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  • Imagine you're about to embark on high seas adventure.

  • You've got your map laid out and it's time to chart your course.

  • Now... to make a decision -- do you stay close to the safety of shore?

  • Or do you set out for deeper waters with the hope of making better time?

  • When it comes to investing, the balance between safety and strong returns can feel a lot like

  • navigating choppy ocean waters.

  • Right now the stock market is at an all-time-high while most savings accounts are paying less

  • than inflation.

  • The destination is clear: to have our money make more money.

  • But what's thebestpath to get there?

  • What kinds of returns should you expect from each option, and how risky are they?

  • If you don't know, it's time to grab your atlas and sextant and start charting a course

  • to your financial goals!

  • The ocean of investing is huge.

  • While we'd love to discuss everything from cryptocurrency to real estate, today we're

  • exploring investments that are both popular and easily accessible to the average deck-swab.

  • Let's start by looking at the safest, calmest course for your investment journey.

  • Exhibit A: the savings account.

  • Safe? Check.

  • Liquid? Check.

  • But with the average U.S. savings account only paying .09% interest, it can start to

  • feel like you left the anchor down.

  • Some banks offer high-yield savings accounts paying 1-2% or more, but with inflation hovering

  • around 1.6% it'll feel like sailing into the wind.

  • So while this might be a great place to park your rainy-day money, it's not ideal for

  • long-term goals.

  • For a goal a few years out, you could look at a Certificate of Deposit or Series I Savings

  • Bond.

  • Savings Bonds currently pay a guaranteed 1.9% interest, and can be bought directly from

  • the government at treasurydirect.org.

  • You can start with as little as $25 and save up to $10,000 per year.

  • But be ye warned that you will be penalized if you withdraw your money before one year

  • has passed.

  • Certificates of Deposit or CDs, are issued by a bank or credit union and can pay even

  • more, between 1 - 3%.

  • The catch is that there's a minimum deposit of at least a few thousand dollars and you

  • can't touch your money for a fixed period of time between 1 and 5 years.

  • But as long as the bank or government sticks around, you can expect to get your money back

  • with the promised interest.

  • If you're saving up for a big purchase like the down payment on a house in a few years,

  • savings bonds or a CD might fit the bill.

  • Avast me hearties!

  • It's time to head out into the open waters of public markets.

  • That means publicly traded investments that don't come with guaranteed returns or outcomes.

  • Make sure you've got some life rafts on board!

  • Unlike savings bonds, Treasury, Municipal and Corporate bond funds are traded on public

  • exchanges, and since supply and demand affect their value, they have no guaranteed return.

  • One popular bond- fund with a little of everything has averaged 3.68% annual growth for the last

  • 10 years.

  • And like a stock fund, returns fluctuate and can even be occasionally negative when bond

  • prices fall.

  • Think of bond funds as a middle ground between guaranteed investments and risky ones like

  • stocks.

  • Often, they're available to you right alongside stock funds through a 401k at work or inside

  • an IRA.

  • These can be especially useful for people who are older and can't risk their whole

  • nest-egg to a stock-market crash.

  • Or they might be a great fit for if you're saving for something in a 5-10 year window.

  • Finally, let's look way out in deep waters: the stock market.

  • With 16 major stock exchanges in the world, dozens of industries, and thousands of companies

  • traded across the globe, it can all be a little overwhelming.

  • But a highly popular north-star for stock-investing is the S&P 500 Composite Index, which tracks

  • how the largest 500 corporations in America are doing.

  • Over the last 90 years, the S&P has averaged a growth of 9.8% per year.

  • If you wanted your returns to track the S&P, you could just invest in an S&P 500 Index

  • fund.

  • Side note: this is why we here at Two Cents use a 7 or 8% growth rate whenever we run

  • the numbers for long-term investing goals.

  • We assume a little less than that 90 year average.

  • With that growth rate, why isn't everyone hopping on board?

  • Well, the S&P almost never has a single-year return between 5 and 10%.

  • It's only happened twice since 1928!

  • If you hopped aboard in January 2018 you would've lost 6.24% by the end of the year.

  • One year before you'd be up 19.42%!

  • 2011 it had a 0% return.

  • And in 2008 it infamously fell 38.49%!

  • It's enough to make anyone seasick!

  • So short-term investing with stocks can leave you high and dry and is not recommended by

  • most experts.

  • But if you're able to weather the storms and stay calm during dives and dips over the

  • next 10 years or more, they may be just the ticket.

  • So what's the best investment?

  • It depends.

  • Earning 1-4% on money that needs a safe and steady harbor is perfectly appropriate.

  • Or if you're willing to take more risk and invest for the long term, 5-10% is pretty

  • reasonable for ten years or more.

  • While it's possible to do even better than this, odds are that some extra risks or effort

  • will be expected.

  • And remember to diversify so no single investment can sink your whole fleet.

  • Align your investments with the right goal, hoist your sails and you'll stay afloat,

  • even when seas get stormy.

  • And that's our Two Cents!

  • Thanks to our patrons for keeping Two Cents financially healthy.

  • Click the link in the description if you'd like to support us on Patreon.

  • Any of ye ol' salts out there have some extra sailin' advice for landlubbers?

  • Leave them in the comments section below.

  • Ar.

Imagine you're about to embark on high seas adventure.

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