When it comes to investing, there are various types of investments that you can choose from. So many in fact, that it can be overwhelming for many investors, both new and old. In this post, I am going to talk about the different types of investments that you can choose from and then do my best to help you narrow the list down into something more manageable so that you can match the best return with the appropriate risk for each one.
Different Types Of Investments
Since there are so many types of investments, I need to categorize them so you can more easily follow along. I will do this by breaking the types of investments down into short-term and long-term. In addition, I will also include a category for non-traditional types of investments. Let’s get started.
When it comes to short-term investments, you have a large variety of options. Typically, when investing for the short-term, you need the money in less than 5 years and as such, will not be taking on a large amount of risk. Here are your options for the short-term:
When I say cash, I mean that you keep your money in a savings account that earns you a small return. With interest rates historically low right now, you won’t be making much money with a savings account. But, it is the safest way to earn some interest and not have to worry about losing your principle.
Of course, if you are just using a savings account, you want the highest amount of interest you can find. Traditional banks are not the answer. To get a higher interest rate, you need to look online.
I love and use CIT Bank. They offer one of the best interest rates for online savings accounts in the country.
Certificates of Deposit
One step up from savings accounts is bank CDs or certificates of deposit. These tend to offer a higher interest rate. They offer a higher rate because you are locking your money up for a period of time.
For example, if you buy a 6 month bank CD, you cannot access your money in the CD for 6 months. If you do, you pay a penalty, which is usually around 3 months worth of interest.
Again, with interest rates low, the interest rates on CDs are not very good. In fact, if you are looking for somewhere to put your money for less than a year, your best bet a savings account. This is because short-term CDs are paying less than savings accounts right now.
Additionally, with the talk of the Fed potentially raising interest rates, you might be better off just sticking with a savings account. This is because when interest rates rise, so too will your interest rate on your savings account. But with a CD, whatever rate you have when you open the CD is the rate you keep throughout the life of the CD.