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You Only Have $5. What is the Best Way to Invest and Grow your Money?

You Only Have $5. What is the Best Way to Invest and Grow your Money?

The following answer by Visakan Veerasamy found in Quora teaches you how you can grow your money when you only have $5.

I remember reading Tina Sellig’s (executive director of the Stanford Technology Ventures Program) book- What I wish I knew when I was 20. (I don’t know Tina, though I wish I did, and I love her book.)

She gave her students the exact same problem. Here are her words, with my emphasis. If you don’t have time to read the whole thing, just skim and read the words in bold.

“What would you do to earn money if all you had was five dollars and two hours? This is the assignment I gave students in one of my classes at Stanford University, as part of the Stanford Technology Ventures Program…

Each of fourteen teams received an envelope with five dollars of “seed funding” and was told they could spend as much time as they wanted planning. However, once they cracked open the envelope, they had two hours to generate as much money as possible. I gave them from Wednesday afternoon until Sunday evening to complete the assignment.

Then, on Sunday evening, each team had to send me one slide describing what they had done, and on Monday afternoon each team had three minutes to present their project to the class. They were encouraged to be entrepreneurial by identifying opportunities, challenging assumptions, leveraging the limited resources they had, and by being creative.

las vegas

    What would you do if you were given this challenge? When I ask this question to most groups, someone usually shouts out, “Go to Las Vegas,” or “Buy a lottery ticket.” This gets a big laugh.. These folks would take a significant risk in return for a small chance at earning a big reward.

    lemonadestand

      The next most common suggestion is to set up a car wash or lemonade stand, using the five dollars to purchase the starting materials. This is a fine option for those interested in earning a few extra dollars of spending money in two hours.

      But most of my students eventually found a way to move far beyond the standard responses. They took seriously the challenge to question traditional assumptions—exposing a wealth of possibilities—in order to create as much value as possible.

      How did they do this? Here’s a clue: the teams that made the most money didn’t use the five dollars at all. They realized that focusing on the money actually framed the problem way too tightly. They understood that five dollars is essentially nothing and decided to reinterpret the problem more broadly: What can we do to make money if we start with absolutely nothing? 

      They ramped up their observation skills, tapped into their talents, and unlocked their creativity to identify problems in their midst—problems they experienced or noticed others experiencing—problems they might have seen before but had never thought to solve. These problems were nagging but not necessarily at the forefront of anyone’s mind. By unearthing these problems and then working to solve them, the winning teams brought in over $600, and the average return on the five dollar investment was 4,000 percent! If you take into account that many of the teams didn’t use the funds at all, then their financial returns were infinite.

      queuing up

        So what did they do? All of the teams were remarkably inventive. One group identified a problem common in a lot of college towns—the frustratingly long lines at popular restaurants on Saturday night. The team decided to help those people who didn’t want to wait in line. They paired off and booked reservations at several restaurants. As the times for their reservations approached, they sold each reservation for up to twenty dollars to customers who were happy to avoid a long wait. 

        As the evening wore on, they made several interesting observations. First, they realized that the female students were better at selling the reservations than the male students, probably because customers were more comfortable being approached by the young women. They adjusted their plan so that the male students ran around town making reservations at different restaurants while the female students sold those places in line. They also learned that the entire operation worked best at restaurants that use vibrating pagers to alert customers when their table is ready. Physically swapping pagers made customers feel as though they were receiving something tangible for their money. They were more comfortable handing over their money and pager in exchange for the new pager. This had an additional bonus—teams could then sell the newly acquired pager as the later reservation time grew nearer.

        fixing a bike

          Another team took an even simpler approach. They set up a stand in front of the student union where they offered to measure bicycle tire pressure for free. If the tires needed filling, they added air for one dollar. At first they thought they were taking advantage of their fellow students, who could easily go to a nearby gas station to have their tires filled. But after their first few customers, the students realized that the bicyclists were incredibly grateful. Even though the cyclists could get their tires filled for free nearby, and the task was easy for the students to perform, they soon realized that they were providing a convenient and valuable service. In fact, halfway through the two hour period, the team stopped asking for a specific payment and requested donations instead. Their income soared. They made much more when their customers were reciprocating for a free service than when asked to pay a fixed price.

          For this team, as well as for the team making restaurant reservations, experimenting along the way paid off. The iterative process, where small changes are made in response to customer feedback, allowed them to optimize their strategy on the fly.

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          lecture theatre

            Each of these projects brought in a few hundred dollars, and their fellow classmates were duly impressed. However, the team that generated the greatest profit looked at the resources at their disposal through completely different lenses, and made $650. These students determined that the most valuable asset they had was neither the five dollars nor the two hours. Instead, their insight was that their most precious resource was their three-minute presentation time on Monday. They decided to sell it to a company that wanted to recruit the students in the class. The team created a three-minute “commercial” for that company and showed it to the students during the time they would have presented what they had done the prior week. This was brilliant. They recognized that they had a fabulously valuable asset—that others didn’t even notice—just waiting to be mined.

            Tina was trying to teach her students something. And she gave them a powerful gift she helped them see for themselves that they were boxing themselves in with limitations.

            Yes, a lawyer could make money just working a couple of hours. Yes, it takes time and physical effort to make money. But what are the assumptions you’re making in your daily life? What are you not looking at? What have you taken for granted?

            Anybody can ask you those questions, but not everybody can set you up and put you in a place that makes you most receptive to appreciating the full power of those questions.

            If you can tell me that you go about your life questioning every assumption and leveraging every hidden advantage, sure. But are you? What would it take to get you to start doing that?

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            Brian Lee

            Chief of Product Management at Lifehack

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            Published on May 7, 2019

            How to Invest for Retirement (The Smart and Stress-Free Way)

            How to Invest for Retirement (The Smart and Stress-Free Way)

            When it comes to stocks, I bet you feel like you have no idea what you’re doing.

            Everyone who’s not a financial expert has been there. I’ve been there. But, time is passing and you need to be crystal clear with how you’re investing for your retirement.

            Otherwise, it’s back to work until you can afford not to. So, how can you invest for retirement when you’re not a financial expert?

            You take the time to learn the fundamentals well. If you do, you can grow your wealth and retire happy. The best part is that you don’t need to be a financial expert to make smart investment decisions.

            Here’s how to invest for retirement the smart and stress-free way:

            1. Know Clearly Why You Invest

            Odds are you already know why should invest for retirement.

            But, maybe you know the wrong reasons. It’s time you get clear on why you’d like to retire. Here are some questions to help you get started:

            • Will you spend more time with your family?
            • What does retirement mean to you?
            • Are you looking to launch that business you’ve been holding off for years?

            Everyone wants to retire but not for the same reasons. Once you’re clear for why retirement is important for you, you’ll focus on making it happen.

            Investing in the stock market allows you to take advantage of compound interest.[1] All this means is that your money earns money on top of its interest. A reason why investment in the stock market is one of the best ways to plan for retirement.

            2. Figure out When to Invest

            “The best time to plant a tree was 20 years ago. The second best time is now.”– Chinese Proverb

            It’s true if you’d had started investing when you were 10 years old, you’d have a lot more money than you do today.

            The reality is that most people don’t start investing until it’s too late. So, if you’re currently waiting for the perfect time to start an investment, it would be today. Open your calendar and block out 2 to 3 hours to choose how you’ll invest for retirement.

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            A quick way to get a snapshot of where you stand is to use Personal Capital. Input all your personal information and spend some time setting your retirement goals. Once completed, you’ll know where you stand with your retirement.

            Having a savings account for retirement isn’t planning for retirement. Why? Your money loses value when you factor in US inflation.[2]

            3. Evaluate Your Risk Tolerance to Create the Perfect Portfolio

            Investing your money well depends on your emotions.

            Why?

            Because when the market drops most people panic and withdraw their money. On average, the US stock market yields an annual 6% to 7% ROI (return on your investment.) But, this won’t happen if you’re worried about short-term loses.

            Before you invest your next dollar, know your risk tolerance.[3] Your risk tolerance determines the number of risky and safe investments you’d have.

            Regardless of your investing style, you need to view investing for retirement as a long term game. Know that some years you’ll lose money but recoup this in the long-term.

            Avoid watching market-related new. Also, create a double authentication to log in your investment account. This way you’re less likely to withdraw your money.

            4. Open a Reliable Retirement Account

            Depending on your circumstance, you may need to open a new brokerage account. This is the account is where you’ll invest your money.

            If you’re currently working for a company, odds are that they offer a 410K investing account. If so, here’s where you’ll invest most of your money. The only problem with this is that you’re limited to the stock options that are available.

            You do have the option to open a separate IRA (individual retirement account.) Here are some of the best brokers:

            1. Vanguard
            2. TD Ameritrade
            3. Charles Schwab

            5. Challenge Yourself to Invest Consistently

            Committing to invest for retirement is hard, but continuing to do so is harder.

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            Once you’ve started investment for your retirement, you run at risk from stopping. Often you’ll want to contribute less, so you’d have more money in your pocket.

            That’s why it’s important that you create a budget that allows you to invest each month. If you’re working for a company, you can set a percentage for the amount you’d like to contribute each month. Most people by default contribute 1% but aim to contribute 10% to 15%.

            Be the judge for how much you can afford to contribute after covering important expenses. To stay motivated, use Personal Capital to view your net worth.

            A benefit to contributing money to your retirement account is not taxed. For example, if you earn $100 and invest 10%, you’d contribute $10, then get taxed on the remaining $90. As of 2019, the most you’re able to contribute towards your 401K is 19K but this can change.

            6. Consider Where to Invest Your Money

            The most common way to invest your money is in stocks, but it’s not the only way. Here are other ways to invest:

            Robo Advisors

            Robo-advisors[4] are fancy algorithms that’ll choose the best investments for you. Sites like Wealthfront make it easy for first-time investors to invest their money. You’d input information about yourself and set your risk tolerance.

            Then, set your monthly contribution amount and your robo-advisor would do the rest. Robo-advisors charge a fee to manage your money, but less than regular advisors.

            Bonds

            Think of bonds as “IOUs” to whomever you buy them from.

            Essentially, you’re lending money and charging interest. Like stocks, not all bonds are equal. Some will be riskier than others depending on their rating.

            Here are the different types of bond categories:[5]

            1. Treasury bonds
            2. Government bonds
            3. Corporate bonds
            4. Foreign bonds
            5. Mortgage-backed bonds
            6. Municipal bonds

            Mutual Funds

            Picture a group of people dumping all their money in a jar that’s managed by a professional. This is how mutual funds work. The fund manager manages the money looking to earn capital gains (interest.)

            One of the best types of mutual funds is index funds. Since these funds don’t try to beat the market and instead follow it, they need less research. Because of this they often charge the lowest fees and yield the best long-term results.

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            Real Estate

            Yes, buying a home is an investment when done correctly.

            Imagine buying a home and using it as a rental property. After repairing it, you receive a monthly surplus check of $100 to $200.

            This may not sound like a lot, but repeat this process enough times and you’d earn a large amount of passive income. That’s why real estate is one of the best investments to not only retire but become wealthy.

            But, it requires a lot of money to start and you should expect losing money along the way as you learn the process.

            Savings Accounts

            Your money can still grow in a savings account. Nowadays most online banks offer a 2% annual return. Although the average inflation is higher your money will be available when you need it.

            7. Master Disincline to Dodge Short Success

            Investing for retirement is a long-term strategy. That’s why you need to master delayed gratification. All this means is delaying short-term pleasure for something bigger in the future. Research shows that those who have delayed gratification are more successful.[6]

            So how can you master delayed gratification?

            By building your discipline.

            Think back to what retirement means to you. A clear purpose will help you avoid withdrawing your money during a market downturn. It’ll help you contribute more towards retirement when you’d want to waste it instead.

            Your journey towards retirement will be long, so reward yourself along the way. Choose a reward that’s relevant and meaningful, so that you reinforce positive behavior. For example, after contributing more towards retirement, treat yourself to dinner.

            8. Aggressively Invest on This One Investment

            I’ve mentioned several types of investments but haven’t covered the most important one.

            It sounds cliche but here’s why you’re your best investment towards retirement. The more you know, the more money you’ll be able to make. The more good habits you adopt, the more secure your retirement will be.

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            More importantly, investing in yourself is an investment that no one can take away. There’s no market downturn nor tragic circumstance that’ll wipe your knowledge and experience.

            But, how can you invest yourself?

            Reading books, blogs, and anything that’ll help you learn new topics daily. Listen to podcasts and audiobooks on your commute to/from work.

            Save money to buy courses and hire coaches. I used to believe hiring coaches was a waste of money when I could learn the subject alone.

            But, coaches see your blind spots and hold you accountable. Hiring the right coach will help you achieve your goals faster than you would’ve alone.

            Retire Happy with Excess Money

            The key to a secure financial future doesn’t only belong to financial experts.

            It’s possible for you and I. What if you were able to retire earlier than most people and weren’t a financial planner? What if you were able to focus on what you enjoy doing the most while your money was working hard for you?

            I know this sounds impossible now, but the truth is you’re capable of taking charge of your retirement. I’m not a financial expert but I’ve learned how to invest my money by reading books and learning from others.

            Investing your money is scary. So start small and invest a small amount of your money with a robo-advisor. Feel your money drop and rise for a month or two. Then, invest more and keep this up until you’re aggressively saving for retirement.

            One day, you’ll wake up with a net worth you’re proud of – confident about your retirement. You now know a few strategies you can use to invest in your retirement. Will you take action to retire happy?

            More Articles About Making Wise Investment

            Featured photo credit: Matthew Bennett via unsplash.com

            Reference

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