Stock, bonds, and mutual funds are some of the most popular investment options, but they?re often intimidating to learn about. By gaining insight into these types of investments, you increase your chance of a high return. Still, these investment vehicles aren?t for everyone.
There are several low-cost and/or safer investment products you can buy that require minimal research. For example, a high-interest savings account or a certificate of deposit.
How to Pick an Investment Vehicle: Time, Risk and Knowledge
A good way to determine which investment vehicle is right for you is by selecting your time horizon. If you want to make good investment returns in the short term, you have to have a high-risk tolerance. On the other hand, you have to be patient to see returns in the long term.
As a rule, young investors can take more risks because they have more opportunities to recover from a bad bet. However, if they need to save for a big purchase, like a house, they should pay more attention to long-term gains or risk jeopardizing their primary investment objective.
While seniors are often advised to keep their investments in ?safe? bank deposits or bonds. However, inflation rates could affect your investment?s selling power, making them less ?safe.?
In the end, it?s safer to be knowledgeable. If a company has been profitable for years or a new company is likely to explode off of a trend, then you have two ?safe? short/long-term stocks.
The Best Investments for Any Income Bracket
While factors like age and income can determine how much or how often you invest, the following investment products are still available and profitable for just about anyone.
Individual Stocks
Stocks represent a share of ownership in the company. They offer the biggest potential return on investment, but they?re considered risky. Investors with a well-versed portfolio can feel safer about investing in short-term stocks. Stocks should make up less than 10% of a portfolio.
Dividend Stocks
Dividends are regular cash payments companies will pay to their shareholders, meaning they can add their own dividends into a stock to keep it high. While dividend stocks won?t rise as quickly as non-dividend stocks, they offer stability for retirees or first-time stockholders.
Government/Corporate Bonds
A bond is a loan that pays either a government entity or a business. In return, the investor gets a steady stream of income through interest. Government bonds are virtually risk-free, but corporate bonds can be high risk. Both can offer retirees a safer way to store their money.
Mutual/Index Funds
A mutual fund pools cash from investors to buy bonds, stocks, and other investments. Index funds do the same, except they hold products in a particular market index. Mutual funds are best for the long-term, index funds are great in the short term?both diversify your portfolio.
Exchange-Traded Funds (ETF)
An ETF is similar to a mutual or index fund except in how they?re sold. Investors can buy shares similarly to how they would buy individual stocks. If you don?t have enough money to meet the minimum investment requirements for a mutual or index fund, choose an ETF instead.
High-Yield Savings Account
Cash management and online saving accounts offer higher returns on savings, but they are limited to the short-term. If you have a vacation coming up or you want to increase your emergency funds, these accounts are perfect for you but not great for anything long-term.
Certificates of Deposit (CD)
A CD is a federally insured savings account that comes with a fixed interest rate. Like a high-yield savings account, a CD helps short-term investors who need money by a fixed date. A CD has term lengths of three to five years and high fees if you take your cash out early.
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