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So, where should you invest your money to get good returns?
You probably already know that putting your money in the bank is not even going to help you beat the inflation and maintain your wealth, let alone grow your wealth.
First, what is considered a good return for your money?
To help you gauge if an investment return is good or not, you need to first find a reference point.
A good reference point for investment returns is always the risk-free rate of return you get from your bank.
If you invest your money in a high yield savings account, you can expect an annual return of up to 1.55% as of today’s writing.
Now, what about investing your money in the treasure bonds (i.e. lending your money to the government)?
If you put your money in the 10-year Treasury bond, you can expect an annual return of 0.64% as of today’s writing.
Where To Invest Money For Good Returns
Before we go into detail about where you can invest money for good returns, you need to know the difference between the two types of funds that you need to manage:
- Liquid cash that you set aside for living expenses as well as emergencies
- Extra funds that you can put into investments (long term or short term investments)
For liquid cash, you should always put it into a high yield savings account rather than a checking account.
If you put your money in a checking account, your bank gives you an interest rate that is close to zero.
But, if you put your money in a high-yield savings account, you will at least get some decent interest on your money.
As of my writing today, quite a number of banks offer an annual interest rate as high as 1.55% on their savings account.
This can be considered risk-free because your money is insured by Federal Deposit Insurance Corporate for up to $250,000 per depositor and per insured bank.
Effectively, your principal is guaranteed.
So, this investment option is for people who are extremely risk-averse.
One of the best high-yield bank accounts that I recommend is CIT Bank which offers the following benefits:
- Earn over 11x the national average
- Quick and easy access to funds
- No monthly service fees
- 24/7 secure & award-winning banking
- FDIC insured
- Deposit checks remotely and make transfers with the CIT Bank mobile app
So, I highly recommend that you put your liquid cash and emergency funds in high-yield savings account with no maintenance fees and you can also withdraw any time you want.
Visit CIT Bank Website Now.
Now, where should you invest your other funds to get good returns?
Below are a few investments that can give you good returns.
Stock Market Index ETFs
First, what is an exchange-traded fund?
An exchange-traded fund (ETF) is an investment fund that holds assets such as stocks, bonds, or commodities.
It trades on an exchange, just like a stock.
So, you can buy and sell ETFs the same way as stocks.
There are three broad types of ETFs:
- Stock ETFs
- Bonds ETFs
- Commodities ETFs
When you invest in a stock ETF, you are not buying just one stock but many different stocks.
That’s good because if you invest in just one single stock, you could lose all your money if that company goes bankrupt.
But, that will NEVER happen with a stock ETF because it’s extremely unlikely that a group of companies can go bankrupt at the same time.
So, which stock ETFs are good investments?
There are stock ETFs that only invest in a specific industry like food & beverage, healthcare or financials.
However, you should only invest if you really understand the industry and the industry-specific risk.
If you don’t know how to choose which stock ETF to invest in, then here is what I do recommend – Stock Market Index fund ( e.g. S&P 500 index fund)
An S&P 500 index fund invests in the 500 stocks that comprise the S&P 500 index, in market cap-weighted proportions.
So, when you invest in S&P 500 index fund, it’s almost the same as investing in all the 500 stocks at the same time.
That is very diversified.
Diversification is good because your risk will be reduced.
Also, the index fund represents the health of the country’s economy.
A country’s economy can go through periods of growth and recession, but it will always grow over time in the long term.
What that means is that index funds will always go up in the long term.
What I love most about stock market index ETFs is that it’s really a safe investment and it’s really passive.
So, you don’t have to worry about actively monitoring and managing it.
Finally, what kind of return can you expect from investing in index ETFs?
For the past 90 years, the average annualized total return for the S&P 500 index is 9.8 percent, according to CNBC.
So, is it a good return for your money?
You can also consider investing in Bonds if you are looking for good returns for your money.
It’s safer and less volatile compared to stocks, although the stock market offers higher returns than bonds.
So, if you are risk-averse, bonds should constitute a big part of your investment portfolio because it can protect your portfolio from the volatility in the stock market.
Are all bonds worth buying?
First of all, you need to know that all the bonds being sold in the market are rated by credit rating agencies such as Mood’s and Standard & Poor’s.
The credit rating will give you a general idea about the credit-worthiness of the bond issuer.
The higher the rating, the more credit-worthy it is and the less likely it is going to default on the loans.
For example, the highest credit rating issued by Standard & Poor’s is AAA.
Currently, Microsoft Corp and Johnson & Johnson are the only companies given an AAA rating.
That means the possibility of them not being able to meet their debt obligation is perceived to be extremely low.
Having a higher credit rating also means that the interest they pay on the bonds will be lower because the risk to bond investors is lower.
When you invest in bonds, there is no need to avoid bonds that are not given the highest credit rating.
The general rule for bond investing is that as long as the bond is rated investment-grade, it’s safe to invest in it.
So, what’s considered investment-grade?
Let me give you an analogy.
When you take an exam, your teacher will grade your paper and give you a final grade.
As long as you get a grade that is above the minimum passing grade, you are considered to have passed the exam.
Investment grade is sort of like the minimum passing grade for bonds.
A bond is considered investment grade if its credit rating is BBB- or higher by Fitch Ratings or S&P, or Baa3 or higher by Moody’s.
On the other hand, a bond with a rating below that will be classified as a junk bond which is very risky.
Junk bonds offer much higher yield because of the high risk that is associated with investing in them.
For retirement investments, you should only consider investment-grade bonds.
If you don’t like to pick bonds yourself and actively monitor your investments, then I recommend that you invest in investment-grade bond ETFs.
There are different types of bond ETFs.
Some bond ETFs are country-specific while other bond ETFs are international.
Some bond ETFs only hold bonds issued by corporates while other bonds ETFs only hold bonds issued by governments.
So, which investment-grade bond ETFs should you choose?
I recommend that you should consider the following factors:
- Expense ratio: The lower, The better. And you should always invest in bond ETFs with low expense ratios (less than 0.5% at least)
- Liquidity: How liquid is it? Is the bid and ask spread very small or big? Generally, the smaller the bid and ask spread, the more liquid it is.
- Bond yield: What is the expected investment return of the bond ETFs?
So, what kind of returns can you expect to get if you invest in investment-grade bonds?
On average, you should expect an annual return of 3% to 5% which is quite good considering it’s low risk and less volatile.
High-Quality Rental Property
Personally, I like high-quality rental properties.
What do I mean by high-quality rental property?
To be considered a high-quality rental property, it must satisfy the following criteria:
Criteria #1: It gives you a positive monthly cash flow.
That means your monthly rental income should exceed all your monthly property-related expenses such as mortgage, tax and maintenance costs)
Criteria #2: It is at a good location.
For example, it is within walking distance to the subway.
There are also supermarkets and food places nearby.
Criteria #3: Your target tenants should be people with a stable income.
As a rental property investor, there are two biggest risks.
The first one is vacancy, which means you cannot find tenants.
The second one is tenants who cannot pay rent on time or cannot pay at all.
So, it is important that you check your tenant’s credit score and also make sure they have a stable job before signing the lease agreement.
Criteria #4: Your property should be rentable immediately when you buy over from the previous owner.
That means you don’t have to pay for the renovation.
If there is renovation required, you not only have to incur more costs, but you also have to keep your property vacant for a longer period of time.
The best is that you buy the property with an existing tenancy.
Criteria #5: There are a lot of property transactions for your type of rental property in the same area.
This is a good indication that you can exit easily if you ever want to sell away your property.
Generally, the smaller the property and the cheaper the property, the easier it is to sell because more people can afford it.
Why is high-quality rental property a good choice for investments?
There are three ways that you can generate returns from your money:
- If you get positive cash flow from your rental property, that is free cash in your pocket every month.
- Your tenant helps you pay off your mortgage every month. Assuming that you have a 15-year mortgage, you would have a fully paid-up rental property for FREE after 15 years.
- There is potential capital appreciation in your rental property. That means that you could sell it at a profit in the future.
So, what kind of return can you expect if you invest your money in rental properties?
The exact return will depend on your investment (i.e. cash outlay to purchase the property) and your property’s annual net income (i.e. rental income minus all the expenses associated with the property such as insurance, tax, and maintenance)
The general rule is that the lower your downpayment, the higher your investment return.
Low downpayment also means that you are using a very high financial leverage (i.e. taking the maximum loan the bank offers).
So, on average, you can expect an 8% annual return from your rental property investments.
If owning a physical property is too much of a hassle for you, the next best alternative is to invest in REITs ( Real Estate Investment Trusts).
What is REIT?
REITs allow individuals to invest in large-scale, income-producing real estate such as shopping malls, hospitals, and office buildings.
A REIT is a company that owns and typically operates income-producing real estate or related assets.
Its shares trade on the stock market exchange, just like stocks.
The way you can invest in REITs is to buy their shares from the stock market exchange through an investing app.
Below are the different types of REITs that you can invest your money:
- Retail REITs ( i.e. investing in shopping malls)
- Hospitality REITs ( i.e. invest in hotels, resorts, etc)
- Commercial REITs ( i.e. invest in office buildings, etc )
- Industrial REITs ( i.e. invest in warehouses and distribution centers )
- Healthcare REITs (i.e. invest in hospitals, medical centers, senior housing, nursing facilities and etc)
- Data center REITs
- Infrastructure REITs (e.g. fiber optic cables, telecommunication towers, energy pipes, wireless infrastructure, etc)
The relatively safer REITs are healthcare REITs, Data Center REITs, and Infrastructure REITs because these REITs will not get affected much when the economy is not good.
Below are the two ways that you can generate a return from your REITs investment:
- Dividends (i.e. REITs are legally required to give out the majority of their income to their investors as dividends)
- Capital gain (i.e. you can make a profit if the REITs share price goes up)
So, what kind of return can you expect if you invest your money in REITs?
On average, you can expect a dividend yield of 3% to 5% from the REITs.
As for capital gain, it depends on your cost price and the selling price.
So, is the return good?
I would say that it’s pretty good if you are looking for a stable investment income.
Tips On Choosing Investment With Good Returns
One of the greatest investors of all time, Warren Buffet, has a few important investing rules that he lives by:
- Rule No. 1: Never lose money
- Rule No. 2: Never forget rule No. 1
Why is Warren Buffet so afraid of losing money?
This is because he understands the maths of a BIG loss very well.
Did you know that if you lose 50% of your investment capital, you will need to make a gain of 100% just to break even?
If you lose 80% of your capital, you will need to make a gain of 400% just to break even.
Even a small loss of 20% will require you to make a gain of 25% to just recover your loss.
So, it’s vital that you protect your capital!
So, how do you protect your hard-earned money while looking for a good return?
First of all, you should NEVER put your money in investments that you don’t fully understand the risk.
Before you invest, you must find out the REAL risk you are taking.
Don’t blindly trust the person who is selling you investment products because his interest and your interest are NOT aligned.
The salespeople are more concerned about the commission he is earning on the products he sells.
So, you should take responsibility for your own money because no one else will care about your money more than you do.
Now, here’s my recommendation for you whenever you are looking for where to invest your money for good returns.
You should always find out what is the maximum potential loss that you might suffer and under what circumstances this will happen.
If anyone promises you a guaranteed high return for your money, just run away as fast as you can because NO ONE can predict the market.
Recommended Resources To Help You Make Money In Stock Market
So, to make money from the stock market, you first need to know what good stocks you can invest in.
But, no one can possibly scan the entire stock market for good investment opportunities because you simply don’t have the time. (by the way, there are close to 4,000 stocks listed on US stock exchanges alone)
Also, there are always other people who have more knowledge and experience in a particular industry than you, so you would probably miss some great stock ideas that are hard to discover on your own.
First of all, let’s take a look at Motley Fool Stock Advisor’s track record.
Below is the performance comparison between Motley Fool Stock Advisor and S&P 500 between 2002 and 5th September 2023.
As of 5th September 2023, average Motley Fool Stock Advisor recommendations have returned over 510% since inception while the S&P 500 has returned 132%.
In short, the Motley Fool Stock Advisor has outperformed the market 3 to 1.
But, what about its individual stock picks?
This metric is important because I might not be buying every single stock recommendation made by the Motley Fool Stock Advisor.
Below is a table that shows you the performance of individual stock picks over the years.
As of 6th September 2023, Motley Fool Stock Advisor has had 173 stock recommendations with 100%+ returns.
[Past performance is no guarantee of future results. Individual investment results may vary. All investing involves risk of loss.]
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