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What Are Your Investment Options?

When you are ready to invest in your future, most people turn to various investment options to have a diverse portfolio. Investing provides you with options to fund your retirement, add additional income, or even help get you out of a financial pickle. All in all, investing helps grow your wealth, allowing you to hit financial targets.

No matter which investment option you choose, you should take time to research and ensure it is the right option for your personal investment needs.

Why Should You Make Investments?

When you hear investments, what do you think of? Do images of the frenzied New York Stock Exchange pop in your head? Do images of those who are wealthier come into view? If so, you are not alone. Most people who think about investments have similar imagery, but investing is so much more than that and for literally everyone! And It does not have to be intimidating.

Since you are reading this article, you have already taken the first step to do your due diligence as an investor. You are doing your research! You are probably ready to start saving for your retirement, children’s college funds, your future home, or investing to just grow your personal wealth. All of those are fantastic reasons to invest.

Investments are important to reach your financial goals. They can earn returns in various forms including financial profit, appreciation of an assets value, or interest earnings.

Investment Vehicles

There are countless types of investment vehicles that can help you reach your financial goals. Each investment type has its own features, risk, and ways that they should be utilized to help your financial future. If you’re unsure of where to start, do not hesitate to reach out to a financial planning professional to help you along the way.

Stocks

Stocks are one of the most well-known and most common types of investments. The goal of purchasing a stock is that you are hoping the price will continue to increase and you will eventually sell it for a profit.

When you purchase stock, you are purchasing “shares” of ownership in that company. As the company grows and makes money, so do you. However, if the company loses money, your stocks will go down.

The stock market sees a growth of approximately 7% each year, but individual stocks have the potential to perform better, achieving higher returns. Alternatively, some stocks can see a loss annually, there’s no perfect solution to predict which will have the highest returns.

Mutual Funds

Mutual funds are a great way to diversify your investments. If you utilize this as an investment vehicle, you will provide an investment company with your principal and they will be responsible for investing it to provide returns.

Typically, mutual funds are made up of bonds and stocks – sometimes only one, sometimes both. This investment strategy diversifies your money in several companies, which can be actively or passively managed.

An actively managed fund utilizes a professional portfolio manager (or managers) to choose which investments to select for the portfolio. You should invest in an active mutual fund for the expertise and knowledge of the fund manager if that is something you lack. The goal of your fund manager is to create higher returns by selecting investments they believe will be high-performing.

On the other hand, passively managed funds are not selected by a fund manager and instead are chosen automatically and follow a marketing index. These funds are not created to try and “beat the market” so you will have a lower return. Alternatively, they will have a lower operating cost versus actively managed funds, saving you money on the fee side of things.

Bonds

When you invest in a bond, you are lending money to the entity. This is typically lending to a government entity or a business. You can invest in local government municipal bonds, U.S. Treasury bonds, or corporate bonds.

Bonds, specifically U.S. Treasury Bonds, are a very safe investment option.  

The money that you lend generates interest payments over the course of the loan. Once the bond matures, you then get your principal back. Since bonds are much lower risk than stocks, they tend to have a lower return. However, there is the risk that the company you lent the money could fold, leaving you with a loss of your principal.

Annuities

An annuity is an agreement between an insurance company and investor. The insurance company agrees to make payments to the investor either immediately or at a specified date in the future, after the investor provides a single payment or series of premium payments.

Many investors utilize annuities as part of their retirement savings plans. While they are not high in risk, they also are not high in growth. Instead, they are a fantastic way to supplement your retirement savings, instead of being a source of high-growth wealth.

Exchange-Traded Funds

Exchange-Traded Funds (ETFs) are comparable to mutual funds in the way that they provide a collection of investments. However, they are different than mutual funds because shares of ETFs are bought and sold on the stock markets. The price of ETFs fluctuates during the trading day, as opposed to mutual funds that are calculated at the end of each trading session.

Exchange-Traded Funds are a great option for new investors. They provide diversification over individual stocks, and you can further minimize your risk if you choose an ETF that tracks a broad index, like the S&P 500.

Money Market Funds

A money market fund is a type of mutual fund. It invests your funds in highly liquid, near-term instruments. These instruments can include cash equivalent securities, debt-based securities with shorter-term maturity, and cash. They offer investors a low level of risk with high liquidity.

Typically, money market funds are used to keep your money temporarily before investing elsewhere. They are not a suitable option for long-term investments.

U.S. Treasury Securities

There are three different types of U.S. Treasury Securities – treasury bills, treasury notes, and treasury bonds. U.S. Treasury securities are one of the safest investment options available and are issued by the federal government. They are backed by the “full faith and credit” of the government, meaning that no matter what comes our way – war, inflation, recession – you as a bondholder will be taken care of.

Treasury Bills

Treasury bills are short term securities. They are non-interest bearing and have a maturity within days, or up to 52 weeks. Treasury bills are usually sold at a discount from the face value (par amount). When the Treasury bill matures, you are paid the par amount.

Treasury Notes

Treasury notes are a fixed-principal security. They mature within two to ten years. The interest on Treasury notes is paid semiannually, and the principal is paid upon maturity.

Treasury Bonds

Treasury bonds are a long-term, fixed-principal security. They have terms from 10 to 30 years. Like Treasury notes, Treasury bonds interest is paid on a semiannual basis with the principal paid when the bond matures.

Real Estate

There are two different ways you can invest in real estate. The first way is traditional real estate investing. You buy a property and sell it later at a profit or own the property and collect the rent. However, if that seems more hands-on that you would like, you can invest in real estate through real estate investment trusts (REITs).

REITs pool investors money to invest in various real estate projects, similar to mutual funds. They are a cheaper, easier way to invest in real estate than traditional real estate investing. Most REITs are publicly traded which make them highly liquid, like stocks. The downside is that REITs do not offer much in capital appreciation.

Commodities

Commodities – metals, oil, grains, and the like – are purchased through futures contracts. Commodity futures are contracts that each party agrees to buy or sell a particular amount of a commodity at a specified date and price in the future. You can invest in these physical products, but they hold the risk of abrupt movements in either direction due to unforeseen events. For instance, political, economic, and natural events can shift the direction of your commodities futures contract, good or bad.

Private Equity

Similar to a mutual fund, a private equity fund is an investment option where an adviser pools money from investors together and makes investments on behalf of the fund. With private equity funds, you are investing in companies that are not publicly traded.

Investors directly invest in the companies or engage in buyouts of public companies. They offer several advantages for start ups and private companies, allowing them to access liquidity instead of conventional financial mechanisms like high interest loans. The disadvantage of private equity is that the price of shares for the company equity is determined through negotiations and not market forces. You also must be an accredited investor; it is not for someone just dipping their toes into investing.

How To Select The Right Investments

Building your wealth through the above investments can help you reach your financial goals. The key is to find the right investments based on your age, timeline, risk tolerance, and how much money you’re looking to invest.

You should also consider reaching out to a professional if you are unsure of where to begin. There are professional financial advisors in your area who can help you create an investment plan. You also have the option to utilize robo-advisors to help you build your investment portfolio.

There is no time like the present to get started. Your financial goals can be reached if you select the right investments and make your money work for you.