Choosing the right investments is one of the most important things you can do to improve your personal finances. The investments you make can help you to grow your wealth by putting your money to work for you. But the wrong investments could cost you, making it harder to get ahead.
So, how can you decide where your money should go in 2024? Here are the questions you need to ask yourself.
What’s your timeline for needing the money?
The first and most important question is what your investment timeline is. That’s because the right short-term investment is very different from the right long-term investment.
If you won’t need the money for around five or more years, it most likely belongs in a brokerage account, so you can invest in the stock market. That’s because the market has consistently produced better returns than pretty much any other reasonable investment. But, while long-term investors stand a very very solid chance of making money, those who invest for the short term could easily sustain big losses.
The table below gives you an idea of what you could expect to earn by investing. It shows how the S&P 500 did over time (the S&P 500 is a financial index of 500 large U.S. companies and it’s widely viewed as a measure of the performance of the market as a whole).
| Year | Annual Percentage Change |
|---|---|
| 2023 | 13.98% |
| 2022 | (19.44%) |
| 2021 | 26.89% |
| 2020 | 16.26% |
| 2019 | 28.88% |
| 2018 | (6.24%) |
| 2017 | 19.42% |
| 2016 | 9.54% |
| 2015 | (0.73%) |
| 2014 | 11.39% |
| 2013 | 29.60% |
| 2012 | 13.41% |
| 2011 | 0.00% |
| 2010 | 12.78% |
| 2009 | 23.45% |
| 2008 | (38.49%) |
| 2007 | 3.53% |
| 2006 | 13.62% |
| 2005 | 3.00% |
| 2004 | 8.99% |
| 2003 | 26.38% |
| 2002 | (23.37%) |
| 2001 | (13.04%) |
| 2000 | (10.14%) |
Data source: Macrotrends.
As you can see, if you have a short investing timeline, you can’t take the chance of investing at the wrong time and sustaining big losses that could top 20%, or even 30%. But if you’re a long-term investor, then you don’t want to pass up the returns you could potentially earn over time — so opening a brokerage account and investing in the market is your best bet.
How much risk are you willing to take on?
If you are putting your money into a brokerage account to invest it, you’ll also have another choice to make. You’ll have to decide if you should buy shares of individual companies or opt for exchange-traded funds.
Buying shares of individual companies is the right move if you’re willing to take on a little more risk for greater potential rewards — and if you have the time and knowledge needed to research which shares to buy.
If you don’t feel confident picking stocks or want to minimize your risk, though, then putting your money into an ETF (exchange-traded fund) is probably your best option. ETFs come with low fees and it’s easy to find one using your broker’s screening tools. Plus, you can pick a fund that tracks the S&P 500 or the market as a whole. Since your money is pooled and you get an ownership stake in hundreds of big-name companies with this approach, you substantially limit your risk.
Of course, you do limit potential returns too — but since the S&P 500 has consistently produced 10% average annual returns over the long term, you’re still getting a pretty good return on your investment.
Are you willing to give up some access to your money?
Finally, you need to think about how accessible you want your money. This is an important question if you aren’t going to put it into a brokerage account and invest it, because you’re using it for a short-term goal.
If you need to be able to access the funds any time, a high-yield savings account is the best place to invest to maximize your returns and keep the money liquid. If you can lock up the money for a little while though (anywhere from around three months to five years), then a certificate of deposit (CD) could be a better bet, as you’ll get a guaranteed rate of return that’s usually above what a high-yield savings account would offer. Plus, your APY would be fixed for the duration of the CD’s term — savings account APYs are not fixed.
By asking yourself these key questions, you can pick the right place for your investment dollars. Start considering them today and get your money working for you ASAP in 2024.
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