What the Best Investments Should Include
Determining the “best” investment at a given time is difficult, as different investment options offer different advantages and drawbacks. Some investments have the chance to provide incredible returns, but come with a lot of risk. On the other hand, some might be safer but not come with the same growth potential.
While it's hard to pinpoint the best investment, as it depends on you as an investor, there are a few things you should consider when deciding to invest your money.
Budget and income
Some investments may only be an option for those with a certain amount to invest. For example, buying a rental property can cost tens of thousands of dollars (or more) upfront. You need to look at your budget, income, and savings before you invest to see what types of options you have.
As you age, you generally want your investments to become safer. Those who are younger may be comfortable with more risk as they don’t need to use their investments for many decades. On the other hand, those nearing retirement may need to use them within a year or two and don’t want to risk losing everything.
Knowing your risk tolerance can help guide you to investments you’re comfortable with rather than those that will stress you out. Some people are fine with volatile investments that may go up and down multiple percentage points each day, while others prefer something relatively stable.
The financial goals you have will also influence how you invest. Many people have the goal of hitting it big and will put their funds in risky investments, while others want consistent growth to keep up with inflation. Neither is right nor wrong, but knowing your goals and what you want from your investments can help you make the correct choice.
10 Best Investments to Consider in 2023
Now that you know what to keep in mind when investing your money, let’s take a closer look at some of the best investments to consider in 2023.
1. Individual Retirement Account (IRA)
An Individual Retirement Account (IRA) is a way for anyone who earns income to save for retirement. These accounts can be opened at a variety of banks or brokers, and you can choose from a traditional IRA (invest with pre-tax money, pay taxes upon withdrawal) or a Roth IRA (invest with after-tax money and withdraw it tax-free)
IRAs are easy to set up, let you decide how you invest, and can lower your taxable income (traditional IRA). An IRA is a great choice for those who don’t get a 401(k) match at work or who want more freedom to invest in anything from stocks to ETFs, to mutual funds, to bonds.
401(k)s are employer-sponsored plans that let workers save for retirement. A portion of their salary is deducted and invested for them automatically in a variety of assets chosen by the sponsor. In most cases, you won’t pay taxes on your contributions and it will grow tax-deferred. Taxes will be applied, however, when you withdraw the money during retirement.
Some of the benefits of a 401(k) include automatic investment and high contribution limits ($22,500 in 2023). Also, many companies will match up to a certain contribution. A 401(k) is a good choice for people who work for a company that offers one, especially if it comes with a match.
3. Individual stocks
When you invest in an individual stock, you’re purchasing a small share of ownership in a company. Stocks are bought and sold on an exchange. They’ll go up and down in price based on supply and demand, and how the market feels about a stock, company, or industry.
Some of the advantages of investing in individual stocks include the potential for high returns, the ability to invest in smaller amounts, and the fact that there is no management fee.
Investing in individual stocks is best for those who are okay with taking on risk in the hope of getting large returns. Stocks are also a good choice for those who already have a diversified portfolio and are comfortable adding a bit of risk to it.
4. Exchange-traded funds (ETFs)
Exchange-traded funds (ETFs) are investment funds that pool together money from multiple investors to buy different securities, and are bought and sold throughout the day on an exchange like stocks.
Because you’re buying a large basket of different securities in one fund, you get diversification without having to make multiple purchases. They also have low fees and are incredibly accessible.
ETFs are a popular choice for cautious investors who want a diversified portfolio and those who want the flexibility to buy and sell throughout the day. These investments provide the freedom of trading on the stock market, without having to put all of your eggs in one basket.
5. Mutual funds
Like ETFs, mutual funds are an investment that pools together money from a large number of investors to invest in a variety of assets. Mutual funds are managed by a fund manager, who chooses what the fund invests in, with the goal of providing returns to everyone.
However, they differ from ETFs because they can only be purchased at the end of the trading day, as opposed to being bought and sold throughout the day like stocks. Also, ETFs aren’t actively managed, and thus may have lower fees than mutual funds.
Mutual funds offer an easy way to diversify your portfolio, are straightforward to understand, and can be bought and sold quickly and easily. These investments are a good choice for those who want exposure to the stock market without having to invest in individual stocks and bonds.
6. Index funds
Index funds are a type of mutual fund that invests money within a specific market index (such as the S&P 500) as opposed to having a manager decide where to invest the funds.
These funds are cost-effective, while still providing diversification. Index funds are less volatile than many mutual funds, as there isn’t a manager attempting to beat the market.
They’re great for basically all investors but are an especially popular choice for younger people with longer timelines. They’re also chosen by those who prefer a hands-off approach and like to invest passively over time.
7. Certificates of Deposit (CDs)
A Certificate of Deposit (CD) is a type of savings account where you will keep a fixed amount of money for a set amount of time, and it must remain untouched for the entire period. Once the set period ends, you get the money back, plus any interest earned.
CDs are a way to get moderate returns from money you don’t need to use right now, and achieve guaranteed returns at a much higher rate than a traditional savings account. These are a good option for retirees or investors who are risk-averse and need money at a specific point in the future for something like a wedding or down payment on a home.
Bonds are similar to CDs, but instead of locking up your money in an account for a set period, you are lending it to the government or a company. The entity you loan the money to will pay you a fixed rate of return over the course of the loan.
These investments are safe, provide a steady payment you can rely on, and can be an important part of a balanced portfolio. Bonds are a solid choice for investors who want to limit volatility in their portfolio and prefer safer investments. People nearing retirement may benefit from investing in bonds, as there is little risk involved.
9. Real estate
Investing in real estate involves purchasing property with the hopes of making money. Some real estate investors will fix up a home they purchase and sell it for a profit, while others may rent the property out to generate steady cash flow every month.
Real estate isn’t as volatile as many other kinds of investments, and investing in it can provide incredible returns, passive income, and tax benefits. It’s generally best for those who have a large budget or long-term investors willing to take on more risk to diversify their portfolio.
10. High-yield savings account
A high-yield savings account is an account that will pay you interest on the cash amounts you hold there and will offer higher returns than most traditional savings accounts. High-yield savings accounts are great for reaching short-term savings goals, let you save without risk, and are flexible and easy to move money in and out of.
These are a good choice for those who need access to cash in the near future but still want better returns than their checking accounts or a traditional savings account, or those who are risk-averse.
The best investment of 2023 depends on the investor. Considering your budget, age, risk tolerance, and goals can help you decide what is right for you. Each of the options covered in this guide has its own benefits and drawbacks, and is worth considering as you look to diversify your portfolio, build your wealth, and stay ahead of inflation.