This article will go over:
- High-yield savings plans
- Short-term certificates of deposit
- Short-term government bond funds
- Series I bonds
- Short-term corporate bond funds
- S&P 500 index fund
- Dividend stock funds
- Value stock funds
- Nasdaq100 Index Funds
- For rent
WUGT's goal is to help people make better financial decisions. Most people need to invest in order to enjoy a secure financial life. The COVID-19 crisis demonstrated that even an economically stable country can suddenly be disrupted, leaving those who didn't prepare for the worst to struggle for income.
With the economy facing high inflation, rising interest rates, and a difficult year ahead of it, how can investors make the best investment decisions? A mix of safer investments as well as riskier, higher-return ones is a good idea.
Investing is a great way to generate income, save money, or get out of financial difficulties. Investing will help you reach your financial goals as well as increase your purchasing power. You might have recently sold or bought property. It is wise to let that money do the work.
You should balance the potential gains and the risk when investing. You need to be in a financial place to invest. This means you need to have manageable debt levels, an adequate emergency fund, and be able to take on market fluctuations without accessing your funds.
There are many investment options, including very safe choices like CDs and money market accounts, medium-risk options (corporate bonds), and higher-risk options (stock index funds). This is great news since it means that investments can offer different returns and are suited to your risk profile. It also means that investments can be combined to create a diversified and safer portfolio.
1. Where to Invest Money: High-yield savings account
Overview: You earn interest on your cash balance with a high-yield, online savings account. Like a savings account earning pennies in a brick-and-mortar bank branch, high-yield savings accounts online are easy vehicles to hold your cash.
They can be used for what purpose? A high-yield savings account is an excellent vehicle for people who need immediate cash access. High-yield savings accounts work well for investors who are not afraid of taking a risk and want to reduce the possibility that they will lose their money.
- Risks: These accounts are FDIC-insured. This means that you don't have the worry of losing your deposit. While high-yield savings plans are safer than CDs because they are more stable investments, inflation can cause you to lose purchasing power over the long term if your rates are too low.
- Rewards: You can usually earn higher interest rates online because you have fewer overhead costs.
You can often access the money by simply transferring it quickly to your primary bank, or via an ATM. For the best rates, check out WUGT's list of top high-yield savings accounts. Banks and credit unions also offer savings accounts, although you might not get a top rate.
2. Where to Invest Money: Certificates of deposit short-term
Overview: Certificates of deposit, also known as CDs, are issued and paid at a higher interest than savings accounts. The short-term CDs can be more advantageous if rates are likely to rise.
Are they useful for anyone? CDs offer greater safety and higher payouts and can be a good option for retirees that don't require immediate income. CDs work well with risk-averse investments, especially for those who have a need for cash at a certain time. CDs offer a little more yield than savings accounts.
- There is no risk in CDs. However, there is a risk that investors will lose their principal and/or interest when interest rates fall. This could happen as we saw in 2021 and 2020. The other risk is that rates could rise and investors won't get to benefit because they haven't locked their money into a CD. Rates are likely to rise even more in 2022, so it is a good idea not to hold onto long-term CDs. You can then reinvest at higher interest rates in the near future. It is important to understand that inflation and taxes can dramatically reduce the purchasing ability of your investment.
- Rewards: You get interest payments from the financial institution every other month when you buy a CD. The CD matures, and you get your original principal, plus any accrued or accumulated interest. It is worth shopping online to get the best rates.
Where to get them? The WUGT list of the top CD rates can help you find the best rate around the globe, not just in your region. Other options are banks and credit unions that may offer CDs. However, it is unlikely you will find the best local rate.
3. Where to Invest Money: Short-term government bond funds
Overview: ETFs and mutual funds are called government bond funds to invest in U.S. government-issued debt securities. The risk of interest rate rises in short-term bond funds is not as great as with short-term CDs.
Who are they beneficial for? They invest in U.S. debt and mortgage-backed securities issued through government-sponsored enterprises. These government bond funds are good for the low-risk investor. These funds may also be a good option for novice investors or those seeking cash flow. The government bond fund may be suitable for risk-averse investors. However, due to changes in the interest rate, some types (e.g., long-term bond funds) may fluctuate significantly more than other funds.
- Risks: Because bonds are backed entirely by U.S. credit and faith, they are considered one of the most secure investments. The price of existing bonds drops if the interest rate rises, while the prices of bonds that are already in existence rise if they fall. While interest rate risk is greater in long-term bonds than in short-term securities, it is less for shorter-term ones. Rising rates are unlikely to have an effect on short-term bond funds. However, if inflation remains high, the rate of interest may not rise, and you'll lose your purchasing ability.
- Rewards: Bond funds pay out monthly, and with interest rates climbing higher in 2022, this means that these funds pay more than they have in recent history.
Where to purchase them? ETFs and mutual funds can be bought at many online brokerages. ETFs are offered by most brokers at no commission. Mutual fund purchases may have a minimum purchase or commission.
4. Where to Invest Money: Series I bonds
Overview: Savings bonds are issued by the U.S. Treasury for individual investors. The Series I Bond is becoming more popular in 2022. This bond offers protection against inflation. It pays a basic interest rate and then adds a component based on the inflation rate. The result: If inflation increases, the payout also rises. However, the reverse holds true: Inflation rises and the interest rate will drop. Every six months, the inflation adjustment adjusts.
What are they used for? Series I bonds offer a risk-averse investor a great option. They are similar to other government-issued loans and don't carry any risk of default. These bonds also offer investors protection against inflation. However, investors can only purchase $10,000 per year. However, Series I bonds can be purchased with up to $5,000 of your annual refund. The best part is that there is a way around this limit.
- Risks: Series I bonds protect you from inflation. That is a significant downside to investing with most bonds. These bonds are also considered safest against default, as they are like other government-issued credit.
- Rewards: Series I bonds earn interest for 30 years if they aren't redeemed as cash. But, the rate will fluctuate depending on the prevailing inflation rate.
Where to buy them? You can purchase Series I bonds directly through the U.S. Treasury online at treasurydirect.gov. The government will not charge a commission to you for buying Series I bonds.
5. Where to Invest: Short-term corporate bond funds
Overview: Bonds are issued to investors by corporations. These bonds can be packaged and used to create bond funds. Short-term debts have an average maturity time of 1 to 5 years. This makes them more vulnerable to interest rate fluctuations than intermediate- or extended-term securities.
Who are they useful for? They are great for those looking for cash flow such as retirees or investors who want to reduce overall portfolio risk while still earning returns. A short-term investment in corporate bond funds is a great option for investors who are cautious and desire a bit more return than a government bond fund.
- Risks: There is always the risk that companies might lose their credit rating, get in financial trouble, and default on their bonds. High-quality corporate bonds can help reduce that risk.
- Rewards: Investment-grade bond funds that are short-term and high-quality often pay investors higher returns as compared to municipal or government bonds. However, the higher rewards come with greater risk.
Where to buy them?: Any broker that allows trading in ETFs/mutual funds will be able to help you purchase and sell corporate bond funds. The majority of brokers will let you trade ETFs without any commission. However, many brokers might require a minimum purchase to buy mutual fund shares.
6. Where to Invest Money: S&P 500 index fund
Overview: The fund is built on approximately five hundred American-based companies. This makes it a large group of many of today's most successful businesses. Berkshire Hathaway is one of the most well-known member companies.```
Who are they for? An S&P 500-index fund is a good alternative if you want to get higher returns than traditional bank products or bonds. However, it has greater volatility. An S&P 500 fund provides broad, diversified exposure in the stock market and is an excellent choice for beginner investors. An S&P 500 is a good investment for stock investors who want to be diversified and who can hold their investments for at least three years.
Risks. An S&P500 Fund is one of the risk-free ways to buy stocks. It's composed of top companies and is highly diversified. However, the fund still contains stocks and will be more volatile than bonds or other bank products. You could also lose money due to fluctuating values. However, the index has performed quite well over time. The index rose rapidly after its pandemic-driven plunge in March 2020. But, it has not performed well in 2022. Therefore, investors might be advised to tread carefully and stick to their long-term investment plan.
Rewards: An S&P 500 index fund offers immediate diversification. It allows you to own shares in every company. The fund contains companies from all industry sectors, making them more resilient than most investments. The index has returned approximately 10 percent each year over time. These funds have low expense ratios which are the fees charged by the management company to manage the fund.
They can be bought at any broker that allows mutual funds and ETFs to be traded. ETFs usually come with no commission, so you won't be charged any additional fees. Mutual funds may have a minimum purchase requirement and might charge a commission.
7. Dividend stock funds
Overview: Dividends, which are typically paid quarterly by a company, are a portion or all of its profit. These stocks are useful for whom? Individual stocks that pay dividends are best for intermediate and advanced investors. A stock fund can allow you to buy multiple stocks at once and lower your risk. Dividend stock funds make a great selection for most stock investors but can also be beneficial for those looking for an income stream. These might be appealing to investors who are looking for income and can hold their investments for longer periods.
Risks: All stock investments have risks. These stocks are generally considered safer than non-dividend growth stocks. But you must choose carefully. It is better to invest in companies with a strong history of dividend increases than those that yield the highest current yield. That could be a warning sign of trouble to come. However, even companies with great reputations can be affected by a crisis. This means that a good reputation will not prevent the company from reducing its dividend or eliminating it altogether. By investing in a dividend fund, you can reduce your dependence on any one company.
Earn dividends to increase your safety and make your stock market investments more secure. You will not only be able to gain from the long-term appreciation of the market, but you can also earn cash.
They are available in ETFs as well as mutual funds through any broker who deals with them. ETFs offer greater benefits, as they are generally less expensive and often come with no commission. A mutual fund, on the other hand, might require a minimum order and your broker might charge a commission.
8. Value stock funds
Overview: These funds invest heavily in value stocks. Value stocks are typically more affordable than others on the market.
Who are they beneficial for? Many investors wonder where they should put their money when stocks are valued high. The best option is to invest in value stock funds. If investors are comfortable with stock market volatility, then value stock funds might be a good option. Stock fund investors should plan to invest for the long term, with a minimum of three to five years, to ensure that they are able to weather any bumps.
- Risks. While value stock funds may be safer than others because of their low prices, they are still stock funds, which means that they can fluctuate more than less-safe investments such as short-term bonds. The government doesn't insure value stock fund investments.
- Rewards: Value stocks tend to do better when interest rates rise. Growth stocks become less appealing on a relative basis. Many value stock funds also pay a payout, which many investors find attractive.
Where to buy them?: Value stock funds come in two main types: exchange-traded funds (ETFs) and mutual funds. ETFs are generally available without commission and with no minimum purchase requirements at most of the major online brokerages. There may be a minimum order for mutual funds and an additional commission for online brokers to trade them.
9. Where to Invest: Nasdaq - 100 index funds
Overview: Index funds based on Nasdaq 100 are a great choice for those who want to gain exposure to the top tech companies. The fund is founded on the Nasdaq's 100 largest companies. This means the companies are among the most successful, stable, and profitable. Alphabet is another example of such a company. Each of them makes up a substantial portion of the total index. Microsoft is another prominent member company.
Who are they for? Investors who are looking to invest in stock and want to manage volatility while still achieving growth can choose the Nasdaq 100 fund. It should be possible to hold the fund for at least three to five years. You can reduce your risk by buying into index funds trading at all-time highs with dollar-cost-averaging, as opposed to investing in a lump sum.
- Risks. This collection of stocks, like all publicly traded stocks, can move down. These tech companies make up the majority of the Nasdaq's 100, but they also tend to be the most highly valued. Their high valuation makes them vulnerable to rapid falls in a downturn. However, they may recover quickly during an economic boom.
- Rewards: The Nasdaq 100 fund index offers instant diversification. Your portfolio is protected from any single company's failure. The best Nasdaq funds offer a very low expense ratio. They are also a cheap and easy way to own all the companies included in the index.
Where to find them?: The Nasdaq 100 index funds can be purchased as ETFs or mutual funds. ETFs can usually be traded with no commission from brokers. Mutual fund trades may incur a commission and require a minimum purchase.
10. Where to Invest Money: For Rent
Overview: If you are willing to manage your own properties, rental housing can be an attractive investment. To make this happen, you need to first choose the right property. Then finance it or buy it. Maintain it and manage tenants. Smart investments can help you succeed.
Who are they beneficial for? The best investment in rental housing is for long-term investors who are looking to own their properties and generate regular cash flow.
- Risks: There will be some limitations to your ability to purchase and sell assets in the stock market with just a click or tap from your internet-enabled smartphone. Worse, sometimes you will be called at 3 a.m. to report a burst pipe.
- Benefits: While mortgage rates have risen, it's still a good opportunity to finance a purchase of a home. However, the economy is unstable, and it may prove difficult to manage the property. As long as you have assets that you can hold on to, reduce your debt gradually, and increase your rent over time, you will be able to retire with strong cash flows.
Where to look?: You may need to consult a realty broker in order to find suitable rental housing. However, you might also be able to build a network that can help you get better deals before the market opens.
11. Where to Invest: Cryptocurrency
Overview: Cryptocurrency is a digital, electronic-only currency. It is designed to act as an exchange medium. It has seen a lot of attention in recent years. The currency gained popularity as traders began to trade it and dollars flew in. Bitcoin is the most widely accessible cryptocurrency. However, its price fluctuates a lot, which draws many traders. Bitcoin rose to the heights of around $30,000 at the end of 2021, after a lower price of $10,000. The price of Bitcoin doubled, surpassing $60,000, and then fell significantly in 2022.
What are they good at? Cryptocurrency is a good investment for risk-seeking individuals who would not mind if their investment went to zero in exchange for higher returns. It is not a good investment choice for risk-averse people or those who need to invest in a safe way.
- Risks: Cryptocurrency carries significant risks. These include the possibility that any one currency could become completely zero. Digital currencies are highly volatile. They may drop or rise quickly, even within very short timeframes. The price will depend entirely on what traders pay. Due to recent high-profile thefts, traders could also be hacked. It is important to identify the winners when investing in cryptocurrency. If many disappear, it could be very costly. It's not backed or generating money by a government, like other assets. Its price is determined solely based on the amount that traders will pay.
- Rewards: This year was particularly tough for cryptocurrency. Most of the top cryptos have fallen sharply. However, many cryptocurrencies such as Bitcoin are at all-time highs. So those who bought years before and held (or HODLed) their coins may still have nice gains, despite the recent plunge.
Where to find them?: Cryptocurrency may be available at many brokers. But, often these sources only offer the most widely-used coins. Coinbase or Binance may, however, have hundreds of cryptos for sale, from the most sought-after to the less well-known.
What to Consider when Investing?
As you consider which investments to make, think about your risk tolerance, timeframe, knowledge of investing, as well as your financial situation. You have the option of choosing lower-risk investments that offer a moderate return and can grow your wealth, or you can take more risk to get a higher return. Investing involves balancing risk and return. A balanced approach allows you to make safe investments but still have the potential for long-term gains.
Investor: Risk tolerance
Risk tolerance is how much you are willing and able to withstand fluctuations in the value of your investments. Are you willing to take big risks to earn large returns? Are you looking for a portfolio that is more conservative? It is possible to be more conservative than you think.
For those in retirement or who are conservative investors, it may be easier to allocate a larger portion of their portfolios towards less-risky investment options. These investments can be used to save for both short-term and longer-term goals. CDs and FDIC protection accounts are safe investments that won't lose any value. They will still be there when you require them.
The most successful people are those who have the stomach for it. Workers with a longer time horizon and a retirement savings account will fare well. People with more money than they need, such as those with a decade to spare, will likely do better with riskier portfolios if they diversify. With a longer time horizon, you can enjoy the volatility of stocks while still capturing potential higher returns.
Investor: Time horizon
Time horizon simply describes when you have to use the money. What time frame do you think you will need the money? Are you saving to pay down a house in three or 30 years? Or are you planning to spend your retirement savings on something else? You can decide which type of investments you prefer based on your time horizon.
- If you have shorter time frames, you'll need the money to be in the account at the right time and not locked up. Savings accounts, CDs, or bonds are safer investments. They fluctuate less and are generally more secure.
- If you have a longer-term horizon, it is easier to take risks with volatile and higher-return investments. You can take advantage of market volatility and ride it out, hopefully for greater long-term profits. You can invest in stocks and stock funds and keep them for as long as three to five consecutive years if you have a longer horizon.
It is vital that your investments be calibrated according to your timeframe. You don't want to put your next month's rent money into the stock market and then hope it's available when you need it.
Investment knowledge is key. It is easy to invest in savings accounts or CDs, and your account is protected from the FDIC. Market-based products like bonds and stocks require more knowledge. Your knowledge of assets will be more important if you wish to invest. You need to be able to understand the company, the market, the products, the finances, and many other aspects of the stock. Many people don't have enough time to invest.
However, you can still take advantage of the market regardless of your level of knowledge. An index fund is one of the best options, as it includes a selection of stocks. Even if one stock performs poorly, it is unlikely to have any impact on the index. You are essentially betting on the performance, if any, of hundreds of stocks.
When considering investments, you need to be aware of the limits of your knowledge.