How do you find investment opportunities?
When people think of investing, the stock market is usually the first thing that comes to mind. But a new investor’s options go far beyond this one investment outlet. Here are 10 places you can find investment opportunities and some of the advantages and disadvantages of each.
Stocks represent a share of company ownership. With this ownership comes the change for the biggest return on investment, but also a high level of volatility. Owning stock can be both lucrative and risky and is best suited for more advanced investors with some experience in the stock market.
If you want to mitigate some of the risk that comes with stocks, consider investing in dividend stocks. These are stocks that regularly pay out a percentage of the company’s profits to its shareholders.
No matter what type of stock you’re interested in, they can be purchased from most brokers, but the easiest way to buy stocks is through an online broker.
2. MUTUAL FUNDS
Mutual Funds are effectively many different assets like stocks, bonds, and multiple other investments together in one asset. This approach provides investors with an affordable way to diversify their portfolios. A mutual fund can be a great way to get access to decent returns from the stock market without having to manage a portfolio of individual instruments.
You can buy mutual funds from the companies that manage them and from most brokerages, including online firms. Many mutual fund providers offer their funds with no transaction fees.
3. INDEX FUNDS
Index Funds are a specific type of mutual fund that holds the stocks in a particular market index, like the Dow Jones Industrial Average or the S&P 500. The idea behind this is that the fund will provide returns equal to the associated index’s performance.
Index funds are considered to be among the best investments for attaining long-term goals. They’re typically less managed than other mutual funds, which makes them cost-effective choices, and they come with less volatility than some other funds that strive to outperform the market.
Like other mutual funds, index funds can be acquired through most brokerages,
4. EXCHANGE-TRADED FUNDS
Exchange-Traded Funds (ETFs) are good long-term investment options for those investors who don’t like to take on a lot of risk. An ETF contains a collection of stocks that typically track an index, such as the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index.
ETFs are traded on an exchange, much like a stock. A good way to think about ETFs is an asset that offers the flexibility you get with stocks but provides protection similar to a fund. Investing in an ETF is also a quick way to diversify your investment portfolio.
One downside with ETFs is that they come with broker fees, which can be as much as 10% of each trade.
5. GOVERNMENT BONDS
Government Bonds are loans. When you buy one, you are loaning a government entity money that pays interest on the loan during a set time. Common terms for government bonds are from one to 30 years. These are fixed-income securities that come with almost no risk. As government instruments, they’re backed by the full faith and credit of the U.S. government.
These can be purchased from a bank, a broker, or even directly from the government itself.
6. CORPORATE BONDS
Corporate Bonds are very similar to government bonds. The main difference is you’re loaning money to a company instead of the government. That makes them a much riskier asset, as they lack the government’s backing.
These are sometimes called “junk bonds,” and they frequently perform more like a stock than a bond. If you’re not too risk-averse, these have the potential to offer a greater return than government bonds. Corporate bonds can be bought through most investment brokers.
7. MONEY MARKET FUNDS
Money Market Funds are investments. They are different from money market accounts, which are deposit accounts offered by financial institutions and act much like a limited checking account. The money you invest in a money market fund is used to buy a collection of short-term debt, usually from banks, corporations, or even the government.
These are good investments for short-term needs if you’re not afraid of a little risk. They offer low returns and tend to be safer investments than stocks. This can be a good place to store funds before investing them with other, longer-term assets.
You can buy money market funds from a bank or any institution that trades in mutual funds. Online brokers tend to have the most choices.
8. CERTIFICATES OF DEPOSIT
Certificates of Deposit (CD) are a high-yield savings account that provides investors with federally insured savings. They offer a fixed interest rate during a specified period, typically one to five years. A CD is an excellent investment tool for funds you won’t need until some point in the future. Most financial organizations offer CDs, but online banks credit unions tend to offer more competitive rates.
9. HIGH-YIELD SAVINGS ACCOUNTS
High-Yield Savings Accounts are simply regular savings accounts with a higher rate of return. And like all savings accounts, the funds are FDIC insured. This type of account can typically be found at online banks with low overhead, these low-risk investments are great options for people who will be needing cash in the short term. One big advantage is that they offer ready access to cash, usually through an ATM.
10. REAL ESTATE
Real Estate investing offers two main approaches to building wealth. The first is when an investor buys a piece of property and then sells it at a later date to make a profit. The second approach is when an investor owns a piece of property and collects rent from their tenants.
But there are other means of investing in real estate that are a little more hands-off, such as investing in real estate investment trusts (REITs). These are investments in companies that own large rental properties (things like shopping malls and hotels) and pay out regular dividends.
Investing in real estate can get complicated quickly, and such investments can keep your investment locked in for years, so it’s prudent to enter the world of real estate investment with caution.
When it comes to investing, there are more options for budding investors than just stocks. But choosing what’s right for you requires careful consideration of risk tolerance, need for liquidity, rate of return, and overall cost. Investing can be rewarding, but it can also be unpredictable.