Where Have All The Good Investments Gone?
People sometimes use the word investment in a way that has nothing to do with its meaning."I think I am going to invest in a new Camaro this year," or "We're going to invest in a vacation in the Bahamas."While these are certainly high ticket items, there is no real way to believe that they will appreciate in value over time.Sure, some classic cars have become more valuable with age, but the majority of them have ended up in the scrap heap.Who can predict which car of today will be the classic of tomorrow?A vacation is in the same boat, even when it is not a cruise.It may be pleasant, and it may make relationships stronger, but as far as financial return goes, there will be no real uptick from taking a vacation though it may help with productivity.
The safest, dreariest investment possible is a standard savings account.With what the banks have gotten away with in the last couple of years, you would think that a savings account would pay more than it does.At far less than one percent interest, it offers the security of protection against burglary, and that's about it.Better than under the mattress, but not by much.
Up from that is a high yield account, but don't let the name fool you.High yield is relative.Check the interest rate before tying up your money in one of these accounts.They usually have some sort of minimum requirement and unforgiving fees for falling below that requirement.
Certificates of Deposit or CDs require a minimum amount of money on deposit for a specific period of time.Withdrawing early can result in a substantial penalty, so it is important to know when you are going to need your money.If you have to have access to it, a CD may not be the best choice for you.Some CDs can mature in as little as three months, but the interest rate that most CDs are offering is hardly worth the inconvenience and the opportunity cost of not having your money tied up.
So a bank may not be the best place to invest.They tend to offer limiting conditions, low rates and hidden fees that can eat through a savings faster than a termite through a log - which granted isn't really that fast but is still pretty devastating.That leaves stocks, bonds and precious metals.
Bonds are kind of like corporate or government CDs.The purchaser buys them at a price, waits for them to mature and then turns them in for the agreed upon amount.The problem with bonds is that of the company goes out of business before the bond maturity, they become worth less than the paper they are printed on.
Even though the stock market has mostly recovered, for most people, it doesn't seem like anything is different on Wall Street and that can leave a bad taste in a potential investors mouth, especially if they know someone who lost their retirement because of the economic downturn.
Precious metals are at their highest prices ever, which generally means that a correction is due.Gold may seem like a safe bet, but when everyone is putting his or her money into a particular investment, it is time to look for a different opportunity.