After we discussed inflation in the last article, investing is the next logical topic for me as it is a major weapon to fight the negative impact of inflation, such as the decreased purchase power.
Investing can be a daunting topic, but it doesn't have to be. There’s so many resources everywhere and with some patience, it is more than possible to make your money work for you. Whether you're just starting out or you're a seasoned investor, there are plenty of options out there to explore. In this article, I'll cover the basics of personal investing and provide you with 11 investment options that are recommended for the current economy, from the most popular and accessible to more specific choices for more advanced investors.
Before we dive into the world of investing, let's cover some basic terms and concepts:
Investing is the act of putting your money into (=buying) a financial instrument with the expectation of earning a higher return on your initial capital.
When it comes to investing, there's always a trade-off between risk and reward. Investments with higher potential returns usually come with a higher level of risk. It's important to understand your risk affinity & tolerance and invest accordingly.
Diversification is the practice of spreading your investments across multiple asset classes and industries. This help reduce your risk and increase the chances of earning a positive return from your entire portfolio.
Now that we established a basic understanding of investing, let's take a look at eleven investment options in the current economy:
- Exchange-Traded Funds (ETFs) - ETFs are exactly as the name implies: funds that trade on exchanges, generally tracking a specific index. When you invest in an ETF, you get a bundle of assets you can buy and sell during market hours—potentially lowering your risk and exposure, while helping to diversify your portfolio. Example: SPDR S&P 500 ETF Trust.
- Individual Stocks - Investing in individual stocks can be risky, but it can also be extremely rewarding. By doing your research and investing in companies with strong fundamentals, you can potentially earn a much higher return than you would with an index fund. Example: Apple Inc. (AAPL)
- Real Estate Investment Trusts (REITs) - REITs are companies that own and manage income-producing real estate, such as apartments, office buildings and shopping centers. By investing in a REIT, you earn a share of the income generated by the properties. Example: Vanguard Real Estate ETF.
- Bonds - Bonds are debt securities issued by companies or governments. By investing in bonds, you earn a fixed rate of return and reduce your overall portfolio risk. Example: iShares Core U.S. Aggregate Bond.
- Certificates of Deposit (CDs) - CDs are low-risk investments that offer a fixed rate of return for a set period of time. Example: Ally Bank 12-Month High Yield CD.
- Robo-Advisors - Robo-advisors are online investment management services that use algorithms to build and manage your portfolio. Example: Betterment.
- Commodities - Commodities are raw materials or primary agricultural products that can be bought and sold, such as gold, oil, and wheat. Example: SPDR Gold Shares.
- Cryptocurrencies - Cryptocurrencies are digital assets that use encryption techniques to secure transactions and control the creation of new units. While investing in cryptocurrencies can be highly volatile, it can also be highly rewarding. Example: Bitcoin, Ethereum, Cardano.
- Mutual Funds - Mutual funds are investment vehicles that pool money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities. Example: Fidelity Contrafund.
- Peer-to-Peer Lending - Peer-to-peer lending is a form of online lending that connects borrowers with investors. By investing in peer-to-peer loans, you can earn a higher return than you would with traditional savings instruments or CDs. Example: LendingClub.
- Target-Date Funds - Target-date funds are mutual funds that automatically adjust their asset allocation over time based on your target retirement date. Example: Vanguard Target Retirement 2055 Fund.
Investing is a great way to grow your wealth over time, but it's important to do your research and understand the risks involved. By diversifying your portfolio and choosing the right investments for your risk profile and financial goals, it is a great way to earn a positive return and financial success.
So go ahead, take the plunge and start investing today. Your future self will thank you.
