Finances

Investment types that are smart in uncertain times

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This guide outlines the best three investment types for today’s confusing economic times.

If there is one thing most financial advisors and seasoned investors can agree upon, it would be that we have being having some rather unusual years recently, interesting to say the least. Inflation is out of control, the stock market is chaotic, and the Fed is about to raise interest rates. Not only is this making it a bit of a challenge for investors who have been playing the markets for many years, but it can be totally confusing for a new investor trying to discern the smartest investment types this year.  

What makes it so confusing is the traditional way of dealing with market indices. Any one market indicator would elicit a specific response and each specific indicator would probably require a different strategy. It is rare that you will find three very diverse indicators at the same time. This means that you would normally pick the indicator closest to your strategy and then choose an investment platform. However, it just might be possible to devise a strategy based on all three investment types so that you can realize the ROI you are seeking. 

Top 3 investment types in an uncertain economy

1. Dividend Stock Portfolio 

Investing in the stock market can be a bit tricky and one of the reasons you may want to deal with a brokerage with a solid reputation and years of experience. They will help you choose investment types to buy into a portfolio of dividend stocks that are forecast to do well under these specific market conditions. If you are new to dividend stocks, they are best described as stocks that pay regular dividends while also gaining value along the way.  

Here, you may want to consider the power of dividend reinvestment instead of withdrawing dividends as they are paid. In this way, you are gaining value in the underlying asset without being out of pocket. These are seen as smart investments for the odd conditions of 2022. 

2. FDIC Insured High Yield Savings Accounts 

If you are looking for a safe investment types, high yield savings accounts are about as safe as you can get. They are liquid in that you can take money out if needed and the right accounts are FDIC insured up to $250,000. Bear in mind that when you withdraw money, you will be losing interest but if it is an emergency, at least you won’t be penalized for pulling money out.  

The smartest move would be to leave the accrued interest in the account so that you are earning interest on top of interest, commonly referred to as compound interest. Another way of understanding it is that you will continue to earn interest on the original principal but will be earning interest on the accumulated interest over time. The one downside is that interest rates will be nowhere near the rate of inflation, but since your investment has FDIC protection, it realizes small gains and is not in jeopardy to being lost. 

3. CDs – Traditionally ‘Safe’ Investments 

CDs are also FDIC insured so they are as safe as high yield savings accounts, but they are not the right investment types for anyone who may need to access their funds before the term of the CD is up. They are seen as being short to medium term investments typically maturing anywhere between six months and five years.  

In other words, if you withdraw money from your CD before it matures you will be penalized in percentage points. Certificates of Deposit are not all the same and rates may vary by a bit but the one thing they have in common is that they all require a minimum deposit, although different between banks. 

Takeaway 

Even the most adventurous of investors are viewing the smartest investment types for the current times as being the safest ones. It is, after all, a year with unusual market conditions. With many economists still predicting a recession to some degree, safe equals smart this year, so keep that in mind. Dividend stocks, high yield savings accounts and CDs should be at the top of your list of smart investments. 

Photo by Nataliya Vaitkevich

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