Are you also very disappointed with the annual interest that you get on your savings in your bank account? Yes... join the club. Maybe it is time for some smart investing. Here are some tips for how to start.

Return Of and On Investment

When you invest your hard-earned money, you are not only interested in the return on investment but definitely in the likelihood of the return of your investment. You want your money back. Depending on your attitude towards risks, you may accept it that in the short-term your investment declines a little in value.

But in the long-run you definitely want to get your money back and have made some good money on top of that.

Tip: When investing your savings, think about your long-term returns, not about your short-term gains. Aim to be very successful over a period of 5 to 10 years. Do not focus on next month.

It is easy to focus just on the potential (but not guaranteed) higher return on investment and forget about the return of investment. When investing, there are no rewards without risks. We are here to help you to manage these risks and make smart decisions.

To protect and grow your savings, you first need to make the decision in what to invest.

How to Invest Your Savings

When thinking about to invest your savings, most people think about three types of assets:

1. Stocks
    
2. Bonds
    
3. Mutual Funds

Stocks

All the business information, emotions of investors and risk assessments are represented in the current stock price. Unless you have inside information, very few investors, if any, can consistently make accurate predictions about whether the price of an individual stock will rise or fall on a given day.

Of course you can try to pick the long-term winners. People like Warren Buffett are very good at this. This is what they do. This is their profession. The people that can do this are extremely talented and rare. If you are one of them, you are truly blessed and would not need any stock market investing tips.

Bonds

When you buy bonds, you lend money to a government or corporation. You expect these institutes to pay you back the money plus a certain interest rate that is higher than what you get on your saving account. Just be aware that sometimes something goes wrong and they cannot pay their debt. In that case, bonds decline in value. Remember Enron. Think Greece.

When the central banks lower the interest rate, bonds increase temporarily in value. When they increase the interest rates, bonds decline temporarily in value. How much the value changes, depends on how much the interest is changed and how far in the future the bonds will have to be paid back by the borrower.

This is not the place to provide a complete investing guide into investing in bonds. Just be aware that not all bonds are without risk. Bonds with a shorter time-horizon are in general safer than similar ones that mature further out in the future. But shorter-term bonds provide also lower interest rates.

When investing your money in bonds, do your home work carefully and make sure you invest in very safe bonds. US treasury bonds and Inflation Protected Treasuries (TIPS) are probably your best bet at the moment of writing.

Here is a good article on another blog about how to invest in bonds and making certain mistakes with it.

Mutual Funds

Mutual funds are managed by a fund manager who invests the money of the people who buy that fund in a number of different stocks and, or bonds. Certain funds only invest in stocks; others only in bonds and a third category (Mix Funds) invest in both. Fund managers use their own buy sell signals and stock timing strategies.

Be aware of the extra risk that most mutual funds that invest in bonds carry compared to normal bonds. When normal bonds mature, you get in most cases a full return of investment. However funds of bonds invest in bonds with different maturity dates. The fund gets at a certain moment the money back, but since this is for all the different bonds at different moments, there is no guarantee that the value of the bond fund will at a certain moment in the future be higher than when you bought it. Return of 100% of your money is not guaranteed.

Mutual funds that invest in stocks follow the aggregate movements of those stocks. As an investor in those funds, you leave the stock picking to the fund manager. Mutual funds can spread the risk over many more individual stocks than that you can do as a simple investor. That sounds good. But are you aware that 80% of the mutual funds underperform the stock market index?That makes putting your money into mutual funds immediately a less attractive option.

Tip: Here is a better alternative than stocks, bonds and mutual funds. Invest in Index Funds. Go Index Investing!

Invest in Index Funds

Index funds are like mutual funds without any stock picking. There is no need for stock picking because a stock market index fund just invests in all the stocks that are included in the market index. There is no need for an expensive fund manager; thus your costs are lower. And the fund cannot underperform the stock market index… because it invests in this market index.

Now you may say that the index fund also cannot outperform the stock market index. And that is correct. You do not have that potential upside because you also do not have the risk of the potential downside.

Beating the Market

There is however a proven strategy to outperform the stock market index in the long-run. This approach is a combination of index investing and trend following and is sometimes called long-term market timing. Click on the links above to get more information on this.

When you want to achieve a higher return on your savings than you get at your savings account, your only solution is to invest your savings. Investing always carries risks. Before you invest your savings, make sure you are fully aware of these risks. Only invest the part of your savings that you do not need for the years to come. Take the long-term approach. Do not try to re-invent the wheel and use the proven investing approaches that are out there.

Read here more about how you can try for just one dollar a simple and proven stock market strategy to invest your money.