How to Put Your Money to Work: 5 Wise Investment Strategies

Would you like to turn your savings into lasting wealth? How can you make smart investment choices that generate sustainable passive income?

Real estate investor and broker Scott Trench shares proven strategies for building wealth through strategic investing in his book Set for Life. From maximizing returns on index funds to leveraging real estate opportunities, his approach helps transform hard-earned savings into reliable income streams.

Keep reading to discover how to put your money to work through time-tested investment strategies that can create lasting financial freedom.

Put Your Money to Work

Trench writes that, once you’ve earned at least $100,000 by cutting expenses and finding higher-paying work, you’re ready for the final step to financial freedom: investing your money wisely. Your goal is to invest your savings to earn enough passive income to take care of all your living costs. We’ll cover Trench’s advice on how to put your money to work, including maximizing investment returns, using your time and effort efficiently, managing risk, and investing in index funds and real estate.

(Shortform note: According to many financial experts, you don’t need a large amount of money to start investing. You can begin with as little as $3 through investment apps like Acorns or Stash, $500 through robo-advisors, or whatever you can contribute to your employer’s 401(k). However, they recommend that before jumping into any investment, you first pay off high-interest debt, then build an emergency fund covering six months of expenses, and finally consider your personal goals and risk tolerance when choosing investments.)

Strategy 1: Boost Your Investment Profits

To get the most out of your investments over time, Trench suggests never spending the original amount of money you put into an investment. You should think of invested dollars as permanently dedicated to working for you and only spend the profit they bring. For example, if you invest $20,000 and it grows to $21,000, you can use the $1,000 gain, but leave the original $20,000 alone. This helps your investments keep growing and producing income indefinitely.

Trench advises against spending all of your investment profits, however. He suggests you spend only 25 to 30% and reinvest the rest to allow your wealth to compound faster. Out of a $1,000 return on a $20,000 investment, you can reinvest $800 to get greater returns in the future.

Strategy 2: Use Your Time and Effort Wisely

Trench suggests you be thoughtful about how you use your time and effort when investing because working harder doesn’t always equal higher investment returns. He contends that putting more effort into an investment will yield better results only if you have control over the investment. For instance, spending a lot of time choosing individual stocks is often wasted effort because you have no control over the company’s performance.

(Shortform note: In The Millionaire Next Door, Thomas J. Stanley and William D. Danko say fewer than 10% of millionaires actively trade stocks. They don’t track the ups and downs of the markets daily or trade in response to current events. They also tend to hold onto their investments for over six years, focusing on a small number of companies in industries they understand well instead of constantly buying and selling stocks. This saves both time and money because active trading not only eats up hours but short-term gains are also taxed.)

Instead, Trench suggests you focus your efforts on investments you actively manage—like rental properties or small businesses. He notes that often, having more knowledge about your investment is more important than the amount of effort you put into it. For example, a restaurant owner who studies local food trends and customer preferences will likely make better business decisions than one who works long hours but never researches their competition or changing consumer tastes. The knowledgeable owner might introduce popular menu items that boost profits, while the uninformed owner might struggle despite their dedication.

(Shortform note: While Trench advocates for actively managed investments, you can invest in real estate without becoming a hands-on landlord. Real Estate Investment Trusts (REITs) are companies that own and manage real estate properties, and you can buy shares in them just like stocks. REITs have historically performed well, outpacing even the S&P 500. However, while REITs provide steady dividends and are easier to buy and sell than physical properties, you have less direct control compared to owning properties yourself.)

Trench also advises that you focus on the absolute dollar return an investment produces (the actual money the investment earns) instead of the percentage return (the profit expressed as a percentage of the initial investment). Focusing on a higher percentage of return can be a waste of time. For example, spending dozens of hours researching stocks to earn a 15% return makes little sense if you only have $1,000 to invest, since the $150 profit is meager for the effort. 

(Shortform note: Chasing high percentage returns often requires taking on much more risk, and recovering from big losses is mathematically harder than it seems: If your investment drops by 50%, you’ll need a 100% gain just to break even—a much harder feat than maintaining steady, modest growth. Instead of trying to beat a certain return rate, other financial experts recommend you determine how much money you need for specific goals (like saving for college). This helps you measure progress in dollar amounts rather than percentages.)

To safeguard your time and effort while investing, Trench suggests you think about the opportunity cost, which is what you lose when you choose to invest your resources in one thing instead of another. Aim to get at least a 10% return on your investments each year—lower returns might mean you’re missing out on better opportunities.

(Shortform note: Opportunity cost analyses are commonly used by businesses to identify the best options when making important decisions, but you can apply the same process to making decisions about investments. To conduct an opportunity cost analysis, make a list of all the direct costs involved, and assign monetary values to quantify both the costs and benefits. Consider risks, uncertainties, and how the investment fits with your overall goals, and look at both short-term and long-term implications. Some choices may provide quick wins but lead to greater expenses down the road.)

Strategy 3: Manage Risk

When you start investing, Trench advises you not to worry too much about diversification (spreading your money across different assets). If you have less than a few hundred thousand dollars to invest, focusing on one high-performing asset class, such as stocks or real estate, can help you accumulate wealth more quickly. Diversification only becomes more important as your wealth grows and preserving it becomes a higher priority.

Additionally, Trench argues that contrary to popular belief, stocks aren’t riskier than bonds. While the prices of stocks may change more compared to bonds in the short term, stocks are actually less risky than bonds for long-term investors because they’ve historically provided higher returns over extended periods than bonds.

However, Trench warns that you should avoid speculation, which means buying assets solely in the hopes that their price will go up. He explains that speculative activities like buying gold or cryptocurrency aren’t true investments because they don’t create real value or sustainable long-term wealth in the same way that investing in productive assets like businesses or real estate can.

Strategy 4: Invest in Index Funds

Trench writes that, when investing in the stock market, you shouldn’t pick individual stocks. He writes that stock picking isn’t worth your time for two reasons: First, you’re competing against full-time professionals who have vast resources and manage huge sums of money, so it’s highly unlikely you’ll outperform them by picking stocks in your free time. Second, unless you have a large amount of money to invest, the potential additional returns don’t justify the time and energy spent. Countless hours of research might only result in a minor hourly profit, which isn’t a smart way to spend your time.

Trench says that, instead of stock picking, you should invest in index funds. Index funds work by buying shares in every company within a particular market index, like the S&P 500. By investing in an index fund, you spread your investment across many different companies, reducing the risk of losing your entire investment if one company fails. These funds also have low fees compared to actively managed funds (where professional fund managers make decisions about which stocks to buy and sell) and typically outperform actively managed funds in the long run. Trench says it’s harder to identify a fund manager who will consistently beat the market than it is to pick winning stocks yourself.

Strategy 5: Invest in Real Estate

In addition to investing in index funds, Trench recommends investing in rental properties. Investing in rental properties helps you build wealth in several ways at once. First, you earn money each month from tenants paying rent. At the same time, your property may increase in value, especially if you buy in an up-and-coming area or make improvements to the property. Lastly, each time you make a mortgage payment using the rent money, you own a little more of the property, so you build equity in the property over time.

Rental properties also give you more control compared to other investments like stocks. As a landlord, you can proactively find creative ways to cut costs, respond quickly to issues, and make improvements that boost your property’s value. Trench points out that many landlords are inexperienced, so if you treat your rentals like a serious business, you can outperform other landlords.

Trench says that real estate investing also allows you to use leverage, which is a technique of borrowing money to buy more valuable properties. For example, imagine you’ve saved up $50,000 to invest in real estate. Instead of buying a $50,000 property outright, you use it as a down payment on a $300,000 house, with the bank lending you the remaining $250,000. This way, you get to control a larger asset with less of your own money. Then, if the house’s value increases by 5% in a year, it’s now worth $315,000. Subtracting the $250,000 loan, your equity is now $65,000. You turned your $50,000 investment into $65,000—a bigger gain than if you’d bought a $50,000 property that increased to only $52,500.

Trench writes that eventually you can sell properties that have appreciated and use the proceeds to purchase larger, potentially more profitable properties. This allows you to continually grow your portfolio and increase your returns.