What would you do if you become a millionaire all of a sudden?
Ask this question to ten people. I bet nine would give you the most cliched replies that they’ll use the money to go on a vacation trip, to buy an expensive apartment or to dine out in lavish restaurants.
Only a handful would tell you that they’ll invest the money.
Benefits of investment
The majority of us are oblivious to the fact that knowingly or unknowingly, we all invest. We keep money in the bank, which is a sort of investment. The benefits of investment include growing your savings, doubling your money over the time, enjoy long-term returns, etc.
Alongside the benefits, there are some risks. The risks include sudden decline of stock prices, international oil price falling down and many others. People hesitate to invest because of the risks. For them, I’ll discuss the safe investment options.
Investing in bonds
Bonds are of many types. You can invest in the municipal bonds, savings bonds, etc. Many buy municipal bonds because the investment contains almost zero risk. Besides, returns don’t come under the federal tax.
If you are investing in savings bond, I recommend the EE bonds because you pay half of the bond’s actual price. If the bond is worth $50, then you’d be paying $25. You can invest in corporate bonds too; the upsides are flexible terms and higher yields. But the stakes are high too.
Whole life insurance
It’s wise to invest in whole life insurance policy. Life insurance policies are meant to financially secure a family in the event of the sole breadwinner’s death. There’s no difference between whole life and term life insurance in this regard.
However, when it comes to investing, whole life insurance is far better because if the insurer lives on after the tenure of a term life policy, he doesn’t receive anything. It’s a win-win situation. If you die before the policy matures, your family gets a lump sum amount. If you live on, you get the money.
Certificates of deposit
Some find them boring, and rightly so. There’s nothing thrilling about investing in certificates of deposit. CDs are like having a savings account in a bank. You keep the deposit for fixed time and get a fixed rate of interest, which don't increase over the time. You can withdraw the deposit anytime, but doing so results in paying a penalty.
The benefits of certificates of deposit include low risk. You are assured to get the principal amount back as long as it is under $250000. The rate of interest is a variable, and it depends on the term length and other factors.
Treasury bills are debt securities that mature within a year. You don’t have to be an expert to know how they work. The way they work can be construed as “the more, the merrier.” The more bills you buy, the more money you make.
Known as T-bills, they come with time limits, such as 4-week bill, 26-week bill, 52-week bill. You buy T-bills at a discounted rate. The gap between the real rate and the discounted rate is the profit you make after the bill matures. For example, if you buy $1000 26-week bills at $920, then after six months, you make a profit of $80.
Surprised? Don’t be. Stock market is not as risky as you think it is. There are risks, but you can dodge them by investing in the right shares. To understand the degree of risks involved, talk to financial advisors. Read op-eds in the newspapers, in which experts share their opinion on which stocks are safe. We have seen this with Motley Fool stock.
Before deciding on a stock, gather all information about the company. If it has made profit in the past via short-selling, don’t invest in it. A safe stock is not volatile. If it has upped or lowered too much in the past, don't invest. The company’s profit, loss, EBITDA and tax return are crucial indicators. Those data indicate how safe it is to invest in it.
Rookie investors favor low-cost ETFs or exchange traded funds. The benefit of investing in them is they come with a variegated portfolio for tracking index funds. Several company shares make up the index. One company might get bankrupt, but not all. The risk, therefore, is low.
You may be a first-time investor, and who are not familiar with the financial nitty-gritty. That hardly matters, what matters instead are being prudent. Those, who lack prudence, have unrealistic expectations. They think they can beat the share market and become an overnight billionaire. Be realistic, invest prudently and you’ll be successful.
What do you think of this article? Would you follow the tips here when investing? Let us know in the comment section.
Tina Roth is a personal finance blogger and finance expert. Her finance blog covers on investment, insurance, budget, personal finance and many more.