Investing For Beginners: Strategies To Grow Your Money

Investing is a great way to grow your money over time. There are many types of investments, each carrying different levels of risk and potential returns.

Some common types of investments include stocks, bonds, mutual funds, exchange-traded funds (ETFs), real estate, and cryptocurrencies. The best investment for you depends on your financial goals, risk tolerance, and time horizon.

- Risk and return: Generally, lower-risk investments yield lower returns, while higher-risk investments offer the potential for higher returns.

- Time horizon: If you're investing for the long term, you may be able to take on more risk and invest in stocks or other volatile assets. If you need the money within a few years, you may want to choose less risky investments like bonds or savings accounts.

- Diversification: Diversifying your investments across different asset classes and industries can help reduce risk and improve your overall returns.

- Fees and costs: Different investment options come with varying fees and costs, such as management fees or transaction fees. These can eat into your returns, so it's important to consider them when making investment decisions.

- Research and education: Investing requires knowledge and research to make informed decisions. Understanding the risks and potential returns of different investments is crucial before committing your money.

High-yield savings accounts

Annual percentage yields (APYs) on top high-yield savings accounts are currently around nine times the national average rate of 0.56%. The best high-yield savings accounts have APYs that are about ten times higher than the national average rate. Many of the rates in this list top 4%.

When choosing a high-yield savings account, look for one that offers a competitive APY, no monthly service fee, and easy access to your money when you need it.

• 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

Certificates of deposit (CDs)

CDs are a safer and more conservative investment than stocks and bonds, but they offer a lower opportunity for growth. They 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, and early withdrawal penalties may apply.

CDs come in a variety of terms, from 3-, 6-, or 12-months to 4-, 5-, and even 10-year terms. Generally, the longer the term, the higher the rate. The Federal Reserve's rates play a large role in what you earn on your deposits. The Fed's decisions can directly affect a bank's costs, which in turn influences what banks and credit unions are willing to pay consumers for their deposits in savings, money market, and CD accounts. The higher the federal funds rate, the more interest you can earn on a CD.

CDs can be purchased directly from banks, but many brokerage firms and independent salespeople also offer CDs. These individuals and entities are known as "deposit brokers". They can sometimes negotiate a higher rate of interest for a CD by promising to bring a certain amount of deposits to the institution. The deposit broker can then offer these "brokered CDs" to their customers.

Bonds

There are different types of bonds, each carrying different levels of risk and potential returns.

Government Bonds

Government bonds are considered a low-risk investment as they are backed by the full faith and credit of the government. They are a loan to a government entity, such as the federal or municipal government, that pays investors interest over a set period, typically one to 30 years. The drawback of government bonds is that they offer lower returns compared to other investments.

Corporate Bonds

Corporate bonds are loans to companies rather than governments. They are riskier than government bonds as they are not backed by the government. Higher-risk corporate bonds, known as high-yield or junk bonds, can carry a similar risk profile to stocks. The likelihood of a company going out of business is directly correlated to the yield on the bond—the higher the risk, the higher the yield.

Long-term Corporate Bond Funds

Long-term corporate bond funds are suitable for investors looking for cash flow, such as retirees, or those wanting to reduce their overall portfolio risk while still earning a return. They are considered a medium-risk option.

Mutual funds

When investing in mutual funds, it is important to consider the associated fees and minimum investment requirements. While some funds may require a minimum initial investment ranging from $500 to thousands of dollars, others may waive this requirement if you agree to set up automatic monthly contributions. Additionally, mutual funds typically carry management fees, and some brokers may charge commissions for buying and selling them.

Stocks

When you own stocks, you own a business. For example, if you own shares of Apple, Alphabet's Google, or Amazon stock, you legally own part of the company. And as that business grows bigger and more profitable, along with the economy, you own a more valuable business.

There are two primary types of stocks to invest in: common and preferred. Common stock is what most people think of when they think of stocks. It represents ownership in a company and usually comes with voting rights. Preferred stock is less common and does not usually come with voting rights, but it often pays dividends.

Some stocks also pay dividends, which can make them solid investment options for people looking for income from their investment portfolio. Dividend income is defined by the IRS as any distribution of an entity's property to its shareholders. Dividend stocks can provide the fixed income of bonds, as well as the growth of individual stocks and stock funds. Dividends are regular cash payments companies pay to shareholders and are often associated with stable, profitable companies. While share prices of some dividend stocks may not rise as high or quickly as growth-stage companies, they can be attractive to investors because of the dividends and stability they provide.

If you're worried about researching and selecting individual stocks, an alternative is to invest in exchange-traded funds (ETFs) and/or mutual funds. For example, if you invest in an S&P 500 index fund, your money will be spread out among the 500 companies that make up the index. So, if any one of them were to fail, it wouldn't be devastating. Mutual funds are similar to ETFs. They pool investors' money and use it to accumulate a portfolio of stocks or other investments. The biggest difference is that ETFs trade on major stock exchanges, and you can buy shares whenever the stock market is open. Mutual funds only price their shares once a day and aren't nearly as liquid.

If you have a kid heading off to college in a year or two, or if you're retiring in a few years, your goal should no longer be maximizing growth. It should be protecting your capital. It's time to shift the money you'll need in the next several years out of stocks and into bonds and cash.

If your goals are still years away, you can hedge against volatility by doing nothing. Even through some of the worst market crashes in history, stocks have delivered incredible returns for investors who bought and held.

Frequently asked questions