The stock market’s returns were fantastic last year. The S&P 500 index — the primary benchmark for U.S. stock market performance — rose an astonishing 24% in 2023.
Like most things in life, there’s no guarantee that 2024 will have the same results. But if you’re looking for a few of the best investment ideas for this year, here are some worth considering.
1. Stocks
Buying stocks gives you a small ownership stake in an individual company. When that company does well financially, and its share price goes higher than the price you paid for your shares, you can sell your shares for a profit.
People often choose to invest in stocks because they have a lot of potential to increase in value over time. The historic annual average of the stock market is about 10% annually.
But the problem with buying stocks is that the market can be volatile. To offset some of these inherent risks, most experts recommend allocating a shifting amount of your portfolio to stocks. To do this, subtract your age from 110 to decide how much of your portfolio should be in stocks. For example, if you’re 35, about 75% of your portfolio (110 minus 35) should be in stocks, with the rest in more stable investments like bonds.
Using this investment rule as you get older will help you maximize your investment earning potential, while progressively lowering your risk as you get closer to retirement age.
2. Index funds
Index funds are another way to invest in stocks, but they can be especially beneficial for people with no interest in buying individual stocks. Billionaire investor Warren Buffet recommends that most people use this investment strategy and allocate 90% to index funds and 10% to bonds.
You can buy an index fund in your online brokerage account that tracks the S&P 500, which includes the performance of about 500 leading publicly traded companies in the U.S. This takes a lot of the difficult work of picking stocks in different sectors, like technology or energy, so you’re not overexposed to any area.
One popular way to invest in index funds is to buy an exchange-traded fund (ETF). These low-cost funds are a great option if you don’t have a lot of money to invest, and you can start with as little as $1. They also have very low annual fees, called expense ratios.
For example, the SPDR® Portfolio S&P 500® ETF has an expense ratio of just 0.02%, which means you’d pay just $2 in annual fees for every $10,000 invested.
3. Certificates of deposit
Certificates of deposit (CDs) are a type of savings account in which you can earn a substantial return on your money with little risk. They differ from savings accounts in that your money is usually locked away for a while instead of being readily available in a savings account.
If you take your money out before the CD expires, you’ll likely have to pay a fee. These vary depending on your bank, the amount you deposit, and the maturity term of your CD. For example, Wells Fargo charges 12 months’ interest for early withdrawal on CDs with maturity lengths over two years. With this example, if you invested $10,000, had a rate of 4%, and a term of five years, you would pay $392 in fees for taking money out early.
But in return for handing your money over to a bank or brokerage firm for a while, you can earn a high rate of return. Many CDs currently offer rates above 4%. If you invest $10,000 in a five-year CD that pays 4%, you’d end up with about $12,166 once the CD expires.
You can buy a CD through a bank or your brokerage account. If you buy a CD through a brokerage, you may be able to sell it on a secondary market. This could be beneficial if you need to sell before the CD term expires.
One thing to remember before investing
While any of the above options can be a great place to invest your money in 2014, it’s important to remember that you shouldn’t invest any money that you think you might need in the next few years. Any cash you’re investing shouldn’t be money you need for emergencies, car repairs, household appliances, or other expenses.
If you’re not ready to part with your money for an extended period, you may want to consider putting it in a high-yield savings account. Many of them pay rates higher than 4% right now. And if you need to access the money for an emergency, there’s no penalty for taking it out.
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