Single Investment Strategies To Fund Your Future

Funding future cash with a single investment is a viable option for those looking to grow their wealth. There are various investment options available, each with its own level of risk and potential return. When considering how to fund future cash with a single investment, it is essential to evaluate factors such as risk tolerance, time horizon, financial situation, and investment goals.

One option for a single investment is to put money into a high-yield savings account. These accounts offer higher interest rates than traditional savings accounts and are suitable for those seeking a low-risk investment with accessible funds. Another option is to invest in stocks or stock funds, which offer higher potential returns but also come with higher volatility. For those with a longer time horizon, this could be a good choice.

Additionally, mutual funds, bonds, and exchange-traded funds (ETFs) are other investment options to consider. Mutual funds pool money from multiple investors to purchase a diverse range of stocks, bonds, or other assets. Bonds offer a relatively safe and stable investment option, while ETFs are similar to mutual funds but are traded on exchanges like stocks.

Before making any investment decisions, it is crucial to conduct thorough research and understand the associated risks and potential returns. Consulting with a financial advisor can also provide valuable guidance in making informed investment choices.

High-yield savings accounts

The interest rates on these accounts are typically much higher than those of traditional savings accounts, and with fewer overhead costs, you can often earn much higher interest rates at online banks than at a traditional bank.

• While they are considered safe, you do run the risk of losing purchasing power over time due to inflation if rates are too low.
• It is important to note that you may have to transfer your money to your primary bank account or withdraw it via an ATM to access your funds.
• You can browse bank listings to find the best high-yield savings accounts and rates.

Long-term certificates of deposit

• Interest Rates: Long-term CDs generally offer higher interest rates than savings accounts and money market accounts. The interest rates on CDs are usually fixed, but there are also variable-rate CDs that can earn a higher return if the market interest rates rise.
• Term: Long-term CDs typically have terms of multiple years, such as 3, 5, or even 10 years. The longer the term, the higher the interest rate you can expect.
• Principal: This is the amount you agree to deposit when you open the CD. Some CDs may have minimum deposit requirements, while others may offer higher interest rates for larger deposits.
• Financial Institution: CDs can be opened at banks, credit unions, or brokerages. It's important to consider the early withdrawal penalties and automatic reinvestment policies of the institution you choose.
• Federal Insurance: CDs are federally insured, meaning your funds are protected up to $250,000 in the rare event that the financial institution fails.
• Early Withdrawal Penalty: Withdrawing your money from a CD before the term is up will typically result in an early withdrawal penalty, which can reduce your earnings or, in some cases, eat into your principal.
• Tax Implications: Interest earned on a CD is taxable, and you will need to report it when you file your tax return.
• CD Ladder: If you want to take advantage of the higher interest rates of long-term CDs while maintaining some accessibility to your money, you can consider building a CD ladder. This involves opening multiple CDs with different maturity dates, so a portion of your money becomes available each year.

Long-term corporate bond funds

Long-term corporate bonds have an average maturity of 10 years or more, making them a good choice when interest rates are falling. Corporations sometimes raise money by issuing bonds to investors, and these can be packaged into bond funds that own bonds issued by hundreds of corporations.

It is important to note that long-term corporate bond funds are not FDIC-insured. There is a chance that companies will have their credit rating downgraded or encounter financial difficulties and default on the bonds. To mitigate this risk, ensure that your fund is composed of high-quality corporate bonds. However, bond funds typically own bonds from numerous companies, reducing the risk of any single bond significantly impacting your portfolio.

Investment-grade long-term bond funds often reward investors with higher returns than government and municipal bond funds. But the greater rewards come with some added risk.

You can purchase corporate bond funds through any broker that allows you to trade ETFs or mutual funds. Most brokers allow you to trade ETFs for no commission, while many brokers may require a commission or a minimum purchase for mutual funds.

• 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

Dividend stock funds

Dividends are portions of a company's profit that are paid out to shareholders. Dividends are generally paid quarterly, with the amount decided by the board of directors based on the company's most recent earnings. Dividends may be paid in cash or additional shares. When a company announces a dividend, it also announces the payment date on which the dividend will be paid into the shareholders' accounts.

The dividend yield of a stock is the dividend amount paid per share and is expressed as a percentage of the company's share price. For example, if a company pays a dividend of €5 per share at a share price of €100, the dividend yield is 5%. Dividend-paying companies tend to be larger, established companies with predictable profits. These include companies in the healthcare and pharmaceuticals sectors, as well as master limited partnerships and real estate investment trusts, which are required to make specified distributions to their shareholders.

Value stock funds

Value stocks tend to perform better when interest rates are rising and growth stocks become less attractive in comparison. Many value stock funds also pay dividends, which is an additional attraction for many investors.

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

Growth stocks, on the other hand, are equities of companies with strong anticipated growth potential. They are usually younger companies with greater volatility because they are frequently in their early phases and reinvesting profits in growth. Growth investors are attracted by companies that are expected to grow faster in terms of revenues or cash flows, and profits. As growth is the priority, these companies reinvest earnings in themselves rather than paying dividends.

Frequently asked questions