Most of us want to invest in high-yield investments for an obvious reason: so we can earn more money. But it’s a difficult endeavor. Finding high-income assets that aren’t “yield traps” requires a lot of research, and it can be quite risky if you don’t know what you’re doing.
We wish you could tell you that with enough effort, and enough research to pick the best investments, you can guarantee yourself some high returns on your investments without taking on any risk. It’s just not true.
But we can teach you ways to reduce your risk.
The good news is, you don’t have to be a wonk to find high yields. You’d think you’d need to learn a lot of new concepts and terminology—expense ratios, beta coefficients, Sharpe ratios!—to buy the best high-return investments, but you don’t.
In fact, all you need to find out which high-yield investments are good for your portfolio is by doing thorough fundamental research and getting a better understanding of certain concepts related to risk and return.
This guide will identify the most common types of high-yield investments worth buying, explain what they are used for, and teach you how to quickly determine whether they’re worth your investment dollars. That includes teaching you how to spot red flags indicating when these products might be too good to be true (and why).
Safe Investments with High Returns – Top Picks
|
High-Yield Savings Account
|
Best Introductory Stock Newsletter
|
Individual CRE Properties
|
Private Market Investments
|
|
|
|
|
|
|
To earn highest interest rate tier: $25k minimum (or $100/mo deposit)
|
$89 for 1st year; $199 renewal
|
Minimum Investment: $5,000
|
Minimum Investment: $2,500
|
What are High Yield Investments?
Investing can provide you with funds to be used in other areas of your life- it might help fund your retirement, a vacation or may even need it to pay off an emergency.
Above all, investing grows your wealth—building up your funds for retirement and increasing your purchasing power over time.
Owning high-yielding investments can get you to a secure financial future sooner than low-risk, low-return investments. High-yield, high-return investments are assets which can provide great earnings on your invested dollars.
They can be acquired in a variety of ways, including buying shares and bonds from companies, purchasing real estate, or even alternative investment vehicles with high interest payments.
High yield investments provide an alternative to low-risk investing options such as bonds, CDs, money markets, savings accounts and treasuries. Though, both types of investments have a place in a well-balanced portfolio.
Investing can help you grow your wealth, but smart investing also involves balancing risks with returns. It’s also important to have the right knowledge and perspective about investing.
Stay on top of your debt, save up an emergency fund in case of unexpected expenses or a job loss, and attempt to ride out market fluctuations without liquidating your portfolio.
Because many great ways to invest exist, from very safe choices like savings accounts and CDs to medium-risk options like corporate bonds or even higher-risk options like individual stocks and index funds, you can build a diversified portfolio to build your wealth sustainably.
The following list below goes from the safest to riskiest investments. Consider each and how they might fit into your well-rounded investment portfolio.
What are the Safest, Low Risk Investments with Good Yields Right Now?
1. High-Yield Savings Account
Are you looking for a safe place to put your money? Look no further!
With a high-yield savings account, nearly all deposits come guaranteed as Federal Deposit Insurance Corporation (FDIC) insured bank accounts, providing up to $250,000 in coverage in the event of bank failure or insolvency.
In other words, your cash stays safe even if the financial institution doesn’t while continuing to generate interest income on your savings account deposit.
High-yield savings accounts allow depositors to earn interest income while lessening the worry of inflation eating away their hard earned cash.
Deposits into these types of savings accounts may start out small but grow over time due to increased amounts being added every month. This should give you something positive to motivate you going forward.
But you can also grow your balance by having interest earnings from holding your deposits in savings accounts.
Historically, interest rates vary from 3% – 5%, but recent interest rate activity has put rates at depressed levels.
Some high-yield savings accounts offer tiers of interest rates depending on how much you deposit and how long you hold your money with the bank.
Some banks like CIT Bank allow you to open your savings account with as little as $100.
While savings accounts can generate good interest payments that outpace inflation historically, they might not yield as much as you’d like right now.
With time, these rates should rise and pay you more in high-yield savings accounts.
If nothing else, earning anything on your cash is better than leaving it in a zero-interest savings account or just as cash in hand.
This gives money in the savings account a chance to keep up with inflation and not lose value as quickly.
- CIT Bank is an online bank that offers competitive interest rates on its multiple products.
- Earn up to 11 times more than the national average interest rate by keeping your cash and other savings in CIT Bank's Savings Connect high-yield savings account.
- Competitive interest rates
- Low minimum deposit ($100)
- Mobile banking features
Related: Best HSA Account Providers
2. Certificates of Deposit
A certificate of deposit (CD) is a time deposit account that earns interest for the full term, typically 3 months to 5 years.
CDs often have higher rates than savings accounts or money market accounts because they include a time component for locking up your money before you can have it returned to you (without paying an early withdrawal penalty).
CDs are highly beneficial investments if you want a safe investment without any risk.
They guarantee an upfront amount which matures at a predetermined date in addition to earning interest over the course of its duration.
Withdrawals from these types of financial instruments may incur penalties if withdrawn before maturity. Therefore, make sure to plan your investment for the long term.
One high-yield CD option for your investment portfolio is to create a CD Ladder through a financial institution like CIT Bank.
A CD ladder invests in a series of CDs, each maturing at different intervals over time such as every six months or one year.
This strategy creates an optimal return on investments by taking advantage of higher interest rates that come as you park your cash longer.
For people who know they’ll need cash at a certain point in the future, CD Ladders make great passive income ideas.
Check out CIT Bank’s CD rates to see if they make sense for your needs.
- CIT Bank is an online bank which offers competitive interest rates on its multiple products
- Earn many times more than the national average interest rate by keeping your cash and other savings in one of CIT Bank's banking products
3. Money Market Accounts
Money market accounts are safe and secure investment vehicles for savings. They work similarly to a CD or savings account with a few differences.
They offer a higher return than traditional checking or savings accounts, but you are limited to the number of checks you can write against them each month.
In fact, you can only write 6 checks per month against the account balance or the bank may force a conversion to a checking account- often one which doesn’t pay interest.
The Money Market account offers many advantages to savers who want an alternative place to store their savings. They can keep their money better out of reach from inflation, preserve liquidity, and earn more than other depository products.
These financial products fit someone with a lower risk profile who wants to earn a decent return on their cash.
Young investors might want these types of accounts to store their down payment funds or build an emergency fund.
Likewise, older individuals might want them as lower risk investments better able to provide them cash when they need it in retirement.
Once again, CIT Bank offers a competitive Money Market Account (MMA) worth considering for your savings without risk involved.
- CIT Bank is an online bank that offers competitive interest rates on its various products.
- CIT's money market accounts current yield roughly 3x the national average.
- CIT Bank's money market accounts feature no monthly service fees, 24/7 banking, mobile app access, and FDIC insurance of up to $250,000.
→ Keep In Mind
The FDIC offers coverage of up to $250,000 per person at the same bank. This doesn’t apply for each account.
So, if you have a savings account, CD and MMA held at the same bank and the balances add up to $350,000 total between them, $100,000 of that money won’t carry FDIC coverage.
4. Treasuries
The U.S. Treasury Department sells Treasury bonds, commonly known simply as “Treasuries,” to fund government spending needs.
This can include purposes such as paying off the national debt, funding Social Security benefits for current retirees or paying military salaries during wartime.
If you purchase a treasury bond from them, they will pay back your principal at the bond’s maturity plus interest on top of that amount semi-annually or at maturity if a 30-, 90- or 180-day Treasury bill.
The Treasury also issues zero-coupon bonds which sell for steep discounts at issuance and redeem at their face value at maturity.
Treasuries don’t have a risk of defaulting because they come backed by the full faith and credit of the United States federal government.
They are the safest investment you can make and often get used as a proxy for the “risk-free” rate of return in the economy.
If the government could not pay its bills, it would either cut spending, raise taxes or both to make sure they can pay their creditors.
Treasuries would act just like a certificate of deposit in many ways. You can invest in government bonds directly or through government bond funds.
Here’s how it works:
- Treasury bills, notes and bonds are investments that have a set interest rate and maturity date ranging from 30 days to 30 years when you purchase them directly from the Treasury.
- You can also buy them in the secondary market and will have the maturity dates but less time until reaching maturity since you are purchasing them after they’ve initially been sold.
- This is a low-risk, safe investment consisting of coupon payments in the form of interest and a return of principal after maturity.
The coupon payments you receive from these bonds will remain predictable and fixed, allowing you to forecast your expected interest over the life of the bond.
The face value of these bonds may rise or fall during the bond’s term due to movements in interest rates, stock market performance or any other number of factors.
Granted, you may come out ahead in the long run, but only because you’ve taken on additional risk.
If you’re not confident that you can hold the bond until maturity, these investments, especially longer-term bonds, can prove to be a riskier high-yield investment.
5. Treasury Inflation-Protected Securities
Treasury Inflation-Protected Securities are a type of U.S. Treasury debt security designed to provide protection against the impact on principal value from inflation or deflation over time.
Many people turn to Treasury Inflation-Protected Securities, or TIPS, to safeguard their portfolio from inflation over time.
In exchange for this protection, you will receive lower interest rates than what you would earn on a normal Treasury of the equivalent length.
In terms of interest payments, that means they won’t generate income as much on a dollar-for-dollar basis.
Though, while your interest will be lower than the same not TIPS Treasury bond, your principal will increase (or decrease) in value to match the Consumer Price Index.
For example, if inflation spikes higher to 4% per year, TIPS holders will see their principal jump up to keep pace while non-TIPS holders will suddenly see the value of their bonds decrease.
The risk of your investment is dependent on how long you will need it and the type of treasury you invest in. Holding to maturity insulates you from interest rate movements because the face value will be paid in full at maturity.
6. Municipal Bonds
The federal government isn’t the only governmental entity which can issue debt to fund operations and investments. State and local governments can issue debt as well in the form of municipal bonds.
These income-generating assets offer slightly better returns than Treasuries with only slightly more risk.
Because the likelihood of the Federal government defaulting on their debt is low, they pay the lowest interest in the debt market.
Municipal bonds have a similar, though slightly higher risk profile because the local or state government can also cut expenses or raise taxes to pay for the debt.
That said, many major cities like Detroit have filed for bankruptcy in the past and lost their bondholders a lot of money.
Most people are probably aware that bankruptcies are not uncommon, but, just to be extra sure, you might consider avoiding any cities or states with large unfunded pension liabilities.
The other benefit of municipal bonds given by the Federal government is making them tax-exempt at the federal level.
High-income earners can achieve higher after-tax comparable yields with municipal bonds because they can avoid federal taxes on their interest payments.
To avoid concentrating too much risk in one bond issuance, you can buy government bonds at the local and state level through municipal bond funds.
You should also consider whether you should target bonds in your own state if possible because they generally become exempt from state and local taxes as well if the issuer is your state of residence.
That said, you might still wish to diversify outside of your home state, despite this resulting in a higher state income tax bill. Concentrating too much investment in one area can be good investment advice for all types of assets.
7. Corporate Bonds
Dialing up the risk more, corporate bonds carry inherently more risk than Treasuries and often munis.
Though, if you choose to steer clear of questionable companies and stick with major, blue-chip companies, you’re likely safer with your investments.
As a bit of advice, if you aim to avoid unnecessary risk, don’t invest in the lower-rated debt securities available called “junk bonds.”
Despite them being higher yielding investments, the extra risk you take on isn’t likely worth it if you don’t know what you’re doing.
Much like when you buy government bonds through a bond fund, you might buy corporate bonds through corporate bond funds.
This gives you multiple investments in different, stable companies to receive regular cash payments from the fund.
Corporate bonds provide higher risk, higher return investment options for your portfolio.
If you stick to quality, investment grade companies, these will likely remain safe investments in solid financial institutions.
Find the Best Investments Right Now for Your Situation
You can also look at the following investment selections to get a quick sense of the types of high-yield investment options available to you. These might be the best investments right now for your needs.
|
Inventory Consignment Crowdfunding
|
Blue-Chip Art Investing Platform
|
Fine Wine Investing Platform
|
Real Estate Investing
|
|
|
|
|
|
|
Minimum investment: $20
|
Minimum investment: $1,000
|
Minimum investment: $1,000
|
Most funds: 0.85% annual fee. Fundrise Innovation Fund: 1.85% annual fee.
|
Higher Risk, High-Yield Investment Options [Best Investments Right Now]
A good investment is not always a high-yield one. But there are some with really decent returns that might be worth your while to consider.
This is especially true if you’re looking for something more long-term and don’t want the stress of watching the constant fluctuations in price or worrying about liquidity.
Options to consider include: stocks, ETFs, mutual funds, managed portfolios, real estate and more.
8. Stocks
When many people think about high-yield, high-return investment options, most people tend to first consider stocks.
Investing in stocks is an investment that you make by purchasing tiny fractions of ownership in a public company. These small fractional ownership pieces are called shares of a company’s stock.
By investing in their stock, you’re making a bet that the company grows and performs well over time.
You can invest in companies known for financial stability that deliver consistent performance, returns and dividends over time—like the “Steady Eddies” recommended by a stock picking service like Motley Fool’s Stock Advisor—or you can go for companies focused on growing rapidly.
If you make wise investments and the company you select does grow and perform well, the shares you hold may become more valuable. In turn, they become more desirable to other investors who now have a willingness to pay more for them than you did.
These appreciating assets allow you to earn a return when you sell your stocks down the road.
One of the best ways for those who want to grow their wealth with minimal risk is by investing in stocks of established companies.
The average stock market return is about 10% per year over the last several decades.
This doesn’t mean every year will return this amount—some may be higher, some may be lower—just remember that’s an average across the entire market and multiple years.
If you own individual stocks, their returns will vary even more depending on corporate performance and future-looking investment decisions.
For long-term investors, the stock market is a good investment no matter what’s happening day-to-day or year-to-year; they want long-term capital appreciation in growth companies and dividend stocks alike.
Holding equities over long periods of time is a surefire way to learn how to increase net worth.
Getting started in the stock market can be a daunting task for beginners, though it doesn’t need to be.
The best investing apps for beginners make the process simple and painless to get started and continue growing your investment account balance for many years to come.
Some free stock trading apps even allow you to invest for the price of a single share (or less) if they offer fractional shares with apps like Robinhood, M1 Finance and Webull.
→ Growth Stocks
Investing is a way of setting aside money that will work for you so in the future you can reap all the benefits from your hard work. Investing is a means of achieving one’s better future.
Perhaps said best by legendary investor Warren Buffett, investing is, “…the process of laying out money now to receive more money in the future.”
Investing aims to put your money to work and grow it over time. Growth stocks take this to another level by seeking capital appreciation as its main investing goal.
Growth stocks belong to growth-oriented businesses which can include industries such as technology, healthcare and consumer goods.
Growth companies traditionally work well for investors focused on the future potential of companies.
Growth companies focus on reinvestment and continuous innovation which typically leads them to pay little to no dividends to stockholders, opting instead to put most or all its profits back into expanding its business.
Some popular growth companies include firms like Google, Apple and Tesla.
Despite constantly reinvesting in the business, growth stocks are not without risk. Companies can make poor decisions, markets can overvalue stocks and economic mishaps can derail companies who have even the best prospects.
However, for growth stocks as a whole, they tend to provide the best return on investment over time if you can tolerate the volatility that comes with them.
But, take risks cautiously. While growth companies have a higher probability of providing an excellent return when compared to other types of investments, you should balance how much risk you are willing to tolerate.
Some companies grow at breakneck speed but have valuations to match. Taking on too much risk can undermine a portfolio and tank returns.
Instead, you might consider investing in a growth-oriented investment fund through a service like M1 Finance with their Domestic Growth and Global Growth Expert Portfolio Pies.
These invest in U.S. and global-based growth equities, respectively and purchase broad swaths of growth companies and not just concentrating your risk in a handful.
Learn how to find individual growth stocks through services like Motley Fool’s Rule Breakers and Stock Advisor below.
How to Find Individual Companies Worth Buying
The best stock picking services consider all of the variables discussed above when making their selections to subscribers. Have a look at two Motley Fool stock research services subscribed to by close to a million investors.
We think either subscription makes for a great short-listing system to find good stocks worth investigating yourself—and possibly even buying for your portfolio for the long-term.
Both services recommend buying and holding for no less than three to five years, departing with some of the other swing trade alerts services people use to find short-term profit potential in the stock market.
1. Motley Fool Rule Breakers: Best for Long-Term Investors Looking for Growth Stocks
- Available: Sign up here
- Best for: Buy-and-hold growth investors
- Price: Discounted rate for the first year
Motley Fool Rule Breakers focuses on stocks that they believe have massive growth potential in emerging industries. This service isn’t fixating on what’s currently popular, but rather always looking for the next big stock.
The service has six rules they follow before making stock recommendations to subscribers:
- Only invest in “top dog” companies in an emerging industry – As Motley Fool puts it: “It doesn’t matter if you’re the big player in floppy drives — the industry is falling apart.”
- The company must have a sustainable advantage
- Company must have strong past price appreciation
- Company needs to have strong and competent management
- There must be strong consumer appeal
- Financial media must overvalue the company
As you can see, before recommending a stock to users, Rule Breakers considers a number of factors. In short, the service mainly looks for well-run companies in emerging industries with a sustainable advantage over competitors, among other factors.
And their rules seem to pay off if their results have anything to say about it.
Over the past 15 years, Rule Breakers has almost doubled the S&P 500, beating many leading money managers on Wall Street. Their results speak for themselves and easily justify the affordable price tag for the first year.
What to Expect from Motley Fool’s Rule Breakers:
The service includes three primary items you can expect to receive:
- A listing of Starter Stocks to begin your Rule Breakers journey with their “essential Rule Breakers”
- 5 “Best Buys Now” opportunities each month
- Two new stock picks each month
You’ll receive regular communications from the stock picking service with their analysis and rationales for buying stocks meeting their investment criteria.
If you’re unhappy with the service within the first month, you can receive a full membership-fee back guarantee.
- Motley Fool Rule Breakers is an investment advisory service that provides insight and recommendations on potential market-beating growth stocks
- Picks are centered around emerging industries in an attempt to pick tomorrow's stock market leaders today
- Strong performance track record
- Discounted introductory rate
- Consistent outperformance of S&P 500
- High-growth stocks carry volatility
- High renewal price
- Not every stock has positive returns
2. Motley Fool Stock Advisor – Best for Buy and Hold Investors
- Available: Sign up here
- Best for: Buy-and-hold growth investors
- Price: Discounted rate for the first year
The main difference between Motley Fool’s services is the type of stock pick recommendations.
Stock Advisor primarily recommends well-established companies. Over a decade ago, they advised subscribers to buy companies such as Netflix and Disney, which have been majorly successful.
As a subscriber, you’re granted access to their history of recommendations and can see for yourself how they have done over the years.
According to their website, the Motley Fool Stock Advisor stock subscription service has returned of 374% since their inception in February 2002 when you calculate the average return of all their stock recommendations over the last 17 years.
Comparatively, the S&P 500 only had a 125% return during that same timeframe.
What to Expect from Motley Fool’s Stock Advisor:
The Stock Advisor service provides a lot of worthwhile resources to subscribers.
- “Starter Stocks” recommendations to serve as a foundation to your portfolio for new and experienced investors
- Two new stock picks each month
- 10 “Best Buys Now” chosen from over 300 stocks the service watches
- Investing resources with the stock picking service’s library of stock recommendations
- Access to community of investors engaged in outperforming the market and talking shop
The service has a discounted rate for the first year and has a 30-day membership refund period. Consider signing up for Stock Advisor today.
- Motley Fool Stock Advisor provides a list of five stocks they believe deserving of your money today.
- Stock Advisor also lists "Starter Stocks" they believe should serve as a portfolio's foundation.
- Limited Time Offer: Get your first year with Stock Advisor for $89 (vs. $199 usual value)
- Discounted introductory price
- Strong outperformance above S&P 500
- High overall average return for stock picks
- High renewal price
- Not every stock is a winner
→ Dividend-Paying Stocks
Dividend stocks, despite being associated with lower long-term returns than many other asset classes, are still a compelling option in some cases.
Dividends are regular cash payments issued to shareholders. When thinking of high-yield investments, these likely represent the most direct way to think of how an investment can put money back in your possession.
Because of this direct cash transfer, dividends also tell a lot about the risk profile of a stock.
When thinking about the risks involved with a stock that pays dividends (or not), consider some of these factors:
- The dividend should be far more consistent and declared in a similar (or growing amount) each quarter. Whether the stock goes up or down, the dividend comes to your brokerage account just the same. Even if your stock underperforms for a while, these dividends should give you something of value and make it easier to hold onto the stock during a market swoon or period of underperformance.
- Dividends tend to buffer major falls in price, assuming economic circumstances don’t warrant cutting dividends. Also, dividend payments remain fixed in dollars per share terms but dividend yields can rise when a stock’s price falls. That measure represents the amount of money you can expect to return based on the company’s current share price in a year. As a stock’s price falls, you’re paying less for that same dividend—assuming the company doesn’t cut it.
- Dividends represent stability to investors. Each period, the company needs to have a certain amount of cash go out the door to investors. This minimum level of cash flow going off the balance sheet means companies need to be less risky and plan for this ongoing cost as part of their corporate strategy.
As mentioned above, companies can—and some will—slash their dividends in times of economic uncertainty. While usually one of the last items for a company to cut, because it usually results in the stock plunging—people buy dividend stocks for their consistency.
When the company threatens that consistency, investors tend to sell in favor of other investment options.
Look for companies with a consistent history of dividend growth and high yields.
Conservative investors tend to find more comfort in these types of stocks because they have less risk tolerance and still get rewarded for their investment choices through regular dividend payments.
9. Index Fund Exchange Traded Funds
Thanks to events like the Gamestop market mania of early 2021, or the sudden rise of Dogecoin, SPACs or other meme stocks, many people expect quick and high returns on investing in the stock market. But because of its volatility, this is not guaranteed.
One way to diffuse this risk and still earn good returns over time, consider using index funds as an ETF to build diversification into your portfolio.
For beginning investors, using these funds to build entire investment portfolios can make a lot of sense.
They provide instant diversification with low costs all-in-one investment. Over time, these are safe investments that build considerable wealth.
To understand what makes diversification powerful, let’s go through a thought experiment on these long-term oriented, low-risk investments.
What’s better than one company that generates an average annual return of 10%? Two companies that earn an average annual return of 10%.
What’s even better than that? Thousands of companies taken together that generate this kind of return consistently.
Why? Because any one company can befall a disaster, suffer a major setback or even go out of business. Your risk tolerance need not be as high to invest in these safe investments (over long periods of time).
If you own shares of a fund holding stock of different companies, you avoid torpedoing your portfolio because you spread the risk out to several companies.
While markets overall can drop in tandem on major economic news, by holding several companies in index funds simultaneously, your portfolio won’t take on any added risk of specific companies failing.
If you can hold through this market tumult and continue to stand strong for years to follow, the market has always rewarded you in the last century.
As an example, think back to the Great Recession back in 2008. If you had owned an S&P 500 index fund, your eyes may have watered as you saw your position lose almost half its value in just a few months.
But, if you managed to hold, over the next decade, your same S&P 500 index fund investment would have averaged 18% per year. Just imagine if you’d bought more of the index fund when it fell!
The lesson here? If you can see your stock portfolio as an illiquid basket of securities and only able to add to them, you can rest easy knowing your money will come back strong over the long-term.
Related: 9 Best Robo-Advisors for Investing Money Automatically
10. Mutual Funds
Investing can be a daunting task for any investor, but many believe that young investors benefit from setting up mutual fund accounts at an early age.
These investment vehicles act like ETFs by purchasing a bundle of securities attempting to fulfill some stated investment aim.
Mutual funds build portfolios of underlying investments through pooling your money with that of other investors.
This creates a larger collection of stocks, bonds and other investments, called a portfolio. Most come with a minimum initial investment requirement.
When a mutual fund’s securities’ values change, the net asset value (NAV) is adjusted accordingly by calculating how much more—or less—the fund would have to sell its investments for in order to fulfill shareholder redemptions.
This price changes based on the value of the securities in your portfolio at the end of each market trading day.
Owning a mutual fund in and of itself does not grant the investor ownership to the underlying securities. They only own the mutual fund shares themselves.
Mutual funds can be stock funds, bond funds, a combination of them or invest in other assets as well.
Retirees tend to hold a combination of stock funds and bond funds in their retirement portfolio because they both can pay dividends and deliver the upside of stock investments.
Mutual funds come in two types: passively managed and actively managed mutual funds.
Managers of an active mutual fund management company buy and sell investments based on their stock research and the investment strategy of the fund.
The goal of portfolio management is typically to outperform a comparable benchmark—a commonly used but risky approach.
Passively managed mutual funds simply attempt to recreate the performance of a benchmark index like the S&P 500, Dow Jones or Barclays Corporate Bond Index. These are simply index funds, but in mutual fund form.
You can invest in mutual funds through:
All of these types of investment accounts will allow you to reap the long-term rewards of compounding returns in a diversified investment.
11. Real Estate
Perhaps one of the least liquid investments on this list, real estate can be a great investment if you have the willingness to manage your own properties.
And what’s even better right now, is with mortgage rates at all-time lows, using a loan to purchase a new property might be a good idea.
While uncertain for a time, things will return to normal and the rental real estate market should return to its past performance.
You might consider adding some of your financial resources to this asset class and lock in a fixed interest rate mortgage to take advantage of these rates for a long time.
To pursue this route, you’ll have to select the right type of real estate investment, choose whether to buy it outright or use a loan, and then maintain it while dealing with tenants. To make money, rinse and repeat.
If you can purchase smart properties in good locations for the right price, you will make easy passive income because tenants will fight over renting your real estate.
While positive from many angles, rental real estate can also prove difficult to offload should you need to raise money.
Whereas with stocks, bonds or other short-term savings vehicles, you can’t simply sell your rental properties with a few clicks on your phone.
Plus, you’ll be on the hook for maintenance and tenant problems. Renting properties can prove cumbersome and lead to many headaches.
But, if you hold your rental assets over a long time while raising rents and gradually paying down the debt, you will have more money when it comes time to retire.
You can also write off a lot of expenses related to owning and maintaining a rental property. Things like MACRS depreciation, insurance, utilities, upkeep, marketing and advertising expenses and much more.
Consider speaking with a certified public accountant (CPA) for these needs or even a certified financial planner (CFP) about how real estate might fit in your broader portfolio of low and high risk investments.
12. Real Estate Crowdfunding Apps
It might come as little surprise, but numerous types of real estate investments appeal to many people for multiple reasons:
- the tangible nature of the investment
- low-correlation with the stock market
- multiple return components (asset appreciation and rental income)
- tax advantages
However, the hands-on factor of owning, renovating and maintaining your property as well as acting as a landlord deters many people from getting started.
Thanks to the advent of fintech, or the use of technology to enhance and automate certain financial transactions and processes, many companies now offer the opportunity to invest in real estate with or without owning property.
Currently, one of the leading (and easiest) ways to get started with real estate investing is through crowdsourced lending or purchasing.
Several online platforms cater to this investor demand by providing various levels of service, investment options, and different points of investment in the real estate value chain.
This results in you avoiding any aspect you might not wish to participate in, such as owning or managing properties but still gaining exposure to these alternative investment options.
Depending on the type of investment you wish to make in real estate crowdfunding ventures, you have multiple options available to you. Some of the most popular options include:
Equity Multiple → Invest in Commercial Real Estate
- Minimum Investment to Start: $5,000
- Type of Investor: Accredited Investors Only
Some platforms like Equity Multiple allow you to invest in individual properties, specifically commercial real estate. Others allow you to invest in real estate property portfolios.
Equity Multiple carries a minimum $5,000 initial investment and comes with a limitation on the type of investors who can participate.
Namely, Equity Multiple only allows its individual commercial real estate projects to receive investments from accredited investors.
For those interested in learning more about Equity Multiple, consider signing up for an account and going through their qualification process.
- EquityMultiple is a real estate investing platform for accredited investors.
- Focused on commercial real estate, EquityMultiple has a team with more than $75 billion of transaction experience vetting suitable investment properties.
- The company's due diligence process targets profits the company believes will provide stable, protected investments for investors.
- The company has managed net aggregate returns to investors of 17% to date and total distributions paid to investors of $298 million.
- Makes commercial real estate Investments accessible
- Intuitive website design
- High net total returns and distributions paid to investors
- Only available to accredited investors
- High investment minimum to begin
- Fee structure varies by investment, complex at times
FundRise → Investing in Real Estate Portfolios
- Minimum Investment to Start: $10
- Type of Investor: All Investors
Fundrise differs from the two companies above by choosing to focus on investments in real estate portfolios, or several properties in one investment. In theory, this diversifies your investment risk while providing you access to several properties simultaneously.
To date, the most popular real estate investment platform offering a portfolio approach is Fundrise. This investment platform provides several options for you to review and invest your money. Their available portfolio options include:
- The Starter Portfolio – This option allows investors to start investing in real estate with as little as $10.
- Core Portfolios (Supplemental, Balanced, and Long-Term Growth) – Each of these “Core Portfolios” comes with a higher minimum investment of $1,000 and targets a different investment objective. Supplemental aims to provide additional passive income from real estate investing on the Fundrise platform, Long-Term Growth invests money for the primary goal of capital appreciation, while Balanced focuses on both of these investment objectives. By offering these investment portfolio options, investors can choose which investment objective best aligns with their financial goals.
- Regardless of your net worth, you can now benefit from real estate’s unique potential for generating consistent cash flow and long-term gains with Fundrise starting as low as $10.
- Enjoy set-it-and-forget-it managed portfolios with standard Fundrise accounts, or actively select the funds you want to invest in with Fundrise Pro.
- Diversify your portfolio with real estate, private tech investing, or private credit.
- Low minimum investment ($10)
- Accredited and non-accredited investors welcome
- IRA accounts available
- Highly illiquid investment
Related: 11 Best Fundrise Alternatives [Accredited & Non-Accredited Apps]
13. Real Estate Investment Trusts
A REIT is a real estate investment trust, which is technical jargon for a type of real estate company that owns and manages real estate on behalf of a group of investors looking to earn passive income.
They’d rather hire a team to do the work and collect their regular distributions from real estate investment trusts.
One advantage to REITs is their legal structure. If REITs pass along most of their rental income earned from properties they own to investors, they pay no corporate tax. Only shareholders pay tax in that circumstance.
Investors can purchase REITs on the stock market just like they would any other company or equity. If you’re looking for a solid income investment, dividend-paying REITs could be your way to go.
The best REITs offer a quarterly or annual dividend that regularly increases and can act as a source of passive income in the future.
You might also consider non market-listed REITs from private companies like Streitwise.
This company has outpaced public REITs in terms of distributions and has a stellar track record of dividend payments.
Streitwise is a new era of real estate investing. With capital raised by qualified investors, the company leverages the best-performing property investments into professionally designed portfolios.
The returns then get distributed and serviced through an online REIT—with your income as their mission.
If you’re looking to generate passive income while conserving cash on hand, Streitwise provides the perfect opportunity for both accredited and non-accredited investors and offers one of the lowest fee structures around.
The company has provided an 8.4% annualized return due to its superior property selection and low fee structure, far outpacing comparable Public REITs or bonds.
Qualified investments include properties stretching largely across America from the Midwest to the West Coast and leveraged based on Streitwise’s analysis.
By placing $5 million of their own money in these investments Streitwise places a good deal of skin-in-the game for all sponsors and 100% incentive alignment between sponsor and investor interests at all times.
The service has a minimum investment of ~$5,000 to begin investing in commercial real estate properties. The company provides REIT offerings federally-registered with the SEC and offers them to both accredited and non-accredited investors.
Investing through an investment vehicle like Streitwise’s REIT offers a great source of passive income, recurring cash flow, higher returns, portfolio diversification and inflation protection.
With an 8.4% annualized return and a low fee structure, Streitwise provides one of the best opportunities for passive income in real estate investing.
It outpaces comparable REITs and has delivered an annualized dividend return of at least 8% for the last 17 quarters, with an average annual rate of 9.44%.
Despite Covid’s effect on the general real estate market, Streitwise met return targets through employing strong credit tenancy (100% contractual rent obligations met in 2020), conservative underwriting (51% loan to value, LTV), and a low / transparent fee structure.
Risks Involved: Investing in REITs is a good low-effort long-term passive income strategy. That said, you will need to spend time analyzing the various companies they invest in, but they can be well worth it for the long term if chosen wisely.
While it is a mostly passive activity, you can lose a lot of money if you don’t know how to invest in REITs properly or don’t know what you’re doing. Much like stocks, prices of REITs can fluctuate in the short-term, causing volatility for your portfolio.
Dividends from REITs are not protected by tough economic times. Performance like Streitwise during the recession isn’t typical.
If a REIT does not generate enough income to cover its management expenses, much like a company unable to cover costs, it might have to cut or eliminate their dividends, sending the REIT downward.
In other words, this passive income idea might turn into a passive income nightmare.
However, if you feel REIT investing is a worthwhile endeavor and you’d like to explore private REITs through Streitwise or publicly-traded REITs through an app like M1 Finance, you’d be in good company.
To build your passive income stream from REITs, keep reinvesting your dividends automatically to build up your position down the road when you need the income.
- Begin earning passive income in private real estate for ~$5,000.
- Streitwise REIT provides investors with access to stable, institutional-quality commercial properties.
- As of 4Q2022, Streitwise paid a quarterly dividend at an annualized rate of 8.96% since 2017, net of fees. This roughly doubles the average paid by public REIT alternatives.
- Strong performance track record vs. industry peers
- Lower fees than other funds (2%/yr., w/o syndicator fees)
- DRIP program
- High investment minimum (~$5,000)
- Illiquid
- Penalty for redeeming shares within five years
Related: 11 Best Non-Stock Investments [Alternatives to the Stock Market]
Alternative Assets
14. Alternative Investments
Alternative investments have become increasingly popular as fintech services open up once closed markets to the individual retail investor.
These opportunities have democratized numerous markets and unlocked previously-inaccessible cash flows to pad your income from assets.
Yieldstreet is one such platform leading the charge to provide access to income generating assets in a number of asset classes.
Yieldstreet is an alternative investment platform that provides you with income-generating opportunities.
These investment opportunities come backed by collateral, typically have low stock market correlation and span across various asset classes. Such asset classes include:
- art finance
- real estate
- commercial finance
- legal finance and more.
Yieldstreet has been in business since 2015, and has returned over $600 million to their investors since its founding.
Their yields range from 7%-15% historically and have predefined payment schedules (i.e., monthly or quarterly payments) or pay principal and interest upon the occurrence of certain events (e.g., case settlement within a legal finance investment).
The durations of investment opportunities range from 6 months to 5 years and have investment opportunities starting as low as $2,500.
Learn more by opening an account now for access to passive income-filled returns on your investments.
- Yieldstreet offers portfolio diversification through building passive income streams with alternative investments
- Typically have low stock market correlation
- Have short durations (6 months to 5 years)
- Low minimums (as low as $2,500)
- Backed by collateral to help protect your principal (over $600m in principal and interest payments returned to investors since 2015)
- Access to several alternative asset classes
- Low stock market correlation
- Low minimums compared to other accredited investment platforms
- Illiquid investments
- Some investments have lost money
- Most investments only available to accredited investors
15. Small Businesses
Imagine, if you will, a small town in the heart of America. The streets are lined with quaint shops and diners that offer home-cooked meals to locals and visitors alike.
When you walk down this main street, you can feel the sense of community that fills the air. People stop by each other’s businesses to chat about their day or lend a helping hand when needed; it feels like everyone is family here. And that’s because they are, whether you realize it or not.
It’s not just one small company who provides jobs for this town; rather every store owner has created their own niche business which brings joy and financial stability to those around them too. Wouldn’t you want to support such a community and see if flourish?
Well, now you can through a small business crowdfunding service called Mainvest.
Mainvest curates vetted small business opportunities in your local community or nationwide for you to invest, track and build a portfolio in passive income investments.
These business ventures offer returns between 10-25% per year through revenue-sharing notes, which act as financial agreements to share revenue with investors until reaching a certain return. These payments happen in lieu of interest on a traditional loan.
Mainvest holds a responsibility for protecting investors from businesses which don’t have a strong direction or investment rationale for retail investors.
As such, the service only accepts 5% of businesses who sign up for the platform to raise capital to grow their businesses.
The platform vets these businesses to allow you to make informed investment decisions based on your own interests and investing strategy.
You can invest based on location, industry and risk appetite by comparing terms and qualitative data for the 300+ investment opportunities that have launched on the small business investing platform since its founding.
Consider tapping into a new kind of investment with as little as $100 on Mainvest. Start small and see how the alternative asset class performs before making it a significant part of your portfolio.
- Mainvest is a small business investment platform allowing you to target returns of 10%-25% with as little as $100 to start.
- These passive income investments in vetted small businesses can provide your portfolio with exposure to an emerging asset class while supporting local communities.
- Invest in innovative, community-driven founders' businesses in your backyard and across the country.
- Invest in small businesses for as little as $100
- Invest in local businesses to have impact
- High target returns (10-25%)
- No fees
- Can't invest in digital-only businesses
- Illiquid (can't buy/sell in secondary market)
- Maximum investment size depends on your income or net worth
Related: How to Invest in Small Businesses [Act Local for Long-Term Gains]
16. Fine Art
If you prefer to look at paintings over jewelry, collectible art may be an investment you should consider. When looking into building wealth, not all art investments are created equal.
It’s important the art you invest in comes with certificates of authenticity.
Additionally, fine art will most likely increase in value if a well-known artist created the piece. This applies especially to an artist who has passed away and therefore cannot release new pieces.
Buying famous artwork on your own carries a high price tag and comes fraught with risk for those without the knowledge of the industry.
To reduce your costs and risk, you may want to consider using Masterworks or a similar platform.
Masterworks allows you to purchase fractional shares of ownership of famous paintings. For example, you might have partial ownership of a painting done by Claude Monet.
Masterworks’ expert art collectors specifically choose paintings they believe will have the highest appreciation rates and lowest risk.
This is a wonderful option for people who want to invest in art, but don’t know how to find private buyers on their own, don’t have the funds to purchase these costly works of art, or aren’t sure how to store them properly.
The minimum investment to get started through Masterworks is $1,000. It should be noted that this type of asset is illiquid and can’t be sold as quickly as other appreciating assets.
If you’re passionate about art and looking for a long-term investment, you may be able to capitalize on blue-chip paintings appreciating in value. Sign up to learn more.
- Masterworks allows investors to buy shares in art selected by the platform's team for both high quality and strong value.
- The service offers a secondary market where investors can sell shares if they want to exit their investment early.
- Provides an easy way to invest in art
- Access to dedicated support representative
- Investing requires a call screen consultation
- High fees
- High minimum investment per offering ($15,000), though it can be waived to as low as $500 on a case-by-case basis
17. Fine Wine
Fine wine as an investment has performed admirably over the last twenty years, outpacing even the S&P 500 during an equivalent period while seeing less overall volatility.
Tapping into fine wine investing might prove a challenge if you don’t have the necessary capital and infrastructure to source, store and sell fine wine over long periods of time.
One alternative is investing through a company like Vint.
Vint is an SEC-qualified fine wine and rare spirits investing platform that makes diversified investing accessible to all investors.
Vint offers fractional ownership of investment-grade collections sourced by a team of experienced wine and investment professionals.
Vint’s low minimums, sourcing, and securitized offerings make them unique in the alternative investment space.
The company allows you to invest as little (get started for around $50) or as much as you want in collections curated by a team of wine industry experts.
When you invest, you own a piece of the collection, giving you unique diversified exposure to many labels and not just one or two bottles.
The company makes it a point to put transparency first, providing regular updates on their collections and sharing investment theses with all investors so they have full control around their investment decisions.
The company is on a mission to bring wine and spirits to every portfolio.
If you think adding fine wine to your investment portfolio makes a sound decision after learning about Vint, consider joining now and funding an account with as low as $50.
- Vint is a fine wine and spirits investment platform that allows users to buy SEC-qualified shares of elite alcoholic beverages from around the world.
- Open to accredited and non-accredited investors alike.
- Very low barriers to entry, with minimum investments often ranging from $50 to $100 per share, and sometimes falling as low as $10.
- Extremely low minimum investment (shares as low as $10)
- Vint invests alongside shareholders
- Simple user interface
- Potentially very high fees
- Extremely illiquid investment (1- to 7-year holding periods, no secondary market for shares)
18. Farm Land
There are other types of real estate you can invest in outside of residential and commercial properties, such as farmland. Historically, farmland investing has only been available to the ultra-wealthy.
However, with the introduction of crowdfunding platforms like FarmTogether, this high-barrier to entry has been significantly reduced, and the asset is widely accessible to investors of all kinds for the first time.
As one of the best passive income investments, farmland typically offers a steady, reliable return on investment, low correlation to traditional assets like stocks and bonds, and a hedge to inflation.
Over the past several decades, farmland has consistently yielded returns over 10%; after all, the primary use for the land is food, and people will always need to eat.
This also makes farmland real estate particularly well-suited to appreciate over time. In fact, over the past ten years, American farmland has risen in value by more than 6% each year.
- FarmTogether is a technology-powered investment platform w/direct access to institutional quality farmland.
- The FarmTogether team sifts through hundreds of opportunities to select only the best ones. Opportunities vary by type, expected return and location.
- Accredited investors can get started with just $10,000.
19. Cryptocurrency
Over the last five years, cryptocurrencies have burst onto the scene as an asset class all their own. Cryptocurrency statistics show they’ve come from non-existence to a collective market capitalization of nearly $2 trillion in the last 10 years.
A remarkable rise, to be sure. That represents the fastest rise of any asset class in history in terms of the magnitude of returns investors have made. But should you consider adding a position in your portfolio for cryptocurrencies?
Many millennials have stated they see Bitcoin as a better risk-off asset than gold, driving a significant rise in ownership during the COVID-19 market downturn.
Going forward, the rapid rise in value likely underpins a continual interest in holding at least a small position in cryptocurrencies.
So, how can you begin investing in cryptocurrencies? Many trading apps offer the ability to purchase major cryptocurrencies like Bitcoin, Ethereum, XRP and more.
The best app I’ve found for investing in cryptocurrency has been eToro, a social investing app that allows you to replicate the trades made by professional crypto traders on the platform.
You can also take up the common practice of “HODL” made popular by the cryptocommunity, meaning “hold on for dear life.”
This is a long-only focused investment strategy given the inherent warning of embracing the investment and holding through market volatility.
There’s no denying the risks involved with crypto investing with the wild swings and massive capital flowing into the asset class.
This is why you should only consider starting to invest with a small portion of your overall portfolio in this new investment category.
Like nearly all investments, your capital is at risk and you can lose money. Before proceeding with cryptocurrency investing, make sure you understand the risks involved.
That said, given the unbridled interest seen from investors the world over, it seems like these virtual currencies are here to stay.
If this sounds like something worth exploring, try opening an eToro account and making an initial deposit to begin investing in cryptocurrency.
- eToro USA LLC is a registered money services firm w/FinCEN
- Sign Up and open $100K virtual account for free
- Click below and trade stocks, ETFs and the 15 most popular crypto currencies
- Start to replicate the trading activity of popular investors automatically, in real time
Bonus: Other Best Investment Options to Consider
|
Inventory Consignment Crowdfunding
|
Blue-Chip Art Investing Platform
|
Fine Wine Investing Platform
|
Real Estate Investing
|
|
|
|
|
|
|
Minimum investment: $20
|
Minimum investment: $1,000
|
Minimum investment: $1,000
|
Most funds: 0.85% annual fee. Fundrise Innovation Fund: 1.85% annual fee.
|
What is Liquidity?
Liquidity refers to the degree to which an asset can be bought or sold quickly in the market at a price that reflects its intrinsic value.
The standard of most liquid asset belongs to cash as the definition of liquidity refers to how quickly an asset can be converted to cash. Likewise, cash is almost always the easiest asset to convert into other assets.
Cash in this case does not necessarily mean physical dollars, but also account balances in a bank account. Stocks, bonds and other financial assets can be considered liquid because once you sell in the market, your funds settle in a couple days.
Tangible assets, on the other hand, can take much longer to liquidate. Assets such as real estate, fine art, and collectibles, are all relatively illiquid.
What Happens to Bonds When Interest Rates Go Up or Down?
Bond prices have an inverse relationship to interest rates. When interest rates rise, the demand for bonds falls. The price of a bond usually goes up when there is high demand for it because it pays a higher rate of interest than the prevailing market opportunities.
While seemingly illogical at first glance, this negative correlation for bond prices and yields makes complete sense.
If a bond’s stream of payments remain fixed over time and interest rates available in the market change, this income generated becomes either more desirable (as when rates fall) or less so (when rates rise).
Unsurprisingly, bond investors try to get the best return on their investment. Because of this, they need to keep tabs on fluctuating borrowing costs offered by the market.
If they care about price appreciation, they want to buy longer-term bonds in a falling rate environment because this exposes them to the most interest rate risk and potential upside.
Likewise, to avoid the pinch of rising rates, bond investors should focus on short-term bonds because these are the least susceptible to interest rate movements.
What is Interest Rate Risk?
When you invest in a bond, your return comes from the interest it pays. Interest rate risk represents potential investment losses resulting from a change in market interest rates.
When interest rates fall, the price of a bond will rise. Likewise, if interest rates increase, the value of your fixed-income investment will decline because investors seek higher yields from other options in the market.
The change in a bond’s price given a change in interest rates is known as its duration.
To reduce the risk from movements in the costs of borrowing, you can hold bonds of different durations. Further, you can buy more exotic investments like interest rate swaps or options.
What are the Tax Implications of these Investment Options?
When you purchase a capital asset – be it a stock, bond, house, widget, Bitcoin, or other investment – you establish a basis equal to your cost to acquire it.
When you sell, you compare your sales proceeds to the basis to determine whether you have a capital loss or a capital gain.
If your proceeds exceed your basis, you have a capital gain. If reversed, you have a capital loss.
You’ll also need to consider the time period for which you held the asset.
Depending on how long you hold your cryptocurrency, your gains or losses will be considered “short-term” or “long-term.”
That distinction will also play a big role in how much you have to pay in crypto taxes.
- Short-Term Capital Gains and Losses. When you buy and sell an asset within a year, you recognize a short-term capital gain or loss. Short-term gains are subject to the same tax rates you pay on ordinary income, such as wages, salaries, commissions and other earned income. The IRS has seven tax brackets for ordinary income ranging from 10% to 37% in 2023.
- Long-Term Capital Gains and Losses. If you buy an asset and sell it after a year, the difference between the sales price and your basis is long-term capital gain or loss. You’ll usually pay less tax on a long-term gain than on a short-term gain because the rates are generally lower. Currently, there are three tax rates for long-term capital gains – 0%, 15%, and 20%. The rate you pay depends on your income.
How Much Risk Should I Take On?
The ideal portfolio is one with minimal risk and high returns. Finding the perfect mix of yield and risk is always a compromise.
Although, one thing lacking from a savings account, which prevents it from building wealth, is a high yield as compared to stocks or other assets.
Likewise, investing in stocks, even an S&P 500 index fund, can still present short-term losses (even double digit). You need to look at these investments in the appropriate context of time.
Savings accounts work well for easy access to cash that earns money while idle. Stocks are long-term investments with significant upside potential over decades.
What are High-Return Investments for Kids?
Starting to save can seem daunting, but parents can address that head on by making it an easy task for kids through repetition and understanding.
If you’ve already conquered the ability to save, be that parent who helps your kids learn about the importance of opening a savings account early and developing good money habits as early as possible.
If you want to help your children build a savings account balance or even help them open an account through a banking app for minors to handle money from their allowance or a part-time job, you’ve got options to make building savings a habit.
Doing so will provide them with an opportunity to earn some interest on their savings account, while also learning how to bank.
Many even come with debit cards for teens that allow parents to monitor spending and set guardrails for how they spend.
You will also want them to begin taking advantage of compounding returns from an early age. Consider starting with stocks for kids, index funds or mutual funds.
