2022 Income Investment and Savings Options

May 11, 2022

5

min read

W

arren Buffett once said if you don't find a way to make money while you sleep, you will work until you die.

The key to making money while you sleep is investments. After all the hard work you have done to make money, let that money work for you.

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That's how the investment works, and you cannot build your wealth just by saving your money. Savings is for short-term financial goals, whereas investment is to achieve your long-term financial goal.

Here are some income investments and savings options you can consider to make money earn money for you :

Mutual Funds

Mutual funds are the portfolio of securities, including stocks, bonds, and money market instruments. It is a professionally managed investment portfolio that helps diversify the risks.

Why Should You Invest In Mutual Funds?

Diversified Risks:

Mutual funds are the safest investment options since the risks are diversified across multiple investments. Thus, even if one investment incurs a loss, the profit from another helps to cover up the loss.

Newbie Investors:

Mutual funds are great investment options for newbie investors who do not know much about the securities market. Since professionals manage these funds, you can rest assured of the returns.

Professional Management:

Mutual funds are the best investment if you do not have time to look for them. Since this is professionally managed, the fund manager does all the hard work to grow your investment.

401 K Plans

401 K Plans are the retirement savings plan sponsored by the employer and employee. Both employer and employee make contributions.

It depends on the employer's policy on how much they would contribute, but generally, it is 6% of the employee's salary.

Why Should You Invest In 401 K Plans?

Tax Advantage:

The 401 K plans are the best to save the tax. You will receive lower paychecks since the amount is deducted directly from your salary. Since the taxable income is low, you will save the tax money.

Compound Interest:

The best thing about investing in 401 K plans is the compound interest. This means you earn interest on interest, which helps you gain a lot in the long term.

Forced Savings:

It's the best way to save and invest for those who cannot save. Since these funds are directly deducted from your salary, it is like a forced saving, and you can spend the remaining fund wisely.

Stocks

Stock is the ownership share of a company. The investors invest in the stocks hoping that the company's profit and stock value will increase.

This way, you can sell the stock for more than the price you paid for it and earn a profit from them. Also, even if you decide to hold the stock, you will be paid the dividend for the amount of stock you have owned from the profit made by the company.

Why Should You Invest In Stocks?

Inflation Hedging:

Stocks are great investment options to hedge against inflation. It's because the stock returns keep up with the pace of inflation. For instance, when inflation rises, the business charges more prices for which they sell. This increases the profit increasing their stock value.

Dividends:

Stocks are an excellent investment for passive income. The stocks that you own will pay you good dividends, which helps you earn some extra money. The company may pay you cash or stock dividends. Stock dividends are added to your current stocks.

Liquidity:

Stocks are more liquid investment options as they can be easily traded in the stock market. You can sell the stocks at a higher value and earn a profit from them.

High Returns:

There are high chances of earning higher returns. If your company is doing exceptionally well, the stock value will increase significantly, and you can earn high returns. There are high chances that your investments will grow exponentially in the future.

Real Estate

The real estate market has risen over the years. You can invest in real estate and see your money grow over the years.

Though there are some pitfalls while investing in real estate, plenty of benefits come with it, whether it be passive income, stable cash flow, leverage, financial security, or appreciation over the years.

Why Should You Invest In Real Estate?

Leverage Investment:

Real estate is the best investment option that you can leverage. For instance, if you have $20,000 savings and want to invest the money, you can only invest the same amount of money.

But in real estate, you can invest in the assets more than what you have to invest. You can purchase real estate worth $100,000 and earn more if your real estate value grows.

Safe Investment:

Real estate is considered a safe investment since the housing market often appreciates its value.

Passive Income:

Real estate is an excellent investment for passive income since you can earn a good amount of money from the rent.

High Yield Savings Accounts

High yield saving accounts are the safest and the most liquid investment options available. The high yield saving accounts can offer 20 to 25 times higher than other accounts.

Usually, online banks offer high-yield savings accounts, but you can get them from your banks. These investment options are highly liquid, and you can easily use them when required.

On top of that, they are very safe options, but they cannot be hedged against inflation. If inflation rises, there is a high chance that you may lose your purchasing power.

Why Should You Invest In High Yield Saving Accounts?

Liquidity:

High yield saving accounts are best for liquidity. Since these investments are very liquid, you can use them for emergency purposes.

Less Risky Investment:

They are the less risky investment option available as there is no risk of your investment incurring any losses. However, you may lose your purchasing power when inflation rises.

Certificate Of Deposit

Certificates of deposit (CDs ) are the money market instruments issued by the bank. These are like savings accounts but have high interest, fixed-term, and maturity.

The bank receives the deposit from the investors and issues the certificate of deposit. The investor receives the amount deposit and the interest at maturity.

Why Should You Invest In Certificates Of Deposit?

Higher Returns:

The returns in the certificate of deposit are higher than any saving account. Also, the interest rate is fixed up to maturity, which yields consistently high returns on the account.

Safe Investment:

A certificate of deposit is the safest investment option as the money held in the CD is insured. Thus, your money will be returned to you if the bank shuts down.

No Maintenance Fee:

Usually, savings accounts have maintenance fees, but there is no fee for the certificate of deposit. Thus, if you want to invest in safe long-term investments, a certificate of deposit is the best option.

Bonds

Bonds are security issued by the government or companies to raise money. You can invest in the bonds and get the interest as a return. There are two types of bonds: government and corporate bonds.

The government bonds provide lower returns but are safe investment options, whereas the corporate bonds provide higher returns with credit risk. They are a long-term investment option, and the sum is paid at maturity.

Why Should You Invest In Bonds?

Less Volatility:

The bonds are less volatile than the stocks. Thus, if you want to invest your money in safer investments, bonds are an excellent option.

Fixed Income Source:

The interest rate in the bonds is fixed, providing a passive income source for the investor.

Liquidity:

You can also sell your bonds if you need the money. You can sell your bonds at a higher price than you bought if the interest rate of bonds is higher than the prevailing market interest rate.

Conclusion

There are plenty of investment options available that help your money make more money for you. Money is like a magnet. If placed on the right side, it attracts one another. However, if you put it on the wrong side, it repels.

Thus, it depends on how and where you invest your money. Each of the investment options has its pros and cons. Therefore, you should invest in options that best fit your financial needs and requirements.