In Search for the Best Investment Interest Rates?
When you are trying to find the best investment interest rates, you will find that it comes down to risk versus reward: low risk investments such as government bonds will have low interest rates because you are practically guaranteed a return, whereas high risk investments including shares and junk bonds will have a higher interest rate because of the higher risk of losing a large portion, if not all of the money invested.
Investing too heavily on one end of the spectrum will result in either too little return or too high a risk, and is a scenario best avoided. This is why diversification of a portfolio is so important: your investments should look like a pyramid as far as the amount of money invested, with lower risk investments at the bottom and increasingly higher risk investments at the top. In this way, you minimize your losses and still dip into the high risk investments to chance very high returns on top of those of the safer investments. The following investments are listed in order of their typical risk, lowest first:
Savings Accounts and Certificates of Deposit
Savings accounts and CDs are possibly the safest investments because the federal government actually insures the money you have deposited. Because of the extremely low risk, savings accounts and CDs usually have very low interests rates, and do not have the best investment interest rates for someone who is considering serious investment, although they do serve as a decent baseline as long as you keep less than the maximum insured amount deposited.
Bond Funds
Investing in a bond fund will put your money, along with others who invested in the same bond fund, and invest it in various individual bonds that would otherwise be inaccessible to the average investor. Depending on the type of bonds being invested in by the fund, the interest can be higher or lower than investing in an individual bond, but bond funds generally pay out dividends on a more regular basis than individual bonds. Also, bond funds offer greater diversification because the money is invested in multiple bonds, as well as greater liquidity, because bond fund shares can be bought and sold without regard to the maturity of the bonds.
Blue Chip Stock
Blue chip stock investing is one of the safer methods of entry into the stock market: buying blue chip stocks mean that you are investing in an established company with historically, steady earnings and very low liabilities. This ensures that the stock will not suddenly become worthless due to bankruptcy or catastrophic fiasco. Blue chip stock usually has one of the best investment interest rates for the risks involved and is a good place to start investing in the stock market.
Junk Bonds, Short Selling, and Emerging Markets
Each of these investment options is extremely volatile. Junk bonds are bonds that have a much higher chance of defaulting. Short selling is the practice of buying goods with prices that are expected to fall, selling them, and then when the prices fall, buying them again to return to whoever sold them to you in the first place. The obvious risk is if the price rises instead of falls, which will result in a loss. Investing in emerging markets can be extremely rewarding if the company takes off, but can also be devastating if the company goes under, which effectively wipes out the investment. This type of investment has the best investment interest rate, but involves excessive risk.
Where you start off with investing is dependent on your available funds and how much time you wish to spend watching the market. Lower risk investments can usually be made and then monitored minimally, while the highest risk investments usually require almost constant monitoring to maximize profit and minimize loss. Finding the best investment interest rates, will require many hours of research to make sure your entry into the world of investing is a profitable one.