If you’re fortunate enough to have surplus cash on hand, the big question becomes, “What should I do with it?” Leaving it in a savings account may feel safe, but it won’t do much to grow your wealth, especially with inflation eroding those returns. Instead, consider taking a more strategic approach by investing your extra funds into options that can yield significant financial rewards.
Whether you’re a seasoned investor or simply looking to make your money work harder, this guide explores some of the smartest ways to invest your surplus cash.
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Stocks and Shares
Investing in the stock market remains one of the most popular options for growing wealth. By purchasing shares in publicly listed companies, you own a piece of these businesses, and your returns come from either capital appreciation (an increase in share value) or dividends.
Why Choose Stocks?
- Offers long-term growth potential.
- Gives you access to a diverse range of industries and markets.
- Can align with your risk tolerance through custom portfolio strategies.
Considerations: While stocks can provide higher returns, they’re also subject to market volatility. Diversifying your holdings and employing a long-term strategy can help minimise risks.
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Bonds
Bonds are another traditional investment vehicle, often favoured for their stability and lower risk. When you invest in bonds, you’re lending money to governments or corporations in exchange for regular interest payments and the return of the bond’s principal upon maturity.
Why Choose Bonds?
- Provides a predictable income stream.
- A less volatile option compared to stocks.
- Helps balance risk within a diversified investment portfolio.
Considerations: Although bonds are less risky, their returns are generally lower compared to stocks, and they may not keep pace with inflation over the long term.
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Real Estate
Property has long been viewed as a reliable and tangible investment. Investing in real estate can take various forms, such as purchasing residential homes or commercial properties, or choosing indirect options, such as Real Estate Investment Trusts (REITs).
Why Choose Real Estate?
- Generates passive income through rental yields.
- Offers capital appreciation as property values increase over time.
- A tangible asset with less short-term volatility compared to the stock market.
Considerations: Real estate requires a significant initial cash outlay, and costs such as maintenance, insurance, and taxes can add up. It’s important to thoroughly research the market and location before investing.
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Managed Funds or ETFs
If you’re not confident in picking individual stocks or bonds, managed funds or Exchange Traded Funds (ETFs) are excellent alternatives. These are professionally managed investment options that allow you to pool your money with other investors to gain exposure to a diversified portfolio.
Why Choose Managed Funds or ETFs?
- Instantly diversify your investments with minimal effort.
- Access professional fund managers who handle investment decisions for you.
- ETFs offer the benefits of diversification with lower fees than actively managed funds.
Considerations: Some managed funds have higher fees, which can eat into your returns. It’s essential to understand the fee structure before committing.
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High-Interest Savings Accounts or Term Deposits
If you’re looking for a low-risk way to park your surplus cash, high-interest savings accounts or term deposits are appealing options.
Why Choose Savings Accounts or Term Deposits?
- Extremely low risk.
- Provides liquidity in savings accounts, while term deposits may offer better interest rates.
- Ideal for short-term financial goals.
Considerations: These options usually provide lower returns compared to risk-driven investment tools, which may not align with long-term wealth-building goals.
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Alternative Investments
For those with higher appetites for risk and an interest in diversifying their portfolio, alternative investments like venture capital, private equity, or even collectibles (e.g., art, antiques) and cryptocurrency could be worth exploring.
Why Choose Alternatives?
- Provides access to unique investment opportunities.
- Often uncorrelated with traditional markets, adding valuable diversification.
- Can deliver exceptionally high returns if successful.
Considerations: Alternative investments often come with greater risks and are less liquid than traditional investments. Due diligence is key before jumping into this sector.
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Invest in Yourself
Investing doesn’t always have to be about stocks or property; sometimes the best investment you can make is in yourself. Use your extra cash to:
- Take courses to improve your skills or qualifications.
- Attend industry conferences to network and grow professionally.
- Start a side business or turn a hobby into a source of extra income.
These types of investments in personal or professional growth are intangible but can have significant returns over time.
Tips for Successful Investing
Before embarking on your investment journey, here are some tips to maximise your success:
- Set Clear Goals: Are you investing for long-term wealth growth, retirement, or simply a rainy-day fund? Knowing your objectives will guide your investment strategy.
- Assess Risk Tolerance: Understand how much risk you’re willing to take. Younger investors with a longer time horizon may take on more risk, while retirees often prefer conservative options.
- Diversify Your Portfolio: Avoid putting all your eggs in one basket. Spread your investments across various asset classes to reduce risk.
- Seek Professional Advice: If you’re unsure about your options, consider consulting with a financial adviser who specialises in managing wealth and investments.
The Bottom Line
The smartest way to invest your extra cash depends on your financial goals, risk tolerance, and time horizon. Whether you prefer high-growth investments like stocks, stable options like bonds, or tangible assets like real estate, a well-thought-out strategy can help you build and diversify your portfolio.
If you’re ready to take the next step and plan your investment strategy, talk to a financial expert today. Your surplus cash has the power to grow your wealth and secure your future.
If you would like to improve your current investment strategies or are looking to start your investment journey, click here to organise a complimentary 20-minute phone call with an EPG Wealth adviser.