While 2020 can be described as volatile at best, there are chances that 2021 might unfold the same way. Given the uncertainty, what’s the best bet to secure your future? Invest smartly in the right options to accumulate your wealth over the years. If you received a recent stimulus check payout or expect a bonus soon and do not require this money for any near-term expenses, investing it would be a smart option. Rather than having the money sit in a savings account, that would deplete your savings with the rising cost of inflation.
However, with some stocks at astronomical valuations with the high risk involved, what moves should investors consider taking in 2021? A mix of safer investments and riskier, higher-return ones is an excellent way to go.
We cannot be too sure which direction the stock market will inch towards in 2021, but investing in stocks has always been a high-risk game coupled with high returns.
However, it would be best if you were very selective while investing in a company. As observed in the S&P 500 and the NASDAQ 100, the tech stocks have seen a significant boom in recent times. If that sector moves in a downward spiral, it can drag the significant index down with it. It would be wise to spread your investments across various sectors to safeguard your investments, so you do not take a bad hit if the tech sector does.
If you are a heavy investor in the S&P 500, a large cash position will allow you to invest in emerging sectors if the general market declines.
This can be an excellent investment if you have the willingness and time to manage and monetize your properties. With the mortgage rates hitting an all-time low recently, it is the perfect time to purchase a new property. However, there are a few drawbacks as the unstable economy may make it harder for tenants, and they may be more likely to default due to unemployment.
But the good news is that over time your assets will grow, and your debt will decrease, which will lead to a significant cash reserve after your retirement.
3. Short-term corporate bond funds
Corporations raise money in several ways, including by issuing bonds to investors. These bonds can be packed into bond funds that own bonds issued by potentially hundreds of corporations, reducing the overall risk.
The average maturity of short-term bonds extends to a period of one to five years. This makes it less susceptible to interest fluctuations. It is a safer bet for investment options if you are scared to take the plunge into stocks.
Corporate bond funds are an excellent choice if you are looking for cash flow to reduce your overall portfolio risk but still earn a return nonetheless.
4. Municipal bond funds
These funds invest in several different municipal bonds, or munis called, issued by various state and local governments. The earned interest is generally free of federal income taxes and may also be exempt from state and local taxes, making them particularly attractive in high-tax states.
To find the ideal investment type for you, you can consult with a financial advisor, but you may want to stick with those in your state or locality for additional tax advantages.
Municipal bond funds are significant if you are a new investor as they offer diversified exposure without analyzing individual bonds. They’re also suitable for investors looking for cash flow with low risk.
In 2021, it has become evident that constant change is the only way forward and along with that comes financial instability. Since stressing over your finances won’t help solve anything, instead, your best strategy is to plan your investments well that will minimize your losses and give you better control over your cash flow that will ultimately lead to significant improvements in your life in the future.