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Key takeaways:
- Investing is a way to increase your wealth based on your risk tolerance and time horizon
- The best investments for low-risk investors looking for moderate returns are index funds, government bonds, and high-yield savings accounts
- The best investments for high-risk investors that want high returns are individual stocks, real estate, and cryptocurrencies
Investing is one of the best ways to grow your wealth and improve your financial future. One of the keys to finding the best investments is to recognize the power of compound interest. The credit bureau Experian® describes compound interest as “when interest gets added to the principal amount invested or borrowed, and then the interest rate applies to the new (larger) principal.”
There are many ways you can invest, and some investments earn more than others, and some investments are riskier than others. Today, you’re going to learn about the nine best investments in 2023 based on average returns as well as your personal risk tolerance.
The investing information provided is for educational purposes only. We recommend consulting a financial professional before investing.
The best investments
The best investments right now to grow your wealth include:
- High-yield Savings Accounts
- Short-term Certificates of Deposit (CDs)
- Government Bonds
- Corporate Bonds
- Real Estate and REITs
- Individual Stocks
- Index Funds
- Exchange-traded Funds (ETFs)
- Cryptocurrency
1. High-yield Savings Accounts
High-yield savings accounts are similar to a regular savings account, but you’ll often earn more interest by keeping your money in one of these accounts. You can sign up for a high-yield savings account through many banks and credit unions, and some accounts can earn you anywhere from three to four percent annually.
If you have or plan on making an emergency fund, Javier Simon from SmartAsset recommends using one of these accounts. “Anyone looking to open a rainy day or emergency fund that provides a higher-than-average interest rate and high liquidity should consider a high-yield savings account,” writes Simon. You’re saving anyway, so why not make money from storing your funds?
Best investment for: People with lower risk tolerance and who are good at saving. This is one of the safest investments with high returns because many banks are FDIC insured, so even if the economy has a downturn, your money is backed by the government.
Risk level: Very low
How to invest: Banks, credit unions, and online banks
Potential returns: Moderate
2. Short-term Certificates of Deposit (CDs)
When looking for where to invest money, many people turn to certificates of deposit, which are also known as CDs. Like high-yield savings accounts, CDs are another type of account. CDs work by allowing you to deposit your money with the caveat that you don’t withdraw the money for a certain amount of time. Once that time frame expires, you’ll receive your money back as well as the interest.
Best investment for: People willing to store their money for one, three, or five years, which are the average predetermined time frames. Just remember, unlike a savings account, there’s a fee for withdrawing your money early.
Risk level: Very low
How to invest: Banks and credit unions
Potential returns: Moderate returns that sometimes exceed those of high-yield savings accounts
3. Government Bonds
Sometimes, the government needs to borrow money, so they offer people the option to loan them money via government bonds. Like CDs, these bonds are for a specified period, but they provide regular payments. Peoples sometimes use bonds as one of the best passive income investments due to these payments.
One caveat to note is the return on government bonds varies depending on how the economy is doing.
Best investment for: People with a low risk tolerance often buy government bonds. Unless the government fails, there’s not much that will prevent getting your return from this investment. Unlike other investments, government bonds can last for up to 30 years.
Risk level: Very low
How to invest: The United States Treasury or through a stock broker
Potential returns: Low
4. Corporate Bonds
Like government bonds, corporate bonds are loans, but you’re providing that loan to a company. This investment helps companies that need money to invest in new products and expand their business. Since these aren’t backed by the government, they can be riskier because the company may go out of business. Although these have a higher risk, they also have a higher return than government bonds.
Best investment for: Individuals with a higher risk tolerance and are looking for higher returns may want to invest in corporate bonds. These bonds pay out regularly, and they’re a safer investment when buying bonds from large, stable companies that have been around for a while.
Risk level: Moderate to high
How to invest: Stock brokerages
Potential returns: High
5. Real Estate and REITs
One of the investment ideas many people turn to is real estate because it can provide extremely high returns when the housing market is good. The downside is that when the housing market has a downturn, as we saw in 2008, people experience big losses.
Rather than investing in real estate, you can invest in real estate stocks, which are called real estate investment trusts (REITs). These stocks are for companies that own properties like malls, office buildings, and other forms of real estate that generate revenue. These can be slightly less risky but still have some risk due to the nature of real estate.
Best investment for: Those who are looking for high returns or have a diversified portfolio already and can weather some higher-risk investments.
Risk level: High
How to invest: Mortgage broker for real estate and stock brokerages for REITs
Potential returns: High
6. Individual Stocks
Individual stocks are available to everyone, and when the average person buys these types of stocks, they’re known as “retail investors.” You may have heard of retail investors investing in individual stocks during the GameStop stock hype of 2021, which also showed how risky individual stocks can be.
Individual stocks come with a high risk and high reward. Basically, you’re buying a portion of a single company, also known as a share of the company. Numerous factors dictate the price of a stock including the profits or losses of the company as well as speculation of the future of the company.
Best investment for: People who are looking for higher returns and don’t mind the risk may want to invest in individual stocks. These stocks can involve doing a lot of research into a company in order to make a quality decision. It’s possible for single stocks have the potential for large returns and losses. For example, investing in Amazon (AMZN) in 2018 and selling in 2021 would have over a 100 percent return, but buying in 2021 and selling in 2022 would have a 50 percent loss.
Risk level: High
How to invest: Stock brokerage
Potential returns: Low to high
7. Index Funds
Index funds are a type of stock, but rather than owning one stock, you’ll own multiple stocks. These stocks track a specific market, like the S&P 500 or the Dow Jones. When purchasing an index fund, there are often low fees and steady returns. The famous investor and founder of The Vanguard Group, John C. Bogel, popularized investing in index funds. This type of investing is popular because indexes like S&P 500 index funds track the 500 largest companies in the United States.
Best investment for: People who are new to investing as you don’t need to regularly check in and research different companies because index funds track the top companies in the U.S.
Risk level: Low
How to invest: Stock brokerage companies
Potential returns: Moderate
8. Exchange-traded Funds (ETFs)
Exchange-traded funds (ETFs) are similar to index funds because your single stock has shares of multiple companies, but ETFs are usually for specific industries or categories. For example, ARK Invest is a well-known ETF that often invests in technology companies, and there are other ETFs that have an assortment of bonds, like Vanguard’s Bond Market Index Fund (BND).
Best investment for: People with a moderate level of risk tolerance. ETFs can be thought of as a mix between index funds and individual stocks since they’re riskier than index funds, but they’re less risky than individual stocks because you’re more diversified.
Risk level: Moderate
How to invest: Stock brokerage
Potential returns: Low to high
9. Alternative Investments
Cryptocurrency trading is a hot topic, but many people don’t fully understand how it works. Cryptocurrencies are a digital form of currency that’s traded on a network known as the blockchain. The first cryptocurrency was Bitcoin, and now, there’s an endless number of cryptocurrencies. Many people have become millionaires or billionaires from investing in crypto, but it’s an extremely volatile market, and many more have also lost their life savings.
Currently, there is very little to no regulation around cryptocurrency, and much of the investing involves speculation. Notable investors like Warren Buffett and his business partner Charlie Munger have been highly critical of crypto investing, calling it, “worthless, artificial gold.”
Best investment for: People with a high risk tolerance and can tolerate losing their investment may find high returns with crypto investing.
Risk level: Very high
How to invest: Crypto exchanges
Potential returns: Very high
How to Choose the Best Investments
There’s no single right way to choose the best investments because it’s dependent on your unique situation. To make the best choice for yourself, you’ll need to assess your personal risk tolerance and when you’re hoping to cash out on your investments.
1. Assess Your Risk Tolerance
When it comes to investing, the higher the risk, the higher the reward, but it can also mean bigger losses due to unforeseen circumstances. While looking at the top nine best investments, consider how risky they are and whether or not they’re right for you. If you’re concerned about losing money and simply want steady, average returns from your investments, you may want to choose investments that are lower risk.
2. Gauge Your Time Horizon
An important aspect of investing is when you plan on needing the returns from your investment. Many people invest as a way to save for retirement, but some people invest in order to make money to pursue another goal, like purchasing a new home or going on a big trip. For those with a longer time frame of 10 or more years, you can tolerate making low-risk investments with steady returns. If you need the returns sooner, you may want to look into taking more risks.
A simple way to invest based on your time horizon is to use target date funds. The United States Securities and Exchange Commission describes target date funds as being “designed to be long-term investments for individuals with particular retirement dates in mind.” With this type of fund, you set the date you plan on retiring or selling your investments, and it will automatically adjust for risk.
3. Recognize Your Personal Investment Knowledge
Investing does come along with some risks, and these risks vary depending on which type of investing you do. For example, investing in a high-yield savings account is much less of a risk than investing in individual stocks. As a way to minimize your risk and be fully aware of the risks you’re taking, it’s helpful to educate yourself further on each investment and gauge your personal knowledge.
There’s always room to grow your investing and personal finance knowledge. Even the greatest investors in the world continue to learn as much as they can about investment strategies.
4. Assess How Much You Can Budget for Investing
When getting started on your investment journey, it’s often a good idea to minimize your debts as much as possible before creating a budget. For example, if you have a high amount of credit card debt, the interest you’re paying will counteract the money you’re putting into different investment opportunities.
Once you have minimal debt, you can create a budget to see how much you can invest each month. With many of the investments covered here, you can set up automatic investments to make the process a little easier as well.
Best Investments: FAQ
Now, you know about various investments as well as the risk associated with each one. The following are some additional frequently asked questions to help you get started with investing.
What Is Compound Interest?
Compound interest is when the money you make from interest starts making you additional money as well. For example, with a 10 percent interest rate, $1,000 would make you $100. The following year, you’d earn 10 percent interest on $1,100 because that extra $100 you earned will earn interest as well.
Without investing anything else, your original $1,000 investment will be more than double your original investment in 10 years.
Which Investment Gives the Highest Returns?
Investments that have the highest return opportunities include real estate, individual stocks, and alternative investments like cryptocurrencies. Just be sure to keep in mind that these investments also come with the most risk.
Is It OK to Invest During Times of Uncertainty?
Investing during uncertain times can bring better-than-average returns later on. Marcus by Goldman Sachs recommends taking the long view when making your investments. Even during a bad economy, historical data shows that it eventually recovers. You’ll just need to assess your risk and decide if you can weather the storm until it rebounds.
Should You Invest with Bad Credit?
Investing is a way to save for your retirement or future purchases, and it can increase your overall net worth. If you have bad credit or a lot of debt, it may be best to wait on investing because that money could go to paying off debt, improving your credit, and increasing your financial security.
If you need help improving or repairing your credit score, allow Credit.com to help. We have services like ExtraCredit, and we can also provide you with a free credit report card. We’ll be there to help you learn how to improve your credit as well as other ways to increase your wealth, so sign up today!
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