Investing money isn't as straightforward as it may seem – you should at least choose the best investment strategies and profitable investments to allocate your capital for the future. In other words, you shouldn't do it thoughtlessly, which often becomes a true challenge for many investors. Just2Trade is ready to provide you with investment advice – today, we're going to share with you all the key info about the 14 best investments in 2023, why it's worth investing in general, and how to do it safely. So let's not waste time and get to the point!
Investing can help you increase your income, fund your retirement, or even pull yourself out of a financial bind. The main benefit of investing is that it makes your money grow, allowing you to achieve your financial goals and progressively increasing your purchasing power. Or maybe you just made a windfall or sold your house. Making the decision to make your money work for you is a wise one.
While investing can help you accumulate wealth, it's important to weigh the risks and potential rewards. And you'll want to be in a position to accomplish that financially, which means you'll need sustainable debt levels, a sizable emergency fund, and the ability to ride out market ups and downs without having to use your money.
There are a variety of investment possibilities, ranging from low-risk selections like certificates of deposit and money market accounts to medium-risk ones like corporate bonds and even higher-risk ones like stock index funds. That's fantastic news, since it means you can select investments that meet your risk tolerance while offering a variety of returns. Additionally, it implies that you can mix investments to build a balanced, diversified, and hence safer, portfolio.
As we've promised, here are the 14 best investments in 2023 – all the key details about each one can be found below.
You collect interest on your available funds when you have a high-yield online savings account. High-yield internet savings accounts are accessible vehicles for your money, just like a savings account that earns pennies at your local bank.
For people who may soon require access to money, a savings account is a suitable option. For investors who are risk-averse and want to minimize the chance that they won't get their money back, a high-yield savings account is a good option.
You don't have to be concerned about your deposit being lost, because the banks that provide these investment accounts are FDIC-insured.
Although high-yield savings accounts are regarded as safe investments, similar to CDs, if the rates are too low, you face the danger of losing purchasing power over time due to inflation.
Online banks often provide substantially higher interest rates because they have lower overhead costs.
Additionally, you can easily access the funds by immediately moving them to your main bank or sometimes even using an ATM.
Banks issue certificates of deposit, or CDs, which often have a greater interest rate than savings accounts. And if you anticipate an increase in interest rates, short-term CDs can be a better choice, because they allow you to reinvest at a greater rate when the CD matures.
Retirement investors who are able to lock their money away for a while and don't require immediate income may find CDs to be a viable option because of their safety and greater returns. Risk-averse individuals who need money quickly and are willing to tie up their cash in exchange for a little bit higher income than they would get from a savings account can consider a certificate of deposit (CD).
CDs are regarded as risk-free investments. They do, however, come with reinvestment risk, which is the danger that, as we saw in 2020 and 2021, investors may lose money if they reinvest their principal and interest in new CDs with lower interest rates as interest rates fall.
On the other hand is the risk that rates may increase, but investors won't be able to benefit since their money has already been committed to a CD. Additionally, since rates are predicted to increase further in 2022, sticking with short-term CDs may make sense so that you can reinvest at greater rates sooner rather than later.
It's crucial to remember that taxes and inflation may severely reduce the purchasing power of your investment.
With a CD, you receive interest payments from the financial institution on a monthly basis. You receive your initial money back along with any accumulated interest once it matures.
Mutual funds or ETFs called "government bond funds" invest in debt securities issued by the federal government of the United States and its departments. Short-term government bond funds, like short-term CDs, don't expose you to a lot of danger when interest rates climb as they did in 2022.
The funds make investments in mortgage-backed securities and U.S. government debt issued by GSEs. The low-risk investor might do well with these government bond funds. Beginning investors and those seeking cash flow may find these funds to be a useful option. Investors that are risk averse may benefit from government bond funds, albeit some categories of funds, such as long-term bond funds, may fluctuate significantly more than short-term funds due to changes in the interest rate.
Because the bonds are guaranteed by the full trust and credit of the U.S. government, funds that invest in government debt securities are regarded as among the safest assets.
The price of current bonds decreases when interest rates rise, and increases when interest rates fall. However, the risk of rising interest rates is higher for long-term bonds than it is for short-term bonds. Rising rates will have little effect on short-term bond funds, and the funds will gradually raise their interest rate as market rates climb.
But if inflation is high, the interest rate might not keep up, and your purchasing power will decline.
Bond funds pay out on a monthly basis, and with rates expected to increase in 2022, they will pay out far more than they have in recent years.
Bonds, which can be packaged into funds that own bonds issued by potentially hundreds of firms, can be issued by corporations as a way to raise money from investors on occasion.
Since short-term bonds typically have maturities between one and five years, they are less prone to interest rate changes than intermediate- or long-term bonds.
For investors seeking cash flow, such as retirees, or who wish to lower their total portfolio risk while still earning a return, corporate bond funds can be a great option. For risk-averse investors looking for a little bit more income than government bond funds, short-term corporate bond funds can be beneficial.
Short-term corporate bond funds are not FDIC-insured, much as other bond funds.
There is always the potential that businesses will suffer a drop in their credit rating or experience financial difficulties and default on their bonds. Make sure your fund is composed of top-notch corporate bonds to lower that risk.
Compared to government and municipal bond funds, investment-grade short-term bond funds can provide investors with higher returns. However, higher profits come with more risk.
Approximately 500 of the largest American corporations make up the S&P 500 index fund, which includes many of the most prosperous global businesses. For instance, two of the most well-known members of the index are Amazon and Berkshire Hathaway.
The S&P 500 index fund is a fantastic solution if you wish to attain larger returns than more conventional banking products or bonds, albeit it does have more volatility. For novice investors, the S&P 500 index fund is a great option since it offers extensive, diversified exposure to the stock market. Any stock investor searching for a diversified investment who can commit to holding their investment for at least three to five years should consider the S&P 500 index fund.
Due to its composition of the best companies on the market and extensive diversification, the S&P 500 fund is one of the less dangerous ways to invest in equities. It still contains equities, thus it will inevitably be more erratic than bonds or any other bank products.
Additionally, since the government does not cover it, value changes may cause you to lose money. However, over time, the index has performed fairly well.
Investors may wish to act cautiously and stick to their long-term investment strategy given that the index has underperformed in 2022 despite its ferocious rally following the pandemic-driven drop in March 2020.
The S&P 500 index fund, like almost any fund, provides immediate diversification by letting you own a portion of each of those businesses. The fund is more resilient than many investments since it has businesses from every sector.
The index has historically returned roughly 10% yearly. These funds are among the top index funds and have some of the lowest expense ratios (the amount the management company charges to run the fund).
Dividends are profits that can be distributed to shareholders, often once every three months.
Individual stock purchases, dividend-paying or not, are better suited for experienced and intermediate investors. However, you can lower your risk by purchasing a number of them in a stock fund. For practically any type of stock investor, dividend stock funds are a fine option, but those seeking income may prefer them. These may be appealing to investors that require income and have longer investment horizons.
Dividend stocks carry risk, just like any equity investments. Although they are regarded as being safer than growth stocks or other non-dividend stocks, you should take care when selecting them for your portfolio.
Instead of choosing firms with the highest current yield, make sure you invest in those with a track record of dividend increases. That might portend impending trouble. However, even well-regarded corporations are susceptible to financial crises, so a positive reputation is ultimately no guarantee that the company won't cut or eliminate its dividend.
By purchasing a dividend stock fund with a diverse portfolio of assets, you can lessen your dependence on any one firm and avoid many of these dangers.
With stocks that pay dividends, even your stock market investments might become a little bit safer.
With a dividend stock, you can increase your investment through long-term market growth, as well as earn money right away.
A type of digital, electronic-only currency called cryptocurrency is designed to serve as a medium of exchange. Particularly in the last several years, it has grown in popularity as investors have poured money into the asset, driving up prices and luring more traders to the market.
The most widely used cryptocurrency is Bitcoin, and due to its high price volatility, it attracts a lot of traders. For instance, Bitcoin shot up to almost $30,000 at the beginning of 2021 from a price of about $10,000 per coin at the beginning of 2020. After that, it increased by twofold above the $60,000 threshold before sharply declining in 2022.
A cryptocurrency is a good option for investors who are willing to take on some risk in exchange for the chance of significantly larger profits. Investors who are risk-averse or who require any sort of safe investment should avoid it.
Cryptocurrency is extremely risky, and some of those dangers, like being outlawed or tightly regulated, may make any one currency completely worthless. The price of digital currencies is totally determined by what traders are willing to pay and may fall (or rise) rapidly even over very short time frames.
Given certain high-profile crimes in the past, traders also face a small chance of being hacked. And if you're investing in cryptocurrencies, you'll need to choose the winners that endure, while being aware that many of the others may completely vanish.
It's not protected by the FDIC or the ability of a government or business to generate money, in contrast to the other assets listed above. The only factor influencing its value is what buyers are willing to pay.
Cryptocurrency has had a particularly difficult year, with the majority of the biggest coins experiencing precipitous declines.
Despite the recent decline, people who have acquired and held onto their cryptocurrency investments for years (or HODL) may still be sitting on some sizable gains because many cryptocurrencies, including Bitcoin, are currently nearing all-time highs.
Since they pool client funds to purchase a variety of securities, exchange-traded funds, or ETFs, are similar to mutual funds in that they offer a single diversified investment. The way they are sold, however, is different: investors purchase shares of ETFs just like they would individual stocks.
ETFs are a wise investment if you have a long investment horizon, just as with index funds and mutual funds. Additionally, because an ETF share price may be less than a mutual fund minimum, ETFs are the best option for investors who lack the funds necessary to meet a mutual fund's minimum investment criteria.
By making an investment in an ETF that follows a large index, like the S&P 500, you can reduce your risk.
ETFs are traded on the stock market, giving you lower transaction costs and more control over the price at which you buy them. How well or poorly the index you invest in performs will have no bearing on your return.
In order to purchase stocks, bonds, or other assets, a mutual fund collects money from investors. To protect themselves from the losses of any one investment, investors can diversify their risks by using mutual funds, which disperse their money across a number of different investments.
Mutual funds are an easy method to access the superior investing returns of the stock market if you're saving for retirement or another long-term objective without having to own and maintain a portfolio of individual equities. Some funds restrict the types of businesses they can invest in to those that meet specific requirements, such as biotech companies in the technology sector or businesses with strong dividend yields. This enables you to concentrate on specific investing niches.
Mutual funds can be purchased through their management companies directly, as well as through discount brokerage businesses. Nearly all of the mutual fund companies we assess provide no-transaction-fee mutual funds (i.e., commission-free) along with tools to assist you in selecting funds. Be aware that most mutual funds need a minimum initial commitment of $500 or more, however, some companies will reduce the requirement if you agree to set up automatic monthly contributions.
Mutual funds often combine stocks and bonds, but because your money is spread across a variety of equities and bonds, they carry less risk.
Only stock dividends, bond interest, or sales made when the fund's value rises along with the market will provide you with gains.
Value stocks, which are more affordably priced than other market securities, are the focus of these funds' investments.
When stock prices rise, as they occasionally do, many investors question where they should put their money. Value stock mutual funds might be a wise choice. Value stock funds are a fantastic choice for individuals who don't mind the volatility that comes with stock investments. To weather any market hiccups, stock fund investors must have a longer-term investment horizon of at least three to five years.
Due to their low cost, value stock funds will typically be safer than other stock fund types. However, because they are still made up of stocks, they will vary far more than safer assets like short-term bonds.
Government insurance also does not exist for value stock funds.
As interest rates increase and growth equities lose their relative appeal, value stocks often do better.
For many investors, another draw is the fact that many value stock funds also pay dividends.
Money market mutual funds are one of the types of investments, as opposed to money market accounts, which are savings-account-like bank deposit accounts. Your money purchases a collection of high-quality, short-term government, bank, or corporate debt when you invest in a money market fund.
This type of investment is good for people who are willing to expose their money to a little bit more market risk because they might need it soon. Money market funds are also used by investors as a holding container for cash designated for future investments or to hold a portion of their portfolio in a safer investment than stocks. Although technically an investment, money market funds won't provide the higher returns (and higher risk) of the other options on this page. Growth in money market funds is more comparable to yields from high-yield savings accounts.
Low returns, a decline in purchasing power, and the fact that some money market investments are not FDIC-guaranteed are other drawbacks. A money market fund is ideal in some circumstances and potentially damaging in others, just like any investment.
Cash, cash equivalents, and highly rated debt-based securities are all investments made by money market funds in highly liquid securities. Money market funds provide a high level of safety because they only make investments in highly rated assets. Investors might expect better yields from money market funds than from conventional savings accounts.
A cash commodity, which is most typically seen with futures options, is a physical good that must be delivered in exchange for payment. A cash commodity contract will detail the precise quantity of the commodity that is anticipated to be delivered, the date of delivery, and the price.
Investing in cash commodities will fit both experienced investors and newcomers.
Since cash and commodities are often seen as low-risk investment categories, starting with one of these choices may be a smart idea if you're new to investing or are really uneasy with any risk. Remember that investments with low risk typically have low returns.
By purchasing commodities (or derivatives of commodities) at a specific price and then selling them for a higher price, traders can profit. If the future market price of the commodity is higher than the market price of the commodity at the time of purchase, the buyer of a futures contract will profit.
When you invest in an option in a firm, you are wagering on whether the stock price of that company will increase or decrease. Without owning the stock, buying an option enables you to buy or sell shares of that firm at a predetermined price within a predetermined time frame.
It's recommended to invest in stock options if you've been in the investing world for a long time.
The possibility for significant loss exists with stock options, particularly if you don't know what you're doing.
Respectively, there is also potential for high returns, as there is with most high-risk investment types.
In traditional real estate investing, a property is purchased to eventually sell for a profit or be owned to receive rent as a steady source of income. However, there are several additional, much more passive ways to invest in real estate.
Using real estate investment trusts, or REITs is one typical method. These are businesses that hold assets that generate money (such as shopping centers, hotels, offices, etc.) and distribute dividends on a regular basis. The popularity of real estate crowdfunding platforms, which frequently aggregate users' funds to invest in real estate projects, has increased recently.
Investors searching for additional diversification in their investment portfolios or those who are willing to take on greater risk in exchange for greater rewards may be interested in this type of investment. Investors shouldn't invest any money they might need to access fast because real estate investments are extremely illiquid.
There's a chance the developer won't follow through, and you could lose money.
The most difficult aspect of real estate investing is locating a home you can buy with a margin of safety. If you can pull that off, investment in real estate can yield respectable returns.
Almost everyone ought to invest in equities. This is the case because investing in equities has continuously shown to be the most effective long-term wealth-building strategy for the typical person. Over the past forty years, U.S. equities have outperformed bonds, savings yields, and gold in terms of returns. Over nearly every 10 years in the last century, stocks have beaten the majority of investment classes.
The most crucial requirement of any investor is increasing wealth over the long run. However, bonds, which are loans to a corporation or government, might help you maintain that money once you've accrued it and are getting closer to your financial goal.
Three major types of bonds exist:
Company-issued corporate bonds
Governments at the state and local levels issue municipal bonds
Treasury bills, bonds, and notes issued by the United States government.
Using the Vanguard Total Bond Market ETF (NASDAQ:BND), which owns both short- and long-term bonds, and the iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY), which owns the most stable treasury bonds, in comparison to the SPDR S&P 500 ETF Trust, here is a recent example of how bonds can be beneficial investments:
As the figure demonstrates, bonds fared significantly better than stocks during the sharp and sudden decline in stock prices because a bond's value – its face value plus any interest promised – is straightforward to compute and, as a result, much less volatile.
Owning bonds that fit your timeframe will secure assets you'll need in the short term while you grow closer to your financial goals.
Starting to accumulate wealth with the investments mentioned above is possible at any age and with any level of income. The secret is deciding which investments are best for you based on the following factors:
Your timetable. Money set aside for immediate necessities should be simple to get to and invested securely and reliably. You have more freedom to invest in riskier assets when working for long-term objectives.
Your capacity for danger. The potential long-term reward increases with the level of risk you're ready to accept by subjecting your funds to the short-term fluctuations of the stock market. Your investment returns might be tempered by dividing your funds among various investment categories.
How much cash you possess. There are minimum balance and/or initial investment requirements for some investments. However, if you know where to look, you can find suppliers and workarounds that can suit the majority of investment budgets.
How much support you require. By opening a brokerage account, DIY investors can gain access to many of the investments mentioned above. If you're unsure of which assets are appropriate for your situation, you can use an investment advisor, a low-cost automated service, to create an investment portfolio for you based on the aforementioned criteria. Some short-term investments, such as savings accounts, can be opened at a bank.
Still have any questions? If so, let's have a look at our FAQ list below, which will answer all of your remaining questions.
There are multiple options, including CDs, government bond funds, corporate bonds, etc., so it's all up to you. In our full guide, we've provided you with all the key details about each option to help you decide wisely.
The best investments for beginners are high-yield savings accounts, CDs, mutual funds, ETFs, and individual stocks.
The greatest returns can be gotten by investing in saving accounts, short-term funds, and gold. However, keep in mind that there is always the risk of suffering losses.
For instance, some of the safest and stable investment options include Treasury Inflation-Protected Securities (TIPS), money market accounts, municipal bonds, and certificates of deposit (CDs). With certificates of deposit, you hand over cash to a bank, which will subsequently return it with interest after a specified amount of time.
Nowadays, the top contenders include Arista Networks (ANET), Enphase Energy (ENPH), Neurocrine Biosciences (NBIX), Cardinal Health (CAH), and Eli Lilly (LLY).