These days, holding cash is a losing proposition. Every dollar in your pocket is worth less and less over time, with inflation figures reaching an 8.6% increase year over year in June. Consider investing your money instead of storing it under your mattress, where it will depreciate over time.
Due to recent market declines, investors can find a wide range of excellent assets, including stocks, bonds, and alternative investments, for sale at discount prices. A bear market is one of the finest periods for young investors in the accumulation phase to begin a long-term investing portfolio. Investing in one of these assets can be a wonderful method to combat inflation and perhaps earn a respectable return. The top seven investments for $5,000 in 2022, for both short- and long-term investors, are listed below.
Savings bonds Series I
The U.S. government has issued Series I savings bonds, which are fixed-income securities that pay interest based on both a fixed rate and a variable inflation-based rate. I bonds offer a tasty yield when inflation is high (like it is now). For instance: For I bonds issued between May 2022 and October 2022, the current annual interest rate is a staggering 9.62%.
Given that the U.S. federal government is backing them with its full faith and credit, these bonds are essentially “risk-free.” Bonds can be held by investors for up to 30 years before being redeemed. However, you forfeit the final three months of interest payments if you redeem an I bond before five years have passed. The limitation on electronic I bond purchases through TreasuryDirect to a total of $10,000 per calendar year is a drawback.
Berkshire Hathaway Inc.
For both novice and seasoned investors, Berkshire Hathaway, the firm that serves as Warren Buffett’s flagship, is a great core holding. Due to its substantial holdings in blue-chip U.S. equities, including Apple Inc. (AAPL), Bank of America Corp. (BAC), and Coca-Cola Co., the corporation can currently be viewed as a fund. In comparison to the 18.1% loss in the S&P 500 year to date through July 7, Berkshire Hathaway is only down 6.6%, which speaks to both the company’s resilience and Buffett’s value investment philosophy.
Long-term performance that has outperformed the market has historically been enjoyed by Berkshire shareholders, particularly when Buffett uses the company’s cash reserves to fund buying binges. By investing in Berkshire, investors gain access to a portfolio of Buffett’s personally chosen stocks and can profit from his long-term value investing approach.
S&P 500 ETF from Vanguard
For good reason, too, Buffett recommends VOO as the investment of choice for his estate after his passing. It is frequently used as a gauge for the overall performance of the U.S. stock market because the index it follows (the S&P 500) is notoriously difficult for professional investors and hedge fund managers to outperform over the long term.
The nearly 500 companies that make up its components are well-known large- and mid-cap U.S. companies that are vetted by the S&P committee before inclusion in the index. The S&P 500 has produced a 10% compound annual growth rate before inflation across several rolling 20-year periods. VOO offers investors a cost-effective passive exposure to the S&P 500 index at an incredibly low expense ratio of just 0.03%. On a $10,000 portfolio, this amounts to $3 yearly.
Total World Stock ETF by Vanguard
VOO is a fantastic long-term investment. However, the ETF only follows 500 or so large-cap American stocks. Buy VT, which tracks the FTSE Global All Cap Index, if you wish to diversify your holdings worldwide over the long run. More than 9,500 major, mid, and small-cap equities from every industry, including those from developed and emerging markets abroad, are held by VT.
VT is as secure and diversified as equity ETFs come, despite the fact that it may be volatile as an all-stock position. By purchasing and holding VT, investors guarantee they will always receive the average return of the global stock market. With VT, you won’t have to worry about whether the nation, market cap, or industry will do better. VT costs 0.07% more than VOO, which is a small premium.
Date-specific Funds
A target-date fund is a terrific way to put that $5,000 on autopilot for a successful retirement. These funds cater to investors with various time horizons and provide a full portfolio under a single ticker. For instance, the Vanguard Target Retirement 2065 fund (VLXVX), which has a 90%/10% stock/bond mix, is intended for investors born between 1998 and 2003 and has around 45 years before retirement.
A target-date retirement fund’s fund manager takes care of asset rebalancing, so investors don’t have to worry about it. The target-date fund automatically adjusts its allocation of stocks and bonds as investors get older to lower risk and make it more conservative as participants draw closer to retirement. Vanguard target-date funds have a low $1,000 minimum investment requirement, making them affordable for most investors.
Vouchers of Deposit
A certificate of deposit, or CD, is a terrific risk-free option to invest money for short-term requirements. These are financial products provided by banks and credit unions that give interest in exchange for a one-time, lump-sum deposit that cannot be withdrawn. A bank might, for instance, provide a 2-year CD with an annual percentage yield (APY) of 2%.
The appeal of CD rates is likely to increase as interest rates do. It is essential to browse around for the best rate because many banks also provide promotional rates. Investing money for foreseeable short-term goals, such as a car, college expenses, or a down payment on a house within the next two years, is a fantastic incentive to use CDs. You don’t have to be concerned about losing your money with CDs because the Federal Deposit Insurance Corp. insures them as bank products.
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