If you’re looking to invest or to expand your existing investments, you’re not alone. According to the Wall Street Journal, the share of Americans who own stocks is at an all-time high. A Federal Reserve study of consumer finances found that approximately 58 percent of U.S. households owned stocks in 2022. That figure is up from 53 percent in 2019. It also marks the highest household stock-ownership rate the triennial survey has ever recorded. Before you start, it helps to understand your investment options.
Of course, stocks aren’t the only investment options open to Americans. Today, investors and would-be investors are gaining the knowledge they need to save and invest effectively. To do so, it’s important to understand the differences between common investment products. It also helps to see how each fits your broader wealth management plan or investment strategy. The right mix should support your personal financial goals.
Stocks as Investment Options
Stocks represent ownership shares in a company. Common stockholders typically have voting rights and a claim on the company’s profits and assets. The value of stocks can swing widely with market conditions and company performance. That offers the potential for high returns, but it also brings considerable risk. In addition, companies may issue different classes of stock. For example, common stocks allow voting on corporate matters. Preferred stocks usually lack voting rights. However, they offer fixed dividends and rank ahead of common stocks in asset claims during liquidation.
You can also hold stocks directly, which gives you personal control and voting rights. Or you can hold them indirectly through mutual funds or ETFs. In that case, you own shares of the fund rather than the underlying stocks. Some stocks come with restrictions or as options, often as part of employee compensation packages. These may have specific conditions or benefits attached.
Bonds and Fixed-Income Investment Options
Governments and companies issue bonds. A bond represents a long-term loan from the investor. In return, the investor receives regular interest payments and the bond’s face value at maturity. Many people see bonds as safer than stocks, but bonds typically offer lower returns. The federal government issues Treasury Bonds, which offer a tax advantage. Their interest income is exempt from state and local taxes. Similarly, local governments issue Municipal Bonds. These provide income that is exempt from federal tax, and sometimes from state and local taxes. As a result, they appeal particularly to people in higher tax brackets. Bonds are often a key part of asset management in balanced portfolios.
Mutual Funds
Mutual funds let investors pool their money to buy a diversified portfolio that financial professionals manage. These funds can invest in stocks, bonds, or other assets. Each fund prices its shares at the end of every trading day. In general, mutual funds offer diversification and professional management. However, their management fees can affect returns. People focused on saving for retirement often use them to keep exposure to multiple markets.
Exchange-Traded Funds (ETFs)
ETFs are similar to mutual funds, but they trade on stock exchanges like individual stocks. They offer diversification and lower operating costs. You can also buy and sell them throughout the trading day. Also, ETFs often track specific indices, sectors, or commodities. That makes them an efficient way to gain exposure to diverse investment areas within a structured investment strategy.
Certificates of Deposit (CDs)
CDs are time deposits with banks that offer fixed interest rates over a set period. The FDIC insures them up to certain limits, which makes them a secure investment. However, they generally yield lower returns than stocks or bonds. CDs suit investors who want a fixed rate without exposure to market volatility. That makes them a good supplement to conservative retirement planning.
Real Estate Investment Trusts (REITs)
REITs are companies that own or finance income-producing real estate across a range of property sectors. They offer investors regular income, diversification, and the potential for capital appreciation. In addition, most REITs trade publicly on major securities exchanges. Their tax advantage includes a requirement to distribute at least 90% of taxable income to shareholders as dividends.
Annuities as Retirement Investment Options
Annuities are financial products that pay a fixed stream of payments to an individual. Retirees typically use them as an income stream. There are two main types, immediate and deferred annuities, depending on when the payouts start. One significant tax advantage of annuities is that the money you invest grows tax-deferred until withdrawal. You can plan those withdrawals for a time when you are in a lower tax bracket.
What Investment Options Are Right for Your Portfolio?
The ideal investments depend on how much money you have to invest and how close you are to retirement. They also depend on how much risk you can tolerate and what you plan to use the money for. It’s a good idea to consult with a professional financial planner or advisory firm. They can offer insights into independent portfolio management and tailored solutions that support your long-term goals. A planner can also help you compare your investment options side by side. You can learn more about our fee-based asset management and financial planning process.
Toomey Investment Management offers a client-centric approach to investing. We focus on your personal financial goals and craft strategies in line with effective wealth management. At TIMI, we built our business model to treat all of our clients equally and fairly. We realized long ago that the financial industry dedicated many resources to capture money from prospective clients. However, it dedicated much less to service and accountability for existing clients. At Wallingford, Connecticut-based TIMI, we listen carefully and keep in touch. We also return your calls and communications quickly, so you can count on us. We can help as you build a retirement nest egg, improve your asset management strategy, or refine your investment strategy. Call us at 203-949-1710 or visit our website for more information.