Your level of financial literacy can affect your financial goals as you plan for the future. Whether you want to save money for your first home or save millions for retirement, financial planning is necessary to get you where you want to be. Investing is a big part of personal finance because it involves letting your money work for you. Your financial needs will change throughout your life, and saving money can help you prepare for the unexpected.
But it’s not enough to save money in a money market account. You should be investing any extra money, aside from your emergency fund. Depending on your investment history, or lack thereof, you might be apprehensive about stocks or bitcoin.
Investing doesn’t have to be scary and can bring significant returns. The best way to make good investment decisions is to do your research and connect with an investment professional who likes to teach rather than tell. Here are four investments that have the potential to yield impressive returns so you can let your money work for you.
Index Funds
Over half of Americans report that they invest in the stock market. Stocks can be very volatile and, unless you’re an experienced day trader, you’ll want to stay away from investing in single stocks. But index funds are a great way to have a diversified portfolio. The S&P 500 is an index fund composed of 500 of the largest companies in America.
When you invest in this index fund, you’re purchasing stock across all of these major companies. The S&P 500 index fund has averaged a ten percent return over a 30-year period. Market fluctuations can cause resistance in investing, or result in investors pulling funds from their investment accounts due to fear. It might seem counterintuitive when your goal is to make money, but you should avoid taking money out of your investment accounts when the market is down.
As you learn more about investing in stocks and index funds, you’ll find it’s best to “ride the waves” by allowing the market to return to the previous rate. As long as you are invested in a mixture of growth, aggressive, and international mutual funds, you can leave your money in the market with confidence. Even though there is an economic downturn, index funds and mutual funds are still sound investments.
Real Estate
Another way to earn impressive returns and diversify your investment portfolio is by investing in real estate. Real estate investments can deliver higher returns in some cases, but they might also require more work. Managing investment properties involves upkeep and maintenance if you choose to be a landlord. But you can also opt to use a property management company to handle the administrative tasks.
If you don’t want to own rental property, you can choose to flip houses for a faster return on your investment. You can also put some of your money into real estate investment trusts (REITs) that yield high dividends. You will get the most benefit if you combine all of the above to further diversify your portfolio.
Precious Metals
Investing in precious metals is a common way to hedge against inflation. Metals like gold, silver, and platinum can hold their value in their purest form and be exchanged for currency in any economic market. Although the stock market typically produces higher returns, precious metals could be more reliable. You can also combine two investment types by putting some of your money in precious metal IRAs.
These individual retirement accounts are safer than other investment types because they hold their value. You can research some companies and even read some goldco reviews to decide if precious metals are right for you. Investing in precious metals should never be your only asset, but you can benefit from including these IRAs in your portfolio.
High-Yield Savings Account
A savings account will probably offer the smallest rate of return than other investment types, but you’re also a lot less likely to lose the money. High-yield savings accounts are best used for storing money for a short period of time. If you have a lump sum of funds that you have allocated for a particular purchase, you can park it in a savings account to earn a little money until you need it.
It’s not a good idea to leave the money there too long because the interest rates will not keep up with inflation. But if you can leave it untouched for five to seven years, it can be beneficial. A good example would be a down payment for your new house. It’s a great way to protect it from the fluctuations in the market while earning a little money on it.
Final Thoughts
Financial planning is essential when setting goals and focusing on retirement. Investing should be a big part of your plan as you work to improve your financial literacy. Once you’ve learned about the different investment types, you’ll be able to make more informed decisions.
Four of the best investments include index funds, real estate, precious metals, and high-yield savings accounts. You can diversify your portfolio by including a variety of investment types, so you get the biggest bang for your buck.
