Financial security requires sound planning and good decisions. Investment strategies range from choosing the right stocks or mutual funds to understanding how the stock market operates. Technology has also created new ways to invest in businesses. Today, your portfolio could include a part interest in an art gallery, a piece of farmland, or even a piece inside a company that makes parts for jets or cars.
Investing is putting money into something that offers potential earning power and appreciable value. The significant investments are real estate, stocks, bonds, mutual funds, and cash. Each involves different ways of making money and different risks.
A good investment plan depends on understanding the differences between these investments, deciding what is suitable for your needs and lifestyle, and then sticking with it even during tough economic times. Here are some tips to help you make good investments.
How To Make Good Investments
1. High-Yield Savings Accounts
An easy-access high-yield savings account that pays interest can be a good thing to have in the right circumstance. It can earn you money while keeping you liquid or able to turn your assets into cash at a moment’s notice. This would be your fund for short-term debt or emergencies.
New investors would find a savings account suitable for their first investment. If you make regular deposits into the account, the interest compounds and can help your money grow faster. Visit a bank or a credit union to open an account.
2. Series I Bonds
Series I savings bonds are U.S. Government securities that guarantee a fixed return rate determined at the purchase time. The bonds are issued electronically and held in electronic form, which means you never have to hold or mail a bond physically. You cannot redeem them before maturity. They pay interest every six months until maturity when you receive the bond’s face amount.
To start, visit your financial institution, where you can open a savings bond account. When you purchase the bond, the federal government pays for the initial cost and then sends you a check for the interest accruing during the six months. Series I bonds are insured by SIPC for up to $100,000. If an institution goes bankrupt, your principal will be transferred to a government fund, and you’ll receive a refund of your principal and interest.
3. Short-Term Certificates of Deposit
A certificate of deposit (CD) is a special type of savings account that pays interest for a period ranging from three months to five years, called the CD term. When you open an account with your financial institution, you can choose between several different terms and rates. You can view all available rates and terms at any time by visiting your bank or brokerage firm’s Web site. CDs make sound investment choices because they offer higher interest on some investments than you would receive in a typical bank or thrift savings account.
4. S&P 500 Index Funds
The Standard and Poor’s 500 Index is considered the best gauge of the U.S. stock market value and a popular index among mutual fund investors. It comprises 500 companies from all industry sectors representing the broadest measure of the U.S. stock market. They include utility, industrial, and financial companies and technology stocks. They are generally considered riskier investments than other sectors traded on NASDAQ (NDX) and NYSE (NDAQ). Consult a financial advisor about creating a diversified portfolio of stocks that match the S&P 500 Index.
5. Mutual Funds
Mutual funds are pools of money invested by many people in similar investments managed by a fund manager who buys and sells securities on the market to generate higher returns. Each mutual fund invests in specific securities, such as stocks and bonds, ranked according to their expected returns. A mutual fund’s objective is to match the return on your investment with the level of risk you can assume. This way, you get a blend of growth and income. To ensure stability, your investment will be spread among several stocks and bonds chosen for their potential to generate revenue and growth.
Investing requires a knowledge of the different investment vehicles, an understanding of risk and return, and a commitment to determining your goals and objectives. Once you have those down, you’ll be ready to invest in any number of the wide variety of investment opportunities available today.