We know that the stock market is making people rich over time. This website has offered details on what the stock market is, as well as how to start collecting investments. So what are the next steps? Todays post is going to detail four type of investments that make the AVERAGE person rich. You would be surprised how many millionaires there are around you.
The glitz and glamour are not always on display to disclose someone’s net worth. That is because most millionaires are made through investments. This will serve as a brief introduction to the four main types of investments: Cash equivalent, Stocks, and Bonds. So let’s discuss why that is, starting with the most available form.
Cash equivalent investments
– High yield savings accounts (HYSA): Are just that. a Savings account with yields higher than you will find in your big name banks. One that really stands out from the others is the Capital one 360 high yield savings account. Capital one boasts interest rates that are 5X the national average. However, this is probably not the case currently because of the current state of federal rates.
– Money market accounts: are also very liquid types of investments. The one that I use is with PNC bank. Accounts under this category also boast higher yield savings, but they aren’t always as good on returns as the HYSA. Some money market accounts come with checkbooks. There are also minimum balances and initial deposits that will qualify you for a fee waiver, and the coveted higher yield savings.
These are just two examples of cash equivalent investments, however there are some others that warrant their own post. (for example: CD’s, Treasury bills, commercial paper, marketable securities, money market funds, and short-term government bonds). The full list can be found on investopedia.com.
Stocks are one of the most popular ways that people have been able to grow their wealth. It is honestly amazing how easy the concept of stock investing is! Which only adds to the fun of wealth building. What are stock investments, and why are they important? and how does this rank compared to cash equivalence?
A stock is defined as “the capital raised by a business or corporation through the issue and subscription of shares,” according to google dictionary. Many benefits and cons arise from investing in stocks. some pros:
– Very liquid. Depending on the brokerage that you use, your stock investments are usually easy to liquidate should you not want to ride out the ups and downs in the market.
– High reward. Stocks come with a variety of risk that also open the door for high probability of reward. It is not against the ordinary to see an impressive percentage of gains should the market be in great standing compared to national and world economics.
It is important to keep in mind that high rewards also brings some cons:
– High risk. With high reward comes the other side of the coin: volatility. You have to have a strong emotional limit when investing in stocks. You can honestly lose it as fast as you can gain net worth.
Bonds can actually be categorized as cash equivalence. However, bond investments as a whole are very important to investing, and deserve a category of their own. According to Investopedia.com, bonds represent the debts of issuers, such as companies and governments. Essentially, bonds represent debt, and they often provide more of a fixed income. There are a variety of bonds available to the average person that becomes more coveted with age.
– Municipal: These are usually issued by municipalities, and have the potential to come at a tax discount.
– Agency: Are issued by organizations that are associated with the government.
– Sovereign: These are issued by the treasury, and are often called “T-Bills,” depending on the amount of years to maturity.
– Corporate: Are the most commonly known bonds, as they are issued by companies similar to how stocks are distributed.
The biggest thing to keep in mind is that bonds are a lot less volatile than stocks. Because of this, the reward will never be as high yield as it would be for stocks. These are often the investments that people turn to when they get closer to retirement because they are more affected by the federal interest rates. This allows the trajectory of your net worth to keep a steady pace until retirement.
Cash equivalence, stocks, and bonds are just a few components of a very well-rounded investment portfolio. And while this is not a comprehensive list, having a good understanding of these investments is what propels the average person into a higher tax bracket. But the best part of these investment concepts? They are available to pretty much anyone. All you need to jump into the world of profitable investments is an internet connection, and the fuel: money.
With everything that we know now, what do you all think of these investments? Do you prefer to diversify, or are you a risk taker? Let me know in the comments below, and thanks so much for reading! If you want to continue reading about the stock market, or money in general check out this post and leave feedback!