Everyone has savings goals, and there are countless places to put your money to help you meet those objectives. You may be a young person looking to invest and grow your money over the long term. You may be close to retirement age and looking to preserve your nest egg. Or maybe you’re looking for ways to boost your income in the here-and-now.
No matter the objective, there’s an investment for you. What are the best spots for your cash in 2019? Here’s a rundown of the potential options based on your goals.
You can’t begin to invest until you have some money saved. You could put some money in your local bank, but that’s not likely to yield you much additional cash, as interest rates tend to be quite low. Consider looking to online-only banks that are able to offer higher interest rates due to their relatively low cost of operations.
High Yield Savings Accounts
Interest rates on cash savings accounts aren’t very high these days, with the national average on savings accounts coming in just under 0.10%. You can get some better-than-average rates from a number of online savings accounts. Bankrate.com notes that Ally Bank, Marcus by Goldman Sachs, CIT Bank, CapitalOne, WebBank, and many other banks offer APYs as high as 2.5%.
Money Market Accounts
Money market accounts offer virtually the same level of safety as traditional savings accounts, but usually with higher interest rates. They often come with restrictions on the number of transactions but are a good option for people who want to preserve their cash or set up an emergency fund. You can find money market accounts from online banks offering an APY of about 2%.
Many online banks also offer certificates of deposit with rates that can top most savings accounts, as long as you are willing to have your money tied up for a certain length of time. You may be able to snag an APY of 3% or more if you are willing to have your money deposited for as long as five years. CDs have some similarities with savings accounts and it might be difficult to decide which type of savings method is best. Make sure you learn the pros and cons of each before making a decision.
If you are relatively young and have a few decades before retirement, your focus should be on saving for the long haul. To maximize your returns, you should invest largely in stocks, which have historically shown the best returns of any other asset class over time. You could purchase individual stocks, but you may be best off investing in broad mutual funds or exchange-traded funds (ETFs), which can help you diversify your portfolio and reduce risk.
Growth Stock Funds and ETFs
Many mutual funds and ETFs have a focus on growth stocks, meaning that they search for companies with a pattern of strong revenue growth and a deep competitive advantage. Because of their focus on growth, these companies can offer strong returns to shareholders over time.
Most brokerage houses offer core mutual funds focused on growth stocks, and are designed to ideally match or beat the S&P 500. By investing in growth-minded mutual funds, you’ll likely gain exposure to some of the largest and most well-performing public companies.
Popular growth mutual funds and ETFs include:
- T. Rowe Price Blue Chip Stock Fund [NYSE: TRBCX]
- Fidelity Blue Chip Growth Fund [NYSE: FBGRX]
- Vanguard PrimeCap Fund [NYSE: VPMCX]
Index Funds and ETFs
Those with a long investment time horizon may be best off trying to find a single solution that tracks the overall movement of the stock market. This frees you from trying to guess which companies and investments will perform the best over time.
The U.S. stock market has gone up over time, so you can avoid the work and uncertainty of “picking stocks” and simply find a strategy that mirrors the S&P 500 or another broad index.
You can find mutual funds and ETFs that give you broad exposure across industries, sectors and market capitalizations. These so-called “index funds” are often passively managed, meaning that they are not designed to “beat the market,” but in many cases, the lack of an active manager can keep expense ratios very low.
Moreover, many discount brokerage firms will allow you to buy and sell these funds and ETFs with no commission. Fidelity, for example, offers iShares ETFs with no commission, and Charles Schwab offers commission-free trades on hundreds of ETFs.
Popular examples of broad index funds and ETFs include:
- iShares Core S&P Total US Stock Market ETF [NYSE: ITOT]
- Vanguard Total Stock Market ETF [NYSE: VTI]
- T. Rowe Price Equity Index 500 Fund [NYSE: PREIX]
International Stock Funds and ETFs
The U.S. stock market is deep into a cycle of strong performance, so it’s hard to find great bargains. You may find better prices and the potential for better gains over time by looking internationally.
Trying to shop for individual stocks overseas is a chore, so look to a mutual fund or ETF that offers broad exposure to international markets.
Examples of broad international funds include:
- Vanguard Total International Stock Index Fund [NYSE: VGTSX]
- T. Rowe Price Overseas Stock Fund [NYSE: TROSX]
If you are investing with the idea that you’ll need the money within a short time frame (less than a year) you should avoid investing in stocks. While it’s possible to make money from stocks in the short term, their volatility makes them better suited for longer-term investors. If you want to earn some money now while avoiding too much risk, here are some investments to consider.
Thanks to the internet, it’s possible to make money directly off of other people’s personal debt. Platforms such as Lending Club and Prosper allow you to purchase loans from individuals, and even set up entire portfolios of debt with various risk ratings and interest rates. Potential returns from these platforms vary, depending on the risk level of the loans you invest in. Lending Club claims that the majority of its investors earn between 2% and 6% annually, with a median annual return of 4.6%.
That’s much better than the return from your bank, and you don’t have to tie your money up for more than three years.
If you want to make a little bit of money but don’t want your cash tied up for too long, short-term bonds (considered anything with a term of fewer than 5 years) are a solid option. Short-term bonds tend to be less sensitive to changing interest rates because those rates don’t change significantly in the short term. The value of longer-term bonds, on the other hand, might go down over time if interest rates rise repeatedly.
There are many short-term bond funds that can bring you exposure to a mix of debt from corporations and governments.
If you’re an older investor and more concerned about income than growth, there are many companies known to distribute a good chunk of their corporate earnings to shareholders.
The average dividend yield for a company in the Dow Jones Industrial Average is about 2.23%. This means that some dividend-producing companies can offer quarterly payouts upwards of $2 per share. In this case, if you have 100 shares, you might earn $200 every three months. Depending on company share prices, this might represent a yield much higher than any bank account or bond.
If you are confused about which dividend stocks to buy, consider a mutual fund or ETF that focuses on quality dividend producing companies. Well-known funds include:
- T. Rowe Price Equity Income Fund [NYSE: PRFDX]
- SPDR S&P Dividend ETF [NYSE: SDY]
If you want to stay away from the stock market but still have some tolerance for risk, you can pursue solid income from bonds designed to produce high yields. These may be low-rated (often known as non-investment grade) bonds and come with higher interest rates in exchange for the added risk.
High-yield bonds might come from the debt of struggling companies or the governments of emerging nations.
If you’re wary about trying to find high-yield bonds on your own, consider a high-yield bond mutual fund or ETF. Some choices include:
- Vanguard High-Yield Corporate Fund [NYSE: VWEHX]
- Blackrock High-Yield Bond Fund [NYSE: BRHYX]
If all you’re seeking is to keep your nest egg intact, there are few things safer than U.S. Treasury bonds. While yields on Treasuries are on the low end from a historical perspective, they still offer a safe place for your savings and can offer some income. A glance at the published rates from the U.S. Treasury Department shows that a 30-year Treasury bill will yield you about 2.5% in 2019, which is better than most bank accounts. You can invest in Treasuries with terms as short as one month with yields of about 2%.
Longer-Term Bond Funds
If you want some additional income without much additional risk, there are a variety of bond products available with terms as long as 30 years. Generally speaking, you’ll earn more interest on terms with longer maturities. It may be worth examining a selection of bond funds designed to either mirror a fixed income index or pursue higher than average returns; many bond funds will invest in sovereign and corporate debt from the U.S. and foreign countries.
If you want to save money on taxes, consider a fund comprised of municipal bonds, which typically have a low risk of default and offer tax-free income.