Have you reached the point where merely looking at your bank statements gives you a headache already? You might find your records out of place. You might even find yourself lost as to your status and accounts. However, this is not a point for you to simply fret. There are several low-risk investments and money-saving options available for those of you looking to boost wealth.
Here’s a list of simple strategies you can apply to maximize your returns in the long run.
Check out the article on 6 Common Money-Saving Mistakes to Avoid.
Savings Account in Banks
Most working people know how to save money in their bank accounts. Putting the money in a savings account is a prudent move. The money is safe there, and it is not within your immediate reach for unnecessary spending. It can even earn interest. However, the interest you earn from a simple savings account makes it a poor choice among savings tools.
The APY (annual percentage yield) offered by most banks in America is less than 0.50%. To make it simpler for you, here is a small calculation. If you have saved $100 in your account, it will become $100.50 after 12 months with a 0.50% APY. That’s not a worthy investment tool. If you have a large chunk of money sitting there in your savings account, it won’t even earn enough interest to beat the yearly inflation (which is estimated to be about 2% to 2.5% till 2024).
Although a savings account is not a great investment tool, it is the best one we got for short-term money savings. Besides being a low-risk investment option, it is also highly liquid. Meaning, you can access your funds whenever you want.
If you are looking for a way to earn a little more than what is described here, you can opt-in for one of the following tools based on your risk tolerance.
Certificates of Deposits
Many banks offer this as an investment option for their customers. You can opt for 6-month, 1-year, or higher terms based on your wish. A lock-in period of at least 6 months is non-negotiable here. Hence, its liquidity is a little lower than a savings account. Based on the term you choose, there is a possibility to earn APY up to 1.00%, which makes it a better savings instrument than a savings account.
Similar to savings accounts, the risk is very low here. You may choose this one if you have no immediate need for your money. For people struggling with following financial discipline, this could be a short- to a medium-term way of saving money with a little better rate of returns.
Government Bonds, Treasury Bills
These are low-risk bonds fully backed by the U.S. Government. While corporate bonds could lose value if the company goes bankrupt, the chances of that happening to the U.S. Government is pretty thin. Hence, there is zero risk in this investment. However, there is a lock-in period for a certain number of years.
This is an ideal way to save a large sum of money for the long-term with moderate returns. The interest rate here could vary between 5% to 6% depending upon the bond you choose. Although this is low risk, it is worth doing a little research before you make your investments here.
S&P 500 Index Fund
This is for people with a slightly higher risk appetite. We all know that stock market investments are subject to market risks. However, this is one of the safer alternatives. The name of the fund indicates that it mimics the movement of the S&P index. There are also similar funds for Nasdaq and NYSE if you are looking for alternatives. One of the huge benefits here is that it is highly liquid just like any other equity (stock) investment.
What’s special about this investment is that it has the potential to deliver great returns for those willing to wait for a 5 to 10-year period. Just to give you a little perspective, the S&P index fund was trading at around 1,100 points in 2010, and it is around 4,200 points in 2021. If you had invested $10,000 in 2010 in this fund, there is a potential to make close to $40,000 in returns over 10 years. That’s a return of about 300% in total.
Of course, this type of investment is not suited for completely risk-averse individuals. Although it is common sense that the index funds will increase greatly in value over 5 to 10 years, there is no guarantee that it will always be the case. Besides, if you are constantly worried about 100 to 200 points fluctuations every day, this could stress you out on an everyday basis.
Other Types
In addition to the ones listed here, there are many other investment methods to save your money and earn interest from it. Some of them include mutual funds, money market bonds, municipal bond funds, dividend stock funds, etc. Do your research beforehand, consider your risk profile and invest in the best tool that matches all your requirements.
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