Investing Strategies For Volatile Times

There are many ways to invest your money, from low-risk options such as high-yield savings accounts and CDs to medium-risk options like corporate bonds, and even higher-risk picks like stock index funds. The best investment for you will depend on your risk tolerance, the amount of money you have to invest, your time horizon, and other factors.

If you have a low-risk tolerance, savings accounts and CDs are good options as they are considered safe investments. However, with interest rates at historic lows, there is a risk of losing purchasing power over time due to inflation.

For those with a higher risk tolerance, investing in the stock market can be a great way to build wealth over time. Stocks have consistently outperformed other investment types over the past four decades, with annual returns of around 9-10% over long periods.

If you're just starting out with investing and have a low amount of money to invest, consider investing in exchange-traded funds (ETFs) or mutual funds, which allow you to buy a diversified basket of stocks, reducing your risk.

No matter what your risk tolerance or investment goals are, it's important to do your research and understand the pros and cons of each investment option before committing your money.

High-yield savings accounts

Many of the best rates for high-yield savings accounts are currently above 5%, which is above the rate of inflation. Some of the best high-yield savings accounts include:

• My Banking Direct: 5.55% APY
• UFB Direct: 5.25% APY
• Credit Karma Money Save: 5.10% APY
• Bread Savings: 5.15% APY
• Bask Bank: 5.10% APY
• Popular Direct: 5.05% APY
• CIT Bank: 5.00% APY
• CIBC U.S.: 5.01% APY
• Salem Five Direct: 5.01% APY
• LendingClub: 5.00% APY
• Varo: 3.00% APY (5.00% if certain requirements are met)

Long-term certificates of deposit

• They are suitable for risk-averse investors or retirees who don't need immediate income and can lock up their money for a fixed period.
• CDs are considered safe investments, but they do carry reinvestment risk. This means that if interest rates fall, you may earn less when you reinvest your principal and interest in new CDs with lower rates.
• The financial institution pays interest at regular intervals, and once the CD matures, you get back your original principal plus any accrued interest.
• Long-term CDs may be a better option when interest rates are expected to fall, as you can lock in higher rates for a longer period.
• Common term lengths for CDs include one, three, and five years.
• It's important to note that withdrawing money from a CD early may result in a penalty, so it's best not to invest money that you might need soon.
• Online banks and credit unions typically offer the best rates for CDs.
• When choosing a long-term CD, consider factors such as the interest rate, minimum deposit requirements, compounding schedule, and early withdrawal penalties.
• You can also build a CD ladder by investing in multiple CDs with different maturity dates to take advantage of higher rates and maintain liquidity.

Long-term corporate bond funds

When considering long-term corporate bond funds, it is important to remember that they are not FDIC-insured. While they provide higher returns than government bonds, there is a chance of companies facing credit rating downgrades or defaulting on the bonds. To mitigate this risk, investors should ensure that their fund comprises high-quality corporate bonds from a diverse range of companies.

Some of the best long-term corporate bond funds include:

• SPDR® Portfolio Long Term Corp Bd ETF
• IShares 10+ Year Invmt Grd Corp Bd ETF
• Vanguard Long-Term Corporate Bd ETF
• Invesco Taxable Municipal Bond ETF
• IShares Core 10+ Year USD Bond ETF
• Vanguard Long-Term Bond ETF
• FlexShares Crdt-Scrd US Lng Corp Bd ETF

These funds can be purchased through any broker that allows trading in ETFs or mutual funds. ETFs are often a more advantageous option as they typically have no minimum purchase amount and are commission-free. On the other hand, mutual funds may require a minimum purchase and sometimes incur a commission fee.

Dividend stock funds

Dividend funds tend to hold up better in downturns than other equity funds and they often generate higher dividend yields than broad-market indexes, making them appealing to income-oriented investors. Dividend funds can be actively or passively managed. Passively managed funds offer lower fees but are more restricted in how they can respond to market shifts. Actively managed funds allow fund managers to modify the fund to keep it aligned with investors' expectations.

When choosing a dividend fund, investors should look for funds that hold at least 100 stocks and have one-third or fewer of their assets in their 10 largest holdings. It's also important to consider fees, as these eat away at a fund's yield and total return.

Value stock funds

There are two major types of value stock funds: ETFs and mutual funds. ETFs are usually available commission-free and without a minimum purchase requirement at most major online brokers. Mutual funds may require a minimum purchase, and online brokers may charge a commission to trade them.

• Vanguard Value Index Fund Admiral Shares (VVIAX)
• Vanguard Selected Value Fund (VASVX)
• Vanguard Small-Cap Value Index Fund Admiral Shares (VSIAX)
• Fidelity® New Millennium Fund®
• Vanguard Equity Income Fund
• Hamlin High Dividend Equity Fund
• Columbia Dividend Income Fund
• Vanguard Windsor™ II Fund
• ClearBridge Large Cap Value Fund

Frequently asked questions