Why should you invest?

Investing can be the smartest financial move you make. Although you might earn a steady paycheck from working, investing can put your hard-earned money to work for you. A wisely crafted investment portfolio can build tremendous wealth over time that you can use for your retirement, to send your kids to college, or for any of your other financial goals.

However, while it’s fairly common knowledge that investing is a good move, there’s also the question of what you should invest in, which is an extremely important piece of the puzzle. With that in mind, let’s take a closer look at some of the most popular investment vehicles.

We’ll discuss the pros and cons of each and examine whether they might fit into your ideal investment strategy. We’ll also look at some of the things you probably shouldn’t invest in.

What to invest in right now

Starting investing can be rather intimidating, and one of the biggest reasons is that many people don’t know what they can invest in or how to get started. So here are some of the most common ways to invest money.

1. Stocks

Almost everyone should own stocks or stock-based investments like exchange-traded funds (ETFs) and mutual funds (more on those in a bit). Stocks have consistently proven to be the best way for the average person to build wealth over the long term.

U.S. stocks have delivered better returns than bonds, savings accounts, precious metals, and most other investment types over the past four decades. Stocks have outperformed most investment classes over almost every 10-year period in the past century and have averaged annual returns of 9% to 10% over long periods of time.

To put returns like this into perspective, a $10,000 investment compounded at 10% for 30 years would grow to almost $175,000. Why have U.S. stocks been such great investments? Because, as a stockholder, you own a business.

For example, if you own shares of Apple (AAPL -0.22%), Alphabet‘s (GOOG 0.07%)(GOOGL 0.14%) Google, or Amazon (AMZN 0.8%) stock, you legally own part of the company. And as that business grows bigger and more profitable, along with the economy, you own a more valuable business.

As legendary investor Warren Buffett puts it, investing in U.S. stocks is a bet on American business, and this has been an excellent bet for more than two centuries. Some stocks also pay dividends, which can make them solid investment options for people looking for income from their investment portfolio.

2. Exchange-traded funds (ETFs)

If you’re worried about researching and selecting individual stocks, an alternative is to invest (either exclusively or partially) in ETFs and/or mutual funds. For example, if you invest in an S&P 500 index fund, your money will be spread out among the 500 companies that make up the index. So, if any one of them were to fail, it wouldn’t be devastating.

3. Mutual funds

Mutual funds are similar to ETFs. They pool investors’ money and use it to accumulate a portfolio of stocks or other investments. The biggest difference is that ETFs trade on major stock exchanges, and you can buy shares whenever the stock market is open. Mutual funds only price their shares once a day and aren’t nearly as liquid.

4. Bonds

Over the long term, growing wealth is the most important step. But once you’ve built that wealth and gotten closer to reaching your financial goal, bonds — which are loans to a company or government — can help you stay there.

There are three main kinds of bonds:

• Corporate bonds issued by companies.
• Municipal bonds issued by state and local governments.
• Treasury notes, bonds, and bills issued by the U.S. government.

You can buy individual bonds through most major brokers, but for most investors, the best way to go is to buy ETFs and mutual funds that invest in bonds on your behalf.

5. High-yield savings accounts

Savings accounts offered by branch-based banks are notorious for paying minuscule interest rates. However, some excellent banks, primarily based online, offer very competitive rates — to the point that they can be considered investment-worthy in many cases. In fact, as of mid-2024, savings account interest rates of 4%, 5%, or even higher are readily available.

6. Certificates of deposit (CDs)

Many reputable banks offer some excellent high-yield certificates of deposit (CDs) that pay guaranteed yields for anywhere from a few months to five years or more. Unlike savings accounts, CDs can allow you to lock in a specific yield for a set period. This can be an especially valuable feature in times when interest rates are relatively high and you want predictable returns.

7. Real estate

Like owning great companies, owning real estate can be a wonderful way to build wealth. In most recessionary periods throughout history, commercial real estate has been countercyclical to recessions. It’s often viewed as a safer, more stable investment than stocks.

There are ways for people at almost every financial level to invest in and make money from real estate. The most obvious is to buy a rental property, which can be a great way to build wealth and create an income stream — but it isn’t the best fit for everyone.

Fortunately, there are alternative ways to invest in real estate, many of which are much more passive than actually becoming a landlord, such as real estate investment trusts (REITs).