Investing your well-earned money can be intimidating, especially in an ever-changing economy. However, by making future-minded investment decisions you can significantly reduce the associated risk. Building a diverse, low-risk investment portfolio requires an understanding of each security.
US Treasury Bonds, Bills, and Notes
Investments through the US Treasury are considered the safest investment opportunity available, due to the United States never defaulting on its debts.
US Treasury Bonds: Pay a fixed interest rate every six months until its maturity date, issued in terms of 20 to 30 years.
US Treasury Notes: Pay a fixed interest rate every six months until its maturity date, issued in terms of 2, 3, 5, 7, and 10 years.
US Treasury Bills: Purchased at a discount to its face value. A short-term investment, issued from a few days to one year, upon maturity you are paid the face value.
Real Estate Investment Trusts (REIT)
REITs are one of the many ways to begin investing in income-producing real estate, while not directly owning the land.
There are two types of REITs; those that are publicly traded on the stock exchange and those that are not. Generally, REITs that are not publicly traded are considered riskier due to their lack of transparency and limited liquidity.
REITs are particularly attractive investments because, as per the Securities and Exchange Commission (SEC), the operating company is required to pay investors 90% of their taxable income to the shareholders annually in the form of dividends.
Exchange Traded Funds (ETF)
ETFs aim to track the performance of an index, sector, or commodity. Many popular ETFs are designed to reflect a certain index fund such as the S&P 500 (ETF that tracks the S&P 500: $SPY). ETFs are generally more liquid than the index fund, specific sector stocks, and the commodity it is tracking. Therefore, giving the investor more control over their money.
Stocks that offer to pay a portion of the company’s earnings to shareholders is called a dividend-paying stock. This investment opportunity is enticing because the investor is guaranteed a small payment proportional to the number of shares owned and the increase of the overall stock price. Dividends are typically paid quarterly or monthly.