Money That Grows on Trees

We’ve all heard the saying “money doesn’t grow on trees,” but if you have a lump sum of money that you invest properly, it can indeed grow to become a much larger amount. So in a sense, the saying is true. “Growing money on trees” just requires a strategic location for planting, lots of sun and rain, and careful pruning.

Basics

Every tree starts with a seed; in the case of investments, it requires a small sum of money. Usually investors save up a few thousand dollars but other ways you can get started include inheritance, income tax refund, lottery winnings, or money from a car sale. Once you have the amount you want to get started, consider your goals.

Although most people invest in order to accumulate funds for retirement, others save to pay for their children’s college, a dream mansion, or their life-long hobby. Whatever your goal is, it will help determine how you want to invest. Depending on whether or not you have short-term or long-term investments also dramatically changes the equation.

If you choose to put your money in stocks, consider that CNN Money suggests that long-term investments have historically resulted in more returns than any other venture. These can return up to 10% on your invested monies. The second best place to plant your dollar is in long-term U.S. Treasury bonds, which average returns of more than 5%.

In general, short-term stocks can be extremely risky for your finances. Unless you decide to invest in something that has been continually improving, such as Apple’s stock, you risk sudden death. However, if played correctly, short-term investments can have greater returns in a shorter period of time, especially if you choose higher risk stocks.

For those who desire to set themselves up with great financial returns for retirement purposes, a combination of short-term and long-term investments can provide the greatest benefit overall. Supposing the shorter term stocks or bonds go bust, the long-term ones will still continue to compound. In the end, your net gain should be greater than choosing one kind of investment versus the other.

Types

Aside from stocks and bonds, there are several other places you can plant your funds to let them grow over time.

  • Mutual funds are a collection of individuals’ investments that the company then turns around and invests on a larger scale with greater returns in stocks, bonds, and other securities or assets. This is especially helpful if you don’t have much money to start investing with in the first place.When the company you have a mutual fund with can invest $50,000 to $100,000 collaboratively, the returns will be significantly greater than an individual with just $1,000 to $5,000 at their disposal. The U.S. Securities and Exchange Commission has a more in-depth explanation of the risks and benefits associated with Mutual Funds on their website.
  • Real estate and property is another way to invest in something other than stocks and bonds, but the process can be a little bit complicated compared to other outlets.Given the current state of the housing market, there has never been a better time to rent property out to people. There is a huge demand on rental properties at the moment and those who can get in on the process early will see great gains in the near future.According to investopedia.com, the key to letting your money grow through renting without risking too much loss is patience. Keep the monthly payments low enough to provide incentive for your renter(s) to stay longer and let the profits increase over time.If you’d rather not mess with owning property by yourself, consider a real estate investment group. Much like Mutual Funds, these groups function as a collective entity to purchase and manage property. Although you might own multiple housing units (such would be the case if the group purchased apartment complexes or condos), the company you are a part of would handle management, maintenance, and tenants. This allows your money to grow with much less hassle.
  • Monetary investments such as gold and silver are a popular way to invest on a smaller scale. For the price of pocket change, you can purchase an ounce or two of precious metals that have only increased in value over the long term. Although the value fluctuates daily, overall the price has only risen over the years as the value of the dollar has declined.

Obviously any kind of investment comes with a certain amount of risk, but if executed properly, it can certainly reap great reward. Plant the right seed in the right place, and money will indeed “grow on trees.”