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How to Invest Side Hustle Money

How to Invest Side Hustle Money for Beginners

You’ve figured out how to make an extra $1,000 per month from a few side hustles.  Your goal might be to retire early, save for a new home or major purchase, or maybe just reach that dollar amount goal as soon as possible.  Now that you’ve got that extra income coming in on a regular basis, the question is now “what is the best way to invest your side hustle money?”

Here are a few easy to understand strategies for investing your side hustle money, regardless of your investing experience.  The results are even more passive income, and an ever-increasing net worth.

Investing Your Side Hustle Money Has Enormous Potential…

Your side hustle money is the extra income you make from side jobs outside of your regular full-time job.  This might be from freelance work you do on the side, income from your ecommerce store, or perhaps its from providing taxi services through ride share services like Uber or Lyft.

If you’re making anything from a few hundred bucks to an extra $1,000+ per month, a smart strategy is to invest that money for the long run. Why? The math speaks for itself:

  • An extra $1,000 per month income from your side hustle money that is invested in the stock market is an extra $12,000 per year saved and invested.
  • If your annual rate of return on investment is just an average 7%, your $12,000 would then be $12,392.59. Here’s what it would look like after 5, 10, 15 and 30 years:

 

Annual Investment After how many years… Total Amount Invested Annual Rate of Return Total Ending Balance
$12,000 5 Years $60,000 7% $71,592.90
$12,000 10 Years $120,000 7% $173,084.81
$12,000 15 Years $180,000 7% $316,962.30
$12,000 30 Years $360,000 7% $1,219,971.00

 

And that’s assuming your side hustle income never increase over the years, and that your rate of return is just 7% which is pretty conservative.  Ready to start investing side hustle money? Here’s how to get started…

3 Simple Steps to Invest Your Side Hustle Money

If you’re new to investing, don’t be alarmed.  The process iS quite simple, and doesn’t take prior experience to begin.  If you’ve invested before, consider this a quick refresher.  Follow this three-step process to start investing your side hustle money:

#1: You need to open up an investment account

Open an Investment Account Online

You can check with your local bank for options to open an investment account, or you can use a modern investing app that is cost effective and very accessible.  Popular investment apps to start with are Betterment, Wealthfront, Acorns, or Stash Invest.  Betterment and Wealthfront are both more “hands-off investing”, Acorns allows you to invest and round up your daily purchases to invest spare change, and Stash Invest is great for a bit more hands-on approach to investing, with expert guidance and investment options.

#2: Determine your investment objective

Different investment objectives will have different investment strategies and time frames. If you’re investing for retirement, your time frame may be much longer, and your investments more aggressive.  If it’s for a down payment on a home in the next 3 years, your timeframe is shorter (obviously) and your investment choices more conservative.

#3: Pick your investment vehicle

Based on your investment objective in step two, you need to select an investment vehicle that suits your situation. Investment vehicles include stocks, bonds, mutual funds and exchange traded funds.

Investing in individual stocks is the riskiest option, and in most cases should only be done if you’ve got prior investment experience.  A mutual fund is a basket of investment companies chosen based on the fund objective.  An investment in a mutual fund is an investment in possibly hundreds of companies, and most often actively managed by fund managers.

Lastly, exchange traded funds are similar to mutual funds in that they are a basket of companies based on the fund objective, but are actively traded on the stock market and are treated like individual shares of stock.  Exchange traded funds are the most automated, hands off, and cost-effective option in most cases.

Simple Strategies to Maximize Your Investment Returns

The above grid is very attainable, and actually quite conservative.  Imagine if you invested double the amount, and got a 9% annual return! The following tips have the potential to do just that. (What’s the total ending balance of $2,000 invested monthly at 9% return after 30 years? We’ll find near the bottom of this article…)

Diversify Your Investments

Diversification means spreading out your money among multiple companies, industries and investment vehicles.  Why is this important? If you only invested in one company alone, you risk losing all your money if that company decides to go bankrupt.  And, if you invest in multiple companies, and multiple industries, chances are if one company or investment is doing bad, others are doing very well to offset potential losses.

Invest in What You Believe

If you don’t understand the basic concept of an investment fund, company or industry, then you probably should pick a different option to invest in.  Why is this important? It allows you to better understand your investment growth, how major industry and economic events may affect your investments, and ultimately puts your money to work in causes you believe in.

You may choose to invest in an exchange traded fund whose objective is to invest in technology companies with large potential to grow, because you believe in and understand technology.  Perhaps you want to invest in a fund that supports companies striving to solve major challenges such as clean water, green energy, etc.  These are just a few examples among many options.

Invest Side Hustle Money for The Long Term

Do you know what percentage of all the recessions have returned their value and even exceeded their market value? 100% of any recession the stock market has seen has made back it’s value and continued to exceed it.

Investing for the long term has a higher chance of long term and exponential growth, as compared to trying to time the market.  It also allows compound interest to fully take its course, and accelerate your overall return.  While long term investments aren’t necessarily suitable for everything such as saving for a down payment on a home, it should be an objective for a portion of your investments.

The Power of Compound Interest

Investing your side hustle money has major potential to make you a wealthy individual.  The key is following the tips above, and keeping your investments consistent for many years.  To show you the potential, here’s the answer to the question asked near the beginning of the article…

If you invested $2,000 per month for 30 years, and an average annual rate of return of 9%, how much would your ending balance be? Your ending balance after 30 years would be $3,661,486.97. Compare that to $1,000 at 7% for 30 years from the grid above, your ending balance was just $1,219,971.00.  The difference is over triple the value.  See the power of compound interest?