Investing in your future is a great idea. Ideally, you should pay off your high-interest debts, credit card, car debt, etc. before you begin investing. The reason for this is that the average return on investment is usually a smaller amount than the interest you would be paying on the debt that you currently have. If you are ready to get started investing, here are a few investment options to consider:

STOCKS

Stocks are a way for individuals to invest in a company and a company’s profits. The reason to purchase stocks would be to earn a return on investment, which generally comes in two ways:

  • Stock prices go up, allowing you to sell your shares of the stock for a price higher than you purchased them.
  • The stock pays dividends. Only some stocks pay dividends, meaning they pay shareholders out of the company’s revenue, usually every quarter.

On average, across all S&P 500 companies, the average annual stock market return is 10% after adjusting for inflation that falls between 7% and 8%. Historical return percentages do not mean if you buy stocks, you will see that return on investment. Some stocks posted much lower returns or even failed, leaving investors with no money, where others posted much higher returns.

BONDS

A bond is a loan made by an investor to a borrower (usually a company or government) that pays back a fixed rate of return over a specific timeframe. Bonds provide a predictable income stream for investors.  

Typically, bonds pay interest twice a year. Long-term government bonds historically earn around 5%. If you were to purchase a $1,000 bond with 5% interest, you would receive $25 two times a year. Bonds also have maturity dates, at which point the principal amount of the bond must be paid back in full or risk default.

MUTUAL FUNDS

A mutual fund is a type of financial vehicle that pools money from several investors and invests the money in securities (assets), such as stocks and bonds. The combined holdings in a mutual fund are known as a portfolio.

Mutual funds investors don’t directly own any assets (stocks, bonds, etc.); instead, the fund is managed by a professional, and they share equally in the losses and profits of the fund. Mutual funds are one of the top ways that Americans grow wealth and save for retirement. 

CERTIFICATE OF DEPOSIT (CDs)

CDs are time deposit accounts. CDs are similar to a savings account. When you purchase a CD, you agree to leave your money in the account for a designated period. In return for leaving your money, you will receive a rate of interest.

CDs range in maturities, time frames, from as short as one month to as long as twenty years.  Most CDs have a penalty if you withdraw your deposit early. CDs are sold by banks, thrift institutions, and credit unions most commonly. CDs are considered to be a very low-risk investment option.

ALTERNATIVE ASSETS

Investing in alternative assets is a great option to diversify your investment portfolio. Similar to all investment options it’s like a seesaw, all investments continuously go up and down. Unlike the other investment option above, alternative investments are lightly regulated and therefor can be very risky.

 

What are Alternative Assets?

Alternative assets for the common investor include:

Real Estate: Real estate investing entails purchasing a property to generate income instead of using it as a residence. You can do this by buying a property and then renting it out to earn rental cash or by buying shares in real estate investment trusts. Real estate investment trusts invest in companies that run or finance commercial properties. You can also buy publicly traded Real Estate Investment Trusts (REITs) through a broker.

Commodities: Wheat, cattle, corn, gold, oil, and other essential raw materials are all examples of commodities. You can buy and sell commodities on the commodities exchange, but they are much riskier because the price can vary significantly for a variety of reasons. For example, in 2008, after the recession, the price of gold went up tremendously, only to go back down in 2015. Similarly, a drought can raise the price of corn or wheat.

Bitcoin and other cryptocurrencies: Bitcoin and cryptocurrencies are another investment option. Although they are seen as extremely high-risk because of the lack of stability and regulations in the market. Bitcoin jumped from under $1,000 to nearly $20,000 in 2017.