The most popular methods of saving money are passive, focused on spending less, and include creating savings accounts and emergency funds, and better managing your budget. However, savings usually don’t cover the ups and downs of the economy. In the short-term and in the long-term, you’ll have more or less the same amount of money. Investments, on the other hand, put your money to good use and earn you an income. They actively work to bring you more money, at least enough to keep pace with inflation and other economic factors. So, let’s check out the best types of investments to try this year, including short-and long-term plans, investments you can make from the comfort of your home, and those that require specialized consultancy.
A high-yield savings account is basically an account that pays interest. However, it may pay interest at 10 to 20 times that of a regular savings account. Furthermore, the interest accumulates into the same account, growing the amount on which you receive interest (it’s called compound interest). In other words, you get interest on interest.
You may ask yourself why choose a regular savings account if you can get a better interest rate with an HYSA. Well, the high interest rate comes with a few limitations. First of all, the bank may impose a minimum balance or charge a higher maintenance fee than a regular savings account. Access to money may be more difficult than using the online banking app you are used to. Last but not least, the interest rate may not be guaranteed and may fluctuate throughout the year.
Risks: HYSAs are considered safe investments, as most banks that offer them are insured by the Federal Deposit Insurance Corp. However, because interest rates can fluctuate, they may not keep pace with inflation. So, although the amount of money you own grows, you can buy less with it.
How to access HYSAs: You may find HYSAs options at almost any bank or credit union, so browse your local offer.
Exchange-Traded Funds are pools of securities, including individual stocks, bonds, and assets, and are traded multiple times throughout the day, just like stocks. Each unit may have more or less of each type, cover a specific market (e.g., Europe, U.S., Asia, etc.) or industry, and provide regular income or not. The pools or baskets, as they are sometimes called, are pre-designed, meaning you get to choose the entire basket, not each item inside it. This simplifies things quite a bit. You also need to know that ETFs are relatively easy to buy, often have a very low minimum balance, and have lower tax burdens than other investment types. Furthermore, you can sell them at any time and get your money back.
Risks: The value of ETFs fluctuates with the market, meaning that you usually have to wait for a good moment to sell your units. This may affect your liquidity or, in some extreme cases, cost you money. You should also make sure the profit exceeds the administration costs, broker fees, and so on.
How to access ETFs: To access ETFs, you need a broker, and you can probably find a certified one through your bank. However, if you don’t want to pay for a consultancy and can manage on your own, you can use specialized apps, such as Robinhood and Webull.
Entering the real estate market is a way to generate profit (buy properties and sell them at a higher price) or regular income (buy a property and rent it out). Either way, you need a bit more than a generous budget and a good real estate agent. Although the reward may be very good, the associated costs may be higher as well. For instance, you may need to make improvements to your property before selling it at a better price. Or you may need to provide maintenance for your rented property. Also, real estate investments are typically long-term. You can’t take your money back anytime you want or need to. It may take some time for your investment to generate profit.
Risks: Real estate markets are usually on the rise, but property prices or rental rates may decline as well. Although you can estimate how a certain area or city will develop, negative surprises may arise. You should also consider the risk of property deterioration due to natural phenomena or age (i.e., old buildings are riskier).
How to access real estate: You need to find a good real estate agent to close the best deals for you. You may also need a maintenance and admin team and an accountant.
Stocks are considered high-risk, high-return investments. It’s a fast-paced world, with daily trades, complex financial instruments to monitor, sudden movements, and a lot of adrenaline. You should definitely consider if you are up for it. Can you handle panic when your stock value plummets? Can you analyze the markets in detail and make good decisions? Like with EFTs, you can deposit and redraw as much money as you want, but your return depends on market value. Sometimes it pays to consider stocks as long-term investments; other times, you want to move quickly and buy and sell for short-term goals.
Risks: The stock market goes up and down every day. The company you invest in may have a bad year or, even worse, go bankrupt. Unlike ETFs, where you purchase a share in a basket of assets, here you purchase shares in only one company. The risks are higher.
How to access stocks: You need to find a trustworthy and capable broker to guide you, or be willing to spend a few years getting the financial expertise you require.
Like ETFs, mutual funds are pools of securities you can buy whole, without adjusting the content. The difference is that mutual funds are traded only once per day after the market closes, whereas ETFs are traded multiple times per day, like stocks. There are also differences in fees, taxes, access, and initial balance. Mutual funds usually require a higher initial balance and are less accessible. Transaction fees may be higher, and taxes may be less efficient at high capital. On the plus side, mutual funds benefit from more professional management because they are usually available through a bank or brokerage firm. You don’t have to manage anything at all, just wait for your fund value to grow.
Risks: You can redeem your portfolio at any time, but mutual funds usually have low appreciation. Redeeming too soon may result in a loss instead of a gain. You should also check that the associated costs and taxes don’t exceed the profit.
How to access mutual funds: Your bank probably offers you access to mutual funds via its own brokerage service or a third-party one. You may even have the option to invest via your online banking app, which allows you to invest regularly and automatically, just like you would make transfers to a savings account.
A bond acts like a loan: you lend money to an entity and get it back with interest at a future date. The borrowing entity may be the government, the municipality, or a company/corporation. Buying bonds from state institutions is considered safe and often offers tax-free interest and other advantages. Company bonds often offer higher interest rates but may be riskier than government bonds. You also need to know that you will get the interest on a specific future date, called the maturity date. If you redraw your money earlier, you will lose the interest. You also need to know that bonds aren’t available at any date, so you may want to keep an eye out for new editions.
Risks: Government bonds are considered safe and reliable sources of income. Corporate bonds are rated by specialized agencies from investment-grade to junk, giving you an indication of the risk level.
How to access bonds: You can buy bonds directly from the issuer, through a broker, or by purchasing ETFs or mutual funds that include bonds.
A certificate of deposit is one of the simplest and safest investment types. You make a deposit for a specific period and receive interest at the end of that period. The interest is guaranteed and doesn’t fluctuate. You know exactly how much money you will have in your account when the deposit ends. Certificates of deposit have lower interest rates than similar investments, and interest rates are higher for longer terms. However, if you commit to not touching your money for a longer period, you may miss better deals in the meantime, risk running out of liquidity, and end up with an interest rate that doesn’t keep pace with inflation. Many people choose to work with a certificate of deposit ladder, meaning they spread their savings across multiple shorter-term deposits and keep renewing them to keep up with economic and personal needs.
Risks: As an investment, certificates of deposit are risk-free. You are guaranteed the interest. However, the profit is small, so you need a smart way to leverage this type of investment.
How to access certificates of deposit: Ask your main bank what types of deposits they offer and if they do personalized offers.
Gold is one of the commodities considered a safe haven for investment. Gold's value is stable or rising, even in uncertain times, and tends to outpace inflation. However, investments in gold may incur higher taxes than other investments and may require a larger initial deposit.
Risks: Value-wise, investments in gold are considered risk-free, but you need to consider other factors, such as taxes, storage space (if you decide on physical gold), and the fact that, if you lock a large amount of money in commodities, you can’t redeem it very fast.
How to access gold investments: The old way, still in use, is to buy physical gold from dealers and store it in a safe place. The new, largely adopted approach is to include ETFs and mutual funds that trade in commodities in your portfolio.
Dividend stocks are a source of regular income, unlike regular stocks that only pay off when you sell them. Companies sell shares to their stockholders and commit to paying them dividends on a yearly or quarterly basis. The value depends on how well the company performs and how much of its profit it decides to share with stockholders. Usually, dividend-paying companies are well-established corporations that can predict their income quite well, achieve maximum growth, and don’t require aggressive expansion. Non-dividend-paying companies are often start-ups that need the funds for research and expansion. So, although all stocks are traded on the same market, you need to know the company and its regime before purchasing stocks.
You need to know that dividends may earn you a steadier income, but less money than a courageous, well-timed stock trading activity. Also, as you receive a regular income, you need to pay taxes on it annually. With non-dividend stocks, you only pay taxes on the profit gained when selling them.
Risks: How much money you get in dividends and whether you get any at all depends entirely on the company. If the yhave a bad year, the ymay decide not to pay their shareholders.
How to access dividend stocks: You can ask your broker to focus your portfolio on dividend stocks or choose ETFs and mutual funds that include this type of stock.
Index funds are either mutual funds or ETFs focused on a particular market index. The most popular market index is the S&P 500, which tracks the largest 500 companies in the U.S. Other market indexes are the MSCI World (large and mid-sized companies across 23 developed countries), the Nasdaq-100 (top 100 technology companies), the EURO STOXX 50 (the largest 50 companies in the Eurozone), and the FTSE 100 (the largest 100 UK-based companies).
The advantage of index funds is that you don’t have to bother looking for the best companies on a particular market. They are already grouped by the market index, have proven to be performant in the long run, and you get a share of every one of them.
Risks: Index funds are considered efficient in the long term. In the short term, their value may fluctuate, which means you won’t get a profit. Also, if you choose an industry-based index fund, such as technology companies, and that particular industry declines, your profit will decline too.
How to access index funds: You can access index funds the same way you access ETFs or mutual funds and select the correct package when investing.
Although we did talk about government bonds when talking about bonds in general, they need their own category because they are a very popular, risk-free type of investment. In the U.S., you’ll find them under the name of treasuries. U.S. government bonds are considered a benchmark for risk-free bonds. The risk of other government bonds depends on the country that issued them, but many people choose to diversify their portfolios by buying not only government bonds issued by their country of residence but also those from other countries. So, knowing the risks is important. Consider the issuer’s currency, geopolitical risk, and credit risk. Also, take a look at what taxes you may need to pay and how.
Risks: Government bonds’ risk depends on the country that issues them. U.S. government bonds and those issued by safe, powerful countries are considered risk-free investments.
How to access government bonds: You can purchase government bonds issued by your country of residence directly from the government's official selling platform. To purchase government bonds issued by a different country, you need an international broker to go for EFTs and mutual funds that include these bonds.
Cryptocurrency is a virtual asset and is highly volatile and high-risk. However, it performed very well and may bring high returns. Like with stocks, you need to be prepared to stomach the adrenaline, watch the market like a hawk, and predict what’s to come. If you do it right, the reward may be very generous. Cryptocurrency is not the ghost in the closet. It’s largely available at any brokerage, and many governments, the U.S. included, have more and more cryptocurrency-friendly policies.
Risks: Risks are high with cryptocurrency investments because the market is extremely volatile and highly influenced.
How to access cryptocurrency: You can buy Bitcoin or other cryptocurrencies via a brokerage or via ETFs.
FAQs
What are financial investments?
A financial investment refers to buying securities in order to generate a profit. They may be shares in a company, physical commodities, property, digital assets, or loans.
What is compound interest?
Compound interest is the interest applied to your original deposit plus the intermediate interest accumulated along the way to the maturing date. For example, you may deposit for three years, and at the end of each year, the interest is calculated and deposited in your account. The following year, the interest will be calculated on your original deposit plus the interest accumulated in the first year.
Why now is the best time to start investing?
It’s best to start investing sooner rather than later because it helps ensure your savings keep up with inflation and maintain the same buying power over the long term. It’s also a way to accumulate money for retirement or to achieve a big goal, such as buying a house or moving to another country. Done properly, investing is a safety net. Short-term investments and dividend stocks may bring recurring income and increase your day-to-day budget.
What to consider as a beginner investor?
Before becoming an investor, you need to consider a few things, both about yourself and the investment type you choose. You need to know your risk tolerance and establish your goals in order to choose the best investment type for you. You also need to know whether you intend to be a passive or active investor, whether you want to do it yourself or hire a broker, and what taxes you have to pay. Then consider all types of investments, learn a bit about each, and see which one fits your investor profile. It’s usually a good idea to start low and build a versatile portfolio.
What's a 'good' investment return?
Returns vary based on many factors, including your investment type, market, geopolitical, and economic conditions, your investor profile and portfolio, and so on. You can’t expect a fixed return, but, in general, you can predict your return based on how well a certain investment did in the past. For example, certificates of deposit and high-yield savings accounts offer 3%-4% returns, while an S&P 500 index fund may yield 10%.
Disclaimer
Although past investment performance may give you an insight into how good this type of investment is, it is not a guarantee of future returns. Investments depend on many factors that change over time and from one country to another, so do thorough research before investing. Remember, this article is not investment advice; it is for general informational purposes only.
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