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If I only have about a few hundred dollars to invest each month, what are some methods I can use to grow my money long term?

I'm willing to take risks if my ROI is substantial. So, if it can start making money a few weeks after the initial investment, that would be great.

Initially, I'd love to have a few hundred dollars coming in each month until I really get the hang of things. I have a job, plus two businesses so I am looking for ways to generate passive income because I don't have time for much else.

A friend mentioned buying soda and vending machines as one opportunity, other than business, the only other ways I know of is by investing in the stock market, 401(k), rental properties or having an interest bearing savings/checking account.

Im 35 and I honestly don't want to depend on a $500/mo retirement check, I want to have built an empire for myself and by the time I'm retirement age so I can live off my own money. I see people over 70 working fast food and at Wal-Mart and I don't want that life for myself so I'm open to all suggestions as to how to build a firm foundation now so that I won't have to worry about it later.

As you can see, I'm quite new to knowing how to make money work for you so thank you all in advance for your patience with me.

(Side note, my software company allows me to generate passive income when users download software, so my focus has been on developing when Im not on the job. However development takes time and I am currently the only developer, so this is why I am looking for other ways to make money while I build my brand).

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    You have to take on more risk to earn more return, and the more risk you take on, the more you run the risk of losing everything you put in. Are you hoping to earn/save money towards a specific goal? Are you actually willing to lose a substantial portion of your funds? – John Bensin Apr 8 '14 at 16:07
  • @uday What does asymmetric payoff mean in laymen's terms? I googled it and still don't understand it lol A situation in which the settlement valuation on a security changes in a way other than a linear increase or decrease. Options are common instruments with asymmetric payoff. Forwards, on the other hand, generally have symmetric payoff. – Sharron Denice Apr 8 '14 at 16:08
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    "a few weeks after the initial investment" is still an issue. The best investments are going to take time. The fast return is the most risky. – JTP - Apologise to Monica Apr 8 '14 at 16:50
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    @SharronDenice, I noticed on another post that you know programming. Why don't you start backtesting some investment strategies. Many large hedge funds and investments firms are quantitatively driven. Perhaps you can come across ways to create a regular income stream that can continue post retirement too – uday Apr 8 '14 at 16:52
  • @uday Im not familiar with the financial jargon at all but I am learning alot googling your responses. I'm looking into this right now, thank you. – Sharron Denice Apr 8 '14 at 16:56
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I don't think you should mix the two notions. Not starting out with at least. It takes so much money, time and expertise to invest for income that, starting out at least, you should view it as a goal, not a starting point.

Invest now to retire later

Save your money in the lowest cost investments you can find. If you are like me, you can't pick a stock from a bond, so put your money into a target retirement fund. Let the experts manage the risk and portfolio. Start early and save often! At only 35 you have lots of time.

Perhaps you are really into finance, in which case you might somebody manage your own portfolio. Great, but for now, let an expert do the heavy lifting.

Work to increase your revenue

You are an app developer. Your best bet to increase your income stream with via your knowledge and expertise. While you are still so young, you should use labor to make money, and then save that money for retirement. I am going to make an assumption that where you are will software development means you can become a great developer long before you can become a great financier. Play to your strengths.

I am also afraid you are over estimating how comfortable you are with risk. Any "investment" that has the kinds of returns you are looking for is going to be wildly risky. I would say those types of opportunities are more "speculation" rather than "investments." There isn't necessarily anything wrong with speculations, but know the difference in risk. Are you really willing to gamble your retirement?

  • I just recently lost a large investment in the name of love so no I am not willing to gamble my retirement however I am open to partial investments, if only temporarily, in risky stocks. This really helped me because that's what I have been doing working to increase my revenue, I am so set on not losing everything again I am open to anything. As far as programming, I have a really cool app and an invention that will make me lots of money but I need to continue to invest that time in effort to assure it. Thank you. – Sharron Denice Apr 8 '14 at 17:49
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    @SharronDenice - I am with you. Recommendations aren't good material here, but look into Vanguard, Schwab or Fidelity. Ask about a retirement account with an target-age based portfolio. At least until you know different, that gets you acceptably risky investments to earn money that, over time, will step back into safer choices to preserve your wealth. – MrChrister Apr 8 '14 at 18:03
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    @SharronDenice "I am open to partial investments, if only temporarily, in risky stocks". It's important to remember that if you place your money in a (for example) extremely risky investment, with the intention of only keeping it there a few months, you could still lose a substantial portion of it. If you decided to invest your money in something for two months, and at the end of two months, it's lost 50% of its value, how would you react? People often overestimate the level of risk they're willing to take, so I feel it's important to be aware of that. – John Bensin Apr 8 '14 at 20:25
  • Its funny how no one ever mentions risk management. Some investments are more risky than others, yes, but you can manage the risk to some extent and still aim for higher returns. – Victor Apr 9 '14 at 5:10
  • @Victor - I meant to mention it; as a part of my comment about letting an expert handle the details. While my feelings are clear, I am only suggesting caution until she "gets the hang of it" – MrChrister Apr 9 '14 at 5:50
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Lets assume you put the max of 5000 per year in a Roth IRA. You have your home and all other debt paid off, and your investment earns 10%, a few points below the market average. You will have $822,470 at 65, 1005K at 67 that you can draw on tax free. It is a fairly tidy sum and should keep you from working as the greeter in WalMart.

This kind of return should be expected from most mutual funds, and you could invest some time in reading about how to pick good returning funds. An index fund, which shadows a market index, should have that kind of return. And yes that is 10% per year. In investing it is about momentum.

I too write software for a living, and would suggest you should be able to contribute about double that amount and still be comfortable. That would set you up for a pretty comfortable post-work life style.

You understand the value of building passive income. Traditionally that is accomplished through dividends of reliable companies, but are now accomplished a variety of ways.

Keep in mind the way you are asking this question opens you to many scams.

  • Pete can you explain how my money can grow that much from 10%? Is this 10% per year? Per month? What do you recommend I read to learn more about all of this? Thank you – Sharron Denice Apr 8 '14 at 17:36
  • A friend mentioned that I should invest 1/4 in mutual funds, 1/4 in riskier funds and 1/4 in gold. What are your thoughts? – Sharron Denice Apr 8 '14 at 17:36
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    Gold, and other commodities, are horrible IMO. I would stay away. Perhaps you need a financial planner that can educate you on the choices. – Pete B. Apr 8 '14 at 17:40
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    (FYI: "Roth IRA" is named after Senator William Roth, the legislative sponsor of the law that created the Roth-type accounts. It is therefore not an acronym, and so all-caps is incorrect -- and one of my pet peeves :) – Chris W. Rea Apr 8 '14 at 20:24
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    FYI: He meant 10% per year, and that is an average (actually above average) return over long periods of time. It could easily be down 30% one year and up 40% the next. That's why long term investing is what you should be focusing on. The markets are more predictable on a longer timeline. – JohnFx Apr 9 '14 at 2:30
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I don't understand the OP's desire " I'd love to have a few hundred dollars coming in each month until I really get the hang of things. " When growing your wealth so that it will be large enough in retirement to throw off enough profits to live on ... you must not touch the profits generated along the way. You must reinvest them to earn even more profits.

The profits you earn need not show up as 'cash'. Most investments also grow in re-sale value. This growth is called capital gains, and is just-as/more important than cash flows like interest income or dividends.

When evaluating investing choices, you think of your returns as a percent of your total savings at any time. So expecting $100/month equals $1,200/year would require a $12,000 investment to earn 10%/yr.

From the sounds of it the OP's principal is not near that amount, and an average 10% should not be expected by an investment with reasonable risk.

I would conclude that 'There is no free lunch'. You need to continually save and add to your principal. You must invest to expect a reasonable return (less than 10%) and you must reinvest all profits (whether cash or capital gains).

Or else start a business - which cannot be compared to passive investing.

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TL:DR: You should read something like The Little Book of Common Sense Investing, and read some of the popular questions on this site.

Risk vs. Return

The main message that you will get from that research is that there is an inescapable connection between risk and reward, or to put it another way, volatility and reward.

Things like government bonds and money market accounts have quite low risk, but also low reward. They offer a nearly guaranteed 1-3%. Stocks, high-risk bonds, or business ventures (like your soda and vending machine scheme) may return 20% a year some years, but you could also lose money, maybe all you've invested (e.g., what if a vandal breaks one of your machines or the government adds a $5 tax for each can of soda?).

Investing

Research has shown that the best way for the normal person to use their money to make money is to buy index funds (these are funds that buy a bunch of different stocks), and to hold them for a long time (over 10-15 years). By buying a broad range of stocks, you avoid some of the risks of investing (e.g., if one company's stock tanks, you don't lose very much), while keeping most of the benefits. By keeping them for a long time, the good years more than even out the bad years, and you are almost guaranteed to make ~6-7%/year.

Buying individual stocks is a really, really bad idea. If you aren't willing to invest the time to become an expert investor, then you will almost certainly do worse than index funds over the long run.

Side Businesses

Another option is to use your capital to start a side business (like your vending machine idea). As mentioned before, this still has risks. One of those risks is that it will take more work than you expect (who will find places for your vending machines? Who will fill them? Who will hire those who fill them? etc.). The great thing about an index fund is that it doesn't take work or research.

However, if there are things that you want to do, that take capital, this can be a good way to make more income.

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