How to Make Your Money Work for You: 7 Modern Methods for Investing in “The Market”

How to Make Your Money Work for You: 7 Modern Methods for Investing in “The Market”

You work hard for your money, but do you know how to make your money work for you? No one wants to work until they die, right?

If you feel like you've never had time to really delve into the tangled web of market investing philosophies, this is the article for you.

I'm going to break investing down into 7 modern methods, and rate them on a risk scale from low to idiotic. (I promise, you are going to sound wicked smaht at your next social affair.)

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So, why are we discussing investing “philosophies” specifically, when it comes to how to make your money work for you?

Well, let's look at some of the other common topics/questions people search for around this subject, such as “how to invest 100k,” “how does investing work,” “how to invest in S&P 500,” “best way to invest 5000?” “how to invest 50K,” “which investment type typically carries the least risk?”or “how many stocks should I own.”

To answer to ALL of these questions, you first have to decide on an investing method or philosophy to reach your end goal. Once you decide on a particular method, you'll then place your money into the best investment vehicles to take the long ride to the promised land (aka retirement, or possibly early retirement)!

Now before I go on, I would be remiss if I didn't mention that if you want to invest in the market, I highly recommend you first start by tracking your spending, creating a monthly budget, and maximizing your savings rate. Then choose which investment vehicles will produce the best returns for those savings. Also…

A Couple of Ways You Can Invest Your Savings

If you have read all the other articles on my blog (or even just this one on big picture investing) you will have deciphered that I see two common investing avenues for your savings: public markets investing and personally owned real estate. Here is a quick refresher…

Public markets investing is the approach that is commonly referred to as “investing in the market.” That of course is a broad term that encompasses many things, including buying stocks, bonds, commodities, REITs, etc.

Personally owned real estate refers to owning actual properties yourself. This includes residential rentals, commercial rentals, and even positions in syndication deals.

If you want to read more about Real Estate 101, you can hop over to that post after you read this one. But in this post I am going to discuss the ways you would invest in the public markets!

Now, let's discuss the market philosophies on how to make your money work for you.

7 Common Methods (or Philosophies) to Consider When Investing in “The Market”

There are so many various investment vehicles available in the market, it can be head spinning. 

Fortunately, we can make this topic much easier to understand by not discussing specific investment vehicles right away, but by discussing investing methods first. 

I consider a “method” to be a delivery container, of sorts, for the investments you eventually end up making. You might also describe these methods as “asset allocation philosophies” if you wanted to sound more “pro” about it.

With that in mind, I am now going to lay out 7 basic methods you would employ to make your investment decisions on how to make your money work for you. (FYI: the names I give them are my own, and are representative of where I most commonly find these methods being championed around the internet, but they have all been around for a long time!)

The Motley Fool Method – 20 to 30 Individual Stocks

Risk Score: High

The Motley Fool is essentially a stock advisory service. They started out as a newsletter (like one you would get in the mail!), that would give you stock recommendations. Now they have grown into a full service money management firm.

how many stocks should I own

The foundation of TMF's philosophy is that you can get the best investing returns by investing in 20-30 quality, well-researched individual stocks for the long term, as opposed to investing in the stock market as a whole via an S&P index fund.

Their initial flagship newsletter, Stock Advisor, still exists and is $99/year. For that price you also get access to lots of great research and stock tracking tools.

My big issue with TMF is that while they say you should open 20-30 stocks, they actually recommend a few hundred in their newsletter.

So, if you are on your own to decide which of these to narrow it down to…it somewhat negates the value of the service. Of course, you can pay them a lot more money to get that more specific instruction.

The FI/RE method – 100% Stocks Via an Index ETF

Risk Score: High to High/Medium

For those of you not familiar with FI/RE, it stands for “Financial Independence / Retire Early.” It’s a totally cool new(ish) movement of people who want to retire early for some strange reason. Weird.

Anyway, FI/RE people (often) will tell you that you need to just invest your savings in the total US stock market. Yeah. All of it.

No, you are not going to try and buy 3000 individual company stocks. You would invest all your money in a low cost “Index Fund ETF” (see glossary below if you need to).

There are two index fund ETFs you would probably look at for this.

Option 1 would be the S&P 500 SPY ETF, which collectively purchased for you the top 500 publicly traded companies in the US (many of which have significant international business exposure).

Option 2 would be The Vanguard Total Stock Market Index ETF or VTI. This fund collectively invests your money in 100% of the investable US stock market.

The Boglehead Method – A Mix of Stocks and Bonds

Risk Score: Can range from High/Medium to Medium/Low

Some of you may have heard the term “Bogleheads.” These are people that subscribe to the basic investing philosophy of John Bogle, founder of the well known financial firm, Vanguard

vanguard offers many investment vehicles

Bogle hypothesized that most money managers will not beat the average market returns over time, so you should just invest in the market as a whole through index funds with low fees, instead of individual stocks or managed mutual funds.

Sounds familiar right? Like, I literally just wrote about doing that in the last method (investing in the entire market using Index Fund ETFs).

And notice one of those two funds I mentioned was a “Vanguard” fund. Not a coincidence. Vanguard made investing in low cost stock market index funds mainstream (if not invented it).

However, Bogle didn't think you should be fully invested in just the stock market, because it’s too risky. So he basically said that you should invest in a mix of the stock market AND bonds. And the percentage of bonds you should have should roughly equal your age.

You would add the bonds to your portfolio via a bond fund, and adjust the percentage of bonds roughly annually. And if you are thinking, “Man, I don’t want to have to deal with that,” then you can look at Vanguard's Target Retirement Funds, where they rebalance based on your age and target retirement date.

I should also say that while I have given credit of this philosophy to Bogle (more for fun)…it is probably the most widely subscribed approach that money management firms take. 

The Dividend Method – Cash Flow and (Hopeful) Appreciation Through Dividend Stocks

Risk Factor: Can range from High/Medium to Medium

This method is a little similar to the Motley Fool method, in that your portfolio may be made up of individual stocks. The difference is that these stocks would not be “growth stocks.” They would be very mature companies often referred to as “Blue Chip Stocks” (like Coca Cola and AT&T).

These mature companies don’t take all of their profits and reinvest them back in the company (like growth stocks), but instead distribute some of those profits to shareholders on a quarterly basis. Some of these dividend yields can range from 4% to 12% (compared to today’s savings account at .25% to 1%).

Dividend investing is somewhat similar to owning real estate. The idea is that you get a steady stream of cash from the dividend, but then you also hope to grow your cash investment through the stock appreciating.

That said, since these companies are larger, more established businesses, their potential appreciation would, in theory, be far less than that of a growing company. But, the flip side of that fact is that these companies would be far less volatile as well, therefore reducing risk.

So here's the rub. These companies can cut their dividend at any time, and their stock price itself can still be quite volatile. So I personally still consider dividend investing to be relatively high risk.

The Permanent Portfolio Method – A Mix of Stocks, Bond, Gold and Cash

Risk Score: Medium/Low

The “Permanent Portfolio” method is an investing philosophy invented by a fella named Harry Brown. He wrote a book called “Fail-Safe Investing,” in which he outlines the reasons he thinks you should invest all of your money in a simple asset allocation of 25% US Stocks, 25% Bonds, 25% Gold and 25% Cash. You would rebalance back to these percentages once per year.

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It’s a really good book, and I recommend anyone read it. It not only prescribes the method, but gives you a good overview of investing and economics in general. 

Now this method is probably more correctly coined as a “Capital Preservation Strategy” or an “All Weather Portfolio”. Another similar version of this would be The Golden Butterfly portfolio.

The idea is to have a broader asset allocation of non-correlated assets (more than just stocks and bonds), that working in tandem limits your risk greatly while still producing your hopeful compound annual returns of 6-8%.

Much like with the previous portfolios, nowadays you would buy into this using ETFs. So something like 25% SPY, 25% TLT, 25% GLD and 25% cash in the account. But you could go with different funds as well, of course.

FYI…I employ this portfolio in my retirement accounts. Being “semi-retired,” capital preservation is much more part of my thought process now. 

The Fixed Income Method – A Very Conservative Strictly Bond Portfolio

Risk Factor: Low

“Fixed income” is another term for bonds. Remember bonds are basically loans you make to governments or companies where they have promised to pay you a specific interest rate for the loan. The interest they are paying you is fixed, and is also income…hence “fixed income.” 

Don’t be thinking bonds are totally boring though…they have often greatly out-performed stocks in the right conditions. But generally speaking, people get into bonds that want as much capital preservation as possible, while getting as steady of a return as possible.

So when we apply life’s old adage “ no risk, no reward,” you can quickly surmise that the returns for bonds will generally be lower over time, as the risk is intended to be lower.

If you are now wondering how they could outperform stocks, it’s because bonds can be traded in what’s called the “secondary market.” For example, if I bought a 20 year bond at say 8%, but since rates have gone down to 6%, I can sell that bond in the secondary market for a premium (aka profit).

That said, if you “trade bonds” they can become riskier. And often bond funds do just that. So even with bonds you have to decide what your risk tolerance is and invest accordingly.

Other than that, bonds can be about as safe and vanilla as it gets…aka US Treasury Bonds…backed by the full faith and credit of the US government.

The “Day Trading” Method – What Most People Do at First (Without Knowing It)

Risk Factor: Idiotic to Very High

I call this a method lightly.

So what's a day trader? My real definition of a “day trader” would be, “Someone who buys, sells and short-sells stocks throughout the day in the hope that the stocks continue climbing or falling in value for the seconds or minutes they hold the shares, allowing them to lock in quick profits.”

Now very few people can actually do this, and many who try lose literally all their money, very quickly. You could be generous and say it’s “informed gambling,” but really it’s just gambling.

The reason I put this on this list, though, is to describe what I think many new investors end up doing (at least until they have some big losses). I see many newbies just start picking stocks to invest in based on blogs they read, tips their friends give them or even by just the sway of what everyone else in the world seems to be buying.

In the beginning, sometimes they do well and make some quick money, thereby thinking they are genius investors making prudent decisions! But the reality is, they are just guessing, and really have no understanding of what’s involved in picking a winning stock (don’t feel bad, I don’t either).

And while they may not be trading on a daily basis, they are getting in and out of stocks frequently, and are not committed to a long term plan. Very often, they usually only talk to their buddies about their winners, and are likely taking a net loss (just like career gamblers!).

All that said, I know a few people who piled a lot of money into Tesla and Apple, and have made big returns just by following the herd. But, they still were just guessing. It’s a dangerous game when you have a lot to lose.

I personally like to gamble, so I have a “gambling” fund that I do this kind of investing with. Overall, I'm down. But, it’s money I’m willing to lose for the entertainment of it (if you can call it that. It mostly just gives me grief!).

Okay…So I Still Have No Idea What to Do 🙁 Can You Just Tell Me What to Invest In?

Sorry, I can’t. I know…super annoying. The reality is that I'm not a licensed financial advisor, so I can’t give you very direct investing advice. Plus, in order to give advice I would need to know the details of your personal situation, your goals, your risk tolerance and a few other things.

What I can say is that, in my opinion, most people should probably be doing the “Bogle” method or the “Permanent Portfolio” method. If you are very young, you could consider doing the FI/RE method. If you are in retirement, you’ll  be looking at a “high bond % bogle”, “PP” or maaaybeee even the “Dividend” method.

If you decide that you really want to get into investing, and educate yourself, you could consider the “Motley Fool” method. But again, you will be making a lot of calls yourself. I have done this and had lots of ups and downs with ultimately low performance. 

Part of the issue with individual stocks is not just picking them…it’s having the disciple to stay the course (assuming it's a good one), and not do anything stupid…like selling in a down turn (which will usually be far more intense if you are in individual stocks). Emotions are such a huge part of investing and they usually *$&%^ you over big time.

Fine, Then at Least Tell Me How I Actually Invest in One of These Market Methods!

In terms of how you physically get your money into these interest compounding machines, here are some of the ways.

You do it yourself

This may be what you do at the beginning because you won’t have much to invest. Actual human advisors (and their firms) often have a minimum investment for managed accounts.

First, you would open a brokerage account, or perhaps a tax deferred retirement account, like an IRA. These accounts would give you the access to buy the various investments that will be part of your methodology and asset allocation.

You could get an account at a more traditional brokerage house like Fidelity, or go with more of a new-school outfit like Robinhood.

Basically you’ll have to figure out your own asset allocation, or perhaps invest in a target retirement ETF. But If you are going with the FI/RE method or the Permanent Portfolio, you don’t need to figure out anything. Those methods have predefined asset allocations.

A robo-advisor

Robo-advisors are a popular new option for having your investments managed. Though not limited to small balance accounts, they are often available to people that don’t have enough to lure in a human.

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If you are wondering what a Robo-advisor is, they are software platforms that use digital algorithms and automation to offer financial planning and investment services to investors, without direct human supervision.

When you sign up, they will ask you a bunch of questions to assess your goals and risk tolerance, then the robot will invest your money accordingly and keep adjusting it over time. Robo advisors will likely employ the Bogle method of investing for you.

The more I write this, the more I think this is probably one of the better bets for newbies. I even wrote this post listing a bunch of Robo-advisors that you can check out!

Through your employer sponsored retirement plan

If you have a job that offers a 401K, you will usually be at the mercy of the investment options that your plan offers you. This may very well include a target retirement date fund of some kind.

If not, you will again be on your own to figure out your asset allocation (which would comprise the investment options the plan offers). However, you may still be able to attach Robo-advisor oversight by signing up for Blooom, which supposedly works on top of your workplace 401K. 

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A financial advisor (and their firm)

Once your balance get high enough, you may qualify for the privilege of working with a real live person (and possibly even get ripped off by them!). Minimum investments can start at 25K and up for this.

Usually your “advisor” is really just a client relationship manager, while the real investing decisions are made by the firm's investment strategy team. 

To get the help of this team you usually give them 1% of your account value annually as a fee. The theory is, however, that they will have earned you more than that 1% beyond your alternative investment management options.

I will say that before you trade up to this option, you should read chapter 5 of this book by Tony Robbins and Peter Mallouk. It will help guide you in choosing the right kind of advisor. There are some trap doors when you get to this level.

A mix of the above

It is possible that you end up using a few of the options above. Currently I am doing two of these myself. I have two retirement accounts, one of which I manage with the Permanent Portfolio method, while the other I have a firm manage, doing the Bogle method.

You could make an argument that by doing this, I am not correctly invested because I have not committed to one strategy…and you would kind of be right. But I wanted to see which would do better. Over the last two years, the Permanent Portfolio has done better (that includes the Covid anomaly though).

Closing Thoughts on How to Make Your Money Work for You…

This article showed you that there are very specific methods of how to make your money work for you. I hope it helped get you pointed in the right direction.

Investing is both difficult and scary. And the more money you amass, the more difficult and scary it will get.

For this reason, I think most people will eventually want to work with a financial advisor of some kind, if only so that they don’t blow it on their own! But that is scary too…giving over control of your savings to someone you don’t know.

The truth is that you’ll likely never have a consistent positive emotional experience with investing. When the markets are up, you’ll feel both calm and enthused. When they're down, you’ll feel anxious and that you picked the worst advisory firm on the planet!

But despite the ups and downs, you have to invest your savings, so they are working for you (while you're also working for you). You've got to play to win.

Glossary of Terms

For those of you who are very new to this, and found much of what I wrote above a bit mysterious, I have defined some of the terms I used in the explanations. I also want to give this credit to the website where I stole most of these definitions!

Asset Allocation: involves dividing your investments among different categories, such as stocks, bonds, and cash.

Bonds: Are debt securities, similar to an IOU. Borrowers issue bonds to raise money from investors willing to lend them money for a certain amount of time. When you buy a bond, you are lending to the issuer, which may be a government, municipality, or corporation.  In return, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal. 

Bond Fund: A “bond fund” and “income fund” is a term used to describe a type of investment company (mutual fund, ETF, closed-end fund or unit investment trust (UIT)) that invests primarily in bonds or other types of debt securities. 

Commodities: Are hard assets ranging from wheat to gold to oil. Commodities are traded (bought and sold) on the U.S. commodities markets in Chicago, New York, and Atlanta.

Compound Interest: Interest paid on principal and on accumulated interest previously paid. Effectively, over time you are receiving interest on interest (that has been reinvested).

Diversification: is a strategy that can be neatly summed up as “Don't put all your eggs in one basket.” The strategy involves spreading your money among various investments in the hope that if one loses money, the others will make up for those losses.

Dividend: A portion of a company's profit paid to shareholders. Public companies that pay dividends usually do so on a fixed schedule although they can issue them at any time. Unscheduled dividend payments are known as special dividends or extra dividends.

Exchange Traded Funds: ETFs are SEC-registered investment companies that offer investors a way to pool their money in a fund that invests in stocks, bonds, or other assets. They are funds that are traded just like stocks.

Index: A market index is a measurement of the performance of a specific “basket” of stocks considered to represent a particular market or sector of the U. S. economy. For example, the Dow Jones Industrial Average (DJIA) is an index of 30 “blue chip” stocks of U.S. companies. Other indexes include the S&P 500 Index, the Russell 2000 Index or the Wilshire 5000 Total Market Index. 

Index Fund: An “index fund” describes a type of mutual fund or unit investment trust (UIT) whose investment objective typically is to achieve approximately the same return as a particular market index, such as the S&P 500 Index, the Russell 2000 Index or the Wilshire 5000 Total Market Index. 

Mutual Fund: A mutual fund continuously pools money from many investors and invests the money in stocks, bonds, money market instruments, other securities, or even cash.

REITs: A real estate investment trust is a company that owns and typically operates income-producing real estate or related assets. These may include office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans. Unlike other real estate companies, a REIT does not develop real estate properties to resell them. Instead, a REIT buys and develops properties primarily to operate them as part of its own investment portfolio.

Risk Tolerance: An investor's ability and willingness to lose some or all of an investment in exchange for greater potential returns. I personally like to describe this as “a person's willingness and/or ability to keep working of the market experience a significant prolonged downturn”

Stock: An instrument that signifies an ownership position (called equity) in a corporation, and a claim on its proportional share in the corporation's assets and profits. Most stocks also provide voting rights, which give shareholders a proportional vote in certain corporate decisions, such as the election of corporate directors.

Yield: The annual percentage rate of return earned on a bond calculated by dividing the coupon interest rate by its purchase price.


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