One of the more popular questions I’m often asked is – “Where should I put extra money to get the best returns? ”
While things like stocks and mutual funds can provide seemingly high average returns, the problem is that – as average returns increase, the risk also increase. To minimize any losses, we have to ‘lock up’ our money over longer periods of time.
To answer that question properly, we have to first identify our time horizon as to when the funds are needed again, and then, allocate those funds properly.
Here are some suggestions for where to put money into, based on the time horizon you may have in mind – starting from the shortest (i.e. we’ll need to access the money soon) to the longest (i.e. targeting towards retirement).
Less than 3 years
Recommend: Savings & Chk accts
Risk: Negligible, as accounts are FDIC Insured
Average return: Up to 3% (Guaranteed – See how here: “Credit Unions: Your Best Bet for High Interest, FDIC Insured Accounts”)
Recommended: Bonds / P2P lending / Notes
Risk: Low-to-Medium. Investment can lose value from time-to-time over short periods, but will generally rise over time
Average return: 7% (Losses & defaults included)
Recommended: Index / Mutual Funds
Risk: Medium. Investment can lose value for several years in a row, but over the long span, value will rise over time
Average annual returns: 8-10%
Looking for even higher returns for your dollars? Consider purchasing Real Estate or running a business!
Unlike the other investments above, these options absolutely require additional work to achieve higher returns. Returns received can almost be correlated to the effort / labor inputted, plus also requires a significant amount of education. These are definitely not a ‘set and forget’ type of investment like the options above – and they generally require extended, long term time commitments.
Recommended: Real Estate
Risk: High, but variable depending on skill level
Average annual return: 5%, increasing to 20+%*
Recommended: Starting a Business / Purchasing a Franchise
Risk: Very High – Variable, from 100% loss to infinite gain
Average annual return: 100% loss to infinite gain*
Have a better idea? Or, another alternative that should be added to the list? Comment below!