Faith Morrow
There are a variety of investment options that can provide a 5% or higher return. While there are no risk-free investments that guarantee a 5% return, there are several options that can help you achieve this goal. Here are some of the most popular investment choices:
- Stocks, Mutual Funds, and ETFs: Historical data shows that the S&P 500 has delivered an average annual return of 10% since its inception. Investing in stocks can be risky, but mutual funds and ETFs offer more diversification and lower risk by investing in a basket of stocks or other securities.
- Bonds and Bond Mutual Funds: While individual bonds may not provide a 5% return, they can still be a good option for income and avoiding the volatility of the stock market. Bond mutual funds can also provide higher returns.
- Real Estate Investment Trusts (REITs): REITs allow you to invest in real estate without the hassle of being a landlord. They have provided returns of around 15% and are a good option for those seeking higher returns with some risk.
- High-Yield Savings Accounts and CDs: In the current market climate, high-yield savings accounts and certificates of deposit (CDs) can offer interest rates of 5% or more. While they may not provide the highest returns, they are a safe option to grow your money without the risk of losing your principal investment.
- Peer-to-Peer Lending: Platforms like LendingClub offer the potential for returns over 5% by connecting borrowers and investors.
- Annuities: Annuities are complex investment products that provide a guaranteed income stream. While they may not always provide a 5% return, they can be a good option for those seeking a stable income.
It's important to remember that investing carries inherent risks, and there are no guarantees. Diversifying your portfolio across different asset classes can help manage risk and potentially increase your chances of achieving a 5% or higher return.
| Characteristics | Values |
|---|---|
| Investment Type | High-yield savings accounts, CDs, stocks, mutual funds, ETFs, bonds, annuities, money market accounts, REITs, peer-to-peer lending |
| Risk | Low-risk to high-risk |
| Returns | 5% or more |
| Time Horizon | Short-term to long-term |
| Liquidity | High liquidity to low liquidity |
| Fees | Expense ratios, management fees, load fees, penalty for early withdrawal |
| Tax Implications | Tax-free or taxable |
| Inflation Protection | Yes/No |
What You'll Learn
High-yield savings accounts
Interest Rates
First and foremost, you'll want to look at the interest rate offered by the account. The whole point of a high-yield savings account is to earn a higher interest rate than you would with a traditional savings account, so look for accounts offering competitive rates. Keep in mind that these rates can change at any time, so be sure to read the fine print and understand how long the rate is guaranteed for.
Minimum Deposit and Balance Requirements
Some high-yield savings accounts require a minimum deposit to open the account, so make sure you're comfortable with the amount required. Additionally, some accounts have minimum balance requirements to avoid service fees and earn the maximum APY. Be sure to read the fine print and understand any requirements before opening an account.
Fees
While many high-yield savings accounts have no fees, some do. Be sure to understand the fee structure before opening an account, including any monthly maintenance fees, inactivity fees, ATM fees, and excessive withdrawal fees.
Compounding Interest
Find out how often interest is compounded (daily, monthly, or yearly) as this can make a big difference in how quickly your money grows. The more frequently interest is compounded, the faster your savings will grow.
Online vs Traditional Banks
Online banks often offer higher interest rates and lower fees than traditional banks because they have lower operating costs. However, they may not offer the same range of products and services, and you'll have to be comfortable with digital-only banking. Traditional banks, on the other hand, offer the convenience of in-person service but may have lower interest rates.
Access to Funds
While high-yield savings accounts offer better interest rates than traditional savings accounts, they may have stricter withdrawal limits. Be sure to understand any limitations on accessing your funds before opening an account.
- UFB Direct High Yield Savings: Offers an excellent 5.25% APY with no monthly fee, no minimum balance requirements, and all balance tiers earn the top rate.
- Laurel Road High Yield Savings: Provides a competitive 5.15% APY with no monthly account fees or balance requirements, and no minimum deposit needed to open the account.
- LendingClub Bank High-Yield Savings: Offers a strong 5.00% APY with no monthly fees and no minimum balance requirement after the initial $100 deposit to open the account.
- Bask Bank Interest Savings Account: Earn 5.10% APY with no monthly account fees, no minimum balance or deposit requirement, but no ATM card or checking account option.
- TAB Bank High Yield Savings: Earns 5.27% APY with no monthly service fee and no minimum deposit required to open the account, but there are other fees for things like wire transfers and paper statements.
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Real Estate Investment Trusts (REITs)
REITs are an attractive investment option for those looking for a guaranteed 5% return. Here's why:
High Dividend Yields
REITs often provide higher dividend yields compared to stocks, making them a great source of regular income. They are required to pay out at least 90% of their taxable income to shareholders, and most pay out 100%. This makes them an excellent choice for those seeking a steady income stream.
Long-Term Capital Appreciation
REITs have historically delivered competitive total returns, based on high, steady dividend income, and long-term capital appreciation. Their performance has outpaced the broader stock market, bonds, and other assets over the past 20 years.
Portfolio Diversification
The low correlation of REITs with other assets makes them an excellent portfolio diversifier. Adding REITs to your portfolio can help reduce overall risk and increase returns.
Accessibility
REITs are easily accessible to investors. They are traded on major stock exchanges, and investors can purchase shares just like they would with any other stock.
Low Entry Barrier
Unlike traditional real estate investing, which requires a significant amount of capital, REITs have a low entry barrier. They can be started with a small amount of money, making them accessible to a wider range of investors.
Professional Management
Listed REITs are professionally managed, publicly traded companies. They are managed by a board of directors or trustees, who work to maximize shareholder value. This ensures that the properties are well-maintained and positioned to attract tenants, leading to stable and reliable income.
Wide Range of Property Types
REITs invest in a diverse range of property types, including offices, apartment buildings, warehouses, retail centers, medical facilities, data centers, cell towers, infrastructure, and hotels. This allows investors to gain exposure to various sectors of the real estate market.
Reduced Volatility
Due to their large and stable dividends, REITs tend to exhibit lower volatility compared to traditional stocks. They can provide a hedge against the ups and downs of other asset classes, offering more stability to your portfolio.
Tax Benefits
The Tax Cuts and Jobs Act of 2017 allow taxpayers to claim the qualified business income (QBI) deduction, which includes 20% of qualified REIT dividends. Additionally, holding REITs in tax-advantaged accounts, such as IRAs, can provide further tax benefits.
Strong Track Record
REITs have a strong track record of reliable and growing dividends. This provides investors with confidence and peace of mind, knowing that they are investing in a stable and established vehicle.
Easy to Get Started
Investing in REITs is straightforward. You can open a brokerage account and purchase shares of REITs listed on major stock exchanges. Additionally, you can invest in REIT mutual funds or exchange-traded funds (ETFs) for instant diversification.
Reduced Risk
REITs offer reduced risk compared to traditional real estate investing. They provide exposure to a diversified portfolio of properties, reducing the impact of any single property's performance.
Supplemental Income
REITs are an excellent way to generate supplemental income, especially for those seeking passive income streams. The regular dividend payments can provide a steady cash flow without the headaches of being a landlord.
Long-Term Wealth Building
REITs are a solid choice for building long-term wealth. Their combination of high dividend yields and capital appreciation can help you grow your investments over time.
In summary, Real Estate Investment Trusts offer a compelling opportunity for investors seeking a guaranteed 5% return. With their high dividend yields, strong historical performance, accessibility, and portfolio diversification benefits, REITs are worth considering for those looking to grow their investments while reducing risk.
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High-yield stocks and bonds
High-yield bonds, also known as junk bonds, are issued by corporations and tend to have lower credit ratings of below BBB- from Standard & Poor's and Fitch, or below Baa3 from Moody's. They are considered non-investment-grade and carry a higher risk of default, which is the main reason for their higher yields. However, they can provide a middle ground between the higher-payout, higher-risk stock market and the lower-payout, lower-risk traditional bond market.
When considering high-yield bonds, it's important to weigh the pros and cons. On the positive side, they offer a higher payout compared to traditional investment-grade bonds. Additionally, if the issuing company improves its credit standing, the bond's value may also increase. In the event of a company failure, bondholders are paid out before stockholders. High-yield bonds also offer more dependable returns than stocks, as the payout remains consistent unless the company defaults.
However, there are several drawbacks to consider. High-yield bonds have higher default rates than traditional investment-grade bonds. They are also less liquid, making it more difficult to resell them. Changes in the issuer's credit rating or interest rates can negatively impact the value of high-yield bonds. During a recession, these bonds are typically the first to be affected, and the issuing companies are often the first to go out of business.
When investing in high-yield stocks and bonds, it's crucial to conduct thorough research and carefully evaluate the risks and potential returns. Diversification is also essential to mitigate the higher risks associated with these investments.
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Annuities
There are two main types of annuities: immediate and deferred. Immediate annuities are annuitized immediately and start paying income soon after purchase, whereas deferred annuities provide income at a future date. Within these categories are fixed, variable, and indexed annuities. Fixed annuities offer a guaranteed minimum rate of return, variable annuities invest in mutual funds with returns depending on performance, and indexed annuities track an index like the S&P 500.
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Money market accounts
How They Work
Liquidity
While money market accounts may have higher minimum balance requirements, they still offer liquidity. You can typically access your funds through features like ATM cards, checks, or electronic transfers. However, there may be restrictions on the number of transactions you can make per month, and early withdrawals may incur penalties.
FDIC Insurance
One of the critical advantages of money market accounts is that they are often insured by the Federal Deposit Insurance Corporation (FDIC) for banks or the National Credit Union Administration (NCUA) for credit unions. This insurance protects your deposits up to $250,000, providing a level of security for your savings.
Interest Rate Environment
In the current economic environment, money market accounts can be an attractive option. With inflation and interest rates rising, money market accounts tend to follow suit. As a result, you can take advantage of higher interest rates that can help offset the effects of inflation on your savings.
Shopping Around
When considering a money market account, it's essential to shop around and compare offerings from different financial institutions. Look for accounts with competitive interest rates, low fees, and features that align with your financial goals and needs. Online banks may offer higher rates than traditional brick-and-mortar institutions, so don't overlook those options.
Bottom Line
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Frequently asked questions
There are no safe, risk-free investments that guarantee a 5% return. However, investing in a CD or money market fund can get you close to a 5% return with no risk.
There are no low-risk investments that guarantee a 5% return. However, you can invest in a blend of fixed-income investments and stocks or a REIT to get a return of 5% or higher.
There are no high-risk investments that guarantee a 5% return. However, you can invest in high-yield stocks and bonds, real estate investment trusts, or peer-to-peer lending, all of which have the potential to yield returns of 5% or more.
