Where To Invest Money For The Highest Return

Most new investors are eager to learn where to invest money in order to earn the highest rates of return. There are several time-tested investment avenues to high returns, but those looking to make a quick buck should be warned against the possible risks.

Stocks

Stocks have historically shown the highest rates of return of any investment vehicle. Individual companies sell stocks to buyers, who become shareholders and own a portion of the company. The advantage of putting your money into specific stocks is that your return can be extremely high over several years or decades, if you can predict which companies are going to do well. Since the inception of the stock market, the average return on any single stock has been around 7 percent. Obviously some have will gain much more. For example, since the mid-1990s, stock in America Online or AOL has averaged a yearly return of 21 percent, although in the short-term there were volatile ups and downs.

On the other hand, some companies’ stock will greatly underperform compared to market averages. That is the major risk. If you choose poorly, and the companies you invest in go bankrupt or dissolve, you could lose all your money. The general rule about investing is that high rates of return require taking on high levels of risk. You have to evaluate whether the potential for high yields is worth the risk of losing what you already have.

Mutual Funds

Mutual funds have also been traditionally chosen for their high yield rates. They are collections of stocks and bonds, designed to lower the risks involved with owning stocks in just one or a few companies. Mutual funds are often professionally managed and part of your invested money will go towards administrative fees. Even so, mutual funds can still offer a high rate of return. The stock market as a whole has averaged a 12 percent gain since it started in the 1920s and a mutual fund portfolio can capitalize on that average by holding a broad range of stocks.

Investors should be warned that even mutual funds are not a guarantee against risk. In the short term, these funds can still take nose dives, especially if they have concentrated their investments into only one type of stock, like technology companies, for example.  The best way to lower your risk is to diversify. You can hedge your bets against dramatic loss in any one industry by buying into many mutual funds, each offering a wide range of stock types. These might include things like real estate, health care, or automobile manufacturers to name just a few.

Invest for the Long Term

The highest returns are generally made over a period of many years. If you really want to see your money grow, the best strategy is to put it into some smart investments and let it grow over time. While there will be ups and downs each year, by planning for the long term, you can ride out any major crashes. Allowing yourself the option to wait for the market to rise again will give you the advantage over those who panic during the down markets and keep your profits high.

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