How can I use my money to make money?

May 17, 2011 1:28 PM

How can I use my money to make even more money? Investments? Stocks? Bonds? Mutual funds?

My bank is Bank Of America and from what I can see you need thousands of dollars for a CD with them. How can I basically make some money with my money?

posted by ascetic to work & money (13 answers total)

CDs pay a very low rate of interest, so they're not an effective way of making money with money.

Look for either stocks that pay high dividends or stocks that have growth potential and sell those when you have paper profits.
posted by dfriedman at 1:29 PM on May 17, 2011

First, it depends on how much money you have, what other resources you have, and how risk-averse you are.

Second, and most important, don't trust financial advice from strangers on the internet.
posted by The World Famous at 1:30 PM on May 17, 2011 [1 favorite]

That's a pretty general question, and as the previous answer said, one not best answered here. It seems that you need to start with the basics. (Stocks, bonds, and mutual funds are all types of investments.) Go to the library and pick up a basic money guide. I like A Random Walk Down Wall Street, but you might want to start with something shorter and simpler. Talk to a librarian; she will be able to guide you.
posted by Mr.Know-it-some at 1:39 PM on May 17, 2011

Leave your money in your BOA checking / savings until you are educated enough on finance to understand what was wrong with this question. At that point you'll be in a position to make some decisions, or at least understand what questions to ask. My favorite intro to investing book is The 4 Pillars of Investing.
posted by COD at 1:45 PM on May 17, 2011 [1 favorite]

Until you're really ready, you could move your savings to an account with a better interest rate. Do you have an IRA?
posted by Ideefixe at 1:49 PM on May 17, 2011

(Note that this is all simplified to explain the basics)

Investments?

That's basically a general term for the "make money with your money" concept. Just putting your money in a savings account is an investment, in that you are giving your money to the bank to use and they are giving you back a return in interest.

Stocks?

Stocks are generally the most popular long term investment. You are basically investing your money in a business, and since businesses in general turn a profit, those investments will make money over time. Any single business can fail, but if you diversify your investment across a lot of different companies you should see good returns over time. Since the profits are not predictable though, it's impossible to know exactly how much you will make (or lose), especially in the short term. So stocks are good to buy if you are, say, saving for retirement over the next few decades.

Bonds?

Bonds are basically like loans. You buy the bond and the company or organization who created the bond pays you back (with interest) over time. There is a risk of default just like with loans, but in general they are safer than stocks. Generally you want to invest in bonds when you want a steady, safer income, sacrificing higher returns for less risk.

Mutual funds?

Mutual funds are collections of different assets, which could be stocks, bonds or something else (like real estate or oil). They can be actively managed, where someone is running the fund and making decisions about what to invest in, or they can passively managed which means there is some sort of deterministic system of choosing what to invest in without trying to predict which specific assets will have better returns. Personally I recommend index funds, which are passively managed, because they generally give you good diversification while keeping costs down. For example if you want to save for retirement there are target retirement funds like Vanguard's that cheaply give you a reasonable set of assets for that investment goal.

you need thousands of dollars for a CD with them

CDs are basically equivalent to a savings account, but with your rate "locked in" to whatever the rates are when you buy it. It's risk-free because your money is insured through the FDIC, but it's also going to have very poor returns (especially right now since rates are historically low). You will probably make about the same amount over time if you just keep your money in cash in a savings account.

Long story short, if you invest long term and accept some risk you can (probably) get decent returns. There are no magic bullets and you have to know details like tax considerations and what not to really make the right financial choices. As others have said you probably need to do more research to learn the basics of investing and managing your money. Blogs like The Simple Dollar and Get Rich Slowly are good resources. Also if you have any more specific questions feel free to ask more.
posted by burnmp3s at 2:03 PM on May 17, 2011 [3 favorites]

ascetic: "My bank is Bank Of America and from what I can see you need thousands of dollars for a CD with them. How can I basically make some money with my money "

They also don't charge you 10 dollars in brokers fees to open and close a CD.

If you want to make money on sums of money too small for CDs, I'd suggest looking at how to change your purchasing strategies. Do you pay car insurance monthly, or with an up front payment? What could you buy cheaper in bulk, if only you had a 200 dollar chest freezer? Could you save a lifetime of gym membership fees with a small equipment purchase? Do you have an emergency fund, or do you just charge up and deal with the high interest rate consequences later?
posted by pwnguin at 2:10 PM on May 17, 2011 [2 favorites]

If you have credit card balances, the absolute best use of your money would be to pay them off.
posted by Tell Me No Lies at 2:12 PM on May 17, 2011 [1 favorite]

It's not easy for your money to make you money if you have less than a few thousand -- particularly if it's important for you to ensure that you don't lose any of that money.

Generally, I would recommend:
1. You save for immediate needs (i.e. trying to get at least a month ahead of your monthly expenses) in your Bank of American account so you aren't always feeling like you're living check to check

2. You save for several months of expenses in case anything unexpected happens. You can move this to one of the online savings accounts which still pay a pittance, but it will be better than what BOA pays.

3. You fund your 401 K or other retirement account up to what ever your employer will match

4. You save for medium to long term wants like a vacation, a car, a computer etc. Again, this can be in one of the online accounts.

5. You fund a ROTH IRA up to your ability

6. You fund the rest of your 401 K or other retirement account up to your ability.

7. You fund other investments for a rainy day. Cheap index funds through something like Vanguard are an easy way to do that.

Recommendations to learn about investing and not to listen to people on the internet are worthwhile, but could probably be phrased a bit more sportively. Try to not take it personally. They have your best interests at heart.
posted by willnot at 2:14 PM on May 17, 2011 [6 favorites]

I came to say the exact thing pwnguin did- with the amount of money I think we're talking about here, you'll see better "returns" on it by increasing your buying power with it than investing it.

For example, if you can afford to start paying up-front Annual Rates for things you use all year anyway, you can typically save a month or two's fees on the back end.
posted by mkultra at 2:14 PM on May 17, 2011

Tell Me No Lies makes a good point and one I think you should listen to.

For that amount of money you are talking about I think the best way to "make money" is to pay off any debts you are paying interest on, starting with whichever has the highest interest. It may not feel the same as growing an account balance you can watch, but in the long run you end up with a lot more money than if you don't pay down the debt.

So pay off those debts.
posted by Justinian at 4:01 PM on May 17, 2011

As Mark Cuban is fond of pointing out, you might be best off at that level by having cash / liquid safe money to take advantage of opportunities for reducing costs which present themselves, like pwnguin and mkultra are saying.
posted by a robot made out of meat at 7:51 AM on May 18, 2011

As a twentysomething who is making enough money to actually have some left over for the first time I had a similar predicament.

A friend recommended this book to me, and so far I have found it to be pretty helpful. It's definitely written for younger people, so it focuses on ways for people without huge savings or personal experience how to save money and invest wisely.
posted by forkisbetter at 10:59 AM on May 18, 2011