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The Cambridge Dictionary defines “investment” as “the act of putting money, effort, time, etc. into something to make a profit or get an advantage, or the money, effort, time, etc. used to do this.” This seems like a better definition than those that only reference money, as there are certainly other kinds of investments. Time invested in your children can pay off very well, for example.
Here are seven kinds of investments likely to pay off very well for anyone who makes them. See which one(s) you want to start (or continue) making.
Image source: Getty Images.
1. Health
Yup — your health. It’s one of the most important things for each of us, and neglecting it — which is very easy to do when we’re busy and stressed out — can have terrible consequences. On the flip side, tending to our health, such as by eating nutritiously and exercising, can pay off handsomely.
Good health can lead to a longer life, and perhaps one less riddled with pain and other problems. That can mean a happier life. There’s also a financial angle: The healthier you are, the less you might end up spending on healthcare over your life.
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2. Debt reduction
Next, invest some money in paying down any high-interest-rate debt, such as debt from credit cards, which often charge people 20% or even 25% or more annually. If you’re carrying, say, $30,000 in debt and being charged 20%, you’re forfeiting around $6,000 to interest payments every year. Lower-interest-rate debt, such as that for mortgages or buying a car, is not as problematic.
3. Knowledge
Here’s another vital investment you can make in yourself: Spend a lot of time reading and learning. It doesn’t have to all be about finance, either. Within the financial world, though, consider reading articles and books on great investors and great companies. You can learn about profitable investing strategies from the former and how to spot promising investments from the latter.
4. Index funds
When it comes to actually investing money, relatively few people will do better than those who just keep plunking dollars into one or more low-fee broad-market index funds, such as ones that track the S&P 500. Do so and you’ll quickly have a stake in 500 of America’s biggest companies, and you’ll earn returns close to those of the overall stock market.
The stock market has averaged annual gains of roughly 10% over long periods. You might earn more or less than that, though, depending on your particular investing period. Here’s what you might accomplish if you invest diligently over time and earn an 8% return, on average:
|
Growing at 8% for |
$10,000 invested annually |
$15,000 invested annually |
$20,000 invested annually |
|---|---|---|---|
|
5 years |
$63,359 |
$95,039 |
$126,718 |
|
10 years |
$156,455 |
$234,683 |
$312,910 |
|
15 years |
$293,243 |
$439,865 |
$586,486 |
|
20 years |
$494,229 |
$741,344 |
$988,458 |
|
25 years |
$789,544 |
$1,184,316 |
$1,579,088 |
|
30 years |
$1,223,459 |
$1,835,189 |
$2,446,918 |
Data source: Calculations by author.
5. Dividend stocks
You might add some dividend-paying stocks to your portfolio, too, as they can perform well over time — and most will keep paying you even when the economy slumps. Take a moment to appreciate just what they do, too: They will regularly have extra cash deposited in your investment account. Have a portfolio worth, say, $300,000, with an overall dividend yield of, say, 3%? That means about $9,000 will just appear in your account over each year. Better still, healthy and growing dividend payers will increase their payouts over time, too — so that $9,000 may become $12,000 in some years, and $15,000 some years later.
Note that many index funds will also pay dividends, if the stocks they hold do so. The SPDR S&P 500 ETF (NYSEMKT: SPY), for example, recently yielded 1.4%.
6. Growth stocks
To aim for a steeper growth rate than that offered by the overall stock market, consider adding some growth stocks to your mix. They belong to companies growing at faster-than-average rates, and many hold the potential to deliver big double-digit gains over many years. (Not all growth stocks will succeed, though — so consider following The Motley Fool’s investing philosophy, which suggests owning 25 or more stocks, aiming to hold them for at least five years. That can give even overvalued stocks a reasonable chance to grow — or to fall and then recover.
7. Memories
Finally, don’t spend all your time on work and trying to better yourself. Take time to enjoy pastimes you love, and make time for your loved ones. Creating memories with friends and family members is a great investment, too.
Be a well-rounded investor — investing in yourself, in your health, in others, and in the stock market. That can make for a rich and satisfying life.
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Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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