Everyone dreams of enjoying a comfortable future, but not everyone knows how to make this dream a reality. The best way to make your investment goals a reality is to invest. But there are so many ways to do so, and it can be overwhelming, especially when you take your first leap into the world of finances.
Savings accounts, stocks, bonds, and CDs. There are just so many different ways to invest, and some methods are yield better results than others. unBanked is here to help guide you through some remarkable ways to start your investments so that you too can live the comfortable life you have always dreamed of.
This in-depth guide to the best ways to invest your money will go over what you can invest in and the risks and recommendations on how to build your portfolio.
Related: What is Unbanked? Everything you need to know
Why invest?
Each individual person has their unique reasons for why they want to invest. Some causes can be to provide an extra source of income, pad up your retirement, or just have some wiggle room in case you find yourself in a financial jam. There can be many benefits to investing your money despite the risk, and it is always a wise decision to let those investments work hard for you.
Here are the best investments options for 2021:
- High-yield savings accounts
- Short-term corporate bond funds
- S&P 500 index funds
- Dividend stock funds
- Rental housing
- Municipal bond funds
- Cryptocurrency
- Government bond funds
- Certificates of deposit
- Nasdaq-100 index funds
Best investments in 2021
Here are the details about these individual investments.
High-yield savings accounts
These accounts work like brick-and-mortar bank accounts that allow you to put away money and gain interest at a higher rate than standard online banking options. These accounts also allow you to transfer money to your primary bank account quickly. Some High-yield savings accounts even will enable you to withdraw cash through an ATM.
This type of investing is great for short-term savings. A High-yield savings account comes with minimal risks. These accounts are FDIC-insured, so they are backed up and considered to be a very safe investment.
High-yield savings accounts are flexible or known to be liquid investments. You have full access to your money almost at all times. Some banks have a specific limit to how many withdrawals you can have during a particular period, but otherwise, you can add or remove funds at any time.
Short-term corporate bond funds
Corporations use this type of investment to raise money. A company offers bonds to investors with the promise of a return that includes terms and interest. Short-term bonds will typically have a five-year maturity date.
Short-term corporate bond funds are significant for those looking to add a bit more cash flow to their lives with minimal risk. These bond funds also have a higher yield than government bonds. The danger with these types of investments is that they are not FDIC-insured. Higher the reward, the higher the risk. Finding quality companies to invest in is key to being successful.
S&P 500 index funds
S&P 500 index funds are a great way to achieve higher returns than other traditional banking options. The volatile funds are based on some of the largest companies, such as Amazon. S&P 500 index funds give investors a chance to own a piece of those large companies and make about ten percent return annually.
These investments are great for beginners trying to diversify their portfolio. S&P 500 index funds benefit those who stay invested for between three and five years. As far as stocks go, these index funds are the least risky investment options. They are still more volatile than bonds or other FDIC-insured investments.
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Dividend stock funds
Dividend stock funds are safer than stocks because they pay out a portion of their profits to shareholders. These payouts are the dividends and are paid out each quarter. This allows investors to receive short-term and long-term benefits.
Dividend stocks are for more advanced investors and offer a great selection of stocks to choose from. If you are able to stay invested for quite a while, these dividend stock funds are a great source of income.
While these stocks come with less risk than growth stocks and some other types of stocks, be cautious when selecting them for your portfolio. They do still come with risks. Choose to invest in companies that showcase a solid history of dividend increases instead of only looking at the yield. Utilize quarterly payouts when you can to reinvest for the best returns.
Rental housing
Rental housing is one of the most involved forms of investing, and you must be willing to manage properties. The process of investing in rental housing is that you will first have to find a property, buy it, and then rent it out with tenants while maintaining the property. This process can take some work, but it also offers some powerful cash flow rewards and is best suited for those who are looking for long-term investments.
There are some risks with rental housing outside of the odd 3 A.M. phone call about a broken pipe. These are not liquid investments and are greatly influenced by current economic standings.
Municipal bond funds
Municipal bond funds allow investors to put their money into multiple bonds that the government issues. These usually are state and local agencies, and earned interest is free of federal, state, and local taxes.
There can be many variations in how you can purchase municipal bonds, so consult with a financial adviser to help guide you through the process. Also, be sure to check out unBanked for up-to-date finical technology.
Municipal bonds are a perfect investment option for beginners due to their diverse nature and steady cash flow. If you live in a high-tax state, these bonds are something you will want to invest in. As with all investments, there is some level of risk, but historically these bonds have been an overall safe form of financing.
Cryptocurrency
This digital currency has become popular over the past few years. These electronic coins have attracted more traders into the fun explosion of investing growth. Bitcoin or DogeCoin are both excellent examples of how these currencies work. Bitcoin began at the start of 2020 at ten thousand dollars a coin and tripled that by the beginning of 2021.
Cryptocurrencies are not backed by the FDIC and are only worth what traders are willing to pay for it. These investments are best for those who are up for a gamble. While these offer some massive returns, they can also drop to zero and are not considered a safe investment.
Related: Visa and Paypal are making waves with Cryptocurrency
Government bond funds
Government bond funds are ETFs, and they are investments in the debt of the U.S. government. Things such as T-bills, T-bonds, or mortgage-backed securities that are issued on behalf of government-sponsored enterprises. These bonds are low-risk and considered to be for new investors.
While these are considered government-backed, there are still some risks that go along with these bonds. Things such as interest rates or inflation can alter your investment, but as a whole, there are considered to be safe.
Certificates of deposit
Commonly just called CDs, these are a type of high-interest rate savings accounts. They are federally-insured time-based deposits. Those maturity dates can be anywhere from a few weeks to several years. The downside of CDs is that once you establish one, the money is locked into the deposit until the time is up. Otherwise, you will have to pay an early withdrawal penalty fee.
Interest is paid out at regular intervals, and upon maturity, you will receive all of the principal and the interest. They are perfect for investors who want minimal risk and are willing to put away their money for a reasonable amount of time. There are quite a few options, but the interest is higher than a traditional savings account.
Nasdaq-100 index funds
If you are an investor that is looking for exposure to some massive tech companies without the frustrating work of analyzing every single one, a Nasdaq-100 index fund is perfect for you. These index funds are not only successful but stable investments and are comprised of companies like Facebook and Microsoft. A Nasdaq-100 index fund allows you an affordable way to diversify your portfolio without a lot of risks involved.
These investments are best united for stock investors that are willing to hold for at least three or more years. There is always some risk, and these stocks tend to be of a higher value so prepare yourself for economic shifts.
Now that you know what ways you can invest your money, let’s look a little more at some of the details of the best ways to invest money.
What to consider
The factors that go into deciding what you want to invest in can be overwhelming and can include things such as:
- Risk tolerance.
- Time horizon.
- Personal knowledge
- The amount that you can invest.
Risk tolerance
Risk tolerance really just means how much you can afford to lose in case things go wrong. The bigger the risk, the more potential the return, but that also means you can win big or lose it all. This can help you decide if you want to invest in safer investments just if the market becomes more volatile. CDs and FDIC-protected accounts tend to hold their value better than some other investments.
Time horizon
Time horizon refers to how long you are willing to wait before you need your money. Some investments work better over a long period. Others are flexible and can be withdrawn during the very same business day.
Personal knowledge
Knowledge is power, and that is no different when it comes to investing. Knowing what you are looking for as a result of your investment and what specific investments need to be profitable can go a long way.
CDs, for example, require very little knowledge, but stocks and bond investing requires a bit more familiarity. Learning the market and how the accounts interact with the economy and any FDIC rules can be a great tool when investing.
Learning about a company you wish to invest in is essential. Many people don’t have the time to gain the knowledge needed to invest and just don’t invest at all. Knowing there are options out there that can cover multiple companies can help to alleviate the need for spending time researching.
The amount you can invest
The more expendable money you have, the more you can invest, and thus you can find yourself with higher returns. But there is such a thing as too much. Finding the balance between what you need for daily living and what is a worthwhile investment can be challenging.
If you have money to lose and have ways to efficiently make more, it might be worthwhile to find specific stocks that can offer higher rewards. They do come with higher risks, though, so make sure you aren’t spending potential rent money.
Investing in bank-backed products such as CDs can be a better option if you are just starting out if you simply want to minimize the risks. ETFs and mutual funds also require less start-up investment costs.
Bottom line
There are a lot of ways to start building investments. Having a diversified portfolio can help to alleviate the risks. As a beginner, you may only have a specific amount that you can safely invest in things. Making informed investment decisions is the first step to investing.
If you are also still on the fence about the details but want to start investing, you can always get an investing brokerage to help guide you through the process. No matter your investing goals, the next step is to open a brokerage account and start investing!
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