Compound Interest Investments
Building a comfortable nest egg takes time and careful planning. If you play your cards right, by the time you’ve retired, you can have a suitable sum so you can enjoy your golden years.
Of course, to get there, there’s a lot of prep work. People don’t happen upon a financial goal without a little investment. Investing is that extra push that can help you grow wealth long-term, so you don’t have to toil away later.
One of the best ways to invest your hard-earned money and accumulate wealth is through compound interest investments. Here are the seven top compound interest investments that can help boost your retirement savings and help grow your nest egg.
What Are Compound Interest Investments?
Compound interest investments are bank-type or money market assets that compound over time. It’s the process which an asset’s earnings (from capital gains or interest) are reinvested to generate more money. Essentially, assets earn money, and that money is put back in for a bigger long-term payout.
Funds are calculated with the initial investment, and the accumulates funds. Rather than earning funds from linear growth, it refers to the increasing value of an asset due to the interest of the principal and accumulated interest. So, when your investment grows, it compounds and brings in more capital for your nest egg. These investments can be short-term or long-term, and depending on how risky you want to get, you can receive a decent return on your investment. Here are seven compound interest investments that can boost your savings.
Considered a safe investment, certificates of deposit are issued by banks and generally offer higher interest than savings. These are federally insured time deposits. These CDs pay you interest at regular intervals. As they mature, you get both the principal and the interest. Your money is tied up in these CDs until your account reaches maturity, but if you don’t need the income right away, these are a safe investment.
2. High-Interest Saving Accounts
A high-interest, or high-yield savings account is a good investment for those who need cash quickly. While they may cost a bit more than other investments, they earn a higher interest rate that makes it worth the extra money. With a high-interest savings account, owners earn interest on their money based on their deposits. Add money, gain interest, and most accounts have a competitive interest rate. While you run the risk of inflation, these investments are pretty low risk.
3. Rental Homes
Rental properties are a great way to pull in passive income. However, the downside of this investment is that as the property owner, you have to manage your asset. Properties need to be maintained, and there’s no money to be had if your rental isn’t filled. If you have a reliable tenant and a well-cared-for property, rental homes can pull in excellent passive income. Though this option isn’t as liquid as some of the others on this list if you pay down the mortgage, this asset can bring in long-term and steady cash flow.
Bonds can make an excellent compound interest investment, but before you go and buy up a ton, know that there are many different bonds with varying risk factors. Government bonds are the lowest risk, and they are backed by the U.S. government. It’s subject to the fluctuating economy, but it has liquidity and can be very beneficial.
Municipal bonds are issued by the state and carry slightly more risky than Government bonds. These are backed by cities and states and are reliant on the municipalities you buy them from. Short-term corporate bonds have the highest risk. They also have the highest reward. They are backed only by the corporation and are short-term investments. There’s no telling what will go on in a year. Be cautious with your selection, and your account can benefit.
Rather than playing the bond market, you could try your hand at stocks. If you want to get more out of your stock investments, dividend-paying stocks have an additional payout. Of course, you must select your stocks wisely. If you pick the wrong stocks, you won’t get that dividend-boost you want.
You can also go with preferred stocks. These aren’t traded as often as regular stock options and again, is all based on the stocks you select. If you are cognizant of the stock market, this asset may be perfect for you.
6. Treasury Securities
The government sometimes needs money to pay debts, invest in projects, or plan the next big thing. You can be a part of that by purchasing treasury bills. These are sold at face value, but when they mature, owners are compensated full value. Treasury notes are issued, and owners can hold them for a few months for a quick turnaround. Just don’t sell them before they’ve reached maturity; otherwise, you may end up taking a loss.
If you like the idea of pulling in rent money but aren’t keen on managing property, REITs are the next best thing. Real estate investment trusts, or REITs, are a company that owns and operates real estate. It’s an easy way to own real estate without managing it. This investment acts as passive income, and as long as you stick to publicly traded companies, you can benefit from this investment long-term.
Choosing The Best Investment For You
Compound interest investing is a great way to build your account with a little help from the assets. Over time, the money accrued should accumulate to a comfortable nest egg for your golden years. Of course, as with any investment, you should consult the advice of your trusted financial advisor. Investment doesn’t have to be difficult, perform your due diligence, and start investing in your future.