What Should I Invest In?
The crucial factor in growing your long-term capital is the rate of return which you have on your investment. On the other hand, there are times when you just need to leave your money somewhere for a short period, even though you know that in this case, you will not get very good returns. Nevertheless, here are the most common short-term savings vehicles:
Short-term savings vehicles
A savings account is one of the first banking products that people tend to use. They earn a small amount of interest which means they are slightly better than leaving your money in your piggy bank.
Money market funds represent the particular type of mutual fund that invests in exceptionally short-term bonds. However, shares in a money market fund are made to be worth $1 at all times. They usually pay better interest rates than the ones paid by a conventional savings account. On the other hand, you will earn less than with certificates of deposit.
Certificate of deposit is a specialized deposit which you can make at a bank or any other financial institution. The interest rate here is typically the same as one of the short- or intermediate-term bonds, regarding the duration of the CD. Interests are paid at regular intervals by the time the CD matures. At that point, you will get the money which you originally deposited plus the accumulated interest payments. They are usually insured up to $100,000.
On the other hand, there are other long-term investing vehicles, such as stocks which have historically offered the highest return on our money. Nevertheless, we will present the most common long-term investing vehicles:
Long-term investing vehicles
Bonds come in various forms and are popularly called “fixed-income” securities since the amount of income which the bond generates each year is fixed or set, once the bond is sold. However, from an investor’s angle, they are similar to CDs, apart from the fact that the government or corporations issue them, and not banks.
Stocks are a way for any individual to own parts of any business. They are most common and most popular type of investing. Stock´s share represents a proportional share of ownership in a company. The value of the shares varies as the value of the company changes.
Mutual funds are a kind of investment where investors pool their money to buy stocks, bonds, etc. As an alternative to managing your money yourself, you can turn over that responsibility to a professional. Sadly the majority of these “professionals” tend to underperform the market indexes.
There is a great number of other plans specially designed for your needs such as plans for retirement savings. These plans give you the opportunity to deposit money directly from your paycheck even before taxes are taken out. Sometimes employers will match the amount or a certain percentage of that amount that you have withheld from your paycheck up to a certain percentage of your salary. Some of these plans may let you withdraw money even before you get to your retirement, and without a penalty, in case you want to purchase a house or pay for education. However, if these early withdrawals are not allowed, you have the chance to borrow money from the account or take out low-interest secured loans making your retirement savings as collateral.
Investing in stocks
As you already know investing in stocks historically proved to be a good option and had much better returns than the ones offered by bonds and other investments. Basically, stock allows you to own a part of business. This type of investing dates back to 16th-century Dutch mutual stock corporations. The modern stock market is a way for entrepreneurs to finance businesses with the money collected from their investors. In return, the investor becomes a part-owner of the company. As it is previously mentioned, that ownership is represented by stocks which are “secured” by a claim on the profits and assets of a company.
As the name states, common stocks are the most common form of stock that you as an investor might encounter. It is a perfect investment vehicle for individuals since anyone is allowed to take part in it. There are no restrictions concerning the fact who is capable of purchasing common stock. They are more than just pieces of paper, and they represent a proportional share of ownership within a company.
This means that shareholders “own” a part of the company as well as its assets, but also a part of the stream of cash which those assets generate. Since the company obtains more assets and the stream of cash that it generates gets larger, and the value of the business respectively increases.