The current state of the stock market's high volatility might alarm some would-be investors. The volatility of the stock market makes it hard for investors to make informed decisions. So, they need an alternative investment option that can give them a stable return and low risk. One way to do this is by investing in saving accounts, CDs, or other low-risk investments that are easy to sell.
Best High Yield Investments 2023
Investing money for the long term and seeking the best long-term investments are some good options right now. Certificates of Deposit (CDs) and high-yield savings accounts offer moderate returns and safety. Money market funds provide flexibility. Government bonds are a reliable investment backed by a solid track record. If you're open to a bit more risk, corporate bonds offer high yields. Mutual funds provide diversification. Peer-to-peer lending offers the potential for higher returns. Real estate is a profitable long-term asset, while gold is a haven during market uncertainty. Finally, stocks, known for their growth potential, present opportunities for high returns but have higher volatility. Your choice depends on your financial goals and risk tolerance.
1. High-yield savings accounts
A high-yield savings account, also known as a high-interest account, is a specific kind of savings account that gives interest rates on deposits that are higher than the average rate offered by savings accounts. The typical return on investment for a high-yield savings account is much higher than the national average return on investment for a conventional or standard savings account.
In other words, your money may grow in a high-yield savings account without the risk of losing any of it, making this type of account an excellent choice for putting aside savings for the short term.
- Higher yield - Typically yields much greater returns than the national average for regular savings accounts.
- High flexibility - Your funds can be withdrawn at any moment without incurring a penalty. This account's flexibility makes it great for saving for short-term objectives.
- Low risk - Offers a fixed (but variable) interest rate on all deposits. Funds are FDIC-insured.
- Suitable for emergency funds - Secure and easily accessible. Perfect for saving your emergency money.
- More difficult to open than a typical savings account - High-yield savings accounts usually have more eligibility requirements, such as a larger initial deposit amount or withdrawal/transfer limitations.
- Not sufficient for long-term financial goals – Despite higher yield, it may still be insufficient to keep up with inflation or reach long-term objectives (e.g., retirement savings).
- Variable interest rate – Unlike a certificate of deposit, the interest rate on a high-yield savings account is not fixed. Interest rates may be altered at any moment.
Currently, average interest rates for high-yield savings accounts range from 2% to over 3% annually.
A high-yield savings account provides capital security, is government-insured, and has a larger yield than a traditional savings account. While they may be suitable for certain short-term financial goals, they are not recommended for longer-term investments. In addition, they may not be appropriate for investors with high-return objectives.
2. Certificates of deposit (CDs)
A certificate of deposit (CD) is an interest-bearing savings account that retains a specific amount of money for a fixed length of time, usually ranging from six months to five years. When redeemed, CDs deliver the principal amount plus any accrued interest.
Certificates of deposit are regarded as one of the most secure savings vehicles - a CD purchased from a bank with federal deposit insurance is insured for up to $250,000.
- Higher rates - Compared to savings and money market accounts, certificates of deposit (CDs) may offer higher interest rates.
- Security - Certificates of deposit are government-insured, making them one of the safest investment vehicles.
- Laddering – CD laddering is a strategy that allows you to keep your funds liquid and accessible while accounting for changes in interest rates.
- No fees – Unlike savings and money market accounts, which typically have monthly maintenance fees that can quickly erode your interest earnings, certificate of deposit accounts typically do not have monthly maintenance fees.
- Accessibility - A limited number of withdrawals are permitted from a certificate of deposit account. Furthermore, early withdrawal may incur fines.
- Rate risk - CDs, as a saving strategy, necessitate an awareness of the state of interest rates. When interest rates are high, CDs often give a greater return. However, when rates are low, money invested in CDs will not rise as quickly.
- Inflation risk - In a low-interest-rate environment, inflation might surpass the rate of return you earn on your CDs. This implies that even while your savings are growing, they will not go as far when the time comes to spend them. This is a risk associated with both savings and money market accounts.
- Lower returns - The safer an investment or savings vehicle is, the lower its rate of return is, typically. Even though certificates of deposit (CDs) can provide reliable returns and security, you may see your money increase faster by investing in riskier assets.
Currently, average interest rates for certificates of deposit range from 2% to over 3% annually.
A certificate of deposit could be the best option for those who do not mind tying up their assets for a certain amount of time to get guaranteed returns with a minimal level of risk.
3. Money market funds
Fixed-income mutual funds, called money market funds, invest in debt instruments with short maturities and no credit risk. These financial products are among the least volatile out there. Depending on the securities the fund invests in, its income is either taxable or tax-exempt.
- High liquidity – Funds are easier to access compared to other financial products; capital is often readily available the following business day.
- Security – Government laws compel the funds to invest in low-risk, short-term assets, making them less susceptible to market volatility than many other forms of investments.
- Diversification – Highly diversified portfolio of assets.
- Tax advantages – Income from money market funds may be tax-exempt.
- Volatility risk – The share price of the funds fluctuates over time, which could result in losses.
- Inflation risk - Due to the safety and short-term nature of the underlying assets, money market mutual fund returns are often lower than those of other investment vehicles, raising the risk that the rate of return may not keep up with inflation.
- Not insured - In contrast to conventional bank certificates of deposit (CDs) or savings accounts, the Federal Deposit Insurance Corporation does not cover money market mutual funds.
Currently, average interest rates for money market funds range from 1.5% to 2.5% annually.
Money market funds may be suitable for investors with a short-term investment horizon, a low-risk tolerance, or a desire to diversify into more conservative investments.
Despite the fact that money market funds' returns are often lower than those of other forms of fixed-income funds, they aim to provide stability and may thus play a significant part in a portfolio.
Managing Travel Costs: Tips for Holiday Season Savings
How Much Interest Can You Earn on 1 Million Dollars?
4. Government bonds
A government bond or sovereign bond is a financial vehicle issued by a government to finance government expenditures. It entails a promise to pay coupon payments, or periodic interest, and to return the principal on the maturity date.
Because the government guarantees return, government bonds are less risky than other investments such as equities. The government pays a set rate of interest on the bonds, and investors may optimize their return by holding on to them until maturity. Government bonds can also be used to diversify a portfolio as they are highly stable and perform well when other asset classes are under stress.
- Low default risk - Compared to other assets, such as equities and corporate bonds, government bonds are seen as having a minimal default risk.
- High liquidity - Government bonds are tradable on the over-the-counter bond market, thus ensuring high liquidity.
- Tax advantages - Depending on the type of government bond and issuing body, there may be tax advantages associated with government bonds. Interest payments on U.S. Treasury bonds, for instance, are free from state and local taxes.
- Rate risk - Like other publicly traded bonds, government bonds may lose value if market interest rates climb beyond the face value of the bonds. This is due to the fact that bond prices fluctuate in the opposite direction of interest rates: when market interest rates rise, bond prices fall, and vice versa.
- Low returns - Compared to other financial instruments, the yield or interest rate on government bonds is significantly lower.
Currently, average interest rates for U.S. government bonds range from 3% to 4% annually.
Government bonds are among the most secure investments. As a result, they are suited for investors with a low-risk tolerance who seek investment security. Moreover, investors might acquire government bonds to reduce their portfolio's total market risk. Bonds with varying maturities and from various issuers can help investors attain high rates of return while keeping flexibility.
They also provide as a long-term investment choice for individuals without stock market experience.
5. Corporate bonds
A corporate bond is a form of financial security issued and sold to investors by a corporation. The firm receives the needed cash in exchange for a certain amount of interest payments at a fixed or variable interest rate. At bond maturity, interest payments cease, and the principal is repaid to investors.
The backing for the bond depends on the issuer's future revenue and profit projections. In certain instances, tangible assets may serve as collateral.
- Regular payout - Bonds provide regular cash payouts, which is not necessarily the case for equities. This payout gives a high degree of income predictability.
- Less volatile - Bonds are often less volatile than equities and respond to a variety of factors, including interest rates.
- More profitable than government bonds - Corporate bonds often offer higher yields than comparable government bonds.
- High liquidity - In contrast to CDs (for instance), investors may sell bonds on the bond market, allowing them to acquire liquidity for their holdings.
- Riskier than government bonds - Corporate bonds lack government backing, making them riskier than their counterpart.
- Price risk - While bond prices often move less than stock values, they nonetheless do so. As a result, investors may find that their bond depreciates.
- Not insured – Unlike CDs, corporate bonds are not insured. Consequently, investors face the risk that the issuer may default, resulting in a total loss of principal on their bonds.
- Rate risk - Bond prices decline when interest rates rise, and investors are frequently not compensated by a rising payout stream.
Currently, the average interest rate for U.S. corporate bonds is 4.65% annually (Moody's).
Corporate bonds are a great method to add diversification with better return potential than government bonds. Investors are encouraged to consider bond ETFs, which boost diversification (and lower risk) even further.
6. Mutual Funds
A mutual fund is a professionally managed investment fund that pools the capital of numerous investors to buy securities across a wide range of industries and geographies.
- Professional portfolio management – Investors benefit from a competent portfolio manager who oversees the fund and makes appropriate financial decisions.
- Dividend reinvestment - As dividends and other interest income streams are declared for the fund, they can be utilized to acquire new shares, allowing the investors' investment to expand.
- Lower risk – By diversifying across asset classes and geographies, mutual funds reduce portfolio risk. It is common for mutual funds to have anywhere between dozens and thousands of different assets.
- Easy access - Mutual fund shares are easy to purchase. In addition, they frequently have low investment minimums.
- High fees - Mutual fund expense ratios may be higher than other types of investments. The greater the fees, the smaller the returns.
- Fluctuating returns - Mutual fund returns are highly susceptible to market movements.
- Dilution – Although diversification lowers portfolio risk, it can also dilute earnings. Thus, investing in an excessive number of mutual funds simultaneously may negatively alter performance.
Historically, returns on mutual funds have averaged 10% annually.
Mutual funds assist investors in diversifying their exposure to unsystematic risks by investing in a varied portfolio of companies from various industries. Under the supervision of a professional portfolio manager, mutual funds constantly rebalance underlying assets to ensure that they are effectively positioned, making them an excellent option for inexperienced investors.
7. Peer-to-peer lending
Peer-to-peer lending, commonly known as P2P lending, is the practice of lending money to individuals or businesses via internet services that connect lenders and borrowers.
- High yield – Potential for a much higher rate of return than conventional investments, such as savings accounts and bonds, now offer.
- Risk management - Investors can browse borrowers' profiles, assess, and select the level of risk they are willing to assume.
- Diversification – P2P lending offers investors portfolio diversification with minimal to no correlation to the financial markets.
- Not insured – Even though some providers may occasionally protect against defaults, investors will suffer a loss if a borrower is unable to pay back the loan.
- Low liquidity – If investors wish their funds back prior to the end of a loan agreement, they will likely need to seek a new lender. While the platform often manages liquidity events, the process may be slower than desired. Moreover, penalties may exist.
- Unpredictable events – If the borrower decides to repay the loan earlier than anticipated, returns would be cut.
Currently, average returns for P2P lending range from 10% to 12% annually.
Peer-to-peer (P2P) is an emerging investment opportunity for those who wish to combine the advantages of multiple asset classes. P2P lending has a relatively short time horizon, offers the possibility for high returns, requires minimal initial capital, and can generate passive income.
Although the numerous benefits of peer-to-peer lending are certainly alluring to investors, it is important to keep in mind that these loans are typically riskier and less liquid than other investments.is a rather new type of investment vehicle.
8. Real estate
Real estate is one of the oldest yet most lucrative investments. Passive income, building equity, tax advantage, and inflation hedge are among the numerous benefits of real estate investments.
- Consistent cash flow -Renting out real estate properties is the optimal method for generating substantial profits over time.
- Equity build-up - Historically, the value of real estate assets rises with time, allowing investors to enhance their equity.
- Tax advantages - Investors can deduct property taxes, mortgage interest, property management fees, and property insurance related to investment property ownership. Additionally, appreciating gains are not considered income but capital gains (lower taxes).
- Diversification - The performance of real estate assets is typically uncorrelated with financial markets, therefore providing a layer of portfolio safety.
- Liquidity - Once a property is acquired, the capital is immobilized, making real estate investments considerably less liquid than other financial assets such as equities and bonds.
- Investment minimums - Investing in real estate typically requires a more significant initial commitment. And due to the use of mortgages to finance these transactions, eligibility restrictions are more stringent.
- Not appropriate for short-term - Real estate investments are long-term endeavors. Therefore, they are not designed for short-term financial goals.
Currently, the average return for real estate investments is 10% annually.
Investing in real estate is one of the most tried-and-true methods there is. They provide numerous enticing benefits, including passive income, equity appreciation, and tax advantages, making them one of the greatest ways to diversify a portfolio. However, investors with a shorter time horizon might find them unsuitable.
There are several advantages to investing in gold. It is well-known to safeguard portfolios over the long term, being considered as many by the most stable asset in the world. Indeed, when there is volatility in the global financial markets, gold historically experienced price increases.
- Stability - Gold is not immediately affected by changes in interest rates, and its supply and demand cannot be manipulated. Hence, it is an ideal instrument for preserving wealth.
- Inflation hedge - Historically, gold has been an effective inflation hedge as its price tends to increase when the cost of living rises; during periods of strong inflation over the past 50 years, investors have witnessed gold prices surge and the stock market fall.
- Diversification – Gold is a strong portfolio diversifier, being widely perceived as uncorrelated with equities and other financial instruments.
- Storage - Gold is a tangible asset that entails storage. This adds a layer of complication to investing in gold that is not present when purchasing other investments.
- Short-term volatility – Although gold's value is indeed stable over long periods of time, it is subject to significant short-term fluctuations.
- Speculative asset - Gold is a speculative asset. It doesn't generate value on its own; instead, its value is merely a reflection of how the market perceives it.
Historically, returns on gold have averaged 10.61% annually.
For those in need of a safe haven, gold may be a wise investment. However, as gold is generally viewed as a fear-based, speculative investment, its suitability for a portfolio highly depends on each one's circumstances.
Stocks in publicly-traded companies are known for being high-risk, but without them, much of the corporate world as we know it today would not exist. And with high-risk can come high reward. Stocks have historically performed extremely well over long periods, but they have had many crashes in their history as well, something an investor would want to be aware of before investing.
- Liquidity – Stocks in public companies are easily bought and sold on stock exchanges. Some of the biggest companies in the world can be liquidated in an instant at the click of a button.
- Long-term Returns – Stocks have had a long history of producing above-average returns and tend to be the benchmark for adding wealth over time. Not many asset classes have performed better if you take a long enough time period into consideration.
- Diversification – While owning one or two stocks may be inconsistent with diversification, owning many stocks in all different sectors can provide investors with ample diversification, leading to more efficient long-term returns.
- Volatility – Stocks are, historically, one of the riskier asset classes to trade in. Many times in the past stocks have had bear markets (losing more than 20% of their value) and several times in their history they have dropped more than 50%. It often happens fast and without much time for the investor to protect their principle.
- Economic Risk – Stock markets are forward-looking, so when the economy is on the precipice of a recession or depression, stocks tend to lead on the downside. That means you likely won't realize your stocks are dropping until it is too late.
- Emotional Risk – Investors who are emotional about investments will have tough time trading stocks, as often the worst time to buy is when everyone is excited and buying and the worst time to sell is when everyone is negative and selling.
Returns on stocks have averaged over 10% over the last 50 years, and from 2012 to 2021 the S&P 500 returned 14.8% annually.
For those in need of long-term wealth-building investments, stocks are the best pure-play investment. If you can stomach the higher risk, higher returns are likely on the table over multiple market cycles.
The Lower Risks Investment Options for Beginners
For beginners looking to minimize risk while investing, these are known for their safety and liquidity:
- High-Yield Savings Account: This is an excellent choice for short-term, low-risk savings. It offers a higher interest rate compared to a regular savings account, and your money is easily accessible.
- Certificate of Deposit (CD): CDs provide a fixed interest rate and are insured, making them a safe short-term investment. They often offer slightly higher interest rates than regular savings accounts.
Both of these options allow you to protect your principal while earning a bit of interest over the short term. Keep in mind that the returns will be modest, but your funds are secure, which is crucial for a minimum-risk approach.
In summary, investing may serve various purposes, from generating a passive income to saving for retirement. As we have seen, there are several methods to invest, ranging from highly secure options like CDs to higher-risk options like stocks - There is a place for every investor's financial objectives, return targets, and risk profile.
When determining what to invest in, you should examine numerous aspects, including your risk tolerance, time horizon, investing knowledge, financial condition, and investment capital. You can choose investments with reduced risk and a small return, or you can take on greater risk and strive for a bigger return. Investing often involves a trade-off between risk and reward. Alternatively, you can choose a balanced strategy consisting of assets that are perfectly secure while yet allowing for long-term gain.
Where can I get 10% interest on my money?
Such yield may be achieved through mutual funds, P2P lending, real estate, or stocks.
How can I double my money without risk?
Long-term stock or real estate investments may allow you to build wealth and eventually multiply it. However, you must remember that every investment carries some degree of risk. The greater the possible reward, the greater the associated risk.
What small investments make money?
Investment vehicles such as certificates of deposits, government bonds, or money market funds usually exhibit low minimums and steady returns.
How can I invest money when I’m poor?
If your finances are limited, it could be a smart idea to devote funds to liquid investments so you can access them quickly. Investments like money market funds or government bonds may therefore be a wise choice.