Investments - ClayWallet

What To Invest In Right Now (12 Best Investments for 2023)

Your investment options go far beyond just stocks. Here’s the what, why, when and how of choosing the best investments for you in 2023.

The term “investing” may conjure images of the frenetic New York Stock Exchange, or perhaps you think it’s something only meant for those wealthier, older or further along in their careers than you. But this couldn’t be further from the truth.

When done responsibly, investing is a great way to grow your money. And many types of investments are accessible to virtually anyone regardless of age, income or career. Such factors will, however, influence which investments are best for you at this particular moment.

For example, someone close to retirement with a healthy nest egg will likely have a very different investment plan than someone just starting out in their career with no savings. Neither of these individuals should avoid investing; they should just choose the best investments for their individual circumstances.

Here are 12 of what to invest in right now, the best investments for consideration, generally ordered by risk from lowest to highest. Keep in mind that lower risk typically also means lower returns.

What To Invest In Right Now? 12 best investments

1. High-yield savings accounts

2. Certificates of deposit (CDs)

3. Money market funds

4. Government bonds

5. Corporate bonds

6. Mutual funds

7. Index funds

8. Exchange-traded funds (ETFs)

9. Dividend stocks

10. Individual stocks

11. Alternative investments and cryptocurrencies

12. Real estate

1. High-yield savings accounts

Online savings accounts and cash management accounts provide higher rates of return than you’ll get in a traditional bank savings or checking account. Cash management accounts are like a savings account-checking account hybrid: They may pay interest rates similar to savings accounts, but are typically offered by brokerage firms and may come with debit cards or checks.

Best for: Savings accounts are best for short-term savings or money you need to access only occasionally — think an emergency or vacation fund. Transactions from a savings account are limited to six per month. Cash management accounts offer more flexibility and similar — or in some cases, higher — interest rates.

If you’re new to saving and investing, a good rule of thumb is to keep between three and six months’ worth of living expenses in an account like this before allocating more toward the investment products lower on this list.

Where to open a savings account: Due to lower overhead costs, online banks tend to offer higher rates than what you’ll get at traditional banks with physical branches.

Where to open a cash management account: Investment companies and robo-advisors such as Betterment and SoFi offer competitive rates on cash management accounts.

2. Certificates of deposit

A certificate of deposit, or CD, is a federally insured savings account that offers a fixed interest rate for a defined period of time.

Best for: A CD is for money you know you’ll need at a fixed date in the future (e.g., a home down payment or a wedding). Common term lengths are one, three and five years, so if you’re trying to safely grow your money for a specific purpose within a predetermined time frame, CDs could be a good option. It’s important to note, though, that to get your money out of a CD early, you’ll likely have to pay a fee. As with other types of investments, don’t buy a CD with money you might need soon.

Where to buy CDs: CDs are sold based on term length, and the best rates are generally found at online banks and credit unions. See the best CD rates right now based on term length and account minimums.

3. Money market funds

Money market mutual funds are an investment product, not to be confused with money market accounts, which are bank deposit accounts similar to savings accounts. When you invest in a money market fund, your money buys a collection of high-quality, short-term government, bank or corporate debt.

Best for: Money you may need soon that you’re willing to expose to a little more market risk. Investors also use money market funds to hold a portion of their portfolio in a safer investment than stocks, or as a holding pen for money earmarked for future investment. While money market funds are technically an investment, don’t expect the higher returns (and higher risk) of other investments on this page. Money market fund growth is more akin to high-yield savings account yields.

Where to buy a money market mutual fund: Money market mutual funds can be purchased directly from a mutual fund provider or a bank, but the broadest selection will be available from an online discount brokerage (you’ll need to open a brokerage account).

4. Government bonds

A government bond is a loan from you to a government entity (like the federal or municipal government) that pays investors interest on the loan over a set period of time, typically one to 30 years. Because of that steady stream of payments, bonds are known as a fixed-income security. Government bonds are virtually a risk-free investment, as they’re backed by the full faith and credit of the U.S. government.

The drawbacks? In exchange for that safety, you won’t see as high of a return with government bonds as other types of investments. If you were to have a portfolio of 100% bonds (as opposed to a mix of stocks and bonds), it would be substantially harder to hit your retirement or long-term goals.

Best for: Conservative investors who would prefer to see less volatility in their portfolio.

“Bonds offer a ballast to a portfolio, usually going up when stocks go down, which enables nervous investors to stay the course with their investment plan, and not panic sell,” says Delia Fernandez, a certified financial planner and founder of Fernandez Financial Advisory in Los Alamitos, California.

The fixed income and lower volatility from bonds make them common with investors nearing or already in retirement, as these individuals may not have a long enough investment horizon to weather unexpected or severe market declines.

Where to buy government bonds: You can buy individual bonds or bond funds, which hold a variety of bonds to provide diversification, from a broker or directly from the underwriting investment bank or the U.S. government. Our primer on how to invest in bonds will help you identify which types to buy and where.

5. Corporate bonds

Corporate bonds operate in the same way as government bonds, only you’re making a loan to a company, not a government. As such, these loans are not backed by the government, making them a riskier option. And if it’s a high-yield bond (sometimes known as a junk bond), these can actually be substantially riskier, taking on a risk/return profile that more resembles stocks than bonds.

Best for: Investors looking for a fixed-income security with potentially higher yields than government bonds, and willing to take on a bit more risk in return. In corporate bonds, the higher the likelihood the company will go out of business, the higher the yield. Conversely, bonds issued by large, stable companies will typically have a lower yield. It’s up to the investor to find the risk/return balance that works for them.

Where to buy corporate bonds: Similar to government bonds, you can buy corporate bond funds or individual bonds through an investment broker.

6. Mutual funds

A mutual fund pools cash from investors to buy stocks, bonds or other assets. Mutual funds offer investors an inexpensive way to diversify — spreading their money across multiple investments — to hedge against any single investment’s losses.

Best for: If you’re saving for retirement or another long-term goal, mutual funds are a convenient way to get exposure to the stock market’s superior investment returns without having to purchase and manage a portfolio of individual stocks. Some funds limit the scope of their investments to companies that fit certain criteria, such as technology companies in the biotech industry or corporations that pay high dividends. That allows you to focus on certain investing niches.

Where to buy mutual funds: Mutual funds are available directly from the companies that manage them, as well as through discount brokerage firms. Be aware that mutual funds typically require a minimum initial investment of anywhere from $500 to thousands of dollars, although some providers will waive the minimum if you agree to set up automatic monthly investments.

7. Index funds

An index fund is a type of mutual fund that holds the stocks in a particular market index (e.g., the S&P 500 or the Dow Jones Industrial Average). The aim is to provide investment returns equal to the underlying index’s performance, as opposed to an actively managed mutual fund that pays a professional to curate a fund’s holdings.

Best for: Index mutual funds are some of the best investments available for long-term savings goals. In addition to being more cost-effective due to lower fund management fees, index mutual funds are less volatile than actively managed funds that try to beat the market.

Index funds can be especially well-suited for young investors with a long timeline, who can allocate more of their portfolio toward higher-returning stock funds than more conservative investments, such as bonds.

Young investors who can emotionally weather the market’s ups and downs could even do well to invest their entire portfolio in stock funds in the early stages, Fernandez says.

To understand this better, take a look at the performance of the S&P 500 since 1990. An S&P 500 index fund would have sought to replicate these returns:

Stock market data may be delayed up to 20 minutes and is intended solely for informational purposes, not for trading purposes.

Where to buy index funds: Index funds are available directly from fund providers or through a discount broker.

8. Exchange-traded funds

Exchange-traded funds, or ETFs, are like mutual funds in that they pool investor money to buy a collection of securities, providing a single diversified investment. The difference is how they are sold: Investors buy shares of ETFs just like they would buy shares of an individual stock.

Best for: Like index funds and mutual funds, ETFs are a good investment if you have a long time horizon. Beyond that, ETFs are ideal for investors who don’t have enough money to meet the minimum investment requirements for a mutual fund because an ETF share price may be lower than a mutual fund minimum.

Where to buy ETFs: ETFs have ticker symbols like stocks and are available through brokerages. Robo-advisors also use ETFs to construct client portfolios.

9. Dividend stocks

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.

Keep in mind: dividends in taxable brokerage accounts are taxable the year dividends occur. Whereas stocks (that do not pay dividends) are primarily taxed when the stock is sold.

Best for: Any investor, from first-timer to retiree, though there are specific types of dividend stocks that may be better depending on where you are in your investing journey.

Young investors, for example, may do well to look into dividend growers, which are companies with a strong track record of consecutively increasing their dividends. These companies may not have high yields currently, but if their dividend growth keeps up, they could in the future. Over a long enough time frame, this (combined with a dividend reinvestment plan) can lead to returns that mirror those of growth stocks that don’t pay dividends.

Older investors looking for more stability or fixed income could consider stocks that pay consistent dividends. On a shorter timeline, reinvesting these dividends may not be the goal. Rather, taking the dividends as cash could be a part of a fixed-income investing plan.

Where to buy dividend stocks: Similar to others on this list, the easiest way to buy dividend stocks is through an online broker.

10. Individual stocks

A stock represents a share of ownership in a company. Stocks offer the biggest potential return on your investment while exposing your money to the highest level of volatility.

These cautionary words aren’t meant to scare you away from stocks. Rather, they’re meant to guide you toward the diversification that buying a collection of stocks through mutual funds provides, as opposed to buying individually.

Best for: Investors with a well-diversified portfolio who are willing to take on a little more risk. Due to the volatility of individual stocks, a good rule of thumb for investors is to limit their individual stock holdings to 10% or less of their overall portfolio.

Where to buy stocks: An easy way to buy stocks is through an online broker. Once you set up and fund a brokerage account, you’ll choose your order type and become a bona fide shareholder.

11. Alternative investments

If you’re not investing in the stock, bond or cash equivalent instruments listed above, there’s a good chance your investment is part of the alternative assets class. This includes gold and silver, private equity, hedge funds, cryptocurrencies like Bitcoin and Ethereum, and even coins, stamps, alcohol and art.

Best for: Investors (accredited investors, in many cases) who want to diversify away from traditional investments and hedge against stock and bond market downturns.

Where to buy alternative investments: While some online brokers will offer access to certain alternative investments, other alternatives are available only through private wealth management firms. However, there are ETFs — such as oil, gold and private equity ETFs — that track the asset itself, as well as companies related to the asset (such as gold mining and refining companies).

12. Real estate

Traditional real estate investing involves buying a property and selling it later for a profit, or owning property and collecting rent as a form of fixed income. But there are several other, far more hands-off ways to invest in real estate.

One common way is through real estate investment trusts, or REITs. These are companies that own income-generating properties (think malls, hotels, offices, etc.) and offer regular dividend payments. Real estate crowdfunding platforms, which often pool investors’ money to invest in real estate projects, have also risen in popularity in recent years.

Best for: Investors who already have a healthy investment portfolio and are looking for further diversification, or are willing to take more risk for higher returns. Real estate investments are highly illiquid, so investors shouldn’t put into an investment any money they may need to access quickly.

How to invest in real estate: Some REITs can be purchased on the public stock market through an online stockbroker, while others are only available in private markets. Similarly, some crowdfunding platforms are open to accredited investors only, while others don’t put restrictions on who can invest.

Is it OK to invest during uncertainty?

Yes, if you’re invested for the long haul, says certified financial planner Austin Litvak, director of investment research for O’Brien Wealth Partners in Boston.

“Certain things going on with today’s market are unique to history and that’s not going to last forever. If you’re a long-term investor, the Federal Reserve is still credible and will get inflation under control,” Litvak says.

It’s normal to worry about your investments, especially after 2022 witnessed major drops in both the stock and bond markets and 2023 has brought a series of bank closures. Getting into investing at a time of such volatility can feel scary. Nevertheless, taking an investment approach that\’s appropriate for your particular financial situation and time horizon — and features the right asset allocation for you — means you won’t miss out on any potential recovery.

The bottom line: Short-term lows in the stock and bond markets due to factors such as global unrest, a pandemic and inflation, shouldn’t keep you from investing entirely, especially if you’re diversified across a range of assets and have a long-term plan in place.

How to choose the best investments in 2023

Building wealth through the investments outlined above can start at any age and at any income level. The key is to choose the right investments for you based on the following considerations:

  • Your timeline. Money earmarked for near-term needs should be easily accessible and in a safe and stable investment. For long-term goals, you have more leeway to invest in more volatile assets.

  • Your risk tolerance. The more risk you’re willing to take by exposing your money to the short-term swings of the stock market, the higher the long-term potential payoff. Spreading your money across different types of investments can help smooth out your investment returns.

  • How much money you have. Some investments have minimum balance or initial investment requirements. But there are workarounds and providers that can accommodate most investment budgets if you know where to look.

  • How much help you need. DIY investors can access many of the investments outlined above by opening a brokerage account. If you’re not sure which investments are best for your situation, you can hire a low-cost, automated service called a robo-advisor to build an investment portfolio for you based on the criteria above. Some short-term investments, such as savings accounts, can be opened at a bank.

Disclaimer: The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

How To Invest In Stocks: Best Ways For Beginners

Investing in stocks is a great way to build wealth by harnessing the power of growing companies. Getting started can feel daunting for many beginners looking to get into the stock market despite the potential long-term gains, but you can start buying stock in minutes.

So how exactly do you invest in stocks? It’s actually quite simple and you have several ways to do it. One of the easiest ways is to open an online brokerage account and buy stocks or stock funds. If you’re not comfortable with that, you can work with a professional to manage your portfolio, often for a reasonable fee. Either way, you can invest in stocks online and begin with little money.

Here’s how to invest in stocks and the basics on how to get started in the stock market even if you don’t know that much about investing right now.

How To Invest In Stocks: 4 easy steps to get started

So you want to begin investing in stocks? Here’s a four-step checklist to help get you going:

  1. Choose how you want to invest
  2. Open an investment account
  3. Decide what to invest in
  4. Determine how much you can invest – then buy

1. Choose how you want to invest

These days you have several options when it comes to investing, so you can really match your investing style to your knowledge and how much time and energy you want to spend investing. You can spend as much or as little time as you want on investing.

Here’s your first big decision point: How will your money be managed?

  • A human professional: This “do-it-for-me” option is a great choice for those who want to spend just a few minutes a year worrying about investing. It’s also a good choice for those with limited knowledge of investing.
  • A robo-advisor: A robo-advisor is another solid “do-it-for-me” solution that has an automated program manage your money using the same decision process a human advisor might – but at a much lower cost. You can set up an investment plan quickly and then all you’ll need to do is deposit money, and the robo-advisor does the rest.
  • Self-managed: This “do-it-yourself” option is a great choice for those with greater knowledge or those who can devote time to making investing decisions. If you want to select your own stocks or funds, you’ll need a brokerage account.

Your choice here will shape which kind of account you open in the next step.

2. Open an investment account

So which kind of account do you want to open? Here are your options:

If you want a pro to manage your money

  • A human financial advisor can help you design a stock portfolio and can help with other wealth-planning moves such as planning for college expenses. A human advisor typically charges a per-hour fee or around 1 percent of your assets annually, with a high investment minimum. One big advantage: a good human advisor can help you stick to your financial plan. Here are six tips for finding the best advisor – and what you need to watch out for.
  • A robo-advisor can design a stock portfolio that matches your time horizon and risk tolerance. They’re typically cheaper than a human advisor, often a quarter of the price or less. Plus, many offer planning services that can help you maximize your wealth. The best robo-advisors can handle most of your investing needs.

If you want to manage your own money

  • An online broker allows you to buy stock and many other kinds of investments, including bonds, exchange-traded funds (ETFs), mutual funds, options and more. The best brokers offer no-fee commissions on stocks as well as a ton of education and research on how to buy stocks at no additional cost, so you can power up your game quickly.

If you go with a robo-advisor or an online brokerage, you can have your account open in literally minutes and start investing. If you opt for a human financial advisor, you’ll need to interview some candidates to find which one will work best for your needs and keep you on track.

3. Decide what to invest in

The next major step is figuring out what you want to invest in. This step can be daunting for many beginners, but if you’ve opted for a robo-advisor or human advisor, it’s going to be easy.

Using an advisor

If you’re using an advisor – either human or robo – you won’t need to decide what to invest in. That’s part of the value offered by these services. For example, when you open a robo-advisor, you’ll typically answer questions about your risk tolerance and when you need your money. Then the robo-advisor will create your portfolio and pick the funds to invest in. All you’ll need to do is add money to the account, and the robo-advisor will create your portfolio.

Using a brokerage

If you’re using a brokerage, you’ll have to select every investment and make trading decisions. You can invest in individual stocks or stock funds, among many other assets. The best brokers offer free research and a ton of resources on how to buy stocks to aid beginners.

If you’re managing your own portfolio, you can also decide to invest actively or passively. The key difference between the two is that you determine how long you want to invest. Passive investors generally take a long-term perspective, while active investors often trade more frequently. Research shows that passive investors tend to do much better than active investors.

4. Determine how much you can invest – then buy

The key to building wealth is to add money to your account over time and let the power of compounding work its magic. That means you need to budget money for investing regularly into your monthly or weekly plans. The good news is that it’s super simple to get started.

How much should you invest?

How much you invest depends entirely on your budget and time frame. While you may invest whatever you can comfortably afford, experts recommend that you leave your money invested for at least three years, and ideally five or more, so that you can ride out any bumps in the market.

If you can’t commit to keeping your money invested for at least three years without touching it, consider building an emergency fund first. An emergency fund can keep you from having to get out of an investment early, allowing you to ride out any fluctuations in the value of your stocks.

How much do you need to start?

Most major online brokerages these days don’t have an account minimum (or the account minimums are extremely low), so you can get started with very little money. Plus, many brokers allow you to buy fractional shares of stocks and ETFs. If you can’t buy a full share, you can still buy a portion of one, so you really can get started with virtually any amount.

It’s just as easy with robo-advisors, too. Few have an account minimum and all you’ll need to do is deposit the money — the robo-advisor handles everything else. Set up an auto-deposit to your robo-advisor account and you’ll only have to think about investing once a year (at tax time).

Once you’ve opened your account, deposit money and get started investing.

How to manage your investments

You’ve established a brokerage or advisor account, so now’s the time to watch your portfolio. That’s easy if you’re using a human advisor or robo-advisor. Your advisor will do all the heavy work, managing your portfolio for the long term and keeping you on track.

If you’re managing your own portfolio, you’ll have to make trading decisions. Is it time to sell a stock or fund? Was your investment’s last quarter a signal to sell or buy more? If the market dips, are you buying more or selling? These are tough decisions for investors, both new and old.

If you’re investing actively, you’ll need to stay on top of the news to make the best decisions.

More passive investors will have fewer decisions to make, however. With their long-term focus, they’re often buying on a fixed regular schedule and not worrying much about short-term moves.

Tips for beginning investors

Whether you’ve opened a brokerage account or an advisor-led account, your own behavior is one of the biggest factors in your success, probably as important as what stock or fund you buy.

Here are three important tips on how to invest in stocks for beginners:

  • While Hollywood portrays investors as active traders, you can succeed – and even beat most professional investors – by using a passive buy-and-hold approach. One strategy: Regularly buy an S&P 500 index fund containing America’s largest companies and hold on.
  • It can be valuable to track your portfolio, but be careful when the market dips. You’ll be tempted to sell your stocks and stray from your long-term plan, hurting your long-term gains in order to feel safe today. Think long-term.
  • To keep from spooking yourself, it can be useful to look at your portfolio only at specific times (say, the first of the month) or only at tax time.

As you begin investing, the financial world can seem daunting. There’s a lot to learn. The good news is that you can go at your own speed, develop your skills and knowledge and then proceed when you feel comfortable and ready.

Best stocks for beginning investors

As a new investor, it can be a wise decision to keep things simple and then expand as your skills develop. Fortunately, investors have a great option that allows them to purchase shares in hundreds of America’s top companies in one easy-to-buy fund: an S&P 500 index fund. This kind of fund lets you own a tiny share in some of the world’s best companies at a low cost.

An S&P 500 fund is a great option because it provides diversification and reduces your risk from owning individual stocks. And it’s a solid pick for investors – beginners to advanced – who don’t want to spend time thinking about investments and prefer to do something else with their time.

If you’re looking to expand beyond index funds and into individual stocks, then it can be worth investing in “large-cap” stocks, the biggest and most financially stable companies. Look for companies that have a solid long-term track record of growing sales and profit, that don’t have a lot of debt and that are trading at reasonable valuations (as measured by the price-earnings ratio or another valuation yardstick) so that you don’t buy stocks that are overvalued.

Stock investing FAQs

Do you have to live in the U.S. to open a stock brokerage account?

No, non-U.S. investors are able to open brokerage accounts and invest in U.S. companies, but they might face a few additional hurdles in getting started. Investors residing outside the U.S. may need to show additional forms of identification to prove their identity when opening an account and there can be even more forms on top of that to ensure proper tax reporting. Be sure to check with the broker for guidance on investing when living outside the country.

How much money do I need to start investing?

Not much. Most online brokers have no minimum investment requirements and many offer fractional share investing for those starting with small amounts. You’ll want to make sure that the money you’re investing won’t be needed for regular expenses and can stay invested for at least three years. Building up some savings in an emergency fund is a good idea before getting started with investing.

Do I have to pay taxes on the money I earn from stocks?

If you hold those stocks in a brokerage account, dividends and gains on stocks will likely be taxed. The rate you pay on capital gains will depend on how long you’ve held the investment and your income level. If you hold stocks in tax-advantaged accounts such as a Roth IRA, you won’t pay taxes on gains or dividends, making these vehicles ideal for retirement savings.

Conclusion

The great thing about investing these days is that you have so many ways to do it on your own terms, even if you don’t know much at the start. You have the option to do it yourself or have an expert do it for you. You can invest in stocks or stock funds, trade actively or invest passively. Whichever way you choose, pick the investing style that works for you and start building your wealth.

Are Condos A Good Investment? The Pros & Cons In 2023

There are many different ways to invest in real estate. Exit strategies will vary widely based on individual market indicators and each investor’s own penchant for risk. Of the many ways to invest in real estate, however, one appears more under appreciated than its counterparts: investing in condominiums.

Though not as popular as single-family or multifamily homes, condos are a great way to capitalize on today’s market. Condominiums may award savvy investors with plenty of upside, which begs the question: Are condos a good investment?

The answer is simple: yes. Condos can be a great investment under the right circumstances. However, it is worth noting that the right circumstances will vary from investor to investor and from market to market. Therefore, investors should refer to the following to determine whether condos are a good investment for their particular situation.

What Is A Condo?

A condo is an individually owned unit that creates a larger commercial complex when combined with other similar units. The complex is usually owned by a home-builder or larger corporation that sells each unit to subsequent homeowners. The sum of all the parts creates a community, complete with shareable common areas like walkways, pools, and communal parks.

To maintain common areas, and the entire complex itself, each owner will be expected to pay condo fees (not unlike a homeowners association). The fees will be dedicated to the upkeep and maintenance of the entire condominium. Though an added cost, the fees act to improve the owners’ quality of life and preserve home values. With that in mind, are condos a good investment? Let’s take a deeper dive to find out if investing in condos is right for you.

Are Condos A Good Investment?

Condos are a great investment for those looking to capitalize on healthy markets with plenty of demand. However, not unlike every other exit strategy, condo investing serves a particular purpose. As buy and hold assets, they can be great for generating cash flow.

Sometimes their HOA fees offer investors more than they bargained for, but it’s entirely possible to offset both the mortgage and the fees with a proper exit strategy. That said, whether or not condos are worth the investment depends on one’s own intentions. Before you ask yourself “are condos a good investment,” be sure to identify what it is you hope to accomplish with an impending purchase.

Whether or not buying a condo for investment makes for a good strategy is entirely dependent upon your goals, financial circumstances, as well as what type of exit strategy you choose to pursue. For example, while turning a condo into a rental property might make perfect sense in one market, perhaps a fix-and-flip strategy would work better in another. Deciding whether or not a condo is a good investment is completely up to the investor and their ability to conduct proper market research, mind their due diligence, and execute the most profitable strategy possible.

Do Condos Appreciate In Value?

Condos do appreciate in value, albeit at a slower pace than their single-family home counterparts.

Although the demand for condos fell during the COVID-19 pandemic, demand and thus values are rebounding as buyers return to highly populated areas.

According to TheMReport.com, the average condo is currently selling for $319,000, which is a 22.7% increase from the beginning of the pandemic and a 14.6% increase from last year.

Single-family homes typically enjoy higher appreciation rates because of more competition. In today’s real estate landscape, in particular, there aren’t nearly enough single-family homes to keep up with demand, which has resulted in a seller’s market. Most homes receive several offers, enabling homeowners to increase prices in accordance with competition. More often than not, buyers will actually increase their offers to compete in today’s market, adding more fuel to the fire.

Condos, on the other hand, aren’t as in demand as single-family homes, which helps explain their slower rate of appreciation. In addition to a lack of demand, however, the added costs associated with owning a condo can detract from future appreciation.

While history has taught us that condos do not appreciate as fast s single-family homes, the new market created in the wake of COVID-19 may disrupt long-term trends. At the very least, the supply and demand crisis increasing home values across the country is spilling over into the condo market. Again, there aren’t enough homes to keep up with demand. As a result, more people are turning to condos, which is inevitably increasing appreciation rates.

Condo Investing Pros

The advantages of every condominium investment are directly correlated to the work investors put in beforehand and throughout the investment. Consequently, investors will get out of their condo investment what they put in. With that in mind, there are many pros investors can expect to realize over the life of their own condo investment:

  • No maintenance: With a condominium, you need to think about your target market. This market is typically made up of first-time buyers who aren’t ready for a home or older buyers who are looking to downsize. Either way, one of the main selling points for a condo is the convenience that comes with low maintenance. The owner does not have to cut the grass or shovel the driveway. They can still take care of minor landscaping, like bushes and plants, but don’t need to worry about much else. This may not seem like a huge concern; however, in areas where extreme weather is a factor, this alone can create demand.
  • Amenities: All condos feature amenities in one shape or another. They can range from a pool to 24 hour security. The better the amenities, the easier it is to justify paying the monthly common charges. There are many owners who like swimming, but don’t want to own a pool. The obvious problem is that a pool is a seasonal item and may not be enough to move the needle alone.
  • Price: Generally speaking, condominiums are offered at a lower price point than your average single-family property. Some exceptions depend on the market, but for the most part, they are lower in price. This makes it easier when it is time to sell.
  • Cash Flow: Condominiums tends to be located in denser areas, such as city centers, university neighborhoods as well as tourism destinations. Although some investors may argue that single family homes offer better odds of appreciation over time, condominium investors often get to enjoy a great rent to purchase price ratio. Because of their location, condo owners can usually charge a higher rental rate (especially for vacation rentals) even though they paid a relatively low purchase price. Because of this, condominium units have the potential to offer strong cash flow.
  • Variety: There are many markets where all properties look primarily the same. With condominiums, there can be some stark differences. The common perception is that condos are cookie-cutter and look alike. In reality, many complexes pride themselves on the fact that each condo offers something a little unique.  This holds a level of appeal to certain buyers.

Condo Investing Cons

Not unlike every other exit strategy, investing in condos comes with inherent disadvantages. Here are some of the most common cons investors can expect to encounter throughout a condo investment:

  • Rental policies: Before you consider a condo for an investment, you need to be familiar with the rental policies. Many associations have strict rules against renting. They don’t want to dilute the number of owner-occupants in the complex. In addition to rental policies, there may be rules regarding exterior paint color, whether or not a deck is allowed, and where you can park. Every complex and association can enforce its own set of rules. Before you make any offer, you need to read the bylaws for the complex.
  • Fees: As great as having amenities are, not every owner is willing to pay a price for them. Depending on the complex, association fees can range from under $100 to as much as $300 a month. This is addition to the regular principal, interest, and tax payments on the mortgage. This can push certain buyers over their magic number and make it more difficult to sell the property.
  • Comparable sales: One of the problems with getting the biggest bang for your buck when you resell a condo is that you are being judged against other units in the complex. Listing a property is all about looking at the comparable sales and listings in your area. When selling a condo, every other sale in the complex is comparable. If your condo’s bedroom and bath count is the same as the others around it, it will be difficult to raise the price much higher than what the comps dictate. Even if you make improvements, it may not correlate to a higher sales price on your end.
  • Limited market: A condo holds certain appeal but only for the right buyer. This means you need to do everything right to market to these groups. It also means that you may not be able to produce a bidding war for your property. Investors feel the same way the buyer pool does about condos. The more limited your market, the more difficult it can be to sell.
  • Parking: A common complaint from condo owners is the lack of parking space. This makes it difficult to entertain any more than a handful of people. There are always complexes that have more space or larger driveways but the space between condos can become an issue. One of the reasons that buyers move away from renting is for privacy and space. With most every condo, extra parking becomes a focus sooner or later.

How To Invest In Condominiums

Investing in a condo is different from investing in a single-family home. Therefore, instead of adhering to a more traditional investment strategy, aspiring condo owners should follow these simple steps:

  1. Determine if a condo investment is right for you: Take the time to determine whether or not investing in condos will help you meet your ultimate goal. There’s no point investing in condos if it doesn’t produce the results you were hoping for.
  2. Research the local market: Mind due diligence and research everything you can about the market you want to invest in. Pay close attention to its current health and future prospects. The idea is to invest in a market with potential.
  3. Figure out your financing: Look for ways to finance your impending deal before you even look for a property. Line up a private or hard money lender before you look, as the access to funding will help you choose a property.
  4. Work with an agent to search through listings in your area: While they cost more money, real estate agents are a wise investment that can actually save you time (and even money). If for nothing else, a good agent will know the market a lot better than you and will be able to mitigate risk.
  5. Ask about homeowner association (HOA) rules and fees: Pay special considerations to HOA fees and rules before making any decisions. HOA fees can add up and really eat into an investor’s bottom line.
  6. Mind your due diligence: As always, mind due diligence to mitigate risk. Every investment comes with an inherent degree of risk, but those who can reduce their exposure to precarious situations will be better off.
  7. Identify a property with the best potential and make your offer: At this point you’ll want to narrow your search down to a single property and make an offer. Account for each number and choose the property that fits your plans the best, then make an offer.
  8. Schedule a property inspection: Have the property inspected before you close on it to determine if it’s in the condition the owner suggests.
  9. Close on your new property!

Before diving into the search for the perfect condo listing, it is important to take a step back and determine whether or not investing in condos is the right fit for you. The condo investment process is quite different from investing in detached single-family properties, with its own unique set of rewards and challenges.

Buying A Condo For Investment: Will You Try It?

Deciding to start investing in condos is arguably similar to making any other type of investing decision. This includes asking yourself whether you have the right mindset, bandwidth, and commitment, as well as whether or not you can align a particular investing strategy with your personal and financial goals.

Because the purchase price for a condo is typically lower than a single-family home in many markets, condominium investing offers a lower barrier to entry for many investors. However, it is important to ask yourself whether or not condo investing is the right fit for you and weigh the pros and cons.

Prior determining whether or not buying a condo is right for you, you’ll need to know what you are going to do with it. For example, how does owning a condo change if you are going to:

  • own it?
  • rent it?
  • use it as a vacation rental?

Condo As A First Home

Those looking to buy a condo as a first home should also consider the purchase as an investment. Unlike a rental property, those paying down a mortgage are simultaneously building equity in a physical real estate asset. Instead of throwing money away each month in the form of rent, paying down a mortgage is more akin to a forced savings account.

While interest rates will certainly detract from many owners’ ability to save, the equity they manage to accumulate is a great way to accumulate wealth. If that wasn’t enough, real estate tends to appreciate in value more often than not. That isn’t to say a condo is guaranteed to increase in value, but rather that there’s an increased likelihood that the condo will be worth more in the future.

Condo As A Rental Property

Investors looking to buy a condo in order to generate passive income will treat the asset a lot like a single-family home. That said, some differences must be considered. First and foremost, investors need to confirm whether or not they can even rent the condo out. Some HOAs and condo associations don’t even allow owners to rent their units, so make sure there are no limitations preventing you from leasing the unit.

In the event there are no rules preventing the owner from renting the unit out, investing in a condo is a lot like investing in a detached home. Investors will need confirm the numbers work out. More importantly, will the cash flow generated be enough to cover the mortgage, fees, and make the investment worthwhile?

Condo As A Vacation Home

Anyone fortunate enough to buy a condo as a rental property may also have the opportunity to turn it into a vacation rental. Of course, the dynamics of the investment will change from a vacation rental to a traditional rental. As a result, investors will need to reevaluate everything from the location of the home to the numbers supporting the deal.

For starters, investors will need to buy a condo in a desirable location; one where they are sure there will be seasonal demand. It is important to note that demand for rental properties is volatile; some have demand all year, whereas others may only be in demand in summer or winter months. As a result, investors will need to account for demand, and perhaps even the months they expect the property to sit vacant.

Wrapping Up

There is no right or wrong answer when it comes to condominium investing. If you see value in a unit and the market is on the upswing, then it is definitely something to consider.  You need to know exactly what you are getting into with a condo before you get too far.

Ask your real estate agent for a copy of the condo resale package.  This will include any rules and regulations that you need to know.  The more you know about an investment, the more confident you will be.  Investing in condos is no different.

Disclaimer: The information contained herein was pulled from third party sites. Although this information was found from sources believed to be reliable, ClayWallet makes no representations, warranties, or guarantees, either expressed or implied, as to whether the information presented is accurate, reliable, or current. Any reliance on this information is at your own risk. All information presented should be independently verified. ClayWallet assumes no liability for any damages whatsoever, including any direct, indirect, punitive, exemplary, incidental, special, or consequential damages arising out of or in any way connected with your use of the information presented.

Are CDs a Good Investment in 2023?

Experts say the best place to save money is somewhere it can earn interest. While the stock market often provides the best return on your money, it\’s not a savings account. Money invested isn\’t easily accessible, and there\’s a chance you will lose it.

Putting your money in a high-yield savings account, certificate of deposit, or money market account can put hundreds of extra dollars in your pocket in the long run. Your money will also be secure because it\’s in an FDIC-insured bank account. Up to $250,000 per depositor, per category, is covered by FDIC insurance.

Since 2022, the Federal Reserve has raised the federal funds rate several times in order to combat inflation. As a result, interest rates on online savings accounts have gone up, as well.

The highest-earning CDs are offering over 5% APY. Uncertainty about future rate hikes has increased the appeal of CDs for some savers. Here\’s how to decide if CDs may be a good option for your right now.

Are CDs a good investment? 

CDs are a type savings account, and aren\’t typically considered investments. CDs are a low-risk place to keep your money and pay lower returns in comparison to investing in the stock market.

If you expect rates to fall, locking in a high rate through a long-term CD now would be worth it. Or if you expect rates to rise later this year, you could park your money in a short-term CD to take advantage of today\’s rates while maintaining the freedom to trade up if rates increase.

\”This can be a good option for someone looking to park their cash for a short period of time and earn more than a general savings account,\” Anjali Jariwala, a CFP and CPA at Fit Advisors, tells Insider. \”The nice part about a CD is there is no downside risk like you would experience with investing in the stock market.\”

Jariwala added, \”The main trade-off with a CD is liquidity — you are tying up your money for a specified period of time.\”

A CD is a type of savings account with a fixed interest rate and terms that typically range from three months to five years. When money is deposited in a CD, you lock in an interest rate that lasts through the term length — generally, the longer the term, the higher the interest rate.

What to know about CDs

Most CDs require a minimum deposit, from $1 to $25,000 or more. At current interest rates — assuming they don\’t change — a $10,000 deposit in a 1-year CD earning 5% APY would earn around $500. Interest earnings on the account are taxed as ordinary income.

Taking money out of a CD before the end of the term will usually incur an early withdrawal penalty. Financial institutions will usually penalize you by having you pay back some of the interest you\’ve earned. Therefore, many banks tend to charge more on longer terms since you\’ve accumulated more interest over time.

Because of these limitations, a CD may be a good place to store savings needed by a specific date and not before then, Jariwala says, like money for a down payment or a home improvement project. If you\’re worried about losing access to your money for a few months or years, a CD may not be the best option for you; a high-yield savings account is often the best place for an emergency fund.

CD strategies

Some people use CDs as part of a larger savings strategy to optimize fixed interest rates and different term lengths.

\”I have a few clients where we are implementing a \’CD ladder\’ strategy as a component of their fixed-income portfolio,\” Jariwala says. \”The CD ladder is broken up into four tranches: three, six, nine, and 12 months. As CDs become due, the money is reinvested into another similar-term CD. If interest rates are rising, the goal is that you can pick up that higher-earning CD when your current CD matures.\”

Please note: While the offers mentioned above are accurate at the time of publication, they\’re subject to change at any time and may have changed, or may no longer be available.

How To Invest In Real Estate With No Money Or Bad Credit (Updated 2023)

The ability to understand, recognize, and take advantage of other people’s money is the hallmark of successful real estate investors. Why? Because they’ve mastered the art of how to invest in real estate with no money of their own.

This is an attractive way for newer and financially strapped investors to get a foot in the real estate door without having the financial resources and credit to do so. On the other hand, veteran investors have found that using other people’s money liquidates their available funds and frees up their cash to invest more and ultimately make more.

If you want to learn how to invest in real estate with no money of your own, you are in luck. If for nothing else, it’s entirely possible to get started without investing your cash. That said, if you don’t intend to invest your own money, there is something else you need: a trustworthy network. The trick is in knowing who can help you and how to work with them.

There is no doubt about it: real estate investing with no money out of your own pocket is possible. You don’t need endless cash reserves of your own to acquire a deal. You need to know how to invest in properties with the right people at your side. If you want to invest in real estate with no money of your own, may I refer you to the following?

How To Invest In Real Estate With No Money: 11 Ways

There are many investment deals that transpire throughout the real estate market every year. Most of them are achieved through traditional lenders and institutions like banks, but some are accomplished through less traditional means.

In most cases, it’s because the investor couldn’t raise the capital or didn’t have the credit score to do so. Here are 11 ways to invest in real estate with no money:

  1. Hard Money Lenders
  2. Private Money Lenders
  3. Wholesaling
  4. Equity Partnerships
  5. Home Equity
  6. Option To Buy
  7. Seller Financing
  8. House Hacking
  9. Government Loans
  10. Microloans
  11. REITs

It’s important to note that while investing in real estate with no money down offers numerous benefits, not all cashless deals are worthwhile. Investors equipped with a superb credit score will not only receive a wider array of options for working capital, but they’ll have more control over their financial obligations. As a real estate investor, it’s in your best interest to ensure that score remains top-notch, as it will provide the best money-saving outlet.

There are, however, situations where utilizing these options makes more sense. Consider the fact that cash buyers are viewed as more direct than conventional loan purchases when compared to traditional loans, which are slow to fulfill. With cash in hand, this strategy can provide an unprecedented upper hand at the negotiation table.

For investors with neither the credit score nor the financial capability to purchase a property through traditional means, it’s important to remember you still have options available. The following provides an understanding of the many ways you can invest in real estate with no money of your own:

1. Hard Money Lenders

Unlike private money, hard money lenders set forth fees in the form of points. Ranging from three to five, these points represent an added, upfront percentage fee based on the borrowed amount; this is on top of the interest rates hard money lenders charge, which range between 10 and 18 percent. Fees and interest rates are not universal with hard/private money lenders, so investors need to do their due diligence.

2. Private Money Lenders

Private money loans, which bring speed and efficiency to every transaction, will typically cost investors somewhere in the neighborhood of 6 and 12 percent interest on the money borrowed. The most popular course of action when financing real estate deals with no money down is through the use of hard or private money lenders.

These loans are not given from banks but rather individuals and businesses aimed at financing investments for a return. Also, these loans are generally comprised of their own set of criteria, including more fees and higher interest rates to deal with.

When using these types of lenders, a good rule of thumb is to find homes that can be purchased for 50 cents on the dollar. Read our article on how to get a startup business loan with no money and understand the concept around it.

3. Wholesaling

As the introductory course to real estate investment, wholesaling requires neither a high credit score nor large sums of money down. Instead, it simply comes down to having the right numbers in place. Real estate wholesaling, at its core, consists of finding discounted properties, assigning the contract to a potential buyer, and getting paid to do so.

4. Equity Partnerships

A very common path in real estate investment is through partnerships. Edward Shaw, Co-Founder of Leeline Sourcing, says, “A typical path in real estate investments is by using alliances. If you lack something as an investor, another person can make up for it.”

Many partnerships will entail one partner finding a distressed property at a discounted price, while the other uses their credit score and working capital to finance it. Just make sure everyone is bringing something to the table. For more experienced investors, goals, risk, roles, and returns should always be discussed before creating any partnership type.

5. Home Equity

An alternative option for investors with no upfront money is home equity. This can be a viable option since property values have gone up in recent months, meaning there could be more capital available than you think. For investors looking to capitalize on this route, there are generally two options: rewrite the first mortgage and do a cash-out refinance, or keep the first loan in place and add a home equity line of credit.

6. Option To Buy

Sometimes referred to as a “lease-option,” this method allows investors to acquire properties without initially taking legal ownership. However, the investor will sign a legal “option to buy” from the homeowner at a specific price in the future. In return, the investor rents the property out on a long-term basis with an agreement in place to purchase the property at a later date for a previously set amount.

7. Seller Financing

Unlike traditional loans, seller financing works like this: the investor purchases the property from the homeowner/seller, rather than a bank, and the two sides sign an agreement that states an interest rate, repayment reschedule, and consequences of default that both parties have agreed upon.

8. House Hacking

House hacking, as its name suggests, is a real estate strategy that awards savvy investors the ability to take advantage of a unique situation. However, this particular exit strategy will witness investors earn rental income by renting out their primary residence. Those with multi-unit homes, for example, may choose to rent out the units they are not living in.

That way, the rent generated may help pay for the mortgage, allowing the owner to potentially live mortgage-free. Those in single-family homes, on the other hand, may elect to rent bedrooms when they can. Either way, house hacking allows investors to mitigate the risk of vacancies while building cash flow simultaneously.

9. Government Loans

Government loans are perhaps the most well known of all the sources of funding made available to today’s investors. Here’s a list of the government loans you may already be familiar with:

  • FHA Loan
  • USDA Loan
  • VA Loan
  • Good Neighbor Next Door Program
  • Fannie Mae Or Freddie Mac
  • Energy-Efficient Mortgage (EEM)
  • FHA Section 203(k)
  • Native American Direct Loan
  • Local Grants & Programs

However, it is worth noting that there are aspects of government loans that are not perfectly suited for rehabbing homes for a quick profit. VA Loans, for example, may only be applied to one home at a time. On the other hand, FHA loans tend to coincide with loan durations that are considerably longer than private and hard money lenders. What’s more, nearly all government loans can take months to receive approval, making them less attractive than just about every other option on this list.

Using USDA or VA loans can open you to more flexible options, especially if you first purchase your future rentals as a primary residence. This is largely useful when you are trying to invest in real estate with little or no money. You can purchase a home as your primary residence with zero cash down, stay in the home for a one-year minimum, then turn the home into a rental property upon moving out.

Building equity also includes your primary residence, not just your rental properties. Credit score and down payment requirements are also more flexible when purchasing a primary residence. Living in properties you hope to turn into rental properties is common practice to avoid harsher lender rules.

You can finance a duplex with only a 3.5% down payment using FHA loans as long as you live in one unit. In turn, you can rent out the second portion of your duplex and gain extra profits. This strategy can help those who are just starting to invest in real estate with little of their own money. With a low down payment along with an influx of rent, you can cover a substantial portion of your mortgage payments.

10. Microloans

As the peer-to-peer economy continues to shape how real estate investors do business, microloans will remain a viable option. Issued by individuals, as opposed to banks and credit unions, microloans are yet another branch of peer-to-peer lending, making it possible for people to invest in real estate. Microloans can be issued by a single lender or aggregated across several investors, each of whom is expected to contribute a portion of the borrower’s needs.

11. Investing In REITs

Real estate investment trusts, called REITs, are a great way to start investing in real estate. Instead of purchasing physical properties, investors buy shares in a company that develops or manages properties.

In this way, REIT investing is similar to stocks; however, REITS still allow investors to enjoy all of the benefits real estate offers. REITs are an excellent opportunity for generating passive income by real estate investing without having to purchase properties themselves.

Can You Invest In Real Estate With Bad Credit?

No cash or credit? No problem. For beginners seeking how to invest in real estate with no money down and bad credit, the first step is understanding your credit score. This number, which is essentially a statistical method for lenders to determine the probability of you paying back the money borrowed, is critical when acquiring financing for real estate. Quality scores equal better mortgage rates, resulting in long-term savings and ultimately benefiting you — the investor.

Credit scores are almost always based on a scoring model, with the most popular model being FICO. These scores range from 300 to 850, and ultimately determine a person’s creditworthiness. It looks somewhat like this:

  • Bad Credit: 300 – 600
  • Poor Credit: 600 – 649
  • Fair Credit: 650 – 699
  • Good Credit: 700 – 749
  • Excellent Credit: 750 – 850

Although each credit agency will have its own evaluation systems, which are based on different factors, the most common credit score calculations are based on five major factors:

  1. Payment History = 35 percent
  2. Outstanding Balances = 30 percent
  3. Length of Credit History = 15 percent
  4. Types of Accounts = 10 percent
  5. Credit Inquiries = 10 percent

The first step is knowing your credit score and understanding how it impacts your investment strategy moving forward. Depending on your score, you may qualify for a traditional loan and be eligible to secure down payment assistance.

Comprehending where you stand in the financial realm of credit will only enhance your real estate investment strategies, as well as your financing options. Learning to invest in real estate with no money down is important as an investor, but it’s not always your only option.

Avoid Becoming House-Poor

There is a phrase in real estate and finance called “house-poor.” The term describes people who stretch themselves too thin when buying a home and are left without any emergency money. When unexpected events happen, such as a job loss or broken appliance, these homeowners are in such a tight spot financially that it is difficult to recover. Unfortunately, this is all too common when attempting to invest in real estate with no money.

There are a few ways to avoid being backed into a corner financially when purchasing real estate. It is always a good idea to keep your emergency fund separate from other money and not include it in your estimates when buying a house. That way, if anything were to happen, you have funds you can rely on.

In some cases reserving your emergency money may force you to make a smaller down payment than you want. Remember that even if you are required to get mortgage insurance initially, you can always refinance down the road when you have more equity in the home.

Final Thought

Do you know how to invest in real estate with no money out of your pocket? There are several ways to begin investing today, even with a low credit score. Review these options, and you can turn your financial situation around while jumpstarting a new career. Now that you know you can, are there more opportunities you would like to pursue? Since it is possible to buy real estate with no money of your own, what will you do next?

Disclaimer: The information presented is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing provided shall constitute financial, tax, legal, or accounting advice or individually tailored investment advice. This information is for educational purposes only.

Are Annuities A Good Investment?

One of the biggest worries for retirees is outliving their money. Nobody wants to be stuck in late retirement without enough income to cover basic needs.

Fortunately there’s a financial product that can help ease these concerns: annuities. Hand over a chunk of change, and you get guaranteed income payments for a fixed period of time—even until death.

Despite the prospect of annuities helping Americans better enjoy their golden years, few actually sign up—it’s what’s known as the “annuity puzzle.” Many would-be users don’t like the prospect of giving up a large portion of their portfolio, and they’re unsure about the prospect of high fees or indecipherable contracts.

“I have always said that for every investment out there, each one is good for someone and wrong for someone else,” said Nancy Butler, a certified financial planner who owns Above All Else, Success in Life and Business. “The key is to match the right person with the right investment, and annuities are no different.”

Here’s what you need to know to decide if an annuity is a good investment for you.

What is an Annuity?

An annuity is a contract between an investor and an insurance company.

The investor makes one payment or a series of payments to the insurance company. In exchange, the company guarantees income for a fixed period of time or until your death.

There are three main types of annuity available, although there are also various types within these broad categories.

  • Fixed annuity. You receive a guaranteed fixed amount with each payment, such as a single premium immediate annuity (SPIA).
  • Indexed annuity. This is a fixed annuity with a twist: A portion of your money is invested in a stock market index, such as the S&P 500, and the principal is guaranteed if you hold the contract to term. The trade-off, though, is that your returns on the index are capped.
  • Variable annuity. You get the benefit of lifetime income, but the payments you receive depend on the performance of a portfolio of securities.

Why Annuities Might Be a Good Investment

Here are four reasons why an annuity might be a good investment for you.

Annuities Deliver Long-Term Income

An annuity can be a source of lifetime retirement income.

“Annuities function as an insurance product, and while some may have underlying investment options tied to the markets, they also offer guaranteed income and have features that offer protection during market fluctuations,” said Rona Guymon, senior vice president of annuity distribution at insurance giant Nationwide.

A Variety of Annuity Offerings

An array of annuities can be purchased, appealing to people from a range of age groups who have different savings and income needs and have different risk-tolerance levels, said Phil Michalowski, head of annuities at MassMutual.

“Annuity products offer tax-deferred investing for those looking to accumulate retirement savings with a range of solutions,” he said. “From simple low-risk products that offer guaranteed returns to higher-risk, investment-oriented products that have full exposure to equity markets, as well moderate solutions in between.”

Annuities Offer Tax Benefits

Payments that someone makes toward their annuity aren’t taxed until the money is withdrawn, noted Mark Stewart, the in-house CPA at Step By Step Business.

“Until the withdrawal is made, your annuity payment and its accrued interest remain non-visible to the government,” Stewart said.

Some Annuities Can Be a Good Inflation Hedge

One reason to choose a variable annuity rather than a fixed annuity is as an inflation hedge. Used right, variable annuities can maintain your purchasing power throughout retirement if your investment decisions—net of fees—boost your periodic payments to at least cover inflation.

Annuities Are Flexible

Butler emphasized a couple of the ways that annuities are flexible:

  • You can transfer money from one annuity to another, even if they’re with different companies, through what’s known as a 1035 exchange. Using this method, your annuity earnings won’t be taxed.
  • You can hold an annuity in a retirement plan, such as your 401(k) or individual retirement account (IRA), or can hold it outside a retirement plan.

Why Annuities Could Be a Bad Investment

While annuities provide retirees with a steady stream of income, there are some trade-offs to consider.

Annuities Can Be Complicated

Some annuities are too complex for many to understand without help from a financial professional.

“Unlike other retirement payment plans, an annuity has the most complicated structure,” Stewart said. “Generally, insurance companies might sell the most attractive package, which is the lifelong benefits; however, the high taxes and the payment calculations are grossly misunderstood by retirees.”

Some Annuities Charge High Fees

Owners of certain types of annuities can end up paying high fees. For instance, a variable annuity might charge fees between 2% to 3%, per Nationwide, which can shrink the value of your account and the return on your investment.

Among the costs you might encounter with a variable annuity are:

  • Mortality and expense risk charges. An insurer imposes these charges to cover guaranteed death benefits.
  • Administrative fees, such as recordkeeping.
  • Charges for certain add-ons, like long-term health insurance or stepped-up death benefits.

Lack of Liquidity

Annuities can come with the certainty of lifetime income. But in order to get that benefit, you typically have to give up a lot of cash now.

Let’s say you’re a 65-year-old male living in Texas looking for $2,000 a month in income, and you want a simple, inexpensive option. This person could choose an SPIA.

You search online for an SPIA quote and see that you’ll need to plunk down a bit more than $350,000 right away. If you live to 80, you will get more than you put in, but the payments stop at your death.

If you invest in a variable annuity, you’ll owe a surrender charge if you sell the annuity or pull money out during the surrender period. This period typically lasts six to eight years after you buy the annuity.

Annuities May Have Tax Penalties

If you withdraw money from an annuity before age 59½, you’ll typically pay a 10% tax penalty on either the entire amount or just the earnings and interest.

Exceptions to the penalty may include circumstances such as death or disability, Butler said.

Are Annuities a Good Investment for You?

A hammer is a tool. Whether it’s a good tool or a bad tool depends on how you’re using it. The same is true of annuities.

“In any economy, and at all stages of the financial life cycle, annuities can provide protection and guaranteed income, helping clients prepare to navigate adversity now and in the future,” said Guymon.

On the other hand, financial advisor Corey Noyes, founder and owner of Balance Capital, isn’t sold on the value of annuities for his clients.

But it doesn’t have to be an all-or-nothing proposition. You can, after all, buy a big enough annuity to cover your fixed expenses (mortgage, food) and then invest the rest of your portfolio in higher yielding assets, such as stocks, to maximize your growth potential.

Consider talking with a fee-only financial planner to see if annuities, and which ones, make sense for your finances and risk tolerance.

Is Bitcoin a Good Investment? | Should You Invest in BTC?

A collective insanity has sprouted around Bitcoin over the last decade. It\’s hard to predict whether this cryptocurrency will become the global reserve currency or a store of value as widely accepted as gold. The thrill of riches or ruin leaves some investors wary, but others want to chase the chance for massive profits from investing in Bitcoin. Bitcoin is certainly a revolutionary technology, and it\’s much less risky in 2022 than it was in 2012.

After becoming legal tender in El Salvador in 2021, other countries may look to copy this move to attract innovation, while others might ban it entirely in an attempt to save their fiat currency or clear the way for a central bank digital currency.

Despite the doom and gloom of the 2022 bear market, Bitcoin has solidified its spot in the global geopolitical climate, and the 2020s may be the decade of massive adoption. This has led investors to wonder if Bitcoin is a good investment. The answer to this question varies, depending on who is asking it.

Bitcoin could be a good investment if it fits your risk tolerance and your general market outlook. The history of the cryptocurrency market is actually rather predictable on longer time horizons. Bitcoin and Ethereum have traded in relatively regular cycles and both have recovered from every major crash (not including the most recent, yet) and subsequently reached new all-time highs.

Start with our guide to learn more and make your own judgment if Bitcoin is a good investment for you.

The History of Bitcoin

Since its inception, Bitcoin was the 1st digital asset to beget the current ecosystem of cryptos. The release of the whitepaper describing the tech just after the 2008 financial crisis was a quiet start to the cryptocurrency revolution.

For quite a while, it grew an underground following of investors who saw its future as a possible replacement to the physical monetary system. Now Bitcoin has become a household name as institutions and governments develop ways to serve their customers growing demand for exposure.

Similar to how the internet was once a speculative investment, Bitcoin has received similar criticism. In reality, Bitcoin‘s current adoption rate outpaces that of the internet\’s in 1998, and millions of people now own Bitcoin. And the spread at which its adoption is spreading seems to only be increasing.

In 2021, El Salvador became the 1st country in the world to make Bitcoin a legal tender; Paraguay and other small countries look to follow suit. El Salvador is also the first and only country to have Bitcoin in its treasury. As of late 2022, El Salvador has roughly 2,400 Bitcoin. President Nayib Bukele has not been shy about announcing his purchases on Twitter.

Is Bitcoin a Good Investment Despite the Risk?

Similar to any speculative investment, buying Bitcoin obviously carries significant risk. As the traditional finance world realizes Bitcoin\’s potential for disruption, they must choose either to adopt cryptocurrencies or face irrelevance. Its volatility risk is one of the major factors determining whether Bitcoin is a good investment but it isn\’t necessarily good or bad.

The personal decision to invest in Bitcoin comes down to your appetite for risk and your perspective on the future of humanity. For example, Russia has stated they are looking into cryptocurrencies to lower their dependence on the US dollar. Bitcoin has the potential to disrupt the US dollar in a massive way, and it is simply too big to be ignored at this point. If this disruption is successful, Bitcoin could be a fantastic investment.

The main reason a traditional investor may want exposure to Bitcoin is to hedge against inflation and potentially the collapse of the fiat-based economy. Bitcoin\’s volatility is a concern to may investors, however volatility is expected to decrease forever as institutions and governments enter the market with long-term interest.

How to Invest in Bitcoin

Bitcoin is available from a multitude of centralized cryptocurrency exchanges. The safest exchanges are U.S. based, which also means you\’ll need to comply with the SEC\’s know your customer (KYC) guidelines. For tax purposes, making an exchange account will require inputting your personal information including your address and social security number. Once you\’ve got this handy, you\’re ready to get started.

Here are the steps to invest in Bitcoin:

  1. Open an account with a cryptocurrency exchange.
  2. Connect a bank account and deposit funds into your exchange wallet.
  3. Buy Bitcoin (BTC).
  4. Buy a wallet (optional).

Best Crypto Exchanges that Support Bitcoin Trading

Decided that Bitcoin is a good investment and want to know where to buy some? Here are some of the best crypto exchanges available today:

1. eToro

Trade popular cryptocurrencies, explore professionally managed portfolios and connect with traders. eToro currently supports the purchase and sale of several popular cryptocurrencies. eToro isn\’t just a crypto exchange too. It also offers stock trading and a variety of features to vastly improve the user experience. It has a great education resources and even a fantastic paper-trading feature that can help you test out your trading strategies without using real money.

2. OKX

OKX is one of the largest and most popular crypto exchanges in the world for good reason. OKX has it all. It supports trading of an absurd number of cryptocurrencies (more than 340!) but it doesn\’t make up for it with high fees like other exchanges. In fact, it charges extremely low fees that are almost always less than 0.1% on trades (10-40 times lower than some popular exchanges).

It\’s easy to use as well with a wide selection of payment methods including: bank account transfers, cards or even mobile wallets. Unfortunately, OKX is unavailable in for U.S. investors but it supports trading in much of the rest of the world It supports trading in over 100 different countries including most of Europe, the U.K., Japan, South Korea, Australia and New Zealand.

3. Uphold

Uphold is one of the best cryptocurrency exchanges available right now. It offers an incredible variety of tradable assets including more than 200 digital currencies. It also offers precious metals trading, all on the same platform. If that wasn\’t enough it also has a fantastic staking feature where you can stake a wide variety of different cryptos with some of the highest rates on the market.

4. BitcoinIRA

BitcoinIRA\’s proprietary platform enables you to self-trade crypto anytime so you can take action right when the market moves.

Here\’s how it works:

  1. Create an account. Get your customized dashboard and digital wallet after you create an account. Fund your account, access live pricing and learn more with a knowledge base.
  2. Transfer funds. Transfer your IRA in 3 easy steps. Simply tell us how much you want to invest, how you want to fund your account and your profile information. Most accounts will be ready to trade in just 3 to 5 days.
  3. Start trading. Trade digital assets inside your self-directed retirement account using our proprietary platform. Buy, sell or swap anytime, anywhere by visiting the self-trading area within your dashboard.

5. Public.com

Public.com is a fantastic trading platform with an incredible variety of tradable assets, low fees, and a great user interface. It offers fee-free trading with more than 9,000 stocks and ETFs and reasonable fees on crypto and alternative assets trading.

Public doesn\’t have the same expansive support for cryptos as it does stocks and ETFs. However, it does support a vast majority of the largest and most popular cryptocurrencies including Bitcoin, Ethereum, Dogecoin, Shiba Inu, Cardano, Solana, Polygon and many more.

6. Wunderbit

Another great option to buy Bitcoin is Wunderbit. The platform lets you buy and sell Bitcoin, Ethereum and altcoins at the best rates on the market. Plus, users can fund accounts with crypto or buy cryptocurrencies with a credit or debit card. Another cool feature that Wunderbit has that makes it unique is its ability to identify \’dirty\’ Bitcoin. This is Bitcoin that may have been involved in hacks, money-laundering, or other illegal activity that may be at risk of being seized by government officials.

Bitcoin Technical Analysis: Fear and Greed Index

The fear and greed index can be a useful indicator of the cryptocurrency market\’s sentiment. The general sentiment of the market can be a useful factor when you decide if Bitcoin is a good investment for you. Historically, times of the greatest fear have generally been bullish indicators (suggesting the bottom is in or is close) and times of the highest greed are often bearish indicators (suggesting the top has been reached or is close).

The Fear and Greed Index isn\’t perfect and doesn\’t always forecast the future well but it can be a good tool in making an educated guess. Bitcoin\’s recent resurgence has brought its Fear and Greed Index to neutral from extreme fear only a few weeks ago.

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Advantages of Bitcoin Investments

The overwhelming performance of Bitcoin — as a currency and investment — has attracted traditional and institutional investors alike. They are all asking: Is Bitcoin a good investment? To be fair, it offers you several advantages over traditional investments.

  • Liquidity. Bitcoin is arguably 1 of the most liquid investment assets due to the worldwide establishment of trading platforms, exchanges and online brokerages. You can easily trade Bitcoin for cash or assets like gold instantly with incredibly low fees. The high liquidity associated with Bitcoin makes it a potentially great investment vessel if you’re looking for short-term profit. Digital currencies may also be a long-term investment due to their high market demand.
  • Lower inflation risk. Unlike world currencies — which are regulated by their governments — Bitcoin is nearly immune to hyperinflation. It still undergoes inflation but at a predictable rate that is halved every 4 years. The blockchain system is infinite and there’s little need to worry about your cryptos losing their value.
  • New opportunities. Bitcoin and cryptocurrency trading is relatively young — new coins are becoming mainstream on a daily basis. This newness brings unpredictable swings in price and volatility, which may create opportunities for massive gains.
  • Minimalistic trading. Stock trading can be a tedious process covered in red tape and can only be done during specific market hours. You must also go through a broker to trade a company’s shares. But Bitcoin trading is minimalistic: simply buy or sell Bitcoin from exchanges whenever you want, 24 hours a day, 7 days a week. Bitcoin transactions are also instant — unlike the settlement of stock trading orders, which could take days or weeks.

Disadvantages of Bitcoin Investments

Bitcoin may be the future of monetary exchange, but it is equally important that you are aware of the concerns surrounding cryptocurrency investing. Listed below are a few things that could make Bitcoin a bad investment. Balancing the pros and cons is often the most important thing an investor can do.

  • Volatility. The price of Bitcoin is always rippling back and forth. If you happened to buy Bitcoin on December 17, 2017, the price was $20,000. Weeks later, you couldn’t sell your investment for more than $7,051. While you\’d be doing great now, holding for years at a time is not a viable option for all investors.
  • Threat of hacking. While Bitcoin\’s blockchain has never been hacked, individuals can still get hacked if they give out sensitive information, such as their private keys. Also, it\’s not uncommon for lesser-known exchanges to be hacked. For best security, use a hardware wallet like the Ledger Nano X that stores your digital assets off the internet on an external device.

Can Bitcoin be Exchanged for Real Money?

Bitcoin can be converted to cash easily in a bunch of different ways. You can sell Bitcoin on a cryptocurrency exchange like eToro or Crypto.com. This is usually the easiest option. Once you sell it for cash you can withdraw it straight to your bank account. This is a simple way to convert your Bitcoin to cash, but you must remember that the price of a Bitcoin is changing all the time. Yes, you may need cash, but you might be kicking yourself a few years down the road if the price of Bitcoin skyrockets over and over again.

Bitcoin ATMs are expensive, but if there is one near you, you can exchange your Bitcoin for cash there. However, these ATMs often charge hefty fees, so you\’re most likely much better off using an exchange.

So, Is Bitcoin a Good Investment?

With institutions adding Bitcoin to their balance sheets and even the entire country of El Salvador officially making Bitcoin legal tender, it\’s looking like Bitcoin could be the future of currency, or at least an accepted store of value. If it really is the future of currency, Bitcoin would likely be a great investment. However, with so much volatility in the market, risk-averse investors are still hesitant to buy Bitcoin, much less any other cryptocurrency. There are just no guarantees.

Since Bitcoin isn\’t controlled by a central entity, its monetary policy is much more sound than any government. Ark Invest CEO Cathie Wood describes Bitcoin as a \”rules based monetary system\”, as Bitcoin\’s monetary policy is set by the parameters of the code. With governments printing out more money than ever before in light of the pandemic, investors are looking for alternative investments to hedge against inflation. Many are turning to Bitcoin to do so, facilitating adoption of cryptocurrency over the long-term.

Still wondering if Bitcoin is a good investment? It can be, so long as you do your research and invest wisely. Investors might, however, turn Bitcoin into a bad investment if they try to treat it like any other asset.

Frequently Asked Questions

Is Bitcoin a good investment long term?

Bitcoin has grown exponentially over and over again since its inception. If history repeats it self, which we have seen multiple times now, Bitcoin tends to reach new all time highs every 3-4 years.

Is Bitcoin a good investment in 2023?

Bitcoin might be a fantastic investment in 2023 as it is trading for a fraction of its all-time high value. This wouldn’t mean anything except for the historical performance of Bitcoin and the crypto market. Bitcoin seems to always come back and break all-time highs after major bear markets. There are no guarantees, however.

Should a beginner invest in Bitcoin?

Bitcoin is often considered the best crypto to invest in for beginners. If you want to invest in a high-risk high-reward asset and believe in the success of the crypto market, Bitcoin might be the best investment for you.

How to Invest 100k to Make 1 Million Dollars (10 Easy Ways)

Picture this: You\’ve got $100,000, and it\’s burning a hole in your pocket—not because you\’re eager to spend it, but because you see it as a seed, one that could grow into a mighty $1 million tree. Sounds like a fairytale? Well in the world of strategic investing, this can turn into tangible wealth!

Investing isn\’t just for the financial wizards and Wall Street tycoons; it\’s a journey we can all embark on. Whether you\’re a novice investor standing on the threshold of opportunity or a seasoned pro looking to multiply your gains, this guide is your roadmap. Read on as we shed light on an often-asked question: \”How to invest 100k to make $1 million?\”

Understanding Investment Basics

Before diving into the specifics, it\’s essential to grasp some key investment principles. The world of investing revolves around three cornerstones: risk and return, diversification, and compound interest.

Risk and return are two sides of the same coin. Generally, investments that carry more risk have the potential for higher returns. This is where risk tolerance comes into play. What risks can you take to achieve your financial goals? Good financial advisors and wealth managers like Lyons Wealth can help you evaluate this.

Diversification is basically splitting up your investments among a variety of asset classes to help minimize potential risks. The old proverb, \”Don\’t put all your eggs in one basket,\” truly applies here. This can involve a mix of exchange-traded funds, mutual funds, index funds, stocks, bonds, and real estate investing, among other things.

Compound interest plays a pivotal role in wealth accumulation. It\’s the principle where your interest earns interest, causing wealth to grow at an exponential rate. Even modest amounts, given enough time, can grow into significant sums thanks to the magic of compounding.

Strategic investment, incorporating these principles, can lead to substantial financial growth. By understanding and applying these principles, you increase the potential of your first investment of $100k to grow into a million-dollar portfolio. Remember, investing involves risk, but with careful planning and sound strategies, the journey to $1 million becomes attainable.

Setting Realistic Time Frames And Growth Expectations

The journey from $100k to $1 million starts with setting a realistic time frame and understanding growth expectations. We first need to understand that investing isn\’t a get-rich-quick scheme.

It requires patience, consistency, and a clear financial strategy. Based on historical average returns, one can project an estimated time frame for reaching the million-dollar milestone. Remember, these are just estimates, actual returns may vary due to market fluctuations.

How To Invest 100k To Make 1 Million Dollars: Different Investment Options

To transform your $100k into a million dollars, it\’s essential to understand the diverse investment options available and their risk and return characteristics. Here\’s a detailed look at potential avenues:

  • Stock Market: Buying shares of companies can offer significant returns, especially growth stocks. If you\’re aiming to grow $100k to $1 million, consider allocating a portion of your capital to stocks with proven performance or sectors with strong growth potential. Remember, timing and research are key here. Stocks can be volatile, offering both tremendous growth and significant losses.
  • Real Estate: Income-producing real estate and real estate investment trusts (REITs) offer a stable, passive income and potential appreciation. With $100k, you could put a down payment on a rental property in an emerging market or diversify through REITs, which pool investments in various real estate sectors. Rental properties could generate monthly income and appreciate in value over time.
  • Bonds: These are considered low-risk compared to stocks and real estate. While the returns are lower, they provide steady income and are less susceptible to market volatility.
  • Exchange Traded Funds (ETFs): These are securities that track an index and are traded on investments like stocks. ETFs provide diversification, are more cost-effective than mutual funds, and can be a valuable asset to your portfolio.
  • Mutual Funds: A professionally managed mutual fund pools money from multiple investors to invest in a portfolio of stocks and other assets. While there are fees involved, diversification and professional money management can be worth it.
  • Index Fund: These are mutual funds or ETFs, but their goal is to that aim to imitate the performance of a specific index. They are popular for their low costs and diversification. Low-cost index funds can be particularly appealing.
  • High-Yield Savings Account: These accounts offer higher interest rates than standard saving accounts. While they won\’t make you a millionaire overnight, they are virtually risk-free and provide steady, albeit modest, returns.
  • Money Market Account: A money market account is another investment option to consider in your financial arsenal. It\’s a type of savings account that often requires a higher minimum balance but offers a higher interest rate than standard savings accounts. Money market accounts offer more liquidity, allowing you to withdraw a limited number of times per month.

In terms of contribution towards the $1 million goal, a balanced mix of these options based on your risk tolerance and investment strategy can work wonders. Still, the best investment for you depends on your individual circumstances, which is where a financial advisor can provide invaluable guidance.

How To Split The $100k Among Different Investment Options

Diversification is an essential strategy that can help mitigate investment risk. You should consider splitting your $100k into different investment prospects like index funds, exchange-traded funds, and income-producing real estate.

Each of these offers unique advantages and disadvantages and the allocation should align with your risk tolerance, financial goals, and investment plan. For instance, index funds and ETFs offer broad market exposure, while real estate investing and high-yield savings accounts can provide steady cash flow.

Remember, while these steps provide a roadmap, everyone\’s financial situation is unique. A financial advisor can help you navigate through the investing process effectively. At Lyons Wealth, we tailor strategies to your financial circumstances.

Investment Strategy

An effective investment strategy is the backbone of achieving your million-dollar goal. Particularly, a long-term strategy helps smooth out short-term market volatility and allows your investments to compound, maximizing growth. Here are some strategies that could help maximize growth:

  • Dollar-Cost Averaging (DCA): This involves investing a fixed amount regularly, regardless of the market conditions. The benefit of DCA is that it eliminates the need to time the market. In fluctuating markets, you\’ll buy more units when prices are low and fewer when prices are high, which can potentially lower the total average cost per share of your investment.
  • Reinvesting Dividends: This is a powerful tool for long-term wealth accumulation. By reinvesting the dividends you receive from your investments—be it the stock market, index funds, or ETFs—you buy more shares that will also generate dividends, creating a compounding effect that can significantly boost your portfolio over time.
  • Continuous Portfolio Rebalancing: Over time, some of your investments may outperform others, causing your portfolio to deviate from its target asset allocation. You need to make adjustments to your portfolio occasionally to maintain your expected level of risk and return attributes.

A consistent, disciplined approach to your investment strategy, keeping in mind your risk tolerance and financial goals, can make the path to becoming a millionaire with your initial investment more attainable.

How Long Does It Take To Turn 100k Into 1 Million Through Investing?

The time it takes to turn $100k into $1 million through investing varies based on factors like the type of investments, the return rate, and whether returns are reinvested.

Assuming an average annual return of 7%, and reinvesting all gains, it could take approximately 30 years to reach $1 million. However, this can fluctuate based on market conditions and personal financial strategy.

Common Mistakes To Avoid

When it comes to investing $100k with the goal of reaching a million dollars, there are common pitfalls that can hinder your progress. Being aware of these can help you avoid setbacks and keep you on track toward your goal.

Overestimating Returns

One common mistake is overestimating potential returns, leading to unrealistic expectations and financial planning. Remember, average returns from investments like the stock market, index funds, and other funds fluctuate over time. Factoring in a conservative estimate of returns can create a more realistic growth trajectory.

Lack Of Diversification

As mentioned, putting all your eggs in one basket can be a significant risk. Diversifying across stocks, bonds, real estate, and other investment options can spread the risk and increase potential returns.

Remember that different assets perform differently over time, and a diversified portfolio can provide a balance, ensuring you don\’t lose all your money if one investment performs poorly.

Not Reinvesting Returns

Reinvestment is a powerful tool for compound growth. By reinvesting dividends and capital gains back into your investment, you leverage the power of compounding, accelerating the growth of your investment over time.

Forgetting About Inflation And Taxes

Inflation and taxes can significantly erode your investment returns. Consider investments with tax benefits like a tax-advantaged retirement account and take into account the impact of inflation when calculating real return on investments. Strategies to minimize taxes and keep pace with inflation are vital in preserving your investment\’s purchasing power.

Avoiding these common missteps can significantly improve your journey to $1 million. Remember, professional advice from our team at Lyons Wealth can be invaluable in guiding your investment decisions and helping you navigate common investment pitfalls.

Final Thought

Transforming $100k into a million dollars is an ambitious but achievable goal. It involves understanding key investment principles, setting realistic time-frames, diversifying investments, and adhering to a long-term strategy that maximizes growth.

Patience and diligence are essential, as is the avoidance of common investment mistakes. Always remember, this journey is not a race but a marathon, requiring persistent, calculated strides.

Before making any investment decisions, it\’s wise to seek professional advice. At Lyons Wealth, our financial advisors are ready to provide personalized guidance based on your individual circumstances, helping you navigate the path toward your million-dollar goal.

Frequently Asked Questions

What Is The Safest Way To Invest 100k?

With an investment fund of $100,000, a range of avenues opens up for you. Secure options such as Certificates of Deposit (CDs) or high-yield savings accounts provide safety for your capital. Alternatively, you can step into the realm of stocks, assuming a level of risk for potentially higher returns. The choice in risk level is yours when investing.

Can I Invest 100k To Make $1 Million Without Risk?

Investing will always have an associated risk. However, the degree of risk can be managed. Turning $100k into $1 million without any risk is highly improbable due to the nature of investment returns and market fluctuations. A balanced, diversified portfolio can help manage risk while seeking growth, but it\’s essential to consult with a financial advisor to understand all potential risks and rewards.

What are Equities Investments? (The Complete Guide)

Equity investment enables investors to obtain a stake in companies by purchasing shares. Though the return on investment can vary significantly depending on company, sector and market, they remain a popular form of investment.

Understanding what equity investments are enables investors to evaluate the options, benefits and risks of becoming a shareholder. In this article, we explain what equity investment is, the main types of equity investment and equity investment funds.

What are equities investments?

Equities investments involves investors putting money into private or public companies by buying the company\’s shares and becoming partial owners of the company according to the proportion of shares they own. You can purchase these company shares when the company trades them as stocks on the stock exchange. By purchasing traded stocks, an investor becomes a shareholder with entitlement to a portion of the assets and profits of the company.

Understanding equity

Equity, also known as shareholders\’ equity, is a term used in finance that refers to the money or value that a company\’s shareholders keep in the event of complete liquidation of the company\’s assets after the satisfaction of all its debts.

Equity determines the valuation of a company as it represents the assets that the company holds minus any of its liabilities and is a key indicator of the financial health of a business. Here are some key points on equity:

  • companies publish their equity on their balance sheet

  • stock is the sum of the equity that a company accrues through selling shares to investors

  • owner\’s equity or private equity is where investors hold the equity in a private company

  • companies can use equity as a form of \’payment in kind\’

Why do investors make equity investments?

Investors purchase a company\’s shares, expecting them to accrue value over time and generate capital gains at the point of divestment or dividends. Equity investments are usually one of many types of investments that are made in a diverse investment portfolio. Equity investors receive money from shares that have increased in value when they sell them or if the company liquidates its assets and pays off its debts.

Why invest in equities?

Equity investment is a traditional form of investment that many people are familiar with. The equity stake of shareholders often yields returns that are greater than more conservative or safer investments. Here are some notable benefits of equity investment:

  • Gains: The primary incentive of equity investment is the potential to increase the value of the original investment. Investors receive the gains on the principal amount as capital gains and dividends.

  • Liquidity: Shares have high liquidity, meaning that investors can easily buy, sell or transfer ownership of them. They do not have the bureaucratic complexity of other asset classes, like property.

  • Participation in decisions: Ownership of equity as shares confers partial ownership of the company. Shareholders can use their voting rights to steer the direction of the company.

  • Limited liability: Equity investors have limited liability with an exposure that\’s proportionate to the size of their investment. Creditors cannot pursue these shareholders for losses that are above the value of their investment.

  • Bonus share issues and stock splits: Companies may offer shareholders the opportunity to gain bonus shares or a stock split (that reduces the value of individual shares) that can increase the liquidity of their holding.

  • Manage multiple investments: It\’s possible to invest in multiple companies simultaneously by using an equity fund. This means that investors can diversify their investments.

There are several types of equity investment

There are several equity investment options that have distinct rewards and risks. An equity fund may include some of these investments. Here are the main types of equity investment:

1. Common stocks

Common stock is a name given to ordinary or equity shares. Common stocks not only confer a share of company profits, but also the right to take part in votes on corporate policy and the composition of the executive board. These shares are not attributable to any particular assets and if the issuing company goes bankrupt, the shareholder is likely to receive nothing.

2. Preferred stocks

Preferred stock is a type of share that entitles the holder to a higher claim on dividends and other asset distribution compared to common stockholders. The specific financial arrangement in this investment varies by company but preferred stockholders usually have no voting rights. If there is a company liquidation, preferred stockholders have a greater claim on the remaining assets after the company settles its debts.

3. Stock warrants

Warrants provide the right to buy common stock at a specific time for a pre-arranged price called the exercise price. Companies issue stock warrants directly and investors cannot get them by buying them from other shareholders. They work similarly to stock options and typically expire if investors don\’t buy them.

4. Equity line of credit

Companies use equity lines to raise capital for use as needed, without the expense of debt. The investor makes a line of credit available to the company, which the company can access when needed. The repayment for use of the equity line is in discounted stock that is sold to the investor when the company chooses.

5. Convertible debt

Convertible debt is a type of equity-based bond that a holder can cash or convert into shares from the issuing company. It doesn\’t have collateral and usually gets priced lower than common stock. The companies that issue these bonds are usually fast-growing but have few lines of credit available to them and use the bonds as debt security.

6. Restricted stock

This is a special type of stock that carries specific restrictions on its transfer. Shareholders can only sell or transfer this type of stock once they meet conditions specified by the issuing company. For example, a company may award an employee restricted shares that prevent them from selling the shares immediately.

What are equity funds?

Equity funds are stock funds that enable investors to invest in a range of companies and grow their principle based on their performance as a group. Many investors consider equity funds a less risky alternative to direct investment in companies where you\’re wholly reliant on their performance. These funds use diversity to spread your risk across groups of companies selected by characteristics, including size, country or sector. The major categories of equity funds include:

1. Company size

Fund managers may group companies in an equity fund according to market capitalisation. This is the company size, as calculated by the number of available ordinary shares multiplied by the current share price. Fund managers can classify companies as either:

  1. Large-cap: These companies, also termed \’blue-chip\’ companies have a value that exceeds $10 billion. They usually deliver consistent growth and pay regular dividends.

  2. Mid-cap: These medium-sized companies typically have a value between $2 billion and $10 billion. Some investors consider these types of businesses to be a riskier investment than blue-chip companies, but many perform well and pay regular dividends.

  3. Small-cap: Smaller companies with a value of between $300 million and $2 billion carry higher risk and could become bankrupt. If they grow and become successful, their share price soars.

2. Industry

Industry equity funds organize groups of companies by sector. The companies may vary in size and the type of market they operate in. Common industries include:

  • consumer

  • retail

  • dining

  • technology

  • energy

  • mining

  • finance

3. Developed markets

These are the financial markets of the developed economies of the world. Investors from any location in the world can choose to invest in companies from these wealthier nations that include the UK, US, Canada, Australia and Japan. Fund managers consider developed markets to be less risky, though they are not completely without risk.

4. Emerging markets

The emerging markets are popular for equity investment because of the promise of high-growth and significant gains. Developing economies are growing and by investing in companies based in these economies a stock portfolio has the potential to grow significantly. Equity funds from emerging markets target regions that include:

  • the Middle East and North Africa (MENA)

  • BRIC countries like Brazil, Russia, India and China

  • Asia-Pacific countries, excluding Japan

Many investors consider that investing in emerging markets is risky, but this asset class is increasingly stable and offers excellent returns.

5. Buying equity funds

Investors who want to buy into an equity fund usually do this via a financial adviser or use online investment platforms. Purchasing shares in an equity fund usually carries a fee that is paid to the adviser or platform and tax liability depending on your region and financial circumstances. Investing in an equity fund online without financial advice is at your own risk.

One Common Advantage of a Long-Term Investment Is: Higher Returns

When it comes to investing, there are two main schools of thought: short-term investing and long-term investing. Short-term investors focus on making profits in the short term, often by buying and selling stocks or other investments frequently. Long-term investors, on the other hand, are more focused on building wealth over the long term, even if it means sacrificing some short-term gains.

There are many advantages to long-term investing, but one of the most common is the potential for higher returns. This is because long-term investors have the opportunity to ride out market fluctuations and benefit from the long-term growth of their investments.

In this article, we will explore the one common advantage of a long-term investment: higher returns. We will also discuss some of the other benefits, risks of long-term investing and how to get started.

The Power of Compounding Interest

One of the key reasons why long-term investing can lead to higher returns is because of compounding interest. Compounding interest is when your earnings generate additional earnings over time.

For example, if you invest $1000 and it earns 5% interest each year, you will have made $50 after the first year. In the second year, you will earn interest on both your original investment of $1000 and the $50 you earned in the first year. This means that you will earn $52.50 in interest in the second year, for a total of $1052.50.

Over time, the power of compounding interest can be enormous. For example, if you invest $1000 at 5% interest and leave it invested for 30 years, you will have over $6600. This is because your earnings will compound year after year, growing your investment at a rapid pace.

How to Get Started with Long-Term Investing

If you are interested in starting a long-term investment portfolio, there are a few things you need to do. First, you need to decide what type of investments you want to make. There are many different types of investments available, such as stocks, bonds, mutual funds, and real estate. You should choose investments that you are comfortable with and that fit your risk tolerance.

Once you have chosen your investments, you need to decide how much money you want to invest. It is important to start small and gradually increase your investment amount over time. You should also make sure that you have a long-term investment horizon, meaning that you are not planning to need the money for at least 5-10 years.

Finally, you need to choose a brokerage firm to open an account with. There are many different brokerage firms available, so you should compare their fees and services before making a decision.

One Common Advantage of a Long-Term Investment

As we have learnt that the one common advantage of a long-term investment is higher returns, there are many other benefits to long-term investing, including:

  • Higher returns: As we discussed above, long-term investors have the potential to earn higher returns due to compounding interest.
  • Lower risk: Long-term investors are more likely to weather short-term market fluctuations. This is because they are not as concerned with the day-to-day movements of the market.
  • More time to research: Long-term investors have more time to research their investments and make informed decisions. This can help them avoid making costly mistakes.
  • More flexibility: Long-term investors have more flexibility with their investments. They can sell their investments when they need the money, but they don\’t have to worry about selling them at the wrong time.

The Risks of Long-Term Investing

There are also some risks associated with long-term investing, including:

  • Market volatility: The stock market can be volatile in the short term. This means that your investments can lose value in the short term, even if you are investing for the long term.
  • Inflation: Inflation can erode the value of your investments over time. This is why it is important to invest in assets that will appreciate in value faster than inflation.
  • Taxes: You may have to pay taxes on your investment gains. This is why it is important to understand the tax implications of your investment strategy.

How to Mitigate the Risks of Long-Term Investing

There are a number of things you can do to mitigate the risks of long-term investing, including:

1. Diversify your portfolio: This means investing in a variety of assets, such as stocks, bonds, and real estate. This will help to reduce your risk if one asset class performs poorly.

2. Rebalance your portfolio regularly: This means selling some of your winners and buying more of your losers. This will help to keep your portfolio balanced and reduce your risk.

3. Invest for the long term: The longer you invest, the more time you have to ride out market volatility and take advantage of compounding interest.

4. Do your research: Before you invest in anything, make sure you understand the risks involved. This will help you make informed investment decisions.

Wrapping Up

Long-term investing is a great way to build wealth over time. By investing for the long term, you can take advantage of compounding interest and reduce your risk.

However, it is important to remember that there are some risks associated with long-term investing, such as market volatility and inflation. By understanding the risks and taking steps to mitigate them, you can increase your chances of success in the long run.

Frequently Asked Questions

1. What are some examples of long-term investments?

Some examples of long-term investments include stocks, bonds, real estate, and mutual funds.

2. What is the minimum amount of money I need to start long-term investing?

There is no minimum amount of money you need to start long-term investing. You can start with as little as $100. However, it is important to remember that the more money you invest, the more potential you have for growth.

3. How long should I invest for?

The length of time you should invest for depends on your individual goals. If you are saving for retirement, you may want to invest for 30 years or more. If you are saving for a shorter-term goal, such as a down payment on a house, you may want to invest for 5 years or less.

4. What is the one common advantage of a long-term investment?

The one common advantage of a long-term investment is higher returns also called compound interest.

5. How do I choose the right investments for me?

When choosing investments for the long term, it is important to consider your individual goals, risk tolerance, and time horizon. You should also do your research and understand the risks involved in each type of investment. Using a financial advisor lessen the risks.

6. How do I start long-term investing?

There are a few different ways to start long-term investing. You can open an investment account with a brokerage firm, invest in a mutual fund or ETF, or invest in real estate.

7. What are the risks of long-term investing?

There are always risks associated with investing, even long-term investing. The stock market can go down, bonds can lose value, and real estate can decline in value. However, the long-term trend of the stock market is up, and bonds and real estate have historically provided good returns over the long term.

The Bottom Line

Long-term investing is one of the best ways to grow your wealth and one common advantage of a long-term investment is higher returns. It offers a number of advantages, including the potential for higher returns, the ability to ride out market volatility, diversification, tax benefits, and peace of mind. If you are looking to grow your wealth over the long term, long-term investing is the way to go.