10 Prime Investments to Increase Your Income in 2022

10 Prime Investments to Increase Your Income in 2022

This article is not formal tax, legal or any other kind of advice, and the facts might have changed since we first wrote it.

Introduction

Many people must invest if they want to eventually secure financial freedom. As the coronavirus epidemic showed, an economy that first appears to be solid may be suddenly flipped upside down, leaving individuals who weren’t prepared for hard times scurrying for money.

Which investments are the greatest for investors to make this year, though, as the economy struggles under a wave of rising inflation? A strategy you can use is to blend riskier, higher-return investments with safer ones.

Prime investments in 2022:

1.            High-yield savings accounts

2.            Short-term certificates of deposit

3.            Short-term government bond funds

4.            Series I bonds

5.            Short-term corporate bond funds

6.            S&P 500 index funds

7.            Dividend stock funds

8.            Value stock funds

9.            Nasdaq-100 index funds

10.         Rental housing

Why should you invest?

Investing can offer you an additional and steady income source and can fund your retirement as you finally reach that point where you think of settling down – perhaps not exactly marrying – but more of setting your priorities straight.

Most of all, investing increases your money, which will eventually raise your purchasing power and enable you to achieve your financial targets. Or perhaps, you recently sold your house or made some money – making that money work for you is a smart choice.

While investing can help you accumulate wealth, it’s important to weigh the risks and potential rewards. And you’ll want to be in a position to accomplish that financially, which means you’ll need sustainable debt levels, a sizeable emergency fund, and the ability to ride out market ups and downs without having to use your money.

There are a variety of prime investments, ranging from low-risk selections like certificates of deposit (CDs) and money market accounts to medium-risk ones like corporate bonds and even higher-risk ones like stock index funds. That’s fantastic news since it means you can select prime investments that meet your risk tolerance while offering a variety of returns. Additionally, it implies that you can mix prime investments to build a balanced, diversified, and hence safer, portfolio.

Overview: Prime investments in 2022

prime investments high-yield savings

1. High-yield savings accounts

You get interest on your available funds when you have a high-yield online savings account. High-yield internet savings accounts are accessible vehicles for your money, just like a savings account earning pennies at your local bank. Online banks often provide substantially higher interest rates because they have lower overhead costs. Additionally, you can frequently access the funds by immediately moving them to your main bank or sometimes even using an ATM.

For people who may soon require access to money, a savings account is a suitable option.

One of the prime investments for

For risk-averse investors, particularly those who require money immediately and want to minimize the possibility that they won’t get it back, a high-yield savings account is a good option.

Risk

You don’t have to be concerned about your deposit being lost because the banks that provide these accounts are insured by the Federal Deposit Insurance Corporation (FDIC). Although high-yield savings accounts are regarded as safe investments, like certificates of deposit, if rates are too low you face the danger of losing purchasing power over time due to inflation.

Where can you open a savings account?

Banks and credit unions offer a savings account.

2. Short-term certificates of deposit (CDs)

Banks issue CDs, which often have higher interest rates than savings accounts. And if you anticipate an increase in interest rates, short-term CDs can be a better choice because they allow you to reinvest at a greater rate when the CD matures.

The maturity dates for these time deposits might range from a few weeks to several years. These are time deposits, so you can’t withdraw the money for a set period without incurring fees.

You receive interest payments from the financial institution on CDs on a regular basis. When it matures, you receive your principal back along with any accumulated interest. Looking around online for the best deals pays off.

For retirees who don’t require immediate income and can lock their money away for a while, CDs can be a suitable option among the prime investments listed due to their safety and greater yields.

One of the prime investments for

Risk-averse individuals who need money for a specific period and are willing to lock up their cash in exchange for a little bit higher income than they would get from a savings account can consider a CD.

Risk

Although CDs are regarded as secure investments, they do come with reinvestment risk, which is the possibility that investors will lose money if they reinvest their principal and earnings in new CDs with lower interest rates (as we saw in 2020 and 2021). The concern that arises from rising rates is that investors won’t be able to benefit from them because their money has already been committed to a CD. It can make sense to remain with short-term CDs because rates are predicted to rise more in 2022, allowing you to reinvest at greater yields near term.

Keep in mind that taxes and inflation could seriously reduce the purchasing power of your investment.

Where can you buy a CD?

Banks and credit unions typically offer CDs.

3. Short-term government bond funds

Mutual funds or exchange-traded funds (ETFs) that invest in debt securities issued by the US government and its agencies are known as “government bond funds.” When interest rates climb, as they have since the beginning of 2022, short-term government bond funds don’t expose you to a lot of danger.

The funds invest in mortgage-backed securities and US government debt issued by companies like Fannie Mae and Freddie Mac. For new or low-risk investor, as well as those looking for cash flow, these government bond ETFs could prove attractive.

One of the prime investments for

Investors that are risk averse may benefit from government bond funds, albeit some categories of funds, such as long-term bond funds, may fluctuate significantly more than short-term funds due to interest rate changes.

Risk

Because the bonds are backed by the US, funds that invest in government debt instruments are regarded as among the safest assets.

The price of current bonds decreases when interest rates rise and increases when interest rates fall. Long-term bonds are more susceptible to the risk of interest rates than short-term bonds. Rising rates will have little effect on short-term bond funds, and the funds will gradually raise their interest rate as market rates climb.

Nevertheless, you can lose purchasing power if the interest rate can’t keep up with inflation if it remains high.

Where to get it

Many online brokers, namely those that let you trade ETFs or mutual funds, offer bond funds for sale. While mutual funds may occasionally require you to pay a commission or make a minimum purchase, most brokers who provide ETFs let you buy and sell them without any fees.

4. Series I bonds

The Series I bond, which is a more and more popular option in 2022, is a savings bond offered by the US Treasury to individual investors. This bond aids in incorporating inflation protection. In addition to paying a base interest rate, it also includes an inflation-based component. As a result, the dividend increases along with inflation. The interest rate will decrease if inflation does, though. The inflation adjustment readjusts every six months.

If Series I bonds are not redeemed for cash, they will continue to generate interest for 30 years.

One of the prime investments for

Series I bonds, like other government-issued securities, are appealing to risk-averse investors who don’t want to take any default risks as well as those who wish to safeguard their investment against inflation. Investors may use up to an additional $5,000 of their yearly tax refund to buy Series I bonds, but they may only purchase a total of $10,000 in a single calendar year.

Risk

The Series I bond shields your money against inflation, a major drawback of buying most bonds. These bonds are regarded as among the safest in the world against default risk, much like other government-issued debt.

How to obtain it

Direct purchases of Series I bonds from the US are possible at treasurydirect.gov. The government does not receive any commission from it.

5. Short-term corporate bond funds

Bonds can be packaged into funds that own bonds and can be issued by corporations as a way to raise money from investors. Since short-term bonds typically have maturities between one and five years, they are less prone to interest rate changes than intermediate- or long-term bonds.

For investors seeking cash flow, such as retirees, or who wish to lower their total portfolio risk while still earning a return, corporate bond funds can be a great option.

One of the prime investments for

Risk-averse investors looking for a little bit higher yield than government bond funds may benefit from short-term corporate bond funds.

Risk

Corporate short-term bond funds are not FDIC-insured just like other bond funds. Investment-grade short-term bond funds frequently provide investors greater returns than municipal and government bond funds.

But the higher gains also carry more danger. There is always a possibility that businesses will see their credit ratings decline or experience financial woes and issue bond defaults. Assuring that your fund is composed of top-notch corporate bonds will help to lessen that danger.

Where to get it

Any broker that lets you trade ETFs or mutual funds also lets you purchase and sell corporate bond funds. While many brokers may charge a commission or have a minimum purchase requirement to buy a mutual fund, the majority of brokers let you trade ETFs commission-free.

prime investments s&P 500 index funds

6. S&P 500 index funds

While S&P 500 index funds have more volatility, it is a fantastic solution if you wish to attain larger returns than more conventional banking products or bonds.

Approximately 500 of the largest American corporations make up the fund, which includes many of the most prosperous global businesses. For instance, two of the most well-known members of the index are tech giant Amazon and conglomerate Berkshire Hathaway.

An S&P 500 index fund, like almost any fund, provides immediate diversification by letting you own a portion of each of those businesses. The fund is more resilient than many investments since it has businesses from every sector. The index has historically returned roughly 10% yearly. These funds are among the top index funds and have some of the lowest expense ratios (the amount the management company charges to operate the fund) available.

For new investors, an S&P 500 index fund is a great option since it offers extensive, diversified exposure to the stock market.

One of the prime investments for

Any stock investor searching for a diversified investment who can commit to holding their investment for at least three to five years should consider an S&P 500 index fund.

Risk

The fact that an S&P 500 fund is made up of the best companies on the market and is extremely diversified makes it one of the least risky methods to invest in stocks. Naturally, it still contains stocks, making it more volatile than bonds or any other bank products. Additionally, because the government does not provide insurance, you risk losing money if the value of it changes. The index, however, has performed admirably over time.

Investors may wish to move cautiously and stick to their long-term investing strategy given that the index has done poorly in 2022 after climbing in 2021 from the pandemic-induced slump in March 2020.

How to get it

Any broker that lets you trade ETFs or mutual funds also lets you buy S&P 500 index funds. In contrast to mutual funds, which may change a commission and need you to make a minimum purchase, ETFs are normally commission-free, so you won’t pay any additional fees.

7. Dividend stock funds

Stocks that generate dividends might make even your stock market investments a little bit safer.

Dividends are profits that can be distributed to shareholders, often once every three months. With a dividend stock, you can increase your investment through long-term market growth as well as earn money in the short term.

Individual stock purchases – dividend-paying or not – are better suited for experienced and intermediate investors. However, you can lower your risk by purchasing a number of them in a stock fund.

One of the prime investments for

Dividend stock funds are an excellent option for virtually any type of stock investor, but they may be preferable for those seeking income. These may be appealing to those who require income and have the patience to hold investments for lengthy periods of time.

Risk

Dividend stocks are risky investments, just like any other kind. Although they are thought to be less risky than growth or other non-dividend stocks, you should still be selective when choosing your portfolio.

Instead of choosing firms with the highest current yield, make sure you invest in those with a track record of dividend increases. However, even well-regarded corporations are susceptible to financial crises, so a positive reputation is ultimately no guarantee that the company won’t cut or eliminate its dividend.

By purchasing a dividend stock fund with a diverse portfolio of assets, you can lessen your dependence on any one firm and remove many of these dangers.

Where to get it

Any broker that trades in them will have dividend stock funds available as mutual funds or ETFs. Because they frequently have no minimum purchase requirement and are typically commission-free, ETFs could be more advantageous. In contrast, depending on the broker, mutual funds could have a minimum purchase requirement and your broker might charge a commission for them.

8. Value stock funds

A lot of investors are unsure of where to place their money considering the possibility of major overvaluation as a result of the run-up in many companies over the past two years. Value stock funds might be a wise choice as they focus on value stocks that are more affordably priced than other market securities. Value stocks also frequently perform better as interest rates rise.

For many investors, another draw is the fact that many value stock funds also pay dividends.

One of the prime investments for

Investors who are accustomed to the volatility involved with stock investing can consider value stock funds. For stock fund investors to weather market turbulence, they must also have a longer-term investment horizon of at least three to five years.

Risk

Due to their low cost, value stock funds will typically be safer than other stock fund types. However, because they are still made up of stocks, they will fluctuate far more than safer assets like short-term bonds. Government insurance does not exist for value stock funds either.

How to obtain it

ETFs or mutual funds are the two main categories of value stock funds. Most significant online brokers often provide ETFs commission-free and without a minimum purchase requirement. However, internet brokers may charge a commission to trade mutual funds, and they can have a minimum purchase requirement.

9. Nasdaq-100 index funds

Investors who want exposure to some of the biggest and greatest tech companies without having to pick winners and losers or evaluate specific companies can consider an index fund based on the Nasdaq-100.

The fund’s 100 largest Nasdaq companies are among the most prosperous and stable businesses, which include Apple and Meta Platforms, each of which make up a large part of the entire index. Another well-known member firm is Microsoft.

You can get quick diversification through a Nasdaq-100 index fund, protecting your portfolio from the demise of any one company. The top Nasdaq index funds have extremely low cost ratios, making them an affordable way to own all of the index businesses.

One of the prime investments for

Investors in stocks who want growth and are prepared to put up with severe volatility should choose a Nasdaq-100 index fund. Investors should be willing to make a three- to five-year commitment to holding it. When investing in an index fund that is trading at record highs, using dollar-cost averaging rather than making a one-time lump sum purchase can help lower your risk.

Risk

These equities may decrease in value just like any other publicly traded stock. Despite having some of the most powerful tech companies, the Nasdaq-100 also typically includes some of the most highly valued businesses. Given their high value, they are probably susceptible to falling sharply in a downturn, though they may climb again as the economy rebounds.

Where to get it

Nasdaq-100 index funds are available as both ETFs and mutual funds. While most brokers don’t charge a commission when you trade ETFs, mutual funds may do so and have a minimum purchase requirement.

10. Rental housing

If you’re ready to handle your own property management, investing in rental housing can be a wonderful decision. Amid the growing mortgage rates, it might still be a good moment to fund the purchase of a new home, even though the shaky economy might make maintaining it more challenging.

This path will require you to choose the appropriate property, finance it or buy it outright, maintain it, and deal with tenants. If you choose well, you can succeed greatly. The convenience of purchasing and selling your assets on the stock market with a click or a tap on your internet-enabled gadget won’t be available to you, though. Be ready for late-night calls for any property-related commotion.

However, if you keep your assets for a long time, pay off your debt gradually, and increase your rents, you’ll probably have a significant cash flow when it’s time to retire.

One of the prime investments for

Long-term investors that wish to manage their own properties and produce consistent cash flow can consider renting out residential real estate.

Risk

You can overspend for housing, just like you do with any asset, as investors did in the mid-2000s. Despite the economy’s difficulties, property prices rose in 2020 and 2021 due to low mortgage rates and a shortage of available homes. The absence of liquidity may also be a concern if you ever needed immediate access to money. If you need to replace anything like your roof or air conditioner, you may need to come up with a significant amount of money, and inflation may have a significant impact on the price of doing so. Of course, there is a chance that the house will remain unoccupied while you are still making mortgage payments.

Where to obtain it

To obtain rental accommodation, you’ll probably need to engage with a real estate broker. Alternatively, you can try to develop a network of people who might be able to find you better deals before they become available.

What to consider in choosing prime investments

You should think about your risk tolerance, time horizon, investing knowledge, financial condition, and the amount of money you have available to invest as you choose what prime investments to put your money in.

If you want to increase your wealth, you can choose assets with lower risk but lower returns, or you can choose prime investments with higher risk but higher returns. Investing often involves a trade-off between risk and return. Alternately, you can adopt a balanced strategy, making sound financial investments while yet allowing yourself the chance for long-term success.

The prime investments for income in 2022 allow you to do both, with different levels of risk and return.

Risk tolerance

Your level of risk tolerance indicates how much volatility in the value of your prime investments you can take. Are you ready to incur significant risks in order to perhaps reap significant rewards from your prime investments? Or do you require a more cautious portfolio? Risk tolerance can be psychological as well as dependent on your financial circumstances.

A bigger share of their portfolios may be allocated to less-risky investments by conservative investors or those who are close to retiring. People who are saving for both short- and long-term objectives will find them to be quite beneficial. Prime investments like CDs and other FDIC-protected accounts won’t lose value and will still be available to you if the market turns chaotic.

As long as they diversify, individuals with stronger stomachs, employees still building retirement nest eggs, and those with 10 years or more before they need the money are likely to do better with riskier portfolios. With a longer time horizon, you can ride out stock market volatility and benefit from their potentially larger return.

Investing time frame

Investing time frame, or time horizon, simply means when you need the money. Will you require the funds today or in 20 years? In 2.5 years, are you preparing for a down payment on a home, or are you planning to use your savings for retirement? Which ones among the list of prime investments are more suitable depends on the time horizon.

If your time frame is shorter, you’ll need the funds to be free and available in the account at a specified time. You therefore need to choose among the safer prime investments, including savings accounts, certificates of deposit, or perhaps bonds. These are generally more secure and fluctuate less.

You can afford to take certain risks with prime investments that offer a higher return but are more volatile if you have a longer time horizon. Your time horizon enables you to endure the market’s ups and downs. You can invest in stocks and stock funds and hold them for at least three to five years if you have a longer time horizon.

Your choice among the prime investments need to be adjusted for your time horizon. You shouldn’t invest your rent payment for the following month in the stock market and count on it to be there when you need it.

Your knowledge

What you invest in is heavily influenced by your investing knowledge. Savings accounts and CDs are simple investments that don’t require much expertise, especially since the FDIC is there to secure your money. However, market-based goods like stocks and bonds demand greater expertise.

You must increase your comprehension of the assets if you wish to invest in those that need greater knowledge. For instance, if you want to invest in specific stocks, you need to have extensive knowledge about the business, the sector, the products, the level of competition, the financial situation of the business, and much more. Many folks lack the time necessary to devote to this process.

But even if you lack understanding, there are methods to profit from the market. An index fund, which consists of a group of stocks, is among the best. It’s unlikely that a single stock’s bad performance will have a significant impact on the index. You are essentially betting on the performance of dozens, if not hundreds, of stocks, which is more on the performance of the market as a whole.

As you consider making prime investments, you should be aware of your knowledge’s limitations.

How much you can afford to invest

How much money are you able to invest? Investigating higher-risk, higher-return assets is more likely to be worthwhile the more money you have to invest.

Because the potential profits are so much higher than with bank products like CDs, if you have the extra cash it may be worthwhile to spend the time learning about a certain stock or sector.

If not, it might not even be worth your time. Therefore, you could continue with bank products or choose less time-intensive options like ETFs or mutual funds. These products can also be useful for consumers who desire to make incremental additions to the account.

Bottom line

Prime investments range from secure, lower-returning assets to riskier, higher-return ones, and they can be a terrific way to gradually increase your wealth. This implies that in order to make an informed choice, you’ll need to be aware of the benefits and drawbacks of each investment option as well as how they relate to your entire financial strategy. Although it may initially seem difficult, many investors manage their own assets.

But establishing a brokerage account is the first and easiest step in the process of choosing prime investments. Investing can be affordable even with limited resources.

Pained by financial indecision? Want to invest with Adam?

Adam is an internationally recognised author on financial matters, with over 492.2 million answers views on Quora.com and a widely sold book on Amazon

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