Are you looking to invest and grow your money?
Do not want to choose an investment option, haphazardly?
If yes, worry, not! I will today share with you seven different investment options to invest in 2020.
No, these aren’t randomly chosen investment options that have performed well in the last couple of years. I have put a great deal of research into choosing only those investment avenues which provide the right mix of return and risk.
I will highlight not only the seven options below but also the associated risk and reasons behind why I have chosen that investment avenue. Once you go through my list, you can pick the right investment option quite easily.
Many investors are just looking for avenues that help them earn a little more than savings accounts. Are you one of them?
If yes, certificates of deposit are the perfect option for you. These are generally issued by banks as well as other financial institutions. The interest rate is higher than a savings account.
They have precise maturity dates, which means that you can better predict your liquidity as well. The best thing is, you can buy certificates of deposits ranging from the maturity of a few weeks to several years. The choice is entirely yours.
I’m sure; you would like to know more about the returns which they have on offer. Generally speaking, you can make up to 2.5% per annum. The USP of this investment avenue is the safety that it has on offer. Since you would be lending your money to reputed institutions, you can be sure about the returns and principal.
If security is your prime concern, CDs will not disappoint you.
2. Treasury Securities:
Are you looking for a more secure option?
If yes, it is advisable to lend money to the government of the United States. No, I’m not joking.
The US government periodically raises money from individuals by issuing Treasury bills. These have tenure of 2, 3, 5, 7, and 10 years. The best thing about these bills is that the interest is paid on a six-monthly basis. On maturity, you will get your principal amount back.
Since the US government issues these, you can be sure that it is an entirely safe avenue as well. You can invest upwards of $100 in Treasury bills. It means that you need not have a high amount of capital to take advantage of this investment avenue.
The interest rate generally varies between 1.4% to 2.5% per annum, depending on the tenure which you are opting for. The advantage is that you can liquidate before the maturity date as well. The Treasury bills market is highly liquid.
If you want to go for the most secure investment option, the Treasury bill will not disappoint you.
3. Dividend-Paying Stocks:
Are you looking for higher returns?
If yes, dividend-paying stocks are a perfect choice for you. In my opinion, however, it is essential to understand that their performance (not dividends) is associated with the market. Therefore, the value of the stocks themselves can fluctuate. However, if you choose the company carefully, you can be sure that the dividend is predictable.
Many companies pay handsome dividends every year. These include:
Exxon Mobil is a global company that operates in the energy sector. The market cap of the company is over $290 billion. Exxon Mobil has a dividend yield of above 5%. It means that in addition to the increase in stock value, you would get over 5% per annum in dividends.
Universal Corporation is a tobacco leaf exporter. The dividend yield is upwards of 6%. It has increased its dividend consistently for the past 49 years.
Coca-Cola is another great stock if you’re looking for dividend stocks. It has increased its dividend for 50 years consistently. The current dividend yield is 3.3%. It is a safe bet and has been increasing dividends regularly; you should keep it on your list when looking for dividend stocks.
These three are a great option when looking for dividend stocks. In addition to that, there are quite a few others as well. As always, it is better to research and conduct some due diligence on your own before investing in dividend stocks.
The advantage of investing in blue-chip dividend stocks is that you not only earn dividends but also on some decent appreciation. It means that the total return on investment which you get is higher than the dividend yield. That is why they make an excellent investment.
4. Index Funds:
Index funds are akin to buying every stock in that particular index in proper market cap proportion. The advantage is that when you’re buying something like the NASDAQ 100, you are investing in 100 different stocks. Also, because your portfolio is super diversified, the returns are still good. The index offers pretty good returns from time to time, like:
The returns of NASDAQ 100 in the past three years have been around 65%.
S&P 500 has generated around 15% return in the last three years.
As you can see, both these offer a pretty healthy rate of return. Index funds diversify your investment significantly; these returns are not at all bad. If you’re looking to invest in the local economy, rather than choosing a stock or a sector-based mutual fund, it is better to go with index funds.
I prefer them due to the safety and the diversity which they provide. At the same time, when you invest in index funds, you don’t need skills to analyze stocks or go through the balance sheets of companies. All in all, index funds provide a pretty good return for the risk which they undertake.
REITs stand for Real Estate Investment Trust. These are companies that invest and own real estate. They often rent it out to generate a consistent income.
These companies often list their units on stock exchanges so that retail investors can invest in them. The main reason REITs are lucrative is because they pass on their income in the form of dividends to investors. It means that they do not pay hefty taxes on the profits. As a result, the dividends which they can provide to their unit holders are often pretty high.
If you want to invest in the real estate sector without having to manage your property actively, these companies are the perfect option. They provide you with advantages like:
REITs are a passive investment. It means that you do not have to invest time in managing or analyzing these companies actively.
The cash flow is predictable when you invest in these companies. They pay dividends regularly.
They often invest in real estate properties that are not accessible to the retail investor. That is why; the ROI which you get is on the higher side.
These three advantages are the reason why you should think about investing in such companies rather than investing in real estate directly. Since you get the expertise of a professionally managed company, you can be sure that your investment is relatively safer as well.
REITs simply cannot be ignored if you want to invest in the real estate sector.
6. Rental Housing:
Do you prefer to own properties directly?
If yes, it is a good idea to invest in rental properties. You need to keep in mind that it demands a bit of work. You can put in the work yourself, or you can hire a property management company to handle them on your behalf.
The advantage of rental Housing is that as long as you conduct your due diligence properly, your capital will be completely safe. Moreover, it is easy to make a rental yield of up to 5% if you plan your purchase correctly.
In addition to that, the property will appreciate, which means that the total ROI which you get is on the higher side.
However, all is not hunky-dory when it comes to investing in rental properties. You need to pay attention to the local economic condition to gauge the direction in which real estate prices are headed. Moreover, you need a sizable down payment to invest in such properties.
Rental Housing is not a good investment, and therefore you need to manage your finances correctly to sustain such a type of property.
The good news, however, is that the rental income is pretty consistent if you can choose the tenant correctly. Thus, if you want to invest in real estate directly, it is better to go with rental properties.
7. Municipal Bonds:
You might be thinking, what are municipal bonds?
Similar to treasury bills, municipal bonds are instruments through which local governments and state governments raise money from investors.
The good news about investing in municipal bonds is that they are often tax-free. Also, they are backed by the local government, which means that the degree of safety is comparatively higher. While the state government might go bankrupt, but it happens only once in a blue moon.
When you invest in these bonds through ETF, you can further reduce this risk as it would consist of multiple municipal bonds and not just the one backed by a single local government. It will allow you to diversify your risk significantly.
You might be thinking, what is the advantage of investing in municipal bonds over Treasury bills?
The answer is that the interest rate is often higher when it comes to municipal bonds. Also, you would not face any liquidity risk. If you’re buying them in the form of ETFs, you can liquidate them whenever you want. Thus, the municipal bonds are another safe avenue that can help you earn up to 3.5% per annum.
So, if you want to know where and what to invest in 2020, these are the seven options that will not disappoint you. I have carefully gone through the numerous investment options to provide you with the right mix of safe investment options as well as moderate risk investment options.
Once you go through my guide above, you will have the list of investments that you need to invest in right away. It is advisable to conduct due diligence while opting for these investments. Nevertheless, this guide can work as a blueprint to help you move in the right direction.