11 Popular Investments: What Should You Invest In?

A high yield savings account (HYSA) is a cash account that earns a higher APY than a traditional bank account. A HYSA earns around 4% APY or higher, whereas a traditional bank account earns around 0.42%.

Advantages and disadvantages: The primary advantage of using a high yield savings account is the higher APY that you will earn. A secondary advantage is that your money is readily available when you need it. For these reasons, many investors choose to use a high yield savings account to build their emergency fund.

The primary disadvantage of a high yield savings account is that you could earn a higher return in other investments. Although high yield savings accounts earn higher interest than traditional savings accounts, the return is not close to investments such as stocks and investment funds.

Level of risk: In general, high yield savings accounts are safe as your deposits are FDIC insured. The primary risk you incur is that your dollars can lose value if the rate of inflation is higher than the rate you are earning from your high yield savings account.

How to invest: You can check to see if your current bank offers a high yield savings account. If not, you can research some options online. Once you have found a bank you like, you can simply fill out an application online. Once your application is approved, simply deposit funds into the account and start earning interest.

A certificate of deposit (CD) is a type of savings account that earns interest on a lump sum of money for a set period of time. In other words, you give a bank a set amount of money for a set amount of time, and get your money plus interest back at the end of the term.

For example, you could place $1,000 in a 1 year CD that earns 5%. After one year, you would get your $1,000 back plus the 5% interest which would be equal to $50.

Advantages and disadvantages: The primary advantage of investing in a CD is that you get a safe guaranteed return. CD rates are generally fixed, meaning that you are guaranteed to earn the interest rate promised when you first invest in a CD. A second advantage is that CDs can potentially provide a higher return when compared to other banking products.

The primary disadvantage of investing in a CD is that you can't access your money during the term of the CD without incurring a penalty. For example, if you invested in a 1 year CD, you would not be able to touch the money until that year was up. If you try to access it before, you may have to pay a penalty which would lower your return.

Level of risk: Similar to high yield savings accounts, CDs are typically FDIC insured meaning that your deposits are safe. The primary risk you run into when investing in a CD is the lack of accessibility during the term of the CD. In other words, don't put money in a CD if you think you will need it during the length of the CD whether that be 1 year, 3 years, or 5 years.

How to invest:  You can check to see if your current bank offers CDs. However, a better idea is to compare CDs online so you can find the best rates. Consider the length of the CD and the interest rate you are getting as you are comparing CDs.

Once you have found a CD you like, simply fill out an application with the bank. This can usually be done online. Once your application is approved, you can make your deposit to your chosen CD. Keep in mine that most CDs do have a minimum deposit required, which typically ranges from $500 to $1,000.

A bond is a loan that is repaid with interest. Bonds are typically issued by the government or corporations when they want to raise money. When you buy a bond, you are loaning the government or a corporation money and in exchange they agree to pay you back the face value of the loan on a specific date, as well as periodic interest payments along the way.

Advantages and disadvantages: The primary advantage of a bond is that it is typically less volatile than a stock. For most investors, this can make bonds a safer investment than equities. A secondary advantage of bonds is that they provide a small stream of income through periodic interest payments that can vary depending on the type of bond you buy.

The primary disadvantage of bonds is that your return will be lower when compared to stocks. A secondary disadvantage of bonds is that the price of bonds have an inverse relationship with interest rates. If interest rates go up, the price of bonds go down and vice versa. So, if interest rates go up, your bonds could go down in value.

Level of risk: In general bonds have a low level of risk. If a bond is issued by the government, there is almost no risk that the government will not be able to repay the obligations of the bond. However, if you invest in corporate bonds, you do incur the risk that the corporation won't be able to repay the obligations of the bond.

How to invest: You can invest in bonds through almost all online brokers after you set up an investing account with the broker. You can buy individual bonds or buy bond mutual funds and ETFs if you don't want to sift through and research individual bonds. The US government also allows investors to buy Treasury bonds direcetly from the goverment through a service called Treasury Direct.

A stock is an investment that represents a piece of ownership in a company. When you buy a stock in a company, you become a partial owner of that company. Typically, when the value of the company goes up, so does the value of your stock.

Advantages and disadvantages: The primary advantage of stocks is that you can earn higher returns when compared to other assets. The stock market has historically returned around 10% per year over the long haul (not every year). A secondary advantage is that stocks are easy to buy

The primary disadvantage of stocks is that they are volatile. The price of a stock can move up, down, sideways and it is almost impossible, even for professional investors, to predict when the price of a stock willl change. Due to this volatility, investing in just a few individual stocks can expose you to more risk.

Level of risk: Individual stocks are considered to be one of the more risky investments. You can help mitigate some of the risks of investing in stocks by diversifying your portfolio. We will discuss this more when we look at investment funds below.

How to invest: Investing in stocks is easy. You will first need to set up an investing account at an online broker or trading platform. Go to the website of your chosen broker and fill out an application for an account. Once your account is approved, you can deposit funds from your bank account and buy the stocks that you want. If you want more information, you can check out our guide on how to invest in stocks.  

A mutual fund pools money from many investors and uses that money to buy a range of securities including stocks, bonds and other assets. Mutual funds are typically managed by a professional fund manager that buy s and sells securities in line with the goals of the mutual fund. However, there are mutual funds that are not actively managed and instead focus on capturing the standard return of the market.

Advantages and disadvantages: The primary advantage of mutual funds is that they are convenient and offer instant diversification. Instead of trying to buy individual stocks, you could buy a mutual fund and instantly be invested in all of the securities held by the fund. Mutual funds allow you to lower your risk as you can own hundreds of investments at the same time.

This means that even if one investment is not doing well, the others in the fund can make up for it. A second advantage is that mutual funds do offer attractive returns. During a good year, mutual funds can return between 10% and 12% for the year.

The primary disadvantage of mutual funds is that the fees can be high. Since mutual funds are typically professionally managed, there needs to be fees to pay the managers. Even a 1% fee can eat away at your return. Oftentimes, mutual fund managers can't get a high enough return to justify the higher fees of mutual funds.

Level of risk: Mutual funds have a moderate level of risk, and are less risky than buying individual stocks as you invest in lots of investments held by the fund. However, this does not mean that mutual funds carry no risk. If the entire stock market crashes, it is likely that a mutual fund will follow if it is primarily made up of stocks.

How to invest: Investing in mutual funds is pretty straightforward. Similar to stocks, you can go to an online broker, and fill out an application for an investing account. Once your account is approved, you can deposit funds and select which mutual funds you want to buy. Almost all reputable brokers offer research tools to help you choose which mutual funds are good options.

Look for mutual funds that have a good track record and low expense ratios (the fee the mutual fund charges). We also recommend using a broker that does not charge a commission when you buy a mutual fund. Charles Schwab and Fidelity are both good options.  

An index fund is a type of mutual fund that tracks the performance of a specific market benchmark, such as the S&P 500, as closely as possible. The goal of an index fund is to provide returns that are similar to that of the index the fund is tracking. This makes index funds a hands off and low stress investment.

Advantages and disadvantages: The primary advantage of an index fund is that it has lower fees when compared to a mutual fund. Index funds are not actively managed like a mutual fund, which means that fees can be lower as you do not have to pay a fund manager.

A secondary advantage is that an index fund provides stable returns. For example, the S&P 500 is an index that tracks the 500 most important companies in the US. It has historically averaged a 10% return. If you were to buy an S&P 500 index fund, you would most likely get around a 10% return per year over the long haul.

Similar to a mutual fund, a final advantage of an index fund is that it does offer instant diversification which lowers your exposure to risk. The primary disadvantage of an index fund is that you don't have as much control over what you invest in. In other words, you don't get to add or subtract companies that you do or don't like from the fund.

Level of risk: Index funds have a moderate level of risk. Index funds are less risky than buying individual stocks, but if the index that your fund is tracking starts to underperform, so will your index fund. However, over the long term index funds tend to recover and perform well.

How to invest: The process for buying index funds is the same as buying mutual funds. Go to a broker, open an account, deposit your funds, and buy your chosen index funds. Some popular index funds are the Schwab S&P 500 Index Fund (SWPPX) and the Fidelity 500 Index Funds (FXAIX).

An exchange traded fund, or ETF is similar to a mutual fund in that it pools money from many investors to buy a range of securities. ETFs typically track a particual index, sector, or commodity.

Advantages and disadvantages: The advantges of ETFs are similar to index funds. Like index funds, ETFs are not typically actively managed which means that the fees are lower than that of a mutual fund. ETFs also provide stable returns over time and provide instant diversification.

A secondary advantage of an ETF is that they are more flexibile in the way that you can buy and sell them. Unlike a mutual fund, you can buy and sell an ETF throughout the day just like you would a stock.

The main disadvantage of ETFs is that you don't get as much diversification as you could from mutual funds. Some ETFs only expose you to large cap stocks, which means that you could miss out on the growth opportunities of small and mid cap stocks.

Level of risk: ETFs have a moderate level of risk. Similar to index funds, the primary risk you incur when investing in an ETF is that the underlying idex that the ETF is tracking underperfoms. In other words, when the index, sector, or commodity that an ETF tracks is not doing well, the ETF itself will follow suit.

How to invest: The process for buying ETFs is the same as buying mutual funds and index funds. Go to a broker, open an account, deposit your funds, and buy your chosen index funds. Some popular ETFs are the Vanguard S&P 500 ETF (VOO) and the SPDR S&P 500 ETF Trust (SPY).  

Most investors who make money with real estate buy a property, build equity, sell it later for profit or hold onto it. In other words, homeownership is the traditional approach that most investors will take with real estate. However, rental properties are more of a true real estate investment that can provide a range of benefits.

Advantages and disadvantages: The primary benefit of a rental property is cash flow. If you are able to rent out a property for more than what your expenses are, you can get a steady stream of income each month. Secondly, the value of the property you bought can go up in value. Thirdly, the IRS allows you tax breaks related to ordinary and necessary expenses, improvements, and depreciation.

Contrary to what you see real estate "gurus" say online, investing in rental properties do have some disadvantages. The primary disadvantage is that you are going to have to deal with tenants and upkeep for the property. This can require significant amounts of time and effort.

However, some real estate investors outsource these problems to a property manager if they can afford to do so. Secondary disadvantages include rising taxes and insurance premiums, lack of liquidity, and the decline of neighborhoods.

Level of risk: Although rental properties provide a lot of benefits, they are a high risk investment. The risks can include the extended vacancy of a propety, bad tenants, not having any positive cash flow, rising taxes and more.

How to invest:  Investing in rental properties is hard and complex. It is the most challenging of any investment on our list. We recommend speaking with real estate professionals or other real estate investors to get an idea on how to invest in rental properties.

A real estate investment trust, or REIT, is a company that owns, operates, or finances, income generating real estate. Similar to mutual funds, an REIT pools the money of numerous investors. The REIT then takes this money and invests in properties that can include apartment complexes, hotels, hospitals, and other infastructure.

The money that is generated from these investments is then distributed to you as an investor through a dividend. Some REITs are traded publicly like a stock, where as others are pulic non-traded meaning that you can't buy them through an exchange.

Advantages and disadvantages: The primary advantage of investing is a REIT is the low barrier to entry and the income stream through dividends. Although some types of REITs can have high minimum requirements to invest in them, the costs are typically lower when compared to buying real property.

REITs are required to return 90% of taxable income to investors in the form of dividends each year. This means that REITs can provide a nice stream of income when you invest in them.

The main disadvantage of REITs is that they do not appreciate as much as other asset classes. Since REITs primarily focus on distributing earnings, your share price of your REIT is not going to appreciate like an investment fund would.

A secondary disadvantage is that the dividends that are distrubuted to investors are taxed at the investors regular income rate. This can mean that you might pay higher taxes when compared to traditional dividends from stocks.

Level of risk: REITs have a moderate level of risk over the long haul. Since REITs follow the real estate market, the risks are closely related. Risks can include interest rate risk, fluctuations in property value, the risk of low occupancy within properties, and the risk of bad location.

How to invest: You can invest in publicly traded REITs just like you would an investment fund through an online broker. There are also REITs that are publicly available, but are not traded through an exchange. Instead, you could buy them through a broker such as Fundrise that specifically focuses on public non-traded REITs.

Cryptocurrency, or crypto, is a digital currency that can be used as an alternative method of payment. The whole idea behind crypto is to remove the need for a central bank to monitor the money supply. Crypto has gained mainstream populartity within the last decade with major crypos Bitcoin and Ethereum leading the way.

Advantages and disadvantages: The primary advantage of crypto is the potential for high returns. Without question, crypto has provided the highest return of any asset class over the past decade. Crypto purists will also point out that crypto has the potential to eliminate the need for third party financial instituitions as it uses blockchain technology to verify transactions.

The primary disadvantage of crypto is the volatility and scams that can occur. The price of crypto can skyrocket, or crash without warning. This makes it hard to predict where the price will be in the future. There have also been a wide variety of scams and hacks around crypto.

Level of risk: In short, crypto is very risky. When you look at the returns over the past decade, it can be tempting to want to invest a significant amount of money in crypto. However, you would be better off only investing money in crypto that you are okay with losing.

How to invest: Investing in crypto is easy. You can buy crypto through a crypto exchange. Once you have chosen an exchange, you can open an account on the exchange's website. After that, simply deposit funds and buy your desired crypto.

Related - Should You Invest in Crypto?

Gold and other previous metals have long been popular alternative investments, especially during rough patches in the market, and overall economic turmoil. Gold can be volatile in the short term, but typically performs well over the long term. Gold typically appreciates in value when the US dollar depreciates in value due to inflation.

Advantages and disadvantages: The primary advantage of gold and other precious metals is that they can act as a hedge against inflation. Gold tends to hold its value over time, where as fiat currency (US dollars) lose value over time due to inflation. Some investors like to hold gold during times of economic turmoil. Gold can be a good way to diversify your portfolio beyond traditional investments.

The primary disadvantage of gold is that it does not provide any sort of income for holding onto it. Stocks can provide a stream of income through dividends, and real estate could provide cash flow by renting the property to tenants. However, gold only provides value through appreciation.

A secondary disadvantage is that you could incur storage and insurance costs if you invest in physical gold. If you held gold coins or gold bars, keeping them in your home could leave you exposued to the risk of theft. For this reason, you could incure the costs of storing if some place else and insuring it.

Level of risk: In general gold and other precious metals are considered to be a low risk investment option. However, that does not mean there are not risks at all. The price of gold can be volatile in the short term. Even though gold is bought as a hedge against inflation, there is not guarantee that the price of gold will always keep pace with the rate of inflation.

How to invest: There are several ways to invest in gold. First, you can buy physical gold bars or coins through a dealer. If you don't want the hassle of physical gold, you can buy ETFs that own gold, or mining stocks that focus on the mining and production of gold.

At the end of the day, you can invest in whatever you like. However, our general recommendation is to build a diversified portfolio primarily using investment funds and then fill in the gaps with bonds and cash or bank investments.

Stocks typically make up the majority of most investors portfolios. You can try to choose individual stocks, but you would be much better off buying stocks through an investment fund. An investment fund will allow you to buy hundreds of stocks of good companies simultaneously. It will be significantly easier and less risky than trying to choose your own stocks.

A Formuala to Choose Investments

You can use the Rule of 100 to determine how much of your portfolio should be in stocks. The Rule of 100 states that you should subtract your age minus 100 and that is the percentage of stocks that should be in your portfolio. For example, if you are 20 years old, you would subtract that from 100 and be left with 80.

In this example, the Rule of 100 states that 80% of your investments should be in stocks. However, since you don't want to focus on choosing individual stocks, 80% of your investments should be in investment funds. You can mix your funds between mutual funds, index funds, and ETFs depending upon what you want.

Once you know what percentage of your investments should be in investment funds, you can fill the remaining percentage up with bonds and cash or bank equivalents. Maybe you put 10% in bonds, 5% in short term CDs, and 5% in a high yield savings account.

Keep in mind that the Rule of 100 is not a strict law. It is more of a general guideline that you can follow to help you determine what percentage of your investing portfolio should be in investment funds. Some financial experts also say that you should subtract your age from 110 or 120 thanks to increasing life expentancy.

Potential Funds You Could Invest In

The Schwab S&P 500 Index Fund. The Fidelity ZERO Large Cap Index Fund. The Vanguard S&P 500 ETF (VOO). The Vanguard Total International Stock ETF (VXUS). The SPDR S&P 500 ETF Trust (SPY). The State Street US Core Equity Fund. The Fidelity Mega Cap Stock Fund.

Important note: Keep in mind that these funds are simply examples of what you could invest in. The funds that are right for you could be different. The good news is that almost all online brokers offer free research tools to help you find good funds.

We recommend looking for funds with at least a 10 year record that have low expense ratios. An expense ratio simply means what fees the fund charges. (We are not financial advisors so we recommend speaking with a licensed advisor to help you choose the right investment funds.)

A Short Cut to Choosing Your Investments

If choosing your own investment funds, bonds, and bank investments still sounds intimidating, there is a short cut. You can opt to invest using a robo advisor. A robo advisor is a digital financial advisor that will build an investment portfolio based upon your individual needs, risk tolerance, and goals.

When you sign up for a robo advisor, you will be asked a series of questions related to your investing goals. Based upon this information, the robo advisor will choose investments for you. The good news is that robo advisors build portfolios using investment funds, bonds, and cash or bank investments so that you don't have to lift a finger.

Robo advisors are an easy low cost way to start investing. If a robo advisor sounds like a good fit, you can compare our picks for the top robo advisors here.

A Final Word

At the end of the day, you can invest in whatever you like as long as you are comfortable with the risks and understand the investment. We recommend starting with the basics, but it is ultimately up to you to determine what you should invest in. If you want to learn more about investing as a whole, you can check out our guide on how to invest as a beginner. It will give you more knowledge and tactical steps to help you get started.