Your investment options go far beyond just stocks. Here’s the what, why, when and how of choosing the best investments for you in 2023.
The term “investing” may conjure images of the frenetic New York Stock Exchange, or perhaps you think it’s something only meant for those wealthier, older or further along in their careers than you. But this couldn’t be further from the truth. When done responsibly, investing is a great way to grow your money. And many types of investments are accessible to virtually anyone regardless of age, income or career. Such factors will, however, influence which investments are best for you at this particular moment.
For example, someone close to retirement with a healthy nest egg will likely have a very different investment plan than someone just starting out in their career with no savings. Neither of these individuals should avoid investing; they should just choose the best investments for their individual circumstances.
Is it OK to invest during uncertainty
Yes, if you’re invested for the long haul, says certified financial planner Austin Litvak, director of investment research for O’Brien Wealth Partners in Boston. “Certain things going on with today’s market are unique to history and that’s not going to last forever. If you’re a long-term investor, the Federal Reserve is still credible and will get inflation under control,” Litvak says.
It’s normal to worry about your investments, especially after 2022 witnessed major drops in both the stock and bond markets and 2023 has brought a series of bank closures. Getting into investing at a time of such volatility can feel scary. Nevertheless, taking an investment approach that's appropriate for your particular financial situation and time horizon — and features the right asset allocation for you — means you won’t miss out on any potential recovery.
The bottom line: Short-term lows in the stock and bond markets due to factors such as global unrest, a pandemic and inflation, shouldn’t keep you from investing entirely, especially if you’re diversified across a range of assets and have a long-term plan in place.
Here are 12 of the best investments for consideration, generally ordered by risk from lowest to highest. Keep in mind that lower risk typically also means lower returns.
1. High-yield savings accounts
Online savings accounts and cash management accounts provide higher rates of return than you’ll get in a traditional bank or credit union 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.
Best for: 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 six 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 three and six months’ worth of living expenses in an account like this before allocating more toward the investment products lower on this list.
Where to open a savings account: Due to lower overhead costs, online banks tend to offer higher rates than what you’ll get at traditional banks with physical branches.
Where to open a cash management account: Investment companies and robo-advisors such as Betterment and SoFi offer competitive rates on cash management accounts.
2. Certificates of deposit
A certificate of deposit, or CD, is a federally insured savings account that offers a fixed interest rate for a defined period of time.
Best for: A CD is for money you know you’ll need at a fixed date in the future (e.g., 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.
Where to buy CDs: CDs are sold based on term length, and the best rates are generally found at online banks and credit unions.
3. Money market funds
Money market mutual funds are an investment product, not to be confused with money market accounts, which are bank deposit accounts similar to savings accounts. When you invest in a money market fund, your money buys a collection of high-quality, short-term government, bank or corporate debt.
Best for: Money you may need soon that you’re willing to expose to a little more market risk. Investors also use money market funds to hold a portion of their portfolio in a safer investment than stocks, or as a holding pen for money earmarked for future investment. While money market funds are technically an investment, don’t expect the higher returns (and higher risk) of other investments. Money market fund growth is more akin to high-yield savings account yields.
Where to buy a money market mutual fund: Money market mutual funds can be purchased directly from a mutual fund provider or a bank, but the broadest selection will be available from an online discount brokerage (you’ll need to open a brokerage account).
4. 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 set period of time, typically one to 30 years. Because of that steady stream 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.
The drawbacks? 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 for: Conservative investors who would prefer to see less volatility in their portfolio.
“Bonds offer a ballast to a portfolio, usually going up when stocks go down, which enables nervous investors to stay the course with their investment plan, and not panic sell,” says Delia Fernandez, a certified financial planner and founder of Fernandez Financial Advisory in Los Alamitos, California.
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.
Where to buy government bonds: You can buy individual bonds or bond funds, which hold a variety of bonds to provide diversification, from a broker or directly from the underwriting investment bank or the U.S. government.
Next week, we will discuss corporate bonds, mutual funds, index funds and exchange-traded funds.
(Partially reprinted from nerdwallet.com)
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