Investments: What's Hot Right Now

There are many options for investors looking to grow their wealth, from safer choices such as high-yield savings accounts and CDs to medium-risk options like corporate bonds, and even higher-risk picks like stock index funds.

Some of the most popular investments right now include:

- Exchange-traded funds (ETFs)

- Dividend stocks

- Value stock funds

- Small-cap stock funds

- Real estate investment trusts (REITs)

- S&P 500 index funds

- Nasdaq-100 index funds

- Rental housing

- Exchange Traded Funds (ETFs)

- Dividend stocks

- Bonds

- Real estate

- Cryptocurrencies

High-yield savings accounts

How They Work

Pros and Cons

The main advantage of high-yield savings accounts is that they typically offer interest rates well above the national average. Currently, the national average APY for a traditional savings account sits at around 0.45%, whereas some of the high-yield accounts offer rates as high as 5%. A high-yield savings account also provides greater security than some other investment options as they are FDIC- or NCUA-insured, meaning your deposits are protected up to $250,000 per depositor.

However, you usually won't earn as much in a savings account as you would by investing your money in the market, even with a high-yield account. High-yield savings accounts are also sensitive to changes in the economy, which means that your APY can increase or decrease at the discretion of your bank. There may also be a cap on your monthly withdrawals, and your financial institution may limit the number of withdrawals you can make each month.

Best Uses

Choosing the Right Account

When choosing a high-yield savings account, it's important to consider the interest rate, deposit and balance requirements, fees, compounding frequency, and your long-term financial goals. Shop around for a lucrative APY, but remember that the APY on your account can and will fluctuate depending on the health of the economy and changes in the federal funds rate. Also, consider the requirements for opening an account, such as minimum deposits, and read the fine print on fees. Additionally, think about access limits on your funds and review the online and mobile platforms for usability.

Long-term certificates of deposit

• Term Options: Long-term CDs typically have maturities of one year or more, with common options including one, three, five, seven, and even ten years.
• Interest Rates: Longer-term CDs tend to offer higher interest rates than shorter-term ones. However, it's important to note that interest rates can fluctuate over time, and there may be periods when shorter-term CDs offer more favourable rates.
• Safety and Insurance: CDs are considered a safe investment option. They are federally insured, protecting your funds up to specific limits. For example, CDs held at member banks are insured by the Federal Deposit Insurance Corporation (FDIC), while credit unions insure CDs through the National Credit Union Administration (NCUA).
• Early Withdrawal Penalties: It's important to remember that CDs usually have significant early withdrawal penalties. If you need to access your funds before the maturity date, you may incur a fee.
• Minimum Deposit Requirements: The minimum deposit required to open a CD can vary depending on the bank. Some CDs may have minimums as low as $500, while others may require a higher initial deposit, such as $2,500 or more.
• Best for: Long-term CDs are well-suited for individuals who don't need immediate income and are comfortable locking up their funds for an extended period. They are a good choice for retirees and risk-averse investors who want higher returns than a savings account but don't want to take on too much risk.
• Where to Buy: You can purchase CDs from various banks and credit unions, with online banks often offering competitive rates. It's a good idea to shop around and compare rates before deciding where to buy.

Overall, long-term CDs can be an excellent investment option if you're seeking a safe and predictable return on your funds, especially if you don't need immediate access to your money.

Dividend stock funds

When choosing a dividend fund, it's important to assess your investment goals, risk tolerance, and financial situation. You should also consider the fund's diversification, turnover, and fees. A well-constructed dividend fund should have broad diversification, with holdings in at least 100 stocks, and low fees to maximise returns.

Dividend funds can be actively or passively managed. Actively managed funds offer more flexibility in responding to market shifts, while passively managed funds have lower fees. It's also worth noting that dividend-paying companies are often larger, more established firms with predictable profits, making them a safer option.

Overall, dividend stock funds are a reliable and convenient investment option, particularly in times of low-interest rates, as they provide investors with regular income and the potential for capital appreciation.

Value stock funds

Some examples of value stock funds include the Vanguard Equity-Income Fund Investor Shares (VEIPX), which focuses on investing in large-cap companies with above-average dividend payouts, and the ClearBridge Large Cap Value Fund (SAIFX), an actively managed fund that seeks capital appreciation and income through a value-focused investing strategy.

Exchange-traded funds

ETFs are ideal for investors seeking a long-term investment horizon. They are also a good option for those who cannot meet the minimum investment requirements for mutual funds, as ETF share prices tend to be lower.

ETFs are bought and sold on exchanges, just like stocks, and their prices fluctuate throughout the trading day. They are often designed to track specific indices, such as the S&P 500, NASDAQ, or the Dow Jones Industrial Average.

There are several advantages to investing in ETFs:

• Diversification: ETFs provide access to a wide range of asset classes, including stocks, bonds, and commodities, both domestic and international. This diversification helps to lower risk and exposure.
• Low expense ratios: ETFs typically have lower operating expense ratios (OERs) than actively managed mutual funds, making them a more affordable investment option.
• Tax efficiency: ETFs are considered more tax-efficient than mutual funds because buying and selling occur through an exchange, reducing tax costs.
• Trading versatility: ETFs combine the trading versatility of individual securities with the diversified benefits of mutual funds, catering to various investment needs.
• Accessibility: ETFs are widely available on online investing platforms, apps, and retirement account provider sites, often with commission-free trading.

However, it is important to consider the potential drawbacks of ETFs:

• Actively managed ETF fees: While ETFs generally have low fees, those that are actively managed tend to have higher expenses.
• Limited diversification: ETFs focusing on a single industry may limit diversification and increase risk.
• Liquidity: Some ETFs may suffer from a lack of liquidity, impacting an investor's ability to transact.

Overall, ETFs are a flexible and cost-effective investment option, providing investors with access to a diverse range of securities and asset classes.

Frequently asked questions