To best prepare for the future, investments are a fundamental part of a plan. Investments ensure that you have a plan moving forward in regards to finances. The closer we get to retirement, the more income we need to survive to pay expenses including medical bills and home expenses. Even before then, it can assist in getting individuals in a financial pickle out of that pickle in the future. Investments allow you to have more purchasing power and meet your financial goals. With the plethora of options out there, it may seem overwhelming at first to evaluate which investments are best for you. However, there are some investments that are more prominent and will provide you a greater return over the long-term. Listed below are those investments along with a brief explanation.
Certificate of deposit (CD):
A certificate of deposit is a note issued by a financial institution that offers a higher interest rate than your typical savings account. As with almost every product offered by a bank, it is FDIC insured so the investment is protected. CDs are a timed note that have a maturity date. Once they reach that date, you can either cash it out or roll it over into another CD product offered by the bank. One important note to remember with CDs is most banks will charge you a penalty for withdrawing any of the funds before the CD matures. While some banks do offer CDs with no penalty, the rates associated with those CDs are much lower than a traditional CD with a penalty. The method in which CDs earn interest is regular intervals (normally every 6-12 months) until the maturity date. At that point, you earn your original deposit plus the interest accrued on that CD. While there are some advantages to CDs, there are also some major disadvantages. To start off, a CD is not liquid. Unlike some other forms of investments, a CD does not give you immediate access to funds unless you’re willing to pay a penalty. In addition, CD rates depend very much on the federal rate. Depending on the fluctuation of the fed, CDs can have a high-interest rate or a low-interest rate once your CD matures. This may make your initial investment high on returns or low on returns.
The stock market has become a viable option for many looking to invest their money and seek high returns. While there is a lot of risks associated with the stock market, a safer option to invest is with dividend-paying stocks. In summary, dividends are the company’s profits shared with stakeholders on a quarterly basis. As with any investment, dividend-paying stocks have their advantages and disadvantages. For starters, stocks are liquid. You can easily buy and sell stocks any day the stock market is open, which means you are able to cash-in on your investment especially when you experience financial difficulty. On the other hand, it’s better to have a long-term investment strategy as that will provide the most return. To minimize your risk when investing in dividend-paying stocks, choose companies that have proven track records with dividend increases. Often times, people mistake companies that promise high yields on dividend returns as the best option. In most cases, a high yield on a dividend return will not last long and it will cause more trouble than it is worth.
Stay tuned for part 2, coming soon!
Disclaimer: This article is meant strictly for informational purposes. Not intended as financial or investment advice. Do not misuse or misconstrue the information in this article. Seek advice from your personal financial advisor on matters pertaining to investments/finances.