Invest Wisely: Choosing The Right Tools For Your Money

Investing is a great way to grow your money, but it's important to understand the risks involved and the different types of investments available. The best investment for you will depend on your financial goals, risk tolerance, and time horizon. Here are some key things to consider when deciding what to invest in:

- Your investing style: Do you want to actively manage your investments by researching and constructing your own portfolio, or would you prefer a more passive approach where someone else does the hard work for you?

- Your budget: How much money do you have available to invest? Keep in mind that you don't need a large sum of money to start investing, but it's important to have an emergency fund and pay off any high-interest debt first.

- Your risk tolerance: How much financial risk are you willing to take? Different investments come with different levels of risk, so it's important to find an investment that aligns with your comfort level.

- Your investment goals: What are you hoping to achieve with your investments? Are you saving for retirement, a down payment on a house, or something else? Different investments will be more or less suitable depending on your goals.

- Diversification: Diversifying your portfolio across different asset classes and investments can help reduce risk and improve your long-term returns.

- Research and education: It's important to do your research and understand the basics of investing before putting your money at risk. Consider seeking advice from a financial advisor if needed.

Some common types of investments include:

- Stocks: Buying shares of ownership in a public company. Stocks can offer the potential for high returns but also come with higher risk.

- Mutual funds and exchange-traded funds (ETFs): These allow you to invest in a diversified portfolio of stocks, bonds, or other assets. Mutual funds are actively managed, while ETFs are traded on an exchange like stocks.

- Bonds: Loans to a company or government that pay a fixed interest rate. Bonds are considered lower-risk but typically offer lower returns than stocks.

- High-yield savings accounts and certificates of deposit (CDs): These are low-risk options for short-term savings, offering higher interest rates than traditional savings accounts.

- Robo-advisors: Automated investment services that use algorithms to build and manage a diversified portfolio for you. Robo-advisors charge a fee, typically a small percentage of your balance.

High-yield savings accounts

• BrioDirect: 4.85% APY
• EverBank: 4.75% APY
• LendingClub Bank: 4.75% APY
• Bread Savings: 4.75% APY
• Bask Bank: 4.65% APY
• Popular Direct: 4.60% APY
• CIT Bank: 4.55% APY
• TAB Bank: 4.52% APY
• CIBC Bank USA: 4.51% APY
• UFB Direct: 4.31% APY

However, rates for high-yield savings accounts are variable and could fall. Some banks also restrict withdrawals/transfers to only six per month, and checks generally can't be written using these accounts.

Certificates of deposit (CDs)

CDs come in a variety of terms, from 3, 6, or 12-months to 4, 5, and even 10-year terms. The top CD rates can be three to four times higher than the national average rate. CDs are one of the safest ways to invest your money. First, their rate is fixed and guaranteed. Second, CD investments are protected by the same federal insurance that covers all deposit products.

CDs are a safer and more conservative investment than stocks and bonds, but offer a lower opportunity for growth. You can find CDs at banks, credit unions, and brokerages.

When you shop around for CDs, consider these factors:

• Interest rate: Most CD interest rates are fixed, though there are variable-rate CDs that could earn a higher return if rates rise.
• Term: This is the length of time that you agree to leave your funds deposited to avoid any penalty (for example, 6-month CDs, 1-year CDs, 18-month CDs, etc.)
• Principal: With the exception of some specialty CDs, this is the amount that you agree to deposit when you open the CD.
• Financial institution: The bank or credit union where you open your CD will set factors such as early withdrawal penalties (EWPs) and whether your CD will default to being automatically reinvested at the time of maturity.

CDs are like savings or money market accounts in that they allow you to put money away for a set period. That way you can save toward a specific goal like a down payment on a house, a new car, or a vacation. Or, you may want to use a CD as an emergency fund that earns a guaranteed return.

CDs are best for individuals looking for a guaranteed rate of return that’s typically higher than a savings account. In exchange for a higher rate, funds are tied up for a set period of time and early withdrawal penalties may apply.

Money market accounts

MMAs typically offer check-writing and debit card privileges, and some even offer out-of-network ATM fee reimbursements. However, there are usually restrictions on the number of transactions that can be executed each month, excluding deposits, which are usually unlimited.

MMAs are suited for short-term goals rather than long-term financial planning. They are a good option for earning interest to reach a certain savings goal, such as saving for a vacation or a down payment on a car.

When choosing a money market account, a high annual percentage yield (APY) is an important factor to consider. At the time of writing, the highest-paying money market account recommended by CNBC Select is the Vio Bank Cornerstone Money Market Savings Account, where savers can earn up to 5.20% APY. Other factors to consider include checking features, such as check-writing privileges, debit/ATM card access, and ATM fee reimbursements.

It is important to note that money market accounts should not be confused with money market funds, which are mutual funds that invest in highly liquid short-term assets and are not insured.

Mutual funds

When you invest in a mutual fund, you are typically buying a collection of stocks or bonds that fit certain criteria. For example, some mutual funds may focus on technology companies in the biotech industry, while others may invest in corporations that pay high dividends. This allows you to tailor your investments to your interests and values.

It's important to note that while mutual funds offer a more stable investment option, they may not provide the same high returns as individual stocks. Additionally, mutual funds typically have management fees, which can eat into your profits. However, for those who want a simple, long-term investment option, mutual funds are a great choice.

Exchange-traded funds (ETFs)

One of the main advantages of ETFs is their low cost. ETFs typically have lower expense ratios than mutual funds, making them a more cost-effective option for investors. Additionally, ETFs are more tax-efficient than mutual funds because they do not incur capital gains taxes when they sell securities within the fund.

ETFs are also highly liquid, meaning they can be easily converted to cash. This is because ETFs are traded on an exchange, and there is usually a high demand for them. This liquidity can be advantageous if you need to access your money quickly or want to take advantage of new investment opportunities.

Another benefit of ETFs is their transparency. The holdings of an ETF are disclosed daily, so you always know exactly what you are investing in. This transparency can help you make more informed investment decisions and ensure that your portfolio aligns with your investment goals and risk tolerance.

When choosing an ETF, it is essential to consider your investment objectives, risk tolerance, and time horizon. There are a variety of ETFs available, including stock ETFs, bond ETFs, and industry-specific ETFs. You can also choose between actively managed ETFs and passively managed ETFs, depending on your preferences and investment strategy.

Overall, ETFs offer a simple, flexible, and cost-effective way to invest in the stock market. They provide investors with diversification, liquidity, and transparency, making them a popular choice for those looking to grow their wealth over the long term.

Frequently asked questions