Investments: Paying With Potential

Investments are a way to grow your assets and build wealth over time. They are typically made with money, but can also be made using assets, cryptocurrency, or other mediums of exchange. The type of investment you choose will likely depend on what you seek to gain and how sensitive you are to risk. Assuming little risk generally yields lower returns, and assuming high risk typically yields higher returns.

There are different types of investment vehicles, such as stocks, bonds, mutual funds, and real estate, each carrying different levels of risk and reward. For example, stocks or equities are regarded as riskier, while basic investments such as certificates of deposit (CDs) are considered low-risk.

Investors can independently invest without the help of an investment professional or enlist the services of a licensed and registered investment advisor. Technology has also afforded investors the option of receiving automated investment solutions by way of robo-advisors.

High-yield savings accounts

Your money in a high-yield savings account is federally insured by the FDIC or NCUA, which means that deposits up to $250,000 are protected if the bank were to suddenly collapse.

Western Alliance Bank High-Yield Savings Account

Offers one of the highest savings rates and has just a $1 minimum deposit to open an account. There are no monthly fees.

LendingClub High-Yield Savings Account

LendingClub offers an attractive APY, along with zero monthly fees and no minimum balance requirement after the $100 deposit to open the account. You can use your funds to pay bills, send money to friends and family, and make internal and external transfers, which is less common for a savings account.

Newtek Bank Personal High Yield Savings

Allows you to earn one of the highest savings returns with no minimum deposit required. With Newtek, you can earn a respectable APY with a minimum balance requirement of just $0.01 to earn interest and no monthly fees. There's no cap on how much interest you can earn with this APY.

UFB Secure Savings

Along with an ATM card, you'll get a competitive APY on all balance tiers with no cap, no monthly fees, and no minimum deposit requirement. You can earn even more interest on your savings with a UFB checking account.

Synchrony Bank High Yield Savings

This account has no monthly fees or minimum deposits. Though you're limited to six free withdrawals or transfers per statement cycle, Synchrony Bank allows you to conduct unlimited transactions at an ATM. The bank won't charge an ATM fee, but the ATM provider may. For these charges, Synchrony Bank refunds ATM fees in the U.S. up to $5 per statement cycle.

Marcus by Goldman Sachs High-Yield Online Savings Account

Marcus offers a strong APY and there's no limit to the number of withdrawals or transfers you can make from your online savings account. Marcus by Goldman Sachs High-Yield Online Savings Account offers no fees, no minimum deposit requirement, and easy mobile access.

Long-term certificates of deposit

Long-term CDs are generally defined as those with a maturity term of one year or longer. They are a good option if you are saving money you don't plan on spending right away and want to take advantage of the higher interest rates that come with longer terms. The main reason to use a long-term CD is that the compounding interest will result in bigger earnings over time. Not only does the money you deposit earn interest, but you also earn interest on the interest you've already accrued. Depending on how often your account compounds, this can result in significant interest earned.

Long-term CDs are also a good option if you have a fully funded emergency fund for short-term financial needs and want a safe, secure place to keep your savings until you need them. They are also useful if you don't expect CD interest rates to rise anytime soon. Compared to short-term CDs, you may get better rates from long-term CDs as banks often use higher rates as an incentive for longer terms. For example, instead of earning 0.50%, you might earn 2.00%.

However, it's important to remember that your money will be locked in for the term of the CD, and if you withdraw your funds early, you'll be charged a penalty. When deciding whether to invest in a long-term CD, consider your unique circumstances and what you want from your investment.

Long-term corporate bond funds

Some of the best long-term corporate bond funds, according to US News and Forbes, are:

• SPDR Portfolio Long-Term Corporate Bond ETF (SPLB)
• Vanguard Long-Term Corporate Bond ETF (VCLT)
• IShares 10+ Year Investment Grade Corporate Bond ETF (IGLB)
• Vanguard Long-Term Bond ETF (BLV)
• IShares Core 10+ Year USD Bond ETF (ILTB)
• FlexShares Credit-Scored U.S. Long Corporate Bond ETF (LKOR)

These funds offer exposure to a diverse range of corporate bonds, providing steady income and capital appreciation. They are also more sensitive to changes in interest rates than other types of bond funds due to their longer durations.

Dividend stock funds

There are two main ways to invest in dividend stocks: through funds that hold dividend stocks, such as index funds or exchange-traded funds (ETFs), or by purchasing individual dividend stocks.

Dividend ETFs or Index Funds

Dividend ETFs or index funds offer investors access to a selection of dividend stocks within a single investment. This means that with just one transaction, you can own a portfolio of dividend stocks. The fund will then pay you dividends on a regular basis, which you can take as income or reinvest. Dividend funds offer the benefit of instant diversification. If one stock held by the fund cuts or suspends its dividend, you can still rely on income from the others.

Individual Dividend Stocks

Although it requires more work on the part of the investor, investing in individual dividend stocks allows you to build a custom portfolio that may offer a higher yield than a dividend fund. Expenses can also be lower with dividend stocks, as ETFs and index funds charge an annual fee, called an expense ratio, to investors.

Things to Consider

When choosing between dividend funds and individual stocks, consider the following:

• Diversification: Dividend ETFs offer instant diversification, making them a good choice for novice investors. Individual dividend stocks require more research and investment knowledge.
• Yield: Individual dividend stocks may offer a higher yield than dividend funds, but a high yield can also be a red flag. Be sure to scrutinize high yields carefully and look at the company's entire financial picture before investing.
• Fees: ETFs and index funds charge expense ratios, which can eat into your returns. Individual dividend stocks may have lower expenses.
• Risk: Investing in individual dividend stocks may be riskier than investing in a diversified fund, as you are more vulnerable to the performance of a single company.
• Time and Effort: Building a portfolio of individual dividend stocks takes more time and effort than investing in a dividend fund.

Examples of Dividend ETFs

• Vanguard Dividend Appreciation ETF (VIG): Tracks the performance of the NASDAQ U.S. Dividend Achievers Select Index, focusing on companies that have consistently increased dividend payments for at least a decade. Dividend yield: 1.8%, Assets under management: ~$75.6 billion.
• Vanguard High Dividend Yield ETF (VYM): Tracks the performance of the FTSE High Dividend Yield Index, selecting high-yield dividend-paying companies based in the U.S. Dividend yield: 2.9%, Assets under management: ~$52.7 billion.
• Schwab US Dividend Equity ETF (SCHD): Tracks the performance of the Dow Jones U.S. Dividend 100 Index, which includes companies with strong financial performance. Dividend yield: 3.5%, Assets under management: ~$54.2 billion.
• SPDR S&P Dividend ETF (SDY): Tracks the performance of the S&P High Yield Dividend Aristocrats Index, screening for companies that have consistently increased dividend payments for at least 20 consecutive years. Dividend yield: 2.6%, Assets under management: ~$20.2 billion.
• IShares Select Dividend ETF (DVY): Tracks the performance of the Dow Jones Select Dividend Index, selecting high-dividend yield companies based in the United States. Dividend yield: 3.7%, Assets under management: ~$18.3 billion.

Value stock funds

Some examples of value stock funds include:

• Vanguard Equity-Income Fund Investor Shares (VEIPX): This fund invests in large-cap companies that pay above-average dividends and is suitable for investors seeking higher yields with a long-term investment horizon.
• ClearBridge Large Cap Value Fund (SAIFX): An actively managed fund seeking capital appreciation and income through a value-focused strategy, offering multiple share classes and consistent quarterly dividends.
• Invesco S&P 500 Enhanced Value ETF (SPVU): This fund tracks the S&P 500 Enhanced Value Index and invests in stocks with a high "value score", indicating they are undervalued based on fundamental analysis.
• Vanguard Mid-Cap Value ETF (VOE): A passively managed index fund that captures the returns of mid-cap value stocks, offering diversification across various sectors and reasonable growth potential.
• Fidelity Value Factor ETF (FVAL): This fund seeks profitable companies with sound growth prospects and value pricing, benefiting from its focus on technology, healthcare, and financial stocks.

Frequently asked questions