FBS turns 16

Unlock birthday rewards: from gadgets and dreams cars to VIP trips.Learn more

Dec 16, 2024

Risk management

The 10 Best Ways to Invest Your Money

Why invest?

Investing money is one of many ways to build toward a future you can be confident about. When you invest some portion of your earnings, you know you will have a passive income to support you in emergencies. You will also feel better when you retire, as you can use your investments to live a better life once you are no longer working.

For this to happen, you need to invest your money in a way that will earn you more money. If you invest wisely, you will outpace the inflation and increase your initial capital.

Some people find investing to be an interesting and exciting process in itself — you will need to choose from among the available investment options to get good returns, keep track of significant developments in the economy and global markets, and grow your skill and professionalism over time. To some extent, investing can be considered a thrilling hobby, like collecting coins or stamps.

However, it has additional benefits: not only does your collection grow, but the items it consists of may prove helpful to you in the future.

How to invest

Anyone can become an investor. With investment options available via brokers or even regular banks, you can choose something that will work for you regardless of your age, gender, income, location, or experience level.

The best way to invest your money will always be an individual matter and depend on your personality, requirements, expectations, and circumstances. To choose the option that will work best for you, consider these factors:

The risks you are willing to take.
The time you are willing and able to spend on managing your investments.
The attention you are willing and able to pay to the process.
When you will want to have access to your money.

Once you analyze the resources (money and time) you are willing to invest, and your risk tolerance, and identify when you will need the money, you will have a much easier time choosing the best way to invest your money.

Where to invest your money to get good returns

Below, we describe the 10 best investments experts recommend and explain how each works to help you decide where to invest your money for good returns.

High-yield savings accounts

While traditional bank savings accounts offer relatively low returns, other options will let you earn better while still feeling safe and protected. If you opt for a savings account in an online bank or a brokerage account with a reliable broker, you will get better returns than with a traditional brick-and-mortar bank.

How much money do you need?

Experts recommend depositing an amount that will allow you to live for 3 to 6 months before proceeding to riskier options.

This investment option is for you if:

You are only starting your investment journey and want a short-term investment experience.
You want to save money for a specific purpose, like an annual vacation abroad.
You want to have some money that you can withdraw and use immediately in case of an emergency.

Some banks have limitations on the number of transactions with a savings account, so you can only deposit or withdraw money 5 or 6 times a month.

Long-term certificates of deposit

A certificate of deposit is another form of savings account, but it is issued for a specific period and offers a fixed interest rate. When interest rates fluctuate depending on central banks’ decisions and other factors of the global economy, it may be wise to fix the income rate for your investment and know what you will earn.

You can generally expect to deposit the money for a year, three, or five years. To get a certificate of deposit, browse products offered by trusted online banks.

How much money do you need?

The amount varies from bank to bank. Once you settle on an amount you are comfortable not spending for at least a year, decide on a bank and browse the offerings.

This investment option is for you if:

You want to save for an important event and want to know exactly how much you will earn by that date. For example, if you are planning a wedding, a certificate of deposit may be just the right thing for you.
You want to buy a house but still need to save for a down payment.
You have money you won’t need for a year (or even three or five years).

You will probably need to pay a fee if you want to withdraw the money early. However, this is the best investment for money you will definitely not need soon. You will receive a fixed income exactly when you need it.

Long-term corporate bond funds

Bonds are an appealing investment option for investors who want a relatively safe fixed income. As an investor, you can consider government or corporate bonds. Long-term corporate bonds are a rather safe investment option, and we will focus on them here.

You can think of a bond as your loan to an entity — a government, or a corporation. This entity pays investors like you interest on such loans over a period varying from a year, to as long as 30 years. Like most investment options, bonds are purchased from a broker.

Corporate bonds are riskier than government bonds, but they offer better returns. Generally, the lower the risks (i.e. the lower the chance of the company going out of business), the lower the income rate. If a bond is issued by a large corporation that has been in business forever, it will not pay as well as riskier securities. As always, riskier investments pay better but come with a higher chance of losing your money.

This investment option is for you if:

You are a conservative investor looking for a steady source of fixed income.
You are looking for virtually risk-free investments. In this case, you should opt for government bonds, as they are guaranteed by the government (naturally, US government bonds are considered to be the top risk-free investment).

The top security means the interest rate will be relatively low, so bonds will not work for you if you want to earn high interest rates quickly. If you build a portfolio with bonds only, you will probably not meet your savings goals.

Dividend stock funds

Public companies demonstrate their stability and health with dividends — the more a company pays its stockholders, the more successful it appears. For investors, dividends are one of the simplest ways to create a passive income.

A dividend stock fund (or simply a dividend fund) consists of stocks that pay dividends to investors. When fund managers select stocks for dividend funds, they generally focus on the stocks that pay the shareholders the highest (or fastest rising) dividend.

How much money do you need?

Since this is a regular stock fund focused on dividend-paying companies, you can invest any amount of money at your disposal via a broker, in accordance with applicable limitations (if any).

This investment option is for you if:

You want to diversify your portfolio at a low cost instantly.
You want a stable income source from a carefully selected list of healthy and growing companies.
You want a side income for your living (rather than for reinvesting), i.e. if you have already retired and want an extra income.

Like any other investment option, dividend funds are prone to losses. In an economic crisis, many companies may go out of business, damaging the performance of your investments.

Value stock funds

A value stock fund (or simply a value fund) is another way to invest in multiple companies simultaneously. This type of fund focuses on stocks that are considered undervalued, and the invested amount is projected to grow when the valuation improves.

Fund managers rely on fundamental analysis to discover such undervalued stocks and combine them in a fund.

This investment option is for you if:

You are looking for a long-term investment option, as value investors can generally expect revenue in the long run only.

Value investing requires patience, so don’t expect immediate financial results.

Small-cap stock funds

This is another form of investing in multiple companies at once. This one focuses on small companies. Here, “cap” refers to company size. Such funds are generally considered a way to diversify your portfolio with smaller businesses, without selecting the securities manually and investing in them individually.

Interestingly, experts say that in the long run, small-cap funds tend to outperform large-cap funds created by the same fund managers. Given how undervalued small companies are today, they look very promising to investors.

How much money do you need?

Your investment amount depends on how much exposure you want to get to smaller companies. Fund managers usually recommend striving for a balance in all aspects of your portfolio, so if you have some money invested in larger companies, consider investing a comparable amount in a small-cap fund.

This investment option is for you if:

You want to add some small companies to your portfolio (larger companies tend to dominate the markets and get all the investor attention).
You are an experienced investor looking to diversify your portfolio further, but some fund managers close small-cap funds to new investors.

REIT funds

REIT stands for real estate investment trust. A REIT is an organization that owns and manages real estate that produces income. The income generated by leasing the real estate is used to pay dividends to its investors.

REIT funds (exchange-traded funds) consist of REIT securities and let investors tap into the real estate market without purchasing an apartment or building. You can choose to invest in a REIT fund, the same as you’d invest in an individual stock.

How much money do you need?

You can buy your share of a REIT fund via any broker and enjoy the advantages of investing in real estate without all the complexities of being a landlord.

This investment option is for you if:

You believe in investing in real estate but don’t want to purchase a physical object and get involved in renting or leasing relationships.
You want to add further diversification to your portfolio as REIT funds combine multiple securities of real estate companies.

REIT funds may suffer significantly during a financial crisis, so you should monitor the news and follow critical global developments.

S&P 500 index funds

An index fund is a popular investment option. An index is a list of companies (securities), and a fund is the amount of money allocated for some purpose. Generally, an index fund combines multiple stocks and adds an extra layer of diversification to your portfolio. Index funds allow an investor to tap into stock trading without the complexities of selecting individual stocks and balancing your portfolio. This makes index funds one of the best investments available now.

The S&P 500 is one of the most popular index funds. It is a list of the largest companies in the United States. When you invest in the S&P 500, you buy shares in all of the index’s companies.

The fund grows or declines in value along with the index itself, which is generally considered an indicator of the overall health of the US economy. Unlike a regular stock fund, which professionals build for their clients, the S&P 500 contains specific securities that no broker can modify.

S&P 500 tends to be less volatile than actively managed funds that try to beat the market with their revenue performance. You can buy index funds, including the S&P 500, from fund providers or online brokers like FBS.

This investment option is for you if:

You don’t want to investigate and track the performance of individual stocks.
You want steady income growth in the long run.
You want to pay lower broker fees (the S&P 500 has lower management fees than actively managed funds).
You want to enjoy higher returns compared to more conservative investment options.
You want to stick to a less volatile investment option.

Nasdaq-100 index funds

NASDAQ-100 includes stocks of the leading non-financial companies. NASDAQ has traditionally been an index focusing on technology companies, but it now lists the best investments in technology, consumer services, and healthcare. NASDAQ is considered to represent innovation and includes stocks of the best-known technology companies, such as Apple, Google, Intel, and Tesla.

The securities of technology giants may grow or drop rapidly, so NASDAQ is known for its day-to-day volatility. This makes it very attractive to traders who open short-term positions looking for a quick profit.

How much money do you need?

If you trade contracts for difference with a broker like FBS, you can open positions of any size and predict if NASDAQ will grow or drop. You can also use leverage to increase your potential earnings from a position, even if you deposit only a small amount. This means you don’t need any specific amount to trade NASDAQ.

This investment option is for you if:

You are interested in diversifying your portfolio by adding stocks of technology giants.
You enjoy trading on volatility with short-term positions.

Remember that using leverage when opening your positions for NASDAQ-100 increases both your potential profit and your risks.

Rental housing

Some people prefer to stick to traditional forms of investing, such as buying property for rent. There are two obvious benefits to this approach:

You will have an income stream from lending your apartment, a house, or a building.
Real estate tends to become more expensive with time (unless we face some crisis or recession period).

You can choose any real estate object as an investment property — an apartment, a vacation house, or a regular family house. That means you can select a property that will work best for you as an investment object, irrespective of your lifestyle or personal preferences.

Some choose to invest in real estate even when they don’t have the money to afford an apartment or a house. Even if they only have enough money for a down payment, some choose to buy it, rent it out, and pay the mortgage with rental payments. When the mortgage term is over, you will have a real estate object at your disposal. You can sell it and invest the money in something new, or keep renting it out and getting passive income. However, if you want to finance your rental property with a mortgage loan, you need to remember the requirements may be stricter for investors as opposed to applications for primary residence mortgages.

How much money do you need?

Naturally, you need enough money to buy a real estate object in full or to pay the down payment for a mortgage. You will also need to pay the mortgage for the periods when you don’t have any tenants (at least during repair or maintenance).

This investment option is for you if:

You are prepared to be deeply involved in managing your investment: decorate and repair your apartment or house, handle the entire landlord and tenant relationship, etc. Naturally, real estate specialists can help you with all or some of these activities, but paying for their services will make the rental housing investment much less appealing.
You don’t mind fixing a leaky faucet, occasionally finding a plumbing specialist promptly, or facing an emergency such as roof damage or flood. That means you want to be a landlord, not just an investor.
You are a conservative person willing to stick to traditional investment strategies.

When buying a rental property, you must consider many factors, such as property taxes, location, schools, parks, coffee shops nearby, crime rate, and public transportation availability.

What to consider before you start investing

Now that you’ve read where to invest money to get good returns, you are ready to start investing. However, before you dive in, you may want to spend some more time preparing and considering some essential factors. This preparation stage is vital to your success, so you don’t want to skip it.

A successful investor is someone who has a strategy and meets their goals. Whatever your goals, your success is measured by meeting them. You should review your investments occasionally to see how well you are doing and if you meet your medium or long-term goals. Here are some of the critical factors you should consider before investing.

Time horizon

First, you need to determine your financial goals. Do you want to save money for something specific? Do you need to have a particular amount of money by some date in the future, or do you have some spare cash that you want to grow with time without any specific limitations?

When you answer the questions above, you will better understand what you may want to invest in. As you have noticed, some of the best investments focus on short-term goals only, while others are intended for you to keep the money somewhere for years. In fact, some forms of investment, such as purchasing rental real estate, will require a lengthy research and preparation period before you can earn anything.

Risk tolerance

No matter what investment options you choose for your portfolio, you should always remember that a loss is possible. However, risk levels are different with different investment options. Decide how much you are prepared to lose and build a strategy accordingly.

Professional traders and analysts suggest inexperienced investors have very diversified portfolios with varying stocks, indexes, dividend-paying companies, and undervalued companies. A diversified portfolio will ensure effective risk management.

Your knowledge

You should always think about your level of experience and investing skills before making a decision.

For example, if you want to invest in rental property, you must know the landlord-tenant relations and manage the properties. If you invest in specific stocks, you will want to keep track of a stock’s performance and understand how it will move.

If you don’t have enough knowledge yet, you may want to opt for actively managed funds and diversify your portfolio to manage your risks better.

How much you can invest

The amount you have at your disposal may also determine your investment strategy. For example, you can invest in various funds, be it NASDAQ or a small-cap fund, via an online broker with only a tiny amount of money. However, some investment tools will require you to invest a lot. Browse through the available options, read the descriptions and reviews for specific funds before making your decision, and make sure you understand where to invest money to get the kind of returns you personally are looking for.

Share with friends:

Open an FBS account

By registering, you accept FBS Customer Agreement conditions and FBS Privacy Policy and assume all risks inherent with trading operations on the world financial markets.