000 Index, which tracks 2,000 small-cap companies across a variety of sectors. Of course, there is no guarantee that a small business will survive, and initial performance is no guarantee that it will last.

Blue Chip Stocks

Blue chip stocks are shares of large, well-known companies that are household names — think Disney, Amazon, and Johnson & Johnson. These stocks are considered reliable and safe, and able to withstand long-term economic downturns.

Check out the Dow Jones Industrial Average to identify blue chip stocks. Because they have a proven track record, having blue chip stocks can add stability and reliability to your portfolio. If you have an S&P 500 or total market index fund, chances are you already have good exposure to these stocks. A blue chip index fund or ETF is a good way to invest in this. The SPDR Dow Jones Industrial Average ETF Trust is one of the most popular blue chip funds due to its low cost. You can also buy shares directly through your brokerage.

Real Estate and/or REITs

Buying a home often requires upfront costs, such as down payments and closing costs, on top of any renovations you want to make. There are also ongoing (and perhaps unexpected) costs, such as maintenance, repairs, dealing with tenants and vacancy if you decide to rent out the property.

If home ownership isn’t for you, you can still invest in real estate through real estate investment trusts (REITs). REITs allow you to buy shares of a real estate portfolio with properties across the country. They are publicly traded and have the potential for high dividends and long-term profits.

“REITs have done an excellent job this year. They usually don’t do well in a pandemic, but surprisingly they do,” says Luis Strohmeiercertified financial planner, partner and advisor at Octavia Wealth Advisors† Part of the reason is that you gain access to properties, such as commercial real estate and multi-family apartment complexes, that may be out of reach for an individual investor.

On the other hand, dividend payments earned through REITs are taxed as ordinary income rather than qualified dividends, which can give you a higher tax bill if you invest through a taxable brokerage account. When you invest in a REIT, you also inherently rely on the management company to scout and properly manage income-generating properties. You are not given any control over which properties the REIT chooses to purchase. But that said, you don’t have to factor in renters, repairs, or a large down payment to start investing. And if you can invest through a tax-advantaged account, the dividends can grow tax-free.

Where to invest in 2022

Choosing what to invest in is one thing. You also need to choose which type of account you want to place your investments in.

IRAs are recommended by financial experts because they help protect investors from taxes when saving for retirement or other long-term goals. There are a few different types of IRAs, known as individual retirement plans.

Roth IRA

A Roth IRA is a great retirement savings tool. Whatever you put in, you can take it out, and all the money that grows is tax free if you take it out for 59. Each year, you can contribute $6,000 to your Roth if you are under age 50 and $7,000 if you are over age 50, as long as your income does not exceed $140,000 if you are filing a single application or $208,000 if you are filing jointly.

It’s especially an excellent strategy if you’re young or in a low tax bracket. You now pay tax on your contributions and then let them grow tax-free for as long as possible. “That is a huge advantage, because you no longer have to pay tax on it. That’s like free money,” says Perry.

traditional IRA

With a traditional IRA, you can claim a tax deduction on your contributions, but you pay taxes when you withdraw at 59 . It’s a good choice if you expect your future tax rate to be lower than it is now, or if you’d rather get a tax break now than in the future.

Contribution limits are the same as a Roth IRA.

SEP IRAI

Simplified Employee Retirement (SEP) IRAs are retirement accounts for small businesses or the self-employed. If you work for yourself or have a small business, this is one way to set aside savings for retirement, with higher limits than a traditional 401(k) or IRA. With a SEP IRA, you can contribute up to $58,000 per year. That could offer small business owners a major savings opportunity.

What to consider before investing and why long-term investing is essential?

As you begin your investment journey, you should first consider where you want to keep your investments. That could be a taxable brokerage account, an employer’s 401(k) or a tax-advantaged IRA. If you want to invest in real estate, decide whether physical properties or REITs are a good fit for your investing style.

Then assess your risk tolerance and how long you want to invest. Keep in mind that, due to compound interest, long-term (10+ years) investing is the surest way to grow your money.

It’s fine to invest entirely in low-cost, diversified index funds. “Adequately diversified investments with a long track record of growth are key to building wealth,” Stohmeier says. That way, you are also able to withstand market dips and give your money the best chance of growing.

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