Taking care of a family involves many responsibilities. Among those responsibilities entails stabilizing their financial future. Saving money plays a big part in this process, but saving money alone won’t be enough. Money put aside for the future must grow in order to address inflation. What costs a dollar today might cost $1.75 in the coming years. Reliable investment strategies help with the goal of increasing net worth and battling inflation.
Investors must look at acceptable levels of risk in relation to long-term and short-term goals. This way, an effective strategy to care for a family’s financial security can be implemented.
Stocks for the long term
Stocks involve buying ownership in a company. Each piece of ownership is referred to as a share. As a company grows more profitable, the value of the shares increases. Of course, stocks can and do lose value as well. Conventional wisdom dictates to hold onto decent stocks for the long term in order to survive the ups and downs of the market.
Stocks, however, can be short-term investments. If you wish to sell a profitable stock not long after buying, you can do so. However, capital gains taxes come into effect. Some investors do like to day trade or dynamically buy and sell stocks. In general, stocks are acquired for long-term investments.
Certificates of deposits and money markets
Alternatives to stock investing do exist. A certificate of deposit and a money market account do not exactly pay a lot of interest. However, they remain safe investments for parking money for a short time. Often, those in need of accessing money rather quickly would choose these vehicles over a savings or checking account. While the returns are lower, they pay higher interest rates than standard checking/savings accounts.
How do these investments work? A certificate of deposit locks money in for a set duration at a set interest rate. Withdrawals prior to the maturity date come with a penalty. A money market is, in essence, a checking account. Money markets limit the number of checks you write per month as a trade-off on higher interest. Overall, these investment vehicles deliver safety but not much financial growth.
The dynamic short-term options path
Options trading presents a means of gaining a significant return in a short period of time. Options trading, however, comes with more risk. The concept of options trading involves signing a contract to buy or sell an asset within a set period of time at an agreed price. If you sign a contract to buy 100 shares of a stock for $10 per share and the stock reaches $12, you can exercise your option to buy. If the expiration date arrives and the value drops to $9, you can pass on the buy but would lose money on the contract fee. Reviewing reliable option spread strategies from reputable analysts would help with making better-informed trades.
Bonds for the long-term
Purchasing a bond basically involves making a loan. When you buy a 30-year treasury bond at 2.5 percent interest, the federal government pays that interest annually. The bond continues to accrue interest until its final maturity date. Bonds can be cashed at any time. While the rate of return isn’t tremendous, the odds of the federal government defaulting on its bonds are low.
Bonds issued by municipalities and corporations pay higher interest rates than the U.S. government, but the risk level increases. Carefully think about such risks when looking at seemingly generous interest rates of 6 percent.
Ten-, 20- and 30-year bonds reflect the maturity dates. Shorter-term bonds exist, but most bond investors seem to prefer longer maturity dates. Often, the idea behind purchasing bonds involves hedging against stocks and other long-term investments.
Mixing mutual funds
Stocks and bonds do not need to be purchased individually. Mutual funds combine a collection of assets. A mutual fund may be a managed portfolio of stocks, bonds, stocks and bonds, or other assets.
No matter what you invest in, think things through. You want the best and safest investments for your family.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
(Featured image via DepositPhotos)
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