The Smartest Financial Investments You Can Make In 2021

Investing your hard-earned money can be nerve-racking. The thought that your investment could tank might even keep you awake at night. If you’re risk-averse, these safer investments might be right up your alley. While nothing is guaranteed, these investments in 2021 have the highest chance of offering a return on your investment.

CDs Are Incredibly Safe But Not Very Flexible Once Purchased

In this photo illustration one hundred US dollar banknotes...
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Igor Golovniov/SOPA Images/LightRocket via Getty Images

Certificates of Deposit, most commonly referred to as CDs, are an FDIC-insured product that includes zero risks to the investor if they keep the money in the CD until it matures. The maturity rate for CDs can range from one month to five years.

The only risk with this type of investment occurs when you need to pull the money from the CD early. An early exit will lead to penalties that must be paid by the investor. According to Bankrate, the average interest rate for a 1-year CD is 0.17% while a 5-year CD can earn 0.31%.

Treasury Securities Are A Safe Bet Back By The US Government

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BSIP/Universal Images Group via Getty Images

Treasury securities are fully backed by the U.S. government and are issued to raise money for various projects and to pay US-backed debt. There are three types of Treasury securities we recommend: T-bills, T-notes, and T-bonds. Rates typically range between .05% for shorter-term bonds to nearly 2.5% for 30-year rates.

T-bills have the shortest term of maturity at one year or less. This investment is sold at a discount and upon maturity, you receive the full market value. T-notes range from two to 10 years and earn interest every six months at a fixed rate. When T-notes mature you receive the full face value in return. T-bonds mature after 30 years with interest paid twice per year and the bond’s full market value paid at maturity.

High-Yield Savings Accounts

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Alex Tai/SOPA Images/LightRocket via Getty Images

A high-yield savings account can earn you a fixed-rate return on your money. By simply leaving money in this type of savings account your cash is secured up to $250,000 thanks to being insured by the FDIC.

While 2% is not going to help you retire rich, this is a great investment if you want to earn interest without tying your cash up into funds that will penalize you for early withdrawal. We recommend this type of investment for stashing your emergency funds.

Municipal Bond Funds Are Flexible But Carry Some Risk

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Andrew Harrer/Bloomberg via Getty Images

A municipal bond fund is issued at the state or local government level. These bonds earn interest and are not federally taxed. In some cases, your earned cash may also be exempt from state and local taxes. The biggest risk with these types of bonds is that a municipality goes bankrupt and defaults on the loan.

While this risk is low, it does happen. Investors using these funds can sell or buy shares every business day which makes for a high liquidity investment if you’re worried about cash flow.

Short-Term Corporate Bonds

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Chesnot/Getty Images

Corporate bonds work much in the same way as government bonds. Corporations raise needed capital while providing rates of maturity that typically range from one to five years. To minimize risk, we recommend investing in larger companies with a proven track record of success and growth.

The ability to buy and sell corporate bonds on a daily basis makes for a liquid investment that cash-flow investors will appreciate. Because of the additional risk associated with these bonds, they also tend to provide a higher interest rate than traditional bonds.

Dividend-Paying Stocks

Organon Will Start Trading on the New York Stock Exchange on June 03
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Kena Betancur/VIEWpress/Getty Images

First, we have to warn you that buying any individual stock carries risk. If a company’s financial performance falters, you could lose everything or at least a significant part of your investment. With that being said, investing in dividend-paying stocks can guarantee you regular payments and potentially an extra windfall if your stocks continue to rise.

We recommend stocks from larger, more secure companies. Numerous financial sites list the top dividend-paying companies and a financial adviser can also provide you with top picks from established organizations.

Growth Stock Funds Are A Bit Risky But Provide Plenty Of Upside

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Spencer Platt/Getty Images

As the name suggests, growth stock funds focus on investing in a set of stocks that are growing quickly. Often focused on tech companies, the stocks chosen typically don’t pay dividends since the companies involved re-invest profits into additional growth.

Stock investing always carries risk but growth stock funds provide access to various stocks. This type of pooled investing helps diversify your risk more than focusing on an investment in a single company.

S&P 500 Index Funds Are A Smart Bet

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Guillaume Payen/SOPA Images/LightRocket via Getty Images

The S&P 500 Index Fund comprises 500 of the largest corporates in America. This is a great investment tool for anyone seeking a longer-term investment that often beats market trends on an annual basis.

The annual rate of return on the S&P 500 averages around 10%, making it one of the most lucrative investment tools for long-term investors. With numerous companies comprising this type of fund, risks are often mitigated.

Real Estate Investment Trusts (REITs)

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Jane Tyska/Digital First Media/East Bay Times via Getty Images

REITs own and manage real estate properties. This investment vehicle pools together money from investors. This is a great option if you don’t want to deal with the hassle of managing your own purchased properties. It’s also a great way to earn passive income that provides cash flow.

We recommend looking for REITs that are publicly traded, as they often provide less risk. It’s also recommended that you seek out REITs that regularly increase dividend payouts. This type of investment is also liquid, providing easy access to your cash.

Rental Housing Can Be A Big Win

Real Estate
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Tom Williams/CQ-Roll Call, Inc via Getty Images

Owning rental properties can be a great way to earn extra income while building wealth for the future. In many parts of the country, the cost of homes is increasing in value at a rate of 1.5 times faster than the rate of inflation.

Rental housing can generate immediate income after expenses are covered and allow investors to generate an asset that increases in value as mortgage payments are made. During retirement, investors may choose to sell their rental properties, pocketing the value of their properties after taxes. There is, however, the risk of major repair needs, which can tank your short-term earnings and even cost you additional money.

NASDAQ-100 Index Funds Are A Solid Tech-Based Choice

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Budrul Chukrut/SOPA Images/LightRocket via Getty Images

Nasdaq-100 index funds are focused on investing in some of the best tech companies in the world. Among the companies included in these funds are Apple, Microsoft, Facebook, and others.

Built for longer-term investments, the diversification of these funds helps ensure your investment remains solid, even if one or two companies in the fund falter in the short term. When choosing the best Nasdaq index funds, look for an option that charges a low low expense ratio.

Utilize Credit Card Rewards To Earn Free Cash

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Jeffrey Greenberg/Universal Images Group via Getty Images

Yes, credit card rewards can be an investment tool and perhaps one of the most overlooked options available. With returns on your purchases that typically range between one and five percent, cash back rewards can earn hundreds and even thousands of dollars per year.

We recommend utilizing several credit cards that are paid off each month to avoid interest. Download an app such as Max Rewards which will show you which card pays the highest cash back at each store you visit or shop at online. My own cards earned back $1,468 in 2020.

Peer-To-Peer Lending Platforms Can Offer Big Returns With Some Risk

US-ECONOMY-LENDING CLUB
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Don Emmert / AFP via Getty Images

Peer-to-peer lending platforms allow investors to pool their money while providing loans to borrowers. These platforms typically focus on two types of borrowers, small businesses and consumers. Examples of these platforms include StreetShares and Lending Club.

While there is definitely the chance that a borrower will default on their loan, established platforms have created credit checks and other technologies that approve borrowers based on their credit history and ability to pay for their new loan. You can often choose what credit risk you are willing to take, a higher risk investment can yield above 10% on your initial investment.

Mutual Funds Are A Great Way To Quickly Diversify Your Investments

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Anacleto Rapping/Los Angeles Times via Getty Images

A mutual fund is created by allowing investors to pool their money to buy stocks, bonds, and other investments. Used mostly as a vehicle toward retirement, these funds are diversified, often across various industries and investment types.

Some mutual funds fit into specific criteria such as high-paying dividend stocks, while others focus on specific industries such as tech, energy, real estate, etc. Our favorite mutual funds spread risk across various industries while maintaining a focus on steady and sustainable growth. It’s often suggested that younger investors find mutual funds with a higher risk to reward ratio and over time switch those funds over to less risk-averse options.

Treasury Inflation-Protected Securities (TIPS) Are Tied To Inflation

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Stefani Reynolds/Bloomberg via Getty Images

TIPS don’t provide the same guaranteed rates of return found in some of our other investments, however, your investment will go up or down with inflation rates during the time you hold these bonds.

TIPS are FDIC-insured up to $250,000, making them a safe investment both for your initial money invested and based on inflationary rates. This might not make you rich but it’s a smart investment if you’re just looking for a place to park your money and if you want that cash to adjust with inflation.

Industry-Specific Index Funds Can Be A Wise Choice

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Nicolas Economou/NurPhoto via Getty Images

Just like the other index funds on our list, industry-specific funds pool together various company investments to diversify your risk when investing. The biggest difference with this type of fund is that it’s focused on a specific industry, such as technology, energy, housing, etc.

The biggest risk with industry-specific index funds occurs when there’s a major shift in a specific sector. For example, you probably didn’t want to be holding this type of investment in the housing sector in 2007. In general, these funds are a smart way to invest in an industry you understand while allowing you to stay hyper-focused on understanding the businesses in a specific area of investment.

Exchange-Traded Funds Are Great For Smaller Investment Amounts

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Scott Eells/Bloomberg via Getty Images

Exchange-traded funds, also known as ETFs operate much like mutual funds, allowing investors to pool their money to buy a collection of securities. Unlike mutual funds, they do not require larger investment amounts per investment. In fact, you can buy partial shares of ETFs on apps such as Stash.

ETFs are diversified across various securities, providing a more stable form of investing. Some funds are focused on specific industries while others are broader in nature.

Individual Stocks Can Still Be A Great Investment

Organon Will Start Trading on the New York Stock Exchange on June 03
Kena Betancur/VIEWpress
Kena Betancur/VIEWpress

We love investing in specific stocks when the upside seems more manageable. For example, Coca-Cola isn’t going to disappear tomorrow. Neither are Apple, Amazon, or various other Fortune 500 companies.

Dollar-cost averaging is often deemed the best way to make money from individual stocks. This practice includes buying stocks at regular intervals for roughly equal amounts; for example, always buying $250 worth of Coca-Cola stock during the first Monday of each month.

Debt Mutual Funds Reduce Risk

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Noam Galai/Getty Images

Debt mutual fund schemes provide steady returns and are considered less volatile than many other types of equity funds. These types of funds invest mostly in fixed-interest generating securities.

Among the type of investments featured in these funds are a mix of corporate bonds, government securities, treasury bills, commercial paper, and various other types of money market instruments. While considered a safer bet, these funds are at risk from interest rate hikes and credit risks.

Gold Is A Safe Better And There Are Even Gold-Based ETFs To Help You Invest

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David Gray /AFP via Getty Images

The price of gold can fluctuate at any time but it’s generally considered a solid investment, especially for the long-term. In fact, many investors store excess cash in gold when market volatility increases.

If you don’t want to buy a bunch of gold coins and store them for safekeeping, there are gold-based ETFs that take care of the buying and selling of gold on a stock exchange such as the NSE or BSE. If it was good enough for Ron Swanson it’s good enough for us.