Usually, people tend to spend their first paycheck on their “wishes and desires.” A smaller proportion of people start to invest as soon as they first receive their “own” money. As time passes, people learn that they need to save money for the future, emergencies, education, and make safe investments with high returns.
Most of us already know that due to the risks of inflation, it’s not useful to keep cash sitting around, so more and more people started to consider their investment opportunities. An investor should think carefully about where to invest and about the inner workings of the investment process. There are a few points that are important to learn before you decide to make safe investments with high returns:
There are a couple of proven instruments which guarantee high returns on your investments:
Saving accounts are completely safe, and most of them are government-insured (for some limits). Thus, you are secured even if the financial institution fails. It offers not only interest rates but the ability to withdraw money if needed. The con is that the purchasing power of the dollar can be lowered by inflation.
Under a CD, the bank makes an agreement with an individual, where the bank is obligated to pay the interest over a specified period if a person leaves the CD until the end of a certain term. CD does not require large deposits. The risk is that if you withdraw funds earlier from CD, you lose any interest that you’ve earned. Some banks can even fine you using CDs. That’s why read the contract carefully before signing.
Credit Suisse Global Investment Yearbook 2020 provides a real guide regarding long-term returns on US bonds (with a duration closer to 10-15 years) for the 1900-2019 year at 2% (in this case, the average of government bonds of countries was identical). The U.S. Treasury issues notes, bonds, bills, inflation-protected securities. Each has a different mature: bills stretch out over one year or less, bonds last for up to 30 years, and notes last for up to 10 years.
The Federal Deposit Insurance Corp insures money market accounts (MMA). These tend to come with checkbooks. Brokerage firms and mutual fund companies typically sell them. It is similar to saving accounts, but MMA can offer better rates and more flexible policies.
This is riskier since the company can fail. To control risk, some investors choose bonds that mature in a couple of years. Also, investors can select high-quality bonds from large companies with a strong reputation on the market.
For beginners, making safe investments with high returns without any background is not an easy task. Investment is never completely risk-free. It’s a similar process to buying your first car: it may look pretty outside, but you can’t tell what it will be like inside. Learn and study each tool carefully, or ask for professional help if you want to increase assets and avoid losses.