Investments: Hold, Sell Or Diversify?

Investing can be a great way to grow your money, but it's important to understand the risks involved and to make sure you are in a financial position to invest.

1. Define your financial goals and risk tolerance: Are you investing for the short term or long term? Do you have a high or low risk tolerance? Knowing your goals and risk tolerance will help you determine the types of investments that are suitable for you.

2. Evaluate your investment options: Research different types of investments such as stocks, bonds, mutual funds, exchange-traded funds (ETFs), and real estate. Consider the risks and potential returns of each option.

3. Choose an investment account: Decide whether to open a taxable brokerage account or a tax-advantaged account like an IRA. Consider the fees, minimum investment requirements, and features offered by different brokers.

4. Start with a small amount: You don't need a large sum of money to start investing. Many investment options have low or no minimum investment requirements, and you can contribute regularly to build your portfolio over time.

5. Diversify your investments: Don't put all your eggs in one basket. Diversifying your investments across different asset classes and industries can help reduce risk and improve your long-term returns.

6. Seek professional advice: If you're unsure about how to invest, consider seeking advice from a financial advisor or a robo-advisor, which uses computer algorithms to build and manage your investment portfolio.

High-yield savings accounts

• Easy access to money: You will likely be able to quickly transfer money to your primary bank or via an ATM.
• Competitive interest rates: Rates may run above inflation, allowing you to gain purchasing power.
• No minimum balance requirements: Some high-yield savings accounts have no minimum balance requirements, meaning you can open an account with any amount of money.
• No monthly fees: Some high-yield savings accounts do not charge monthly maintenance fees.

However, there are also some potential drawbacks to high-yield savings accounts:

• Limited physical access: Online banks that offer high-yield savings accounts often do not have physical branches, so you may not be able to access your money in person.
• Limited transactions: Under federal regulation, savings accounts typically limit the number of withdrawals to six per month.
• Risk of losing purchasing power: If interest rates are too low, you may lose purchasing power over time due to inflation.

Long-term certificates of deposit

CDs are best suited for those who are risk-averse and can keep their money locked up for a fixed period. They are also a good option for retirees who don't need immediate income and can commit their funds for an extended duration. The longer the term, the higher the interest rate offered by banks, making long-term CDs an attractive choice.

When considering a long-term CD, it's important to evaluate the early withdrawal penalties, as they can be steep. Additionally, some banks offer specialty CDs, such as bump-up or no-penalty CDs, which provide more flexibility.

• Popular Direct: Terms ranging from 3 months to 5 years, with a $10,000 minimum deposit.
• Vio Bank: Terms from 6 months to 10 years, with a $500 minimum deposit.
• America First Credit Union: Terms between 3 and 60 months, with a $500 minimum deposit.
• Synchrony Bank: Terms from 3 months to 5 years, with no minimum deposit.
• Marcus by Goldman Sachs: Terms from 6 months to 6 years, with a $500 minimum deposit.
• Sallie Mae Bank: 11 terms available, with a $2,500 minimum deposit.
• Quontic Bank: Terms ranging from 6 months to 5 years, with a $500 minimum deposit.
• Barclays Bank: Terms from 3 months to 5 years, with no minimum deposit.
• Capital One: Terms from 6 months to 5 years, with no minimum deposit or balance requirement.
• Citizens Access: Terms from 1 year to 5 years, with a $5,000 minimum deposit.

Long-term corporate bond funds

Corporate bond funds are considered less risky than stocks but can offer a higher return than government bonds. They are ideal for investors seeking cash flow, such as retirees, or those wanting to reduce their overall portfolio risk.

When investing in corporate bond funds, it is important to be aware that they are not FDIC-insured. There is a chance that companies may have their credit rating downgraded or encounter financial difficulties, which could result in a default on the bonds. To mitigate this risk, ensure that your fund comprises high-quality corporate bonds from a diverse range of companies.

You can purchase corporate bond funds through any broker that facilitates ETF or mutual fund trading. ETFs are often preferable as they are typically commission-free, while mutual funds may require a minimum purchase and incur a commission.

Some examples of 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
• IShares Core 10+ Year USD Bond ETF
• FlexShares Crdt-Scrd US Lng Corp Bd ETF

Dividend stock funds

ETFs are typically more advantageous because they often have no minimum purchase amount and are usually commission-free. Mutual funds may require a minimum purchase, and your broker may charge a commission for them, depending on the broker.

Dividend-paying companies are often larger, more established companies with predictable profits. They include firms in the healthcare, pharmaceuticals, energy, utilities, and financial-services sectors.

Dividend funds and ETFs hold a significant amount of dividend-paying stocks. They collect the dividends they get from their stock holdings, then distribute them to shareholders based on the number of shares owned.

Dividend funds tend to hold up better in downturns than other equity funds. They can generate steady income from stable, profitable companies across a range of industries.

Dividends are portions of a company's profit that are paid out to shareholders, usually on a quarterly basis. Dividend stocks are those that offer a cash payout, and not all stocks do this. Dividend stocks can provide the fixed income of bonds, as well as the growth of individual stocks and stock funds.

Dividends are often expected by shareholders as a reward for their investment in a company. Dividend payments reflect positively on a company and help maintain investors' trust. Dividends are also important because they can provide investors with recurring revenue and can help provide insight into a company's intrinsic value.

However, it's important to note that dividends can be reduced or canceled at any time. Share prices may also fall, and investors could suffer a loss despite dividends. Dividend stocks also come with risk, and even well-regarded companies can be hit by a crisis.

When deciding whether dividend stock funds are a good choice for your portfolio, it's important to assess your investment goals, risk tolerance, and financial situation.

Value stock funds

When considering value stock funds, it is important to assess your risk tolerance and investment goals. Vanguard, for example, offers a wide range of value funds catering to different risk profiles. Their Vanguard Value Index Fund Admiral Shares (VVIAX) is one of the market's largest and most successful value funds, investing in stocks that comprise the CRSP U.S. Large-Cap Value Index. With a minimum investment of $3,000, this fund has returned 10.48% over the last 10 years and 7.06% over the last five years, as of October 2022. Another option is the Vanguard Selected Value Fund (VASVX), an actively managed fund targeting undervalued mid-cap companies, with a 10-year average annual return of 8.79% and a five-year return of 3.37% as of October 2022.

Other value stock funds worth considering include the Fidelity® New Millennium Fund®, Columbia Dividend Income Fund, and Vanguard Windsor™ II Fund.

Frequently asked questions