15 Best Investment Strategies in 2019
- February 28, 2019
- Arnold Chapman
With the multiple investment opportunities available today, making the right investment choice is becoming more and more difficult. Thus, all aspiring investors are constantly looking for the best investment, which will offer the highest profits without losing all their money.
Some investments are a little more advantageous than others. However, it should be noted that the success of any strategy certainly depends on the objectives and the situation of each investor. If you want to grow your wealth, you can opt for investments options with a lower-risk level that pay a decent return for longer periods, or you can turn to high-risk investments options that pay higher yields for shorter periods. It all depends on your risk appetite.
If you want to have a better understanding of the different investment options with various risk levels and potential returns, check the list below of 15 best investment strategies in 2019:
1. Certificates of deposit
Certificates of deposit are certificates issued by a bank to a person who deposits money for a specific period at a specified interest rate, which tends to be higher than the interest rate of savings account.
The maturity period can go up to several years. Besides, you will get a penalty if you withdraw the money before the specified period is finished.
In addition, the financial institution pays you the interest at pre-fixed intervals. You will get your original principal back as well as the accumulated interests once it matures. Currently, you can earn up to 3% of interest when investing in certificates of deposit.
If you are looking for a highly profitable long-term investment with a very low risk of loss, then this is the right investment option for you.
Risk: Certificates of deposits are very safe, but you may susceptible to lose some money when you reinvest your money. When interest rates decrease, you will earn less when you reinvest your principal and your interest in new certificates of deposit with lower rates. Also, when you lock your money for a specific period, you can’t take advantage when the rates go up during that period.
The best investment strategy is laddering certificates of deposit (investing money in certificates of deposit of different terms) to increase your gains further.
Keep in mind that taxes and inflation can highly affect the purchasing power of your investment.
Liquidity: Certificates of deposit aren’t very liquid compared to money market accounts or savings accounts because you lock your money until it reaches maturity. Also, you will get a penalty if you early withdraw your money.
2. Money market accounts
Money market account is an interest-bearing, FDIC-insured deposit account. They typically earn higher interest compared to the savings account, and they need a higher minimum balance as well. They are an excellent choice for emergency savings because they make higher yields and are relatively liquid. However, there are some restrictions on withdrawals, like a limitation on the number of times you can access your money. Still, money market accounts offer high-interest earnings.
Risk: Your purchasing power is significantly reduced when the inflation rates are more than the interest rate earned on the account. Besides, you might lose some or all the principal if the account isn’t FDIC-insured or if you hold more than $250,000 in one account (the maximum of total balance in an FDIC-insured account).
Liquidity: You can write checks from the account. That’s what makes the money market accounts highly liquid. However, the total number of withdrawals is limited to six per month due to federal regulations, with a maximum of three check transactions.
3. Treasury securities
Treasury securities are bonds issued by the American government to help pay its debts and pay for projects. There are various types, and they are one of the safest investments against loss of principal.
Treasury bills (T-bills) typically mature in one year or less, so they are not interest-bearing. When you buy T-bills, you pay less than their face value. Then, the government pays full face value when they mature.
Treasury notes (T-notes) are issued in terms of 2, 3, 5, 7, and 10 years. As a holder of the T-notes, you earn a fixed amount of interest every six months. Also, you receive face value when they mature. The T-note price might more, less, or equal to its face value, which depends on demand as well. If there is a high demand, the notes will more likely trade at a premium, which will reduce the return for investors.
Treasury bonds (T-bonds) are issued with maturities that last 30-year. Just like the T-notes, the holders gain a fixed interest every six months as well as face value when the T-bonds mature. The price and yield are primarily determined at auction.
It is important to note that these Treasury securities are provided in increments of $100.
Risk: The different types of Treasury securities have a very low investment risk because the American government backs them. Besides, when these securities mature, you will get your principal back, and you will earn interest as well. However, their value fluctuates depending on the interest rates. When the rate rises, the current bonds lose their appeal because investors are more susceptible to earn more profits from freshly issued bonds. Also, keep in mind that you might experience a capital loss if you sell your bond before it matures. If the security’s interest rate isn’t as high as inflation, the different investors might lose the power to purchase.
Holding T-bills is safer than T-bonds or T-notes because they mature faster. But safer doesn’t always mean higher returns.
Liquidity: All the different Treasury securities are highly liquid. But when you sell them before maturity, you might lose or gain money, depending on the interest rate. T-bill and T-note are automatically redeemed when they mature. When it comes to the bond, you can redeem it with the U.S Treasury (as long as you are holding bond there) or with a financial institution, like a broker or bank.
4. Government bond funds
Government bond funds are typically mutual funds which invest in debt securities issued by the American government and its various agencies.
There are various debt instruments, like T-notes, T-bonds, T-bills, and mortgage-backed securities. They are issued by enterprises sponsored by the government like Freddie Mac and Fannie Mae.
If you want to keep a very low level of investment risk, then investing in government bond funds is the right choice for you.
Risk: Government bond funds are very safe because the American government itself primarily backs them. However, the funds are still subject to some risks such as the fluctuations of interest rate and inflation. The prices of the current bonds decrease when the interest rates rise, while they tend to increase when the interest rates go down.
Liquidity: Government bond funds are highly liquid, though their values are very volatile and fluctuate depending on the interest rate.
5. Municipal bond funds
Municipal bond funds are funds that invest in municipal bonds issued by state and local governments. The earned interests are free of taxes of federal income as well as state and local taxes.
You can buy municipal funds individually though exchange-traded fund (ETF) or mutual funds, according to the FINRA. If you want to find the right type of investment, you can consult with a financial adviser. Besides, it is recommended to stick to your local funds (or the ones in your state) for more tax advantages.
You can invest in municipal bond funds if you are looking for a great and profitable way to diversify your portfolio without having to evaluate every individual bond.
Risk: When investing in individual bonds, you have a default risk, which means that you won’t be able to make further revenue or principal payments. Besides, bonds might be callable, which means that the issuer can return the principal and retire the bond even if it doesn’t reach the maturity date.
Liquidity: You are eligible to buy or sell municipal bond funds on every business day.
6. Short-term corporate bond funds
Sometimes, corporations raise money by issuing bonds.
Short-term bonds mature between one to five years on average, which makes them less susceptible to the fluctuations of interest rate compared to intermediate or long-term investments.
If you want to reduce your overall investment risk while earning a decent amount of money, then you should invest in short-term corporate bond funds.
Risk: When investing in short-term corporate bond funds, you will have the chance to earn higher revenues than municipal and government bonds funds. However, these funds aren’t insured by the FDIC. Also, make sure to pick high-quality corporate bonds because the companies are susceptible to downgrade their credit rating or run into financial trouble.
Liquidity: You can make additional investments or reinvest income dividends at any time. Besides, you have the opportunity to buy or sell your shares of the funds on every business day.
7. Dividend-paying stocks
Dividends are portions of the profit of a company that can be paid to shareholders. The payments are generally made quarterly. When investing in dividend-paying stocks, you will have the chance to earn money on both long-term and short-term. It might seem an easy process, but it still requires a lot of knowledge about finance and the stock market. Individual stocks (dividend-paying or not), are better suited for investors of intermediate and advanced level.
Risk: You need to do a lot of research before investing in dividend-paying stocks. Make sure to look into the companies’ track record and check if they have a strong history of dividend increases. It is better than selecting companies with the highest current yield and a poor track record.
Liquidity: The dividends are generally paid out in a quarterly. A long-term investment is significant if you are looking for the highest results on your dividend stock investment. It is also recommended to reinvest your dividends to generate better revenues.
8. High-yield savings account
High-yield savings accounts are typically bank accounts that offer the chance to earn a higher interest rate for deposits than the other traditional savings account. They are also referred to as high-interest rate savings accounts.
Many online banks provide a higher interest rate; many of them are currently paying more than 2%.
If you are willing to hold your money in a savings account and leave it to grow with a high interest rate in the long term, then you should opt for a high-yield savings account.
Risk: FDIC-insured banks offer high-yield savings accounts. So, you don’t need to worry about losing your deposit. It might be a very safe investment strategy, but you are susceptible to earn less upon reinvestment because of the inflation.
Liquidity: The total withdrawal transactions are limited to six per month due to federal regulations. But still, you can add or withdraw money at any time as long as you don’t exceed the limits.
9. Growth stocks
Growth stocks are portions of the stock market that are anticipated to grow significantly above the average over time. They tend to be made up of highly profitable technology companies that are remarkably increasing their sales and revenues at a fast rate. The most popular examples of these growth companies are Apple, Amazon, and Alphabet (parent of Google).
In addition, growth stocks don’t make cash distributions very often, unlike dividend stocks. Instead, they prefer reinvesting that money in the business to increase their growth further. That’s one of the reasons that these companies succeeded in making returns of 20% or more for many years.
Growth stocks are mostly suitable for investors of intermediate and advanced level due to the volatility of the stocks and the need to do an in-depth analysis of the different stocks before buying.
Risk: Even though growth stocks are one of the most profitable stocks on the market, they usually tend to be very volatile. However, these stocks are more likely to get the hit when the market declines. Also, there are no guarantees against money losses, because the government doesn’t put insurance on these stocks. That’s why you need to do some researches and analysis before investing.
Liquidity: Growth stocks are liquid, and you can buy or sell them anytime when the market is open.
10. Growth stock funds
If you don’t want to struggle with analyzing and picking individual growth stocks, then you should turn to buy a fund of growth stocks. You will have the opportunity to select an actively managed fund where expert fund manages choose growth stocks with high chances to beat the market or passively managed funds which are primarily based on a pre-selected index of growth stocks. It would be a great way to diversify your portfolio as well, and further increase your chances of success.
Risk: Growth stock fund investing is less risky than investing in individual growth stocks. With this investment strategy, you keep all the heavy work of management and selection to the professionals, which will certainly minimize the risk of losing your money with the wrong investments.
Liquidity: As long as the market is open, you can easily convert the growth stock funds to cash on any day.
11. S&P 500 index fund
If you want high returns, but you don’t want to invest in a growth stock fund, then the S&P 500 index fund is the right alternative for you. It is based on the 500 most successful American companies, which are among the largest companies worldwide.
With the S&P 500 index fund, you will have the chance to diversify your portfolio with highly profitable companies from various industries. Besides, you can buy these funds with very low expense ratios.
Risks: When investing in S&P 500 funds, you are putting your money in the hands of the most successful companies in the market, which makes it one of the least-risky investment strategies. But still, you are investing in stocks, and they are less stable than bonds or other bank products. Besides, the government doesn’t put insurance these funds so you might be susceptible to lose money when the stock value fluctuates.
Liquidity: You can easily convert your S&P 500 index funds to cash as well as buy or sell them on any day as long as the market is open.
Real estate investment trust, or REIT, is referred to a company that possesses and manages real estate.
Generally, REITs don’t pay taxes because they pass most of their revenues as dividends to the shareholders.
Moreover, REITs can be very helpful for investors who want to own real estate without the need of passing a lot of effort managing it. It is undoubtedly a great way to generate a passive income or cash flow.
They are typically divided into subsectors. For instance, there are hotel REITs, housing REITs, retail REITs, tower REITs, data center REITs, and more. So, it would be easier to find the right sector that matches your preferences and needs.
Risk: It is recommended for investors to stay away from non-public or private REITs which have higher expenses and lesser protections. Instead, every investor should stick with the publicly traded ones, which can be traded on the majority of exchanges. Besides, the value of REIT is susceptible to decline, just like any other publicly traded stock; though the REITs with the best management should move higher over time.
So, if you are interested in investing in REITs, make sure to pick the ones that have a solid track record of high dividend over time, instead of choosing the REITs with the highest current yield.
Liquidity: REITs can be easily converted to cash as long as the market is open, but you must take whatever price offered at the time.
13. Rental housing
As long as you are willing to manage your proprieties properly, then you should opt for rental housing. To invest in rental housing, you need to pick the right property, buy it outright or finance it, keep it, and deal with tenants. It would even be easier and more profitable if you make smart purchases.
If you maintain your assets over time, progressively pay your debt, and increase your rent, you will certainly generate a significant steady income in the long term.
Risk: You might have a problem with the lack of liquidity if you need quick access to your money. Besides, you can overpay for housing, like with any asset.
Liquidity: Rental housing might not be the most suitable investment strategy if you need cash in no time. Besides, you may be susceptible to lose up to 6% of the money as a commission for the broker.
14. Nasdaq 100 index fund
Nasdaq 100 index fund is a great choice for investors who are interested in some of the largest and best technology companies without needing to analyze every particular company or pick the winners or losers.
In addition, the fund is based on the top 100 largest companies of Nasdaq, which means that these companies are among the most profitable and successful businesses on the market.
Moreover, this index fund is very beneficial for beginner investors who want to get immediate access to the top companies on the market. Besides, it offers a better chance to diversify the investor’s portfolio and fill it with highly profitable businesses. This strategy will reduce the risk of failure, as well.
The greatest Nasdaq index funds have a low expense ratio. It is undoubtedly a cheap method to own the various companies in the index.
Risk: It is important to note that these different stocks can fluctuate and go down like any publicly traded stock. Besides, these different companies in the Nasdaq 100 are among the most highly valued businesses on the market, which means that they are more susceptible to fall quickly in a downturn. But still, they might rise again throughout an economic recovery.
Liquidity: As long as the market is open, you can easily convert a Nasdaq index fund to cash on any day.
15. Industry-specific index fund
If you are interested in a specific industry, but you can’t choose the winners, then you should opt for the industry-specific index fund.
By doing so, you will have a more diversified exposure to the specific industry without the need to analyze every company. As long as the industry is doing very well during a particular period, the fund will more likely do very well as well.
This investment strategy consists of investing in ETFs. Those latter have low expense ratios, which means that the ongoing fund cost is reasonable.
If you are a novice trader or an experienced investor who wants more exposure to a specific area, then the industry-specific index fund is the right investment strategy for you.
Risk: The major benefit of industry fund is to enable the investor to choose a particular industry to invest in instead of focusing on one specific company. But still, the various companies of a particular sector are more susceptible to get a hit if that industry goes down for any reason, which in return will reduce the benefits of diversification.
Liquidity: As long as the market is open, you can easily convert the industry fund to cash on any day.
Here you have all the necessary information about the best investment strategies in 2019. Before making your decision, make sure to do enough researches and analyses before venturing into any investment, and judge for yourself which strategies are the best suited for your situation.