Smart Money Moves: Navigating Your Investment Options for Maximum Returns
Have you ever heard stories where someone who doesn’t trust banks will hide their cash all around the house with tragic endings? There might be several reasons for doing this.
Maybe someone who does this doesn’t have faith in the banking system or is going through a family matter and sees this as a way to hide cash assets. Or maybe they just want to keep cash on hand in case of an emergency.
Tragedy can occur at any time. Someone hoarding cash at home could have a tragic accident or even pass away with no information as to what to do with all that money.
The problem with keeping large amounts of cash at home is that over time, cash loses its value because of inflation and the rising cost of living. A better way to maintain the value of your cash is by investing it. That can level the field when it comes to the volatility of weekly markets.
Investing your money may sound scary because it sounds like something someone with a lot of money would do. However, it is a way to grow your cash assets based on your tolerance for risk in a volatile market. Listed below are three of the most common ways one can invest and watch your investment grow, especially if you are a beginner in investing.
High Yield Savings Accounts (HYSA)
High Yield Savings Accounts are FDIC-insured. The best place to open one is at a bank or a credit union. However, because of lower overhead costs, with an online bank, you will see higher APY (Annual Percentage Yield) than you would with a traditional bank.
When thinking about opening a cash management account, consider working with a Robo Advisor, which is a kind of automated financial advisor that provides algorithm-driven wealth management services. The downside to investing this way is that you will have very little or no human interaction.
Pros of a HYSA: These are safe, interest-earning accounts. Investment risks are low, and access to your funds is relatively easy.
Cons of a HYSA: Limitations when making transfers and withdrawals at some financial institutions. You could miss out on high-return investments.
Interest rates can range from 0.01% to 3.30%. In some cases, you must meet requirements for a minimum opening balance and pay service fees. Do your research and compare how you will benefit from the services of each bank or financial institution before committing.
Certificates of Deposit (CDs)
Certificates of Deposit offer a definite interest rate over some time. Some are FDIC-insured. Common term lengths are one, three, or five years. Whichever length of time you choose for your CD account, you must not withdraw any funds or face a penalty. It is not recommended to put money you might need soon into a CD account. However, the best rates for a CD account can be found at online banks and credit unions.
Pros of a CD Account: CD accounts are safe and secure. Many offer high interest and APY rates, and returns are pretty much guaranteed. They can be easily estimated by the account holder.
Cons of a CD Account: You will be penalized if you withdraw your funds before the account matures. Though some financial institutions offer higher rates, they may not keep up with inflation.
Government and Corporate Bonds
Government bonds are loans made by you to a branch of the government such as the federal or municipal branch. Known as fixed-income security bonds, and pay investors – meaning you – interest on the loan over some time – usually one to thirty years. This kind of investment is best for conservative investors who don’t like volatility in their portfolios.
Pros of Government Bonds: These bonds have legal protection, various term structures, and low volatility/high liquidity.
Cons of Government Bonds: Rates vary. There is a window of time when you will not be allowed to sell or cash in your bonds. You will incur withdrawal penalties and there are limits to how much you can invest.
401(k)
If you are employed at a company that offers a 401(k) retirement plan and you have many years before retiring, this may be a good way to go.
There are two kinds of 401(k)’s: traditional and Roth. Roth 401(k) contributions are taxed right up front while traditional 401(k) contributions are not. You will be taxed upon withdrawal from a traditional 401(k) plan.
The way it works is that you, the employee will have the option of choosing a certain percentage of either your pre and/or post-tax salary to contribute to your plan with a yearly set contribution maximum. Some companies will offer matching contributions up to a percentage of your salary to help build your savings.
Pros of investing with a 401(k) plan: Monies held in a 401(k) are exempt from seizures by creditors. These plans are portable. You can move them from plan to plan via rollovers. Some 401(k) plans allow employees to take loans out against their balance up to a certain amount depending on the plan.
Cons of investing with a 401(k) plan: Investment choices are always pre-selected, limiting how you can invest. Withdrawals or distributions taken before a participant is 59 ½ years old will be charged with a 10% early withdrawal penalty in addition to being charged as ordinary income at the participant’s highest tax rate.
Financial stability is extremely important, particularly in an age where people are living longer and retiring later. In addition, the cost of living can sometimes make for a less-than-stable future. Saving for your life after retirement will ensure that your financial survival does not depend on constantly worrying about how you will make it day by day.
You must do your research and take notes. You mustn’t be afraid to ask questions for this is your future.
Happy investing!
