To enjoy a comfortable financial future, investing is absolutely essential for most people. Investing can provide you with another source of income, fund your retirement or even get you out of a financial jam.
While investing can build wealth, you’ll also want to balance potential gains with the risk involved. As you’re deciding what to invest in, you’ll want to consider several factors, including your risk tolerance, time horizon, your knowledge of investing, your financial situation and how much you can invest.
If you’re looking to grow wealth, you can opt for lower-risk investments that pay a modest return, or you can take on more risk and aim for a higher return.
There are many ways to invest from very safe choices such as CDs and money market accounts to medium-risk options such as corporate bonds, and even higher-risk picks such as stock index funds.
High-yield savings accounts
A high-yield online savings account pays you interest on your cash balance. A high-yield savings account works well for those who need to access cash in the near future and for risk-averse investors, who want to avoid the risk that they won’t get their money back.
Short-term certificates of deposit
Certificates of deposit, or CDs, are issued by banks and generally offer a higher interest rate than savings accounts. CDs can be a good choice for retirees who don’t need immediate income and are able to lock up their money for a little bit. It also works well for risk-averse investors, especially those who need money at a specific time.
Short-term government bond funds
Government bond funds are mutual funds or ETFs that invest in debt securities issued by the U.S. government and its agencies. Government bond funds are well-suited for the low-risk investor. These funds can also be a good choice for beginning investors and those looking for cash flow.
Series I bonds
The U.S. Treasury issues savings bonds for individual investors and an increasingly popular option in 2022 is the Series I bond. This bond helps build protection against inflation. It pays a base interest rate and then adds on a component based on the inflation rate.
Series I bonds are attractive for risk-averse investors who do not want to run any risk of default. These bonds are also a good option for investors who want to protect their investments against inflation.
Short-term corporate bond funds
Corporations sometimes raise money by issuing bonds to investors, and these can be packaged into bond funds that own bonds issued by potentially hundreds of corporations.
Corporate bond funds can be an excellent choice for investors looking for cash flow, such as retirees, or those who want to reduce their overall portfolio risk but still earn a return.
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S&P 500 index funds
The fund is based on about five hundred of the largest American companies, meaning it comprises many of the most successful companies in the world.
An S&P 500 index fund is a good choice for any stock investor looking for a diversified investment and who can stay invested for at least three to five years.
Dividend stock funds
Dividends are portions of a company’s profit that can be paid out to shareholders, usually on a quarterly basis. Dividend stock funds are a good selection for almost any stock investor but can be better for those looking for income.
Those who need income and can stay invested for longer periods of time may find these attractive.
Value stock funds
These funds invest in value stocks, those that are more bargain-priced than others in the market. Value stock funds are good for investors who are comfortable with the volatility associated with investing in stocks.
Investors in stock funds need to have a longer-term investing horizon, too, at least three to five years to ride out any bumps in the market.
Nasdaq-100 index funds
An index fund based on the Nasdaq-100 is a great choice for investors who want to have exposure to some of the biggest and best tech companies without having to pick the winners and losers or having to analyze specific companies.
A Nasdaq-100 index fund is a good selection for stock investors looking for growth and willing to deal with significant volatility. Investors should be able to commit to holding it for at least three to five years.
Rental housing can be a great investment if you have the willingness to manage your own properties. Rental housing is a good investment for long-term investors who want to manage their own properties and generate regular cash flow.
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Cryptocurrency is a kind of digital electronic-only currency that is intended to act as a medium of exchange. Cryptocurrency is good for risk-seeking investors who wouldn’t mind if their investment goes to zero in exchange for the potential of much higher returns.
It’s not a good choice for risk-averse investors or those who need any kind of safe investment.
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