Wise investments of your spare funds can be a great way to grow rich. These days, savings accounts offer very low interest and it is a waste to allow your money to lie in them. Based on your appetite for risk and your financial needs, you have various other investment schemes and options to choose from. It is always safer to have a diversified portfolio, that is, to spread your money around in various types of schemes, so that the risks and returns get balanced out. The company you work for (US) would have a 401(k) plan which is always a safe bet.
In this scheme, part of your salary will be deducted every month and given to an independent financial source to manage the investment, so that you get a healthy return at the end of your tenure.That is the idea. For those of you with greater risk-taking ability, stock markets or mutual funds can be a good idea. In stock markets, you can buy shares of companies listed on the stock exchange. Usually, good companies offer dividends along with a fair return on your investment.
Dividends are not mandatory, but a lot of companies like to distribute their profits among shareholders as dividends. Some companies prefer to reinvest the profits into expansion projects instead of declaring dividends. These re-investments in turn should lead to further profits. However, the stock markets are unpredictable and a lot of people who dabble in stocks with the purpose of making some quick bucks may end up with losses instead.
Mutual funds are relatively safer investments, though they are also subject to market risk. Mutual funds are investments made in the stock market by financial managers with a fund collected from actual investors. There can be sector-specific mutual funds, for instance those that invest in Pharmaceutical, IT or infrastructure companies only. Whatever be the mode of your investment in the markets, it is vital that you track these on a regular basis.
If the prices of your shares or mutual funds decline at a time when there is a slowdown in the economy as a whole, there is no need to panic and sell at a loss. The markets will quite likely bounce back to where they were or perhaps even better.
However, if the markets are strong and yet, the value of your mutual funds is on a decline, it could mean it is not well invested and it would be advisable for you to sell and move your money into something that will generate better returns.
A financial consultant can advise you about the market situation and what types of investments will suit your needs best.