A multitude of investment options are available to people who would like to ensure that their money multiplies at a faster rate, as compared to the rate at which it would accrue interest, if deposited in a savings account. People may choose to invest actively in the market or earn residual and leveraged income through passive means. While reading this article on best investment options, one must bear in mind that investments should be examined on the basis of the investment objectives and the degree of risk and uncertainty involved. Since risk and return are directly proportional, best investing options for risk-averse and risk tolerant individuals will differ. Even people sharing the same level of risk tolerance may find that adopting a different approach than what works for their counterparts, may help them achieve their specific investment objective. Know more on passive income opportunities.
What are the Best Investment Options?
Investments for Risk Averse Individuals
In the present market, Treasury Inflation Protected Securities (TIPS), may be the best investment for risk averse individuals, since these are backed by the full-faith of the US govt. Moreover, the bondholder has the option of investing in bonds with maturities of 5,10 or 30 years. The investor is guaranteed a fixed rate of interest semi-annually and on maturity, the bondholder is paid the inflation adjusted principal. Read more on best investments during inflation.
Risk averse individuals, who would like to invest for short periods of time, have the option of purchasing a fixed rate CD for a period of six months, one year, five years or more. A CD or a Certificate of Deposit offers a rate of interest that is higher than the rate of interest than one can hope to earn on a savings account deposit. The safety of the money is guaranteed, since deposits of up to $250,000 are insured by the FDIC (Federal Deposit Insurance Corporation). However, there are a couple of disadvantages when it comes to a CD. Since, the rate of interest is fixed, the return on investment may be less on account of inflation. Moreover, the money cannot be withdrawn before the maturity period ends else, the consumer would have to pay a penalty. Know more on calculating return on investment.
A money market account (MMA) allows one to close the account, as and when desired and withdraw money 3-5 times a month, using a check. The rate of interest on an MMA is slightly less than that on a CD, but at least double that of a savings account. However, inflation is still a source of concern. In the absence of inflation, MMAs could have qualified as one of the best short term investment options. However, in the current scenario, TIPS are ideal investments. Interested readers may refer to the article titled, ‘How does a Money Market Account Work’.
Fixed income mutual funds may not be a smart idea in the current market and generally, fixed income annuities do not provide inflation adjusted income. However, a few fixed income annuities include the inflation rider, but at a higher cost.
Investments for People with Above Average Risk Tolerance
Apartment REITs (Real Estate Investment Trusts) may not be a bad idea given the slump in the housing market. However, one must remember that these are not always safe. This is because they invest in real estate and the real estate market, as we all know, can really hit rock bottom. Apartment REITs are a good idea in a market where people are reluctant to buy houses and are willing to shell out the money for rent. However, with unemployment at an all time high, it’s believed that a number of people are choosing to double up. This will result in fall of the demand for rental property. If the demand for rental properties falls, rent will fall and the investor’s returns in the form of dividends will also fall. Thus, apartment real estate investment trusts are ideal for people who have an appetite for risk.
In the current scenario, investing in the stock market may not be advisable. In a bull market, people who have an appetite for risk, can invest in the stock market and consider options trading. For additional information, one may refer to articles on stock investing and options trading. Commodity trading is preferred when the stock market is not going great guns. This is because the correlation between the stock and the commodities market is negative. However, in the recent months, there has been a sharp increase in the correlation between the commodity and stock markets. Nevertheless, the claim that commodities do well in times of inflation cannot be disputed. Hence, people who have an appetite for risk should invest in commodities, especially in precious metals like gold and silver.
Gold is one of the best investment options when the US dollar is weak. For instance, on Nov 9, when the US dollar was at its 15-month low, gold prices surged from $1,108.40 to $1,123.40. Assuming that this trend will continue till the US economy is on a firm footing, investors are encouraged to invest in Gold ETFs (exchange traded funds). Since these are relatively safe, even investors who are risk averse can dabble in Gold ETFs.