Supplemental income from our savings is something many of us rely on to grow our wealth and set aside more for our future. This is why we invest. But what happens when our savings aren’t generating the high-interest yields we hoped for? We’ll usually find ourselves at a standstill with our investments, wondering whether we should look into different options, or just wait things out — a difficult dilemma to be in. When you realize you’re not making money on your investments, it’s time to make a change. However, the thought of earning more, doesn’t have to come with increased risk. Alternative investments include an array of high-yield options suitable for all kinds of investors. Despite this, you may be still asking yourself, why am I not making money on my investments?
Here are 4 reasons to consider:
The government plays a role.
Yes, you read it correctly. The government has an effect on how much money you’ll make on your investments. Why? Well, for starters, interest rates are set by the Federal Reserve (aka, the Fed) and are often used to manipulate investors into stimulating the economy. You see, they’re responsible for inflation and employment rates, so one way of doing this is by playing this game with interest rates. When you see that your bank is offering interest rates so low, it doesn’t even make sense to invest, it’s because that is the case. You shouldn’t be surprised.
When the Fed wants to stimulate the economy, they drive interest rates low, so people remove their money from conservative investments, such as bonds, CDs and savings accounts. The Fed uses this tactic in hopes that people will soon begin to invest instead in public companies and the stock market. This, in return, appears like companies are doing well and people are investing more. All of this, makes the economy seem stronger and headed towards positive growth (even if it truly isn’t).
You’re easily influenced by the media on where to invest.
Whether you’re an experienced investor, or a novice who’s pretty new to the whole concept, you may find yourself watching the media to receive additional insights on the latest market trends and investments recommended by analysts and other financial experts. While, there’s nothing wrong with getting information from the media, as well as books and articles to increase your knowledge as an investor, taking these insights as a roadmap to growing your wealth, is.
It’s a bad idea to think this information is tailored to you. The media is all about ratings, publicity and networks’ agendas. Don’t confuse general market overviews and commentaries for an investment strategy. It could be the reason you’re not making money on your investments. Remember, that everyone’s situation is different — from retirement timelines, to risk tolerance, to the amount of money one can afford to lose — there is no “one size fits all” strategy. Absorb the information and only take what is applicable to your financial goals and strategy.
You have no strategy.
You wouldn’t drive your car to a destination you’ve never been to without using some sort of navigation, or map to help get you there. So, why would you invest with no plan of action, or sense of direction? Successful investing requires a strategy — it requires goals (a point of destination) and the best (or fastest) route to help get you there. With no strategy in place, it’s no wonder you’re not making money on your investments. You could be investing in highly volatile markets, when you should be looking into more conservative investment options considering your timeline. You could also be investing too little, or too much if you don’t really have a game plan.
Finding the right balance requires a thorough look at your finances. Once you know where you want to be and when you want to get there, you can then narrow down your options and choose the best investments to help you reach your goals. Some people decide that they’d rather leave the strategy and decision-making up to a professional, but always remember you should be aware of every move. It’s not uncommon for advisors to promote specific investment options that benefit their firms more than they benefit you.
You’re playing it too safe.
If you’re the type of investor that doesn’t take any risk, chances are you’re not making much money on your investments. While each person has their own level of risk tolerance unique to their financial goals, being too conservative can also be detrimental to your financial progress. It could also be the reason why you’re not making money with your investments. While many of us look for secure investments that grow our savings, some might not be worth it. We may think “FDIC-insured” investments mean that our money will be protected while growing over time, but this is actually counterintuitive. Most of these investments, do nothing for your savings, but lock your money in for a set period of time — requiring a penalty for early withdrawal (if you ever needed to access your funds) and no incentive for growth. In some cases, you actually start to lose money over time due to inflation.
Before you decide to invest in FDIC-insured, low-earning options, such as certificates of deposit (CDs) and savings accounts, it’s important to consider how those funds could be better used to achieve your financial goals. Keeping your money stagnant, not only does nothing for your financial future, but it also limits what you can earn over time. And we all know, time is the one thing money can’t buy.