Financial Advice

17 Smart Investments

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main image: smart investments

Whether you’re just getting started or a seasoned investor, it’s important to be an educated consumer.

Have you ever wondered if you have a grasp on well-performing smart investments? If so, here is a comprehensive list of investment ideas from which to choose, starting with the most conservative and ending with the riskiest. Whether you’re interested in a complicated portfolio with investing options from all corners of the investment world, or a simple strategy, there’s something here for everyone.

Related: 31 Things to Know About Investing Your Money

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1. High-Yield Savings Accounts

This safe bank product is ideal for investors who want a bit higher yield on cash they’ll need in the next few years. Some online banks offer juicy competitive promotional rates. The savvy consumer can uncover decent yields on this conservative and smart investing product.

The yields on current savings products aren’t going to be as high as certificates of deposit and other longer-term investment options.

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2. U.S. Savings Bonds

The U.S. Treasury has a portfolio of ultra-safe smart investment ideas. The government Treasury Direct website sells fixed-rate and inflation-adjusted savings bonds. These government-backed investments offer market interest rates and extreme security against default. These smart investments are perfect for the most conservative investors.

Returns for U.S. savings bonds may not be as lofty as riskier fixed-income investment opportunities.

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3. Lifecycle or Target-Date Funds

A lifecycle or target-date mutual fund is designed for the investor who wants a “set it and forget it” retirement investing option. The investor chooses the year he or she wants to retire or access the money, and the investments are allocated from risky with many years until goal date growing more conservative over time. This is one of the top picks from the pool of smart investment ideas.

Watch out for fees with this one. Look for funds with investment management fees below 1.0 percent and preferably less than 0.75 percent.

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4. Broad-Based U.S. Bond Funds

A diversified bond fund, such as the iShares Core U.S. Aggregate Bond ETF, or a mutual bond fund, such as Vanguard Total Bond Market Index Fund Investor Shares, gives you great investment exposure to the U.S. investment-grade bond market. Both comprehensive funds spread your investments out among corporate bonds and U.S. government bonds of various maturities.

The risk with investing in all except the shortest-term bond funds is that when interest rates rise, the underlying principal value of the fund is likely to decline.

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5. Individual Treasury Bonds

Although frequently maligned, the government really does want to help investors. From the shortest-term Treasury bills to long-term Treasury bonds, these securities protect your money from default all the while giving a secure market interest rate. Although less exciting today, with low interest rates, as rates begin to rise, so will their yield.

Because of their safety, Treasury yields are lower than those on comparable-term corporate bonds.

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6. Municipal Bond Funds

If you’re in a high tax bracket, then a basket of mutual bonds included in your state’s fund may be a good alternative. For example, T. Rowe Price’s California Tax Free Bond Fund is designed for high-tax-bracket Californians. If you’re unsure whether to invest in a tax-exempt or taxable bond fund, it’s helpful to check out the tax equivalent yield of the muni fund.

As with all bonds and funds, the longer-duration funds will lose more principal value than those shorter-term funds as interest rates rise.

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7. Individual Municipal Bonds

These bonds are issued by states, cities, counties and government agencies to pay for big expenses, such as stadiums, road work or any number of public improvements. Munis are desirable because these smart investments are exempt from federal taxes and most state and local taxes as well (if you live in the state of issue).

These bonds are riskier than Treasuries. Remember the defaults by Detroit; Stockton, Calif.; and the Washington Public Power Supply System? Stick to highly rated municipal bonds to minimize chances of a default.

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8. Individual Corporate Bonds

Many types of companies issue debt to pay for growth, operating expenses and other corporate needs. If you’re interested in a higher return than Treasuries, you may want to check out short- or long-term corporate bonds. Investing in corporate bonds is a good investment idea if you’re willing to take on a bit of risk and want to lend money to a corporation in exchange for what could be a higher return than you get on your savings account.

To minimize default risk, stick to investment-grade bonds. Only the most risk-seeking investors should consider the lowest-rate rated bonds, which are nicknamed “junk bonds.”

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9. Individual Stocks

Public companies offer you a chance to be an owner in the company. When the company grows, so does your portion of ownership. The benefit in investing in individual stocks is when you do your homework, buy at the right price and there’s an opportunity to realize tremendous growth.

Buying individual stocks is risky. When a company’s sales slow or the firm is party to a major lawsuit, then you also participate in the negative events that damage a stock’s price.

Read: Ten Best Investment Apps for Timid First-Time Investors

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10. Actively Managed Stock Funds

Buy an actively managed mutual fund, and you are hiring an investment manager. The manager chooses investments that he or she believes will outperform the overall market. For this opportunity, you pay a fee, usually more than 1 percent.

Research has shown that most actively managed stock funds underperform their companion index funds and charge higher management fees. Even if a manager has done well in the past, there’s no guarantee that the outperformance will continue.

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11. Passively Managed Stock Index Funds

If you’re looking to match an index’s performance, then index mutual or exchange-traded funds are for you. In general, index fund returns beat those of active managers most of the time, Vanguard concludes. For instance, it’s tough to outperform a fund with rock bottom expenses, such as the Vanguard Total Stock Market ETF, with an expense ratio of 0.05 percent.

All stock funds are volatile and their share prices go up and down.

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12. International Stock Funds

The U.S. is only about a third of the value of the world’s markets. Thus, it’s a good idea to diversify into international stock funds. There are many broad international stock funds from which to choose. Professionals usually recommend that approximately 20 percent of your stock assets should be invested internationally.

Recently, the diversification benefits from investing internationally have been reduced. That means that when U.S. stock values drop, there’s no guarantee that international stock funds won’t follow suit.

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13. Sector Funds

Do you want access to Chinese securities? Maybe you have a hunch that the oil sector will outperform in the future. If so, a sector fund might be for you. Sector funds include stocks from a narrow slice of the investing universe. Morningstar.com lists recent top performing sector funds. But as any aware investor realizes, the past performance is no indication of the future.

These are riskier investments, because when a sector drops in value, your fund will too. Sector funds are considered less diverse than more broadly diversified funds.

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14. Peer-to-Peer Lending

This newer investing platform allows ordinary consumers to act as bankers and lend their own money to others. Prosper and Lending Club are some of the biggest players in peer to peer lending. Investors like this smart investment opportunity because it gives the ordinary Jane and Joe the chance to earn greater returns on their money than an ordinary CD or money market investment.

The downside to P2P lending is the high default rate. Expect a certain percent of the loans to default and reduce the your overall return. Additionally, these platforms haven’t been tested during major financial crises and their long-term returns are unknown.

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15. Commodities

Commodities include gold, silver, copper, coffee, orange juice and a multitude of other substances. You can buy a commodities fund or participate in a commodity futures contract. Some investors think commodities are a good source of diversification.

“Commodities are like dead money,” Rick Ferri, founder of Portfolio Solutions, wrote in the Wall Street Journal in 2013. “They do not pay any interest or dividends and are not expected to earn any return over the inflation rate. A bar of gold does not generate any cash and will never turn into two bars of gold.”

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16. Options

Trading in options is complicated. Yet there are both conservative and speculative investment opportunities when investing in options. For the speculator, you can bet on the direction of a particular security and profit if you are correct. Conservative options strategies are good investment ideas in a declining market environment. This complicated strategy is best left to intermediate or advanced investors.

When certain types of options, the investor is at risk of losing 100 percent of the investment — or could reap great profits.

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17. Forex

The Forex marketplace is where foreign securities are traded. This is another very risky investment strategy. If you’ve ever travelled in a foreign country, you understand how currency values fluctuate. Forex traders attempt to benefit from these fluctuations.

Forex is another investment idea for the most sophisticated investor. There’s a sharp learning curve and the possibility of great losses when investing in forex. In general, it’s a good idea to limit speculative investments to no more than 5 to 10 percent of your overall investment portfolio.

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Smart Investing Strategy

Before you commit your money to an investment, remember these few important smart investing concepts:

  • Diversification reduces risk and in some cases increases return.
  • Higher-return investments are riskier, and their returns are more volatile.
  • Stock and bond investing is only for long-term money. Any cash you need within the next few years should be in lower-risk cash investments.
  • In general, a fund refers to either a mutual fund or an exchange-traded fund. Depending upon your circumstances, you may prefer one over the other.
  • If a return looks too good to be true, walk away.

When investing, it’s usually a good idea to start by selecting an asset allocation in line with your risk profile. After that step is taken, then choose the investments for your portfolio. Smart investments vary from person to person. Choose investments based on your risk tolerance, investing interest and experience.

Disclaimer: Barbara Friedberg invests in individual stocks, bonds, funds, government securities, high-yield bank products and peer-to-peer lending. She also owns shares in Vanguard Total Stock Market ETF.

This article originally appeared on GOBankingRates.com: 17 Smart Investments

This article by Barbara Friedberg first appeared on GoBankingRates.com and was distributed by the Personal Finance Syndication Network.

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