When you start researching where to invest your money, you might be overwhelmed with the multitude of choices available. From stocks and bonds to managed futures and international currencies, you’ll find there are many ways to try your hand at generating profits. Although choice is a good thing, the truth is that the number of investment options can be a lot to absorb for the “average” investor, who simply wants to save money and have it grow.
The good news is that you don’t need to spend your life learning about complicated financial instruments like stock options to make money. For the average investor, the investment options covered here are more than enough to choose from when building a well-rounded portfolio.
When you invest in stocks, you’re buying into the profit potential of an individual company. As each share of stock represents an ownership interest in the underlying company, you’ll be participating in the highs and lows of the business on a daily basis. To make money in stocks, you’ll need the share price to rise above your original cost. Typically, earnings drive stock prices, so you’ll want to invest in companies with expectations of rising profits and future growth potential.
Learn More: 6 Best Long-Term Investments
Dividend-Paying Stock investing
Dividend-paying stocks are stocks that pay investors a regular income stream on top of their potential for capital appreciation. Most “blue chip” companies that investors are likely to recognize by name are considered dividend stocks — also known as “income stocks” — as they pay above-average yields.
If your first objective as an investor is to generate income rather than to earn capital gains, then bonds might make sense. A bond investment is a promise from an issuer to pay the bondholder a regular series of interest payments for a specified time. At the end of this agreed-upon time, known as the maturity date, the bond issuer pays back the face value of the bond, which is typically $1,000.
For example, if you buy a 10-year bond that pays 5 percent interest for $1,000, you’ll receive $50 per year — which is 5 percent of $1,000 — for 10 years, at which point you’ll also receive the return of your $1,000 investment. You can also choose to sell your bond in the open market at any time, at which point you’ll receive the current market value, which can be higher or lower than what you paid.
Mutual Fund Investing
Mutual fund investing allows the average investor to own hundreds of individual investments in a single wrapper. Mutual funds come in almost any flavor you can imagine: If you want a fund with 100 percent U.S. growth stocks, you’ll have hundreds of choices; if you want stocks that only invest in European stocks, you can find that as well. You can also buy combination funds that invest in both stocks and bonds. Essentially, you can buy a mutual fund that invests in any market category you desire.
For the average investor, a mutual fund provides instant diversification, along with the benefits of professional management. Many funds have low minimum investments, so if you’re just starting out and can’t afford to buy a host of individual stocks and bonds, mutual funds can be an answer for you.
An exchange-traded fund is a popular investment that combines elements of individual stocks and mutual funds. Whereas the shares of ETFs trade like stocks on an exchange, each share represents ownership in an investment fund that typically owns tens, hundreds or even thousands of individual securities. As with mutual funds, you can find an ETF that invests in almost any market sector, from domestic stocks and bonds to gold and silver. For the average investor, the liquidity that ETFs provide, combined with their vast array of investment options, can be a good place to start.
If safety is of paramount concern, there are ways you can tuck away your cash and still earn a bit of interest. Money market funds are liquid investments that typically allow check-writing and earn interest. Money market accounts, although similar, usually have a limit on the number of checks you can draw monthly and carry higher investment minimums; however, in exchange for these limitations, money market accounts carry FDIC insurance, whereas money market funds do not.
Another short-term cash investment option for the average investor is a certificate of deposit. CDs require you to tie up your money for a short, designated term, such as three or six months. In return, you earn interest, and your investment is FDIC-insured.
Related: 7 Best Short-Term Investment Options
Although the wide range of investment choices might seem daunting, you don’t have to be an expert to experiment with basic investing. The investing options detailed here can help you make informed decisions to begin or continue building your portfolio.