Before you jump into any form of investing money, you must understand your risk tolerance levels and financial situation.
Some investors are happy to receive low returns regularly simply because they are guaranteed returns. Other investors prefer to take slightly higher risks to earn higher-than-average returns on their money.
There are so many different ways of investing money that it is impossible to say which one is the best option and which is the worst. What matters is that you try to find the options that best suit your financial situation and your own financial goals.
Let’s look at some different ways of investing money.
Cash Deposits and Term Deposits
Leaving your money sitting in a bank’s term deposit account might earn you some interest on your money, but the returns will be lower than some other options. However, a low return is sometimes better than taking the risk of losing your money on other investment options!
Today interest rates for these accounts are incredibly low as banks simply are not paying decent interest on cash accounts. One of the better-paying banks I have found is Goldman Sachs’s Marcus. For more information on opening an account with them, visit https://www.marcus.com/us/en.
Mutual Funds
A mutual fund is a collective investment where the funds from many investors are pooled together to invest in various securities. Fund managers control the investments and trading activities, attempting to derive returns for the fund’s investors.
In my opinion, it is better to seek these types of investments that carry low expense ratios and mimic an index such as the S&P 500. These funds will provide you with the highest steady return of the index with minimal costs and tax consequences. The Vanguard Family pioneered this concept and still, today has some of the lowest fees around. You can learn more about them and open an account for free at https://investor.vanguard.com/home.
Bonds
Bonds are a security where the issuer owes the investor a debt. The bondholder can invest in various companies or even in federal government bonds. Bonds are considered quite low-risk investments by some investors.
Bonds, like cash accounts, are paying relatively low-interest rates to their holders. US debt, while the safest, pays extremely low rates right now. Savings Bonds, which used to be extremely popular, is still sold today direct from the US Treasury. For example, a Series EE bond is bought at half its face value and is currently paying 0.10%. The Treasury also sells an inflation-protected bond or the I Bond that sells for face value with a two-part interest rate that resets every six months. Now the period is from November 2021 until April 2022. The fixed interest rate on I Bonds is currently 0.00%, and the semiannual rate is 3.56% resulting in an annual interest rate payment of 7.12%.
To buy these bonds and other US Treasury issued Bond, you can buy direct from the Treasury at https://www.treasurydirect.gov/.
Residential Real Estate
There are many different ways to invest in real estate. Investors can either buy a property to generate rental income or hang on to the property over a period hoping their capital value increases. Investors can also buy and renovate or improve it to generate capital growth or perhaps buy property to redevelop it.
Commercial Real Estate
Investors in commercial real estate generally purchase large commercial properties, such as shopping malls or office buildings, and lease them out to companies at a profit. Suppose you wish to invest in commercial real estate and do not have the amount required to purchase a mall or apartment complex. Consider looking into Real Estate Investment Trusts or REITs, which act as a mutual fund by pooling money and buying a diversified group of properties. Then, provided that 90% of the profits are paid to the REIT holders, they are only taxed at the individual level. These types of investments are generally best held in a tax-advantaged account such as an IRA.
Stock Market
Investing in the stock market involves buying shares, or stocks, of large, publicly listed companies. Day traders buy and sell stocks rapidly, hoping to capture some of the short-term gains. Long-term investors will buy shares to form an investment portfolio, either to reap the dividend income or reinvest the dividend returns back into share reallocation to increase the portfolio further.
I do not recommend that you get involved in day trading but rather become an informed long-term investor. When you invest in the markets for the long-term, it is best to have an investment plan and seek the assistance of a qualified Registered Financial Consultant who is a fee-only fiduciary. And under no circumstance should you try to “time” the market as that is a receipt for disaster.
Gold and Silver
Investing in gold or silver doesn’t always mean owning big bars of shiny metal and hiding them in your closet. Ownership can be verified and transferred via certificates or shares. However, Swiss banks may allow some customers to hold gold accounts to conduct precious metal transactions as a currency.
Today with the popularity of Exchange Traded Funds or ETFs, you can own physical gold and silver through these pooled investment vehicles. Another way to invest in precious metals is to buy a position in the company that mines these metals and own them instead. Precious metals can have a place in one’s investment plan but, as a rule, provide little appreciation compared to equities.
Foreign Currency Exchange
Investing in the forex market is probably best left to investors who understand how this volatile market works. Essentially, you trade an amount of one currency for another country’s currency. When the value changes, you exchange your currency again, hopefully realizing a gain once the transaction is complete. It is possible to make substantial gains by trading on the forex market. It’s equally possible to realize large losses too.
These are just a few different ways of investing money. Before jumping into any investment, always be sure it aligns with your level of risk tolerance. It would help if you were sure that your investment choices were also aligned with your own financial goals.
For more information or if you need assistance, feel free to reach out to me directly or contact a Registered Financial Consultant that operates as a fee-only fiduciary. KG Meyer, PC is located in Nashville, Tennessee, but we can help assist you no matter where you are.
