Investing is crucial in order to secure a financially safe and comfortable future. There are various examples of a seemingly stable economy collapsing quickly, and this can leave the unprepared in a serious conundrum as they scramble for income.
Not only does investing your money provide an alternative source of income, but it can also fund your retirement and allow you to have a backup in case of a financial emergency. Investment grows the wealth of a person and increases their purchasing power over time. However, it is essential to find a balance between high-risk and low-risk investment opportunities and maintain a safe financial position.
So here we are to help with best ways that would give your hard-earned money a safe place and more growth opportunities.
High-Yield Savings Accounts
High-yield savings accounts are one of the best ways to keep your money liquid while also generating a return on your money. Such accounts pay interest on the cash balance of the individual while also allowing them to access their money at all times. It is possible to earn much higher interest rates at online banks due to fewer overhead costs.
This method of investing is amongst the best options for those who only seek low-risk investments and need access to their money in the short term. Banks offering such accounts are insured, which means that there is no risk of losing your deposit.
Certificates of Deposit (CDs)
Certificates of deposit are ideal for anyone who does not need access to their money on short notice. These accounts are usually issued by banks at a higher fixed interest rate than most savings accounts, and this allows the investor to capture a little more growth. Similar to savings accounts, CDs are also insured and protected, which eliminates any risk while protecting the investor from the eroding power of inflation.
CDs are short-term to medium-term investments as the money is not accessible until the maturity date once it has been invested unless a penalty is paid. Maturity dates can range from six months to five years, and you should not invest any funds you might need in the foreseeable future.
Real estate is one of the best and most common forms of investment as there are many types of properties that you can choose from based on where you would want your money to go. However, it is a long-term investment that usually requires a substantial amount of money. The commissions can be quite high, and returns are maximized by holding an asset for a long time. Real estate is a popular form of investment as it is possible to borrow the bank’s money for most of the investment and slowly pay it back over time. Low-interest rates and numerous tax laws that benefit owners make this form of investment even more appealing.
The slight downside to investing in real estate is that it can be somewhat risky, as borrowing money for an investment puts stress on the investment turning out well. Since the properties are expensive, a large chunk of your money will be tied up in one asset, and this causes a lack of diversification which can be problematic if something happens to the property. While the risks are high, the rewards can be even higher as you might be able to multiply your investment. The property can also be rented out for additional earnings.
S&P 500 Index Funds
Index funds are a form of investment that works by keeping track of multiple indexes in general composition and returns. They are ideal for people who are interested in investing in funds that offer higher returns than traditional banking products or bonds. The fund is based on five hundred of the largest companies in America, and these are some of the most successful businesses globally. Immediate diversification is one huge benefit of investing in an S&P 500 index fund, as you essentially own a small piece of all of the companies in the fund.
It is possible to buy funds that trade as ETFs or mutual funds. Investments can be made with minimal amounts through most brokerage and retirement accounts. While index funds are considered to be more volatile, they are more resilient compared to other investments as the fund includes companies from multiple industries.
Dividend Stock Funds
Dividends are the distribution of a company’s profits that are paid out to shareholders as a reward for owning stock. The payouts make dividend stock funds an ideal investment as they can help to boost gains and minimize the effects of inflation. There are two upsides to investing in a stock fund as you can earn money in the short-term while the gradual rise in share prices acts as a long-term benefit. However, buying individual stocks is better suited for intermediate and advanced investors.
There is a certain level of risk involved when investing in stocks. While they are safer compared to growth stocks or other non-dividend stocks, it is important to be careful regarding your portfolio. Look for companies with a solid history of dividend increases instead of gravitating towards those who offer the highest current yield. The risk can be minimized by buying a dividend stock fund with a diversified collection of assets.
Hugely popular in recent years, cryptocurrency is a digital electronic-only currency that is meant to act as a medium of exchange. With an increasing number of investors showing interest, there has been a steady inflow of investments, and this has caused the prices to rise significantly. The most widely available and well-known cryptocurrency is Bitcoin. However, the price of cryptocurrencies can fluctuate a lot. At the start of 2020, Bitcoin was below $10,000 but soared to around $30,000 at the start of 2021 and reached an all-time high price of $64,800 on April 14, 2021.
However, the cryptocurrency market is highly volatile as the price of Bitcoin plummeted significantly in 2022. This has not been a good year for cryptocurrency, with most of the top cryptos declining in value. It is also not backed by the FDIC or any government, and the value is determined solely by what traders will pay for it. This investment is only for risk-seeking investors who can afford to lose their investment but are willing to take the risk in exchange for the possibility of much higher returns. The risk is very high with cryptocurrencies, as the value of any individual currency can go down to zero due to being outlawed or heavily regulated.
If you are planning to invest, then there are several factors that need to be considered and analyzed before making a decision, such as risk tolerance, time horizon, your knowledge of investing, your financial situation, and the size of the investment.
Low-risk investments are safe but have a modest return, whereas riskier investments can provide a higher return. There is a tradeoff in investing between risk and return. There are many investment options available, but it is integral to understand the pros and cons of each investment option and how they affect your overall financial plan and then make the decision to keep your money safe.