High yield savings accounts
High-yield savings accounts are an excellent place to put your emergency fund since your money stays liquid and secure while providing you modest earnings.
The U.S. Federal Reserve has implemented significant interest rate hikes since March 2022 to tame rampant inflation.
While not everyone embraces the notion of rate hikes due to their potential to impede economic growth and induce volatility in the stock market, they do lead to one important outcome: individuals can finally start earning meaningful returns on their savings.
These days, some banks and financial institutions are offering high yield savings accounts that pay upwards of 5%.
In the U.S., most savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per insured bank. This insurance provides protection to depositors in the event that the bank fails, ensuring that their funds are safe and accessible.
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One of the main drawbacks of holding cash is that over time, inflation would erode its purchasing power. And despite the Fed’s rate hikes, inflation remains a pressing issue in America, with the consumer price index registering a 3.4% year over year increase in April 2024.
Real estate is a well-known hedge against inflation.
The S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index has surged 50% over the last five years.
Well-chosen properties can provide more than just price appreciation. Investors also get to earn a steady stream of rental income. Since rent typically increases with inflation, this creates an effective hedge against the diminishing purchasing power, thereby preserving and potentially enhancing the investor’s real income over time.
These days, you don’t need to buy a house to start investing in real estate. There are plenty of real estate investment trusts (REITs) as well as crowdfunding platforms that can get you started on becoming a real estate mogul.
Stock market
Investing in businesses can be another alternative to simply holding cash, offering the potential for long-term growth and wealth accumulation. One primary avenue for investors to gain exposure to businesses is through the stock market. By purchasing shares of publicly traded companies, investors become partial owners of those businesses, sharing in their successes and failures.
So what kind of business should one invest in?
Legendary investor Warren Buffett famously stated, "Never invest in a business you cannot understand,” emphasizing the importance of understanding the fundamentals of the firms in which one invests. Buffett's investment philosophy revolves around identifying high-quality companies with durable competitive advantages and holding onto them for the long term.
Investors can access businesses across various sectors and industries through the stock market. Whether it's technology giants like Apple (AAPL) and Microsoft (MSFT), consumer staples companies like Coca-Cola (KO) and Procter & Gamble (PG), or healthcare leaders like Johnson & Johnson (JNJ), the stock market provides a diverse array of investment opportunities.
However, it's essential for investors to conduct thorough research and due diligence before investing in any company. While the stock market can offer the potential for significant returns, it also carries inherent risks.
If you don’t want to do the research, don’t worry. Buffett has offered a dead-simple solution — a strategy that could have turned $114 into $400,000.
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