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Best Way To Invest $3000 To Get An Income
Submitted 2012-01-21 21:13:08
There are two distinct ways to invest money and $3000 dollars although not much can be invested for returns if done carefully. I have always had the view that investing money can be divided into two distinct modes and both are useful, but they must be intentionally identified and chosen.
The two modes are Passive and Active investing.
This mode of investment is best for larger capital amounts. Passive investing means relinquishing executive control of your capital in exchange for smaller and safer yearly investment returns. The best example I can think of is a bank. We could talk about the stock market but I was never a big fan. Even if you invest in blue chips, there is still that roller coaster ride and the return historically is not much better, (maybe a few percentage points) than a steady interest return from a bank. A bank is a bench mark investment and is ideally used to measure the risk and reward of other investments.
You can look at any investment on the table and ask yourself, "is this investment safer and or higher reward than the interest a government chartered bank pays me?" If yes, take the investment, if no, keep your money safe in the bank.
Passive investing is characterized by the loss of control, you physically "give your money to another" and you trust them to keep your money safe and give you your return.
Active investing is different. Parts of your main capital account, and let's say it's $3000 is segregated so we would take maybe $500 and leave $2500 in the bank.
That $500 can now be used to make bigger returns. However not necessarily bigger risk. A financial adviser would probably give you the same advice as above, BUT they would call the smaller portion, a "mad money allocation" In other words they would try to sell you on the idea that this smaller capital amount should be used to buy emu farms in Botswana, or in other words, take stupid risks in the hope of extremely high returns. This is an old trick. The idea is just to segregate a portion of your capital to increase fees based on their recommendations. With the understanding that you "could" lose the money they then get kick backs on the investment they choose for you. Anyway so much for the in's and out's of financial advisers.
Active investing is the activity of finding investments with excess intrinsic value and selling them for a profit.
That's it. You could buy an older model car that has a value of $900 but the seller will give it to you for $500. Just give it s good clean and a little TLC and put a for sale sign on it. Within a week you could have $900...an increase of over 100% In a week!
To invest $3000 for an income, you could compound your returns from the starting $500 into higher and higher dollar amounts. While your $2500 grows safely in the bank.
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