When it comes to investing, there are many different options that can build wealth. There are some investments that will not pay off in the long run. Terms like Ponzi schemes and Bernie Madoff come to mind when looking at poor investments that make money only for those who push them on investors. A good investment is one that’s likely to grow over the long haul.
High-Yield Savings Accounts
High-yield savings accounts are likely to grow in value over time. Many of the banks that offer these accounts are insured by the FDIC. Therefore, any money held in them is safe. However, there is a major risk with only using high-yield savings account for investment. The returns are likely to trail the rate of inflation. This means that the real value of the money can lose value over time.
Bonds
Many people consider US government bonds as one of the most secure investments around. They are backed by the full faith and credit of the US government. As long as the government exists, the bonds should be safe. There are also corporate and municipal bonds, and many times, these will pay out a higher interest rate than government bonds.
Stocks
Over the long haul, few investments have returned as much as stocks on an average basis. Sure, there are down years in which stocks can lose money, but over the long haul, the S&P 500 has returned around 10% on an annualized basis. The dividends that stocks payout can add to the share count an investor might hold. Over time, these dividends and additional purchases can lead to even higher payouts through the process of compounding.
Those who are scared of investing in individual stocks can purchase mutual funds or ETFs that allow for diversification with little thought. Index funds that track the S&P 500 are a popular form of investments, and they will frequently perform better than funds managed actively by professionals.
Setting up an account at a brokerage is the first step to investing. A good brokerage will allow for access to money market funds for those who are averse to risk. It will also allow investors to invest in a range of stocks, bonds, and funds. When looking at stocks, it’s a good idea to pick companies that have strong histories of building revenue and income over time. Through regular investments, it’s possible for nearly anyone to build wealth over time.