Investing is the key to securing your financial future – but only if you do it correctly. Unfortunately, the investing world can feel a bit overwhelming to newbies, with so many different terms, products, and other factors. So which investments should those hoping to grow their wealth look to as the most tried-and-true over time? Here are six of the best.
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1. Mutual Funds
One of the most reliable methods of investing is through the mutual fund. Mutual funds are investment vehicles that pool money from many clients to purchase a large, diverse collection of stocks or bonds. This allows individual investors to gain much better diversification than they could achieve by buying stocks on their own. Different mutual funds are catered to different goals, investment products, and time horizons, allowing investors to pick one that’s right for them. An extremely popular choice in recent years are index funds, which simply buy every stock in a given index like the S&P 500. As a result, investors’ returns almost exactly mimic the overall index. In addition, these funds typically have very low fees due to the lack of active management needed.
2. Real Estate
Real estate has been one of the biggest wealth builders in American history, and it’s easy to see why. Many average people build a lifetime of wealth by simply paying their mortgage every month, decreasing their loan amount as their home hopefully appreciates in value. At retirement, they may find they own a valuable six-figure asset free and clear, even after having lived there for decades.
However, real estate can also generate significant returns as strictly an investment. Some people choose to buy, renovate, and sell properties, often known as flipping. Others prefer to buy and rent a property, earning money from monthly cash flow while paying down the loan with other people’s payments. Investors can also choose to wholesale real estate, an excellent alternative for those seeking to serve the role of the middleman. Wholesaling involves connecting motivated sellers and interested buyers through extensive networking and marketing, making a profit on the spread between the price sellers sell for and buyers buy for.
Stocks can be a bit unpredictable, rising and falling with the daily winds of the economy. Bonds provide an alternative to this rollercoaster. Investors purchasing a bond are investing in the debt of the company, government, or other entity issuing the bond. Over the life of the bond, the issuer will pay the investor predefined amounts of interest, providing income while the investment principal is locked up. When the bond comes due, the investor is paid off at its full value. Bond investors make money by purchasing bonds issued below their eventual payoff value and interest payments during the bond’s life. Bond investors who need to get back their principal before the bond matures can sell it on the secondary market to other investors, where prices may be far less or more than they initially paid.
4. Certificates of Deposit (CDs)
Those looking for even less risk than bonds but who desire a better return than a typical savings account can opt for a certificate of deposit, commonly known as a CD. When you invest in a CD, you essentially agree to leave a certain amount of money deposited at a bank or financial institution for a set amount of time. At the end of this period, you receive your original deposit back, along with the interest earned. Rates are generally much higher than regular savings accounts and will be greater as the length of the CD increases. It’s critical to remember that during the period of the CD, you will not be able to access any part of your money without paying an early withdrawal penalty that will erase some or all of your interest gains.
Commodities offer a less common but potentially lucrative investment for those who are familiar. Commodities include items like precious metals, oil and other fuels, certain food and crop categories, and more. Investors can put their money to work in commodities in various ways. On one hand, some choose to invest in physical items like gold coins or gems. Others may buy futures contracts or options on financial exchanges that allow them to invest in commodities “on paper.” This can allow investors to put their money into things that are difficult or impossible to physically hold themselves, like oil, livestock, timber, and much more.
6. Art and Other Non-Standard Investments
Up until now, we’ve focused on financial products. But alternative investments have also been a profitable way to make money for creative investors over time. Some may choose to invest in items like fine art, which can see dramatic increases in value in some cases. Classic or sports cars can also fall into this category, as can some celebrity or sports memorabilia. While these kinds of non-standard investments shouldn’t make up a large portion of your portfolio, they can provide a bit of diversification and potential for lucrative returns for those who can afford the risk.
The Best Financial Investments Are the Ones that Meet Your Needs
As you can see, these popular and valuable investments can differ from one another in many ways. Some may be content with the relatively low returns of CDs and some bonds, knowing their money is safe from loss. Many may want to pursue more growth with mutual funds and real estate. Finally, other investors may find lucrative returns in commodities or non-standard investments, provided they can deal with the risk. The choice is yours, and with these critical pointers, you have the information to make it!