Looking for the right investment can be overwhelming as there are tons of options and even more opinions on what stock to invest in or not.
Let us look at some ways of how proper investment which could be done while helping you earn higher profits.
So you might be having some spare cash in hand, and you are looking for a better option to invest with a higher return than the usual bank accounts.
Definitely!
So let’s explore some simple and easy options rather than diving into high-risk options like Starter up stocks, bonds, or other complex investments.
Choosing a simple option with a decent return with nominal fluctuations on a day to day setting can limit your risk of losing considerable value in your shares.
Experts can speculate all they want, but it’s always wise to go for a safer option, yes, the negative aspect of it can still be that you might not see your investment values double.
To start with, if you look at the primary current and savings account where you get no return on the current account, it is used for transactions only.
If you have some spare cash in hand, we can always put it in a savings account, of course, the returns on it are very nominal where the interest rate offered is about 0.25% or can go as low as 0.1%.
If you put in simpler terms, a $1000 investment in a savings account at 0.1% interest will only get you $1 a year, which is almost nothing.
If you start exploring, you could find financial institutions and other banks offer a much higher rate of interest at times high as 1.0%. This can be most likely to be ten times higher in comparison to your local bank. The idea is to look for a bank with FDIC insurance where you won’t lose your money.
It is considering the higher interest of 1.0%, with a $1000 investment you will receive $10 a year. Not much, but finding compound interest to double in the upcoming years, money with the same 1.0% interest would take you 72 years to double. Sounds bad? If you apply the same with 0.1% interest, it will take you 720 years to double. It’s a disaster.
Let us move forward and look past the savings account. Higher returns can always be found but with some sacrifice, in this case, its fluidity.
Fluidity in a savings account is where you can take your money out at any time or invest it at your will. In the event of opting for a higher return, fluidity is your opportunity cost. A common way of doing this is through CDs, which are certificates of deposit.
There are few options of CDs where the promise not to withdraw the investment can vary from few months to years; this will, in turn, result in the longer you keep your investment, the higher the return. An example would be a CD for two years with a promised return of 1.25% and an investment of 5 years with a gain of 2.0%.
Considering $1000 investment in five years will get your $20 return, and if you are comfortable with the money being held as an investment for longer, it will double the investment in 36years with $2.0% interest.
So with the investment options we discussed, the risk factor of losing the funds is less to none since they are insured, and the return is guaranteed prior. Similarly, as fluidity was the opportunity cost for a higher rate of interest, a similar sacrifice can be applied if you are open to accepting a slightly higher risk for a higher rate of return.
Way to execute this would with a money market account. It is very similar to a saving account where you get fluidity of your investment but, at times, might require you to keep a certain amount to evade fees. In the short term, you might lose some money. Considering Money market accounts have a 1.0% or higher interest rate than the usual savings account, but you might lose a bit of money in the short term.
Basics of the investment model where you initially start with a low return and based on the risk factor going higher, the expected return will be higher in the long run.
So in these long term investments, we looked at a safe way of investment for beginners. If you are planning to dive into the ocean of investing, there are many more vast options that can be used, such as Stocks, Bonds, and other forms of investments.
Choose wisely as money is hard-earned, and the right investment will help you preserve and increase the money you earned.
