BEST INVESTMENTS

To enjoy a comfortable future with freedom and control, smart investing is absolutely necessary. According to Reza Abbaszadeh’s Wealth Creation Formula, “The only reason that you are willing to save money is to invest it and only invest once you understand what you are doing”.

Here are 10 high-yield investments for consideration, ordered by risk from the lowest to highest. Please bear in mind that lower risk basically means lower returns and higher risk means higher rewards. So be a man!

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* Any investment is ultimately judged by its rate of return. The rate of return is simply the percentage of growth in an investment over a specific period of time, usually one year. But rates of return can be difficult to compare across different investments if they have different compounding periods. One may compound daily, while another compounds quarterly or biannually.

** Investing involves risk, including loss of principal. Past performance does not guarantee or indicate future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. While the data we use from third parties is believed to be reliable, we cannot ensure the accuracy or completeness of data provided by investors or other third parties.

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1. High-Yield Savings Accounts

A high-yield online savings account pays you interest on your cash balance and just like a savings account earning pennies at your brick-and-mortar bank, high-yield online savings accounts are accessible vehicles for your cash. With fewer overhead costs, you can typically earn much higher interest rates at online banks. Plus, you can typically access the money by quickly transferring it to your primary bank or maybe even via a cash machine.

Online savings accounts and cash management accounts provide higher rates of return than you’ll get in a traditional bank savings or checking account. Cash management accounts are like a savings account-checking account hybrid: They may pay interest rates similar to savings accounts, but are typically offered by brokerage firms and may come with debit cards or checks.

A savings account is a good vehicle for those who need to have access to cash in the near future. While savings accounts can generate good interest payments that outpace inflation historically, they might not yield as much as you’d like right now.

With time, these rates should rise and pay you more in high-yield savings accounts. If nothing else, earning anything on your cash is better than leaving it in a zero-interest savings account or just as cash in hand. This gives money in the savings account a chance to keep up with inflation and not lose value as quickly.

Best investment for

A high-yield savings account works well for risk-averse investors, and especially for those who need money in the short term and want to avoid the risk that they will not get their money back.

Savings accounts are best for short-term savings or money you need to access only occasionally — think an emergency or vacation fund. Transactions from a savings account are limited to 6 per month. Cash management accounts offer more flexibility and similar — or in some cases, higher — interest rates.

If you’re new to saving and investing, a good rule of thumb is to keep between 3 and 6 months’ worth of living expenses in an account like this before allocating more toward the investment products lower on this list.

Risk

Those banks that offer these accounts are FDIC-insured, so you don’t have to worry about losing your deposit. While high-yield savings accounts are considered safe investments, like certificates of deposit, you do run the risk of losing purchasing power over time due to inflation if rates are too low.

2. Certificates Of Deposit

A CD is a federally insured savings account that offers a fixed interest rate for a defined period of time. In other words, A CD is a time deposit account that earns interest for the full term, typically 3 months to 5 years. Certificates of deposit are issued by banks and generally offer a higher interest rate than savings accounts.

These federally-insured time deposits have specific maturity dates that can range from several weeks to several years. Because these are “time deposits,” you cannot withdraw the money for a specified period of time without penalty.

With a certificate of deposit, the financial institution pays you interest at regular intervals. Once it matures, you get your original principal back plus any accrued interest. It pays to shop around online for the best rates.

Because of their safety and higher payouts, certificates of deposit 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. But there are many kinds of certificates of deposit to fit your needs, and so you can still take advantage of the higher rates on CDs.

Best investment for

A certificate of deposit is for money you know you’ll need at a fixed date in the future. For instance, a home down payment or a wedding.

Common term lengths are one, three and five years, so if you’re trying to safely grow your money for a specific purpose within a predetermined time frame, CDs could be a good option. It’s important to note, though, that to get your money out of a CD early, you’ll likely have to pay a fee. As with other types of investments, don’t buy a CD with money you might need soon.

A certificate of deposit works well for risk-averse investors, especially those who need money at a specific time and can tie up their cash in exchange for a bit more yield than they’d find on a savings account.

Risk

CDs are considered safe investments. But they do carry reinvestment risk — the risk that when interest rates fall, investors will earn less when they reinvest principal and interest in new CDs with lower rates, as we saw in 2020. The opposite risk is that rates will rise and investors won’t be able to take advantage because they’ve already locked their money into a CD.

Consider laddering CDs — investing money in CDs of varying terms — so that all your money isn’t tied up in one instrument for a long time. It’s important to note that inflation and taxes could significantly erode the purchasing power of your investment.

3. Government Bonds

A government bond is a loan from you to a government entity (like the federal or municipal government) that pays investors interest on the loan over a period of time, usually 1 to 30 years. Because of that steady flow of payments, bonds are known as a fixed-income security. Government bonds are virtually a risk-free investment, as they’re backed by the full faith and credit of the U.S. government.

Government bond funds are mutual funds or ETFs that invest in debt securities issued by the U.S. government and its agencies.

The funds invest in debt instruments such as T-bills, T-notes, T-bonds and mortgage-backed securities issued by government-sponsored enterprises such as Fannie Mae and Freddie Mac. These government bond funds are well-suited for the low-risk investor.

These funds can also be an ideal choice for beginning investors and those looking for cash stream.

The cons? In exchange for that safety, you won’t see as high of a return with government bonds as other types of investments. If you were to have a portfolio of 100% bonds (as opposed to a mix of stocks and bonds), it would be substantially harder to hit your retirement or long-term goals.

Best investment for

Government bond funds may work well for risk-averse investors, though some types of funds (like long-term bond funds) may fluctuate a lot more than short-term funds due to changes in the interest rate.

Conservative investors who would prefer to see less volatility in their portfolio.

The fixed income and lower volatility from bonds make them common with investors nearing or already in retirement, as these individuals may not have a long enough investment horizon to weather unexpected or severe market declines.

Risk

Funds that invest in government debt instruments are considered to be among the safest investments because the bonds are backed by the full faith and credit of the U.S. government.

However, like other mutual funds, the fund itself is not government-backed and is subject to risks like interest rate fluctuations and inflation. If inflation rises, purchasing power can decline. If interest rates rise, prices of existing bonds drop; and if interest rates decline, prices of existing bonds rise. Interest rate risk is greater for long-term bonds.

4. Corporate Bonds

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. Short-term bonds have an average maturity of one to five years, which makes them less susceptible to interest rate fluctuations than intermediate- or long-term bonds.

Corporate bonds operate in the same way as government bonds, only you’re making a loan to a company, not a government. As such, these loans are not backed by the government, making them a riskier option. And if it’s a high-yield bond (Occasionally known as a junk bond), these can actually be substantially riskier, taking on a risk/return profile that more resembles stocks than bonds.

Corporate bond funds can be an ideal 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.

Best investment for

Investors looking for a fixed-income security with potentially higher yields than government bonds, and willing to take on a bit more risk in return. In corporate bonds, the higher the likelihood the company will go out of business, the higher the yield. Conversely, bonds issued by large, stable companies will typically have a lower yield. It’s up to the investor to find the risk/return balance that works for them.

Short-term corporate bond funds can be good for risk-averse investors who want a bit more yield than government bond funds.

Risk

As is the case with other bond funds, short-term corporate bond funds are not FDIC-insured. Investment-grade short-term bond funds often reward investors with higher returns than government and municipal bond funds.

However, the greater rewards come with added risk. There is always the chance that companies will have their credit rating downgraded or run into financial trouble and default on the bonds. To reduce that risk, make sure your fund is made up of high-quality corporate bonds.

5. Municipal Bonds

The federal government isn’t the only governmental entity that can issue debt to fund operations and investments. State and local governments can issue debt as well in the form of municipal bonds.

These income-generating assets offer slightly better returns than Treasuries with only slightly more risk. Because the likelihood of the Federal government defaulting on their debt is low, they pay the lowest interest in the debt market.

Municipal bonds have a similar, though slightly higher risk profile because the local or state government can also cut expenses or raise taxes to pay for the debt.

Municipal bond funds invest in a number of different municipal bonds, or munis, issued by state and local governments. Earned interest is generally free of federal income taxes and may also be exempt from state and local taxes, too, making them particularly attractive for investors in high-tax states or high tax brackets.

Municipal bonds may be bought individually, through a mutual fund or an exchange-traded fund. You can consult with a financial adviser to find the right investment type for you, but you may want to stick with those in your state or locality for additional tax advantages.

Municipal bond funds are ideal for beginning investors because they offer diversified exposure without the investor having to analyze individual bonds. They’re also good for investors looking for cash flow.

Best investment for

Municipal bonds are an ideal selection for investors who live in high-tax states, allowing them to avoid levies and generate income. Their lower yields may make them less attractive to investors in low tax brackets or low-tax states.

Risk

Individual bonds carry default risk, meaning the issuer becomes unable to make further income or principal payments. Cities and states don’t go bankrupt often, but it can happen, and historically municipal bonds have been very safe.

Bonds may also be callable, meaning the issuer returns principal and retires the bond before the bond’s maturity date. This results in a loss of future interest payments to the investor. A bond fund allows you to spread out potential default and prepayment risks by owning a large number of bonds, thus cushioning the blow of negative surprises from a small part of the portfolio.

6. S&P 500 Index Funds

An index fund is a type of mutual fund that holds the stocks in a particular market index. For instance, the S&P 500. The aim is to provide investment returns equal to the underlying index’s performance, as opposed to an actively managed mutual fund that pays a professional to curate a fund’s holdings.

If you want to achieve higher returns than more traditional banking products or bonds, a good alternative is an S&P 500 index fund, though it does come with more volatility.

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. For example, Amazon and Berkshire Hathaway are two of the most prominent member companies in the index.

Like nearly any fund, an S&P 500 index fund offers immediate diversification, allowing you to own a piece of all of those companies. The fund includes companies from every industry, making it more resilient than many investments. Over time, the index has returned about 10 percent annually. These funds can be purchased with very low expense ratios (how much the management company charges to run the fund) and they’re some of the best index funds.

An S&P 500 index fund is an ideal choice for beginning investors, because it provides broad, diversified exposure to the stock market.

Best investment for

Index mutual funds are some of the best investments available for long-term savings aims. In addition to being more cost-effective due to lower fund management fees, index mutual funds are less volatile than actively managed funds that try to beat the market.

Index funds can be especially well-suited for young investors with a long timeline, who can allocate more of their portfolio toward higher-returning stock funds than more conservative investments, such as bonds. According to Fernandez, young investors who can emotionally weather the market’s ups and downs could even do well to invest their entire portfolio in stock funds in the early stages.

An S&P 500 index fund is an ideal choice for any stock investor looking for a diversified investment and who can stay invested for at least three to five years.

Risk

An S&P 500 fund is one of the less-risky ways to invest in stocks, because it’s made up of the market’s top companies and is highly diversified. Of course, it still includes stocks, so it’s going to be more volatile than bonds or any bank products. It’s also not insured by the government, so you can lose money based upon fluctuations in value. However, the index has done quite well over time.

7. Dividend Stock Funds

Dividend stocks can provide the fixed income of bonds as well as the growth of individual stocks and stock funds. Dividends are regular cash payments companies pay to shareholders and are often associated with stable, profitable companies. While share prices of some dividend stocks may not rise as high or quickly as growth-stage companies, they can be attractive to investors because of the dividends and stability they provide.

Even your stock market investments can become a little safer with stocks that pay dividends.

Dividends are portions of a company’s profit that can be paid out to shareholders, usually on a quarterly basis. With a dividend stock, not only can you gain on your investment through long-term market appreciation, you’ll also earn cash in the short term.

Buying individual stocks, whether they pay dividends or not, is better-suited for intermediate and advanced investors. But you can buy a group of them in a stock fund and reduce your risk.

Best investment for

Dividend stock funds are a good selection for almost any kind of stock investor, but can be better for those who are looking for income. Those who need income and can stay invested for longer periods of time may find these attractive.

Any investor, from first-timer to retiree, though there are specific types of dividend stocks that may be better depending on where you are in your investing journey.

Young investors, for example, may do well to look into dividend growers, which are companies with a strong track record of consecutively increasing their dividends. These companies may not have high yields currently, but if their dividend growth keeps up, they could in the future. Over a long enough time frame, this (combined with a dividend reinvestment plan) can lead to returns that mirror those of growth stocks that don’t pay dividends.

Older investors looking for more stability or fixed income could consider stocks that pay consistent dividends. On a shorter timeline, reinvesting these dividends may not be the goal; rather, taking the dividends as cash could be a part of a fixed-income investing plan.

Risk

As with any stock investments, dividend stocks come with risk. They’re considered safer than growth stocks or other non-dividend stocks, but you should choose your portfolio carefully.

Make sure you invest in companies with a solid history of dividend increases rather than selecting those with the highest current yield. That could be a sign of upcoming trouble. However, even well-regarded companies can be hit by a crisis, so a good reputation is finally not a protection against the company slashing its dividend or eliminating it entirely.

8. 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.

Even your stock market investments can become a little safer with stocks that pay dividends.

The fund is based on the Nasdaq’s 100 largest companies, meaning they’re among the most successful and stable. Such companies include Apple and Facebook, each of which comprises a large portion of the total index. Microsoft is another prominent member company.

A Nasdaq-100 index fund offers you immediate diversification, so that your portfolio is not exposed to the failure of any single company. The best Nasdaq index funds charge a very low expense ratio, and they’re a cheap way to own all of the companies in the index.

Best investment for

A Nasdaq-100 index fund is an ideal selection for stock investors looking for growth and willing to deal with significant volatility. Investors should be able to commit to hold it for at least three to five years.

Risk

Like any publicly traded stock, this collection of stocks can move down, too. While the Nasdaq-100 has some of the strongest tech companies, these companies also are usually some of the most highly valued. That high valuation means that they’re likely prone to falling quickly in a downturn, though they may rise again during an economic recovery.

9. Real Estate

Traditional real estate investing involves buying a property and selling it later for a profit, or owning property and collecting rent as a form of fixed income. But there are several other, far more hands-off ways to invest in real estate.

One common way is through real estate investment trusts, or REITs. These are companies that own income-generating properties (think malls, hotels, offices, etc.) and offer regular dividend payments. Real estate crowdfunding platforms, which often pool investors’ money to invest in real estate projects, have also risen in popularity in recent years.

Rental housing can be a great investment if you have the willingness to manage your own properties. And with mortgage rates hitting all-time lows recently, it could be a great time to finance the purchase of a new property, though the unstable economy may make it harder to actually run it, since tenants may be more likely to default due to unemployment.

To pursue this route, you’ll have to select the right property, finance it or buy it outright, maintain it and deal with tenants. You can do very well if you make smart purchases. However, you won’t enjoy the ease of buying and selling your assets in the stock market with a click or a tap on your internet-enabled device. Worse, you might have to endure the occasional 3 a.m. call about a broken pipe.

But if you hold your assets over time, gradually pay down debt and grow your rents, you’ll likely have a powerful cash stream when it comes time to retire. Remember you can rerite even ever you want! Cash flow is the King of Financial Freedom.

Best investment for

Rental housing is a good investment for long-term investors who want to manage their own properties and generate regular cash flow. Real estate investments are highly illiquid, so investors shouldn’t put into an investment any money they may need to access quickly.

Risk

As with any asset, you can overpay for housing, as investors in the mid-2000s found out. With low interest rates and a tight housing supply, housing prices surged in 2020 and 2021, despite the economy’s struggles. Also, the lack of liquidity might be a problem if you ever needed to access cash quickly. You may have to come up with serious cash for some expenses, such as a new roof or air conditioning, if they’re needed. Of course, you’ll run the risk of the property sitting empty while you’re still paying the mortgage.

10. Cryptocurrency

Cryptocurrency is a kind of digital electronic-only currency that is intended to act as a medium of exchange. It’s become popular in the last decade, with Bitcoin becoming the leading digital currency. Crypto has become a hot property in the last few years in particular, as dollars have flown into the asset, pushing up prices and drawing even more traders to the action.

Unlike other assets listed here, it’s not backed by the FDIC or the money-generating power of either a government or company. Its worth is determined solely by what traders will pay for it.

Rental housing can be a great investment if you have the willingness to manage your own properties. And with mortgage rates hitting all-time lows recently, it could be a great time to finance the purchase of a new property, though the unstable economy may make it harder to actually run it, since tenants may be more likely to default due to unemployment.

Over the last five years, cryptocurrencies have burst onto the scene as an asset class all their own. Cryptocurrency statistics show they’ve come from non-existence to a collective market capitalization of nearly $2 trillion in the last 10 years.

Best investment for

Investors (accredited investors, in many cases) who want to diversify away from traditional investments and hedge against inflation. 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. But if you are patient, you will be highly rewarded as you simply deserve it.

Risk

Cryptocurrency has very significant risks, including ones that could turn any individual currency into a complete zero, such as being outlawed. Digital currencies are highly volatile and may fall (or rise) precipitously even over very short time frames, and the price depends entirely on what traders will pay. But if you know what exactly you are doing, it will return more than other investments in a given period of time.

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