Understanding Investment Vehicles (Guide)

Growing up, a large percentage of people were taught that one can earn an income only by getting a job and working. But there's a limit to how much you can work and how much money you can make out of it. An investment makes money in one of two ways: By paying out income, or by increasing in value to other investors. An investment vehicle is a product used by investors with the intention of gaining positive returns. 

It is simply the method by which you invest your assets and control your money. Depending on what investment vehicle you choose will determine fee structures, costs and benefits. Income comes in the form of interest payments, in the case of a bond, or dividends, in the case of stock. Interest payments on bonds are meant to be steady and reliable—when a bond doesn’t meet its payments, it is in default. Stock dividends can and do vary. A company has no legal obligation to pay out a dividend, and may have to cut it if earnings fall. On the other hand, unlike with a bond, businesses can raise their dividends when times are good.

Most investments are also traded on the market, so that means their value, if you tried to sell them, can rise or fall every day. The most familiar example is with stocks: If other investors see good prospects for higher company earnings or fatter dividends, they may push the price of the stock upwards. Or they may just sense that other investors are feeling more optimistic, and buy simply on the hopes of riding an ebullient market.

Likewise, bad news or investors’ bad moods can force prices down. There are many different ways you can go about making an investment. So, since you cannot create a duplicate of yourself to increase your working time, you need to send an extension of yourself–your money–to work. That way, while you are putting in hours on a daily basis, sleeping, reading the paper, or socializing with friends, you can also be earning money elsewhere.

Quite simply, making your money work for you maximizes your earning potential. The point is that no matter the method you choose to invest, the goal is always to put your money to work so it earns you an additional profit. 

Investing is NOT gambling. Gambling is putting money at risk by betting on an uncertain outcome with the hope that you might win money. Part of the confusion between investing and gambling, however, may come from the way some people use investment vehicles. For example, it could be argued that buying a stock based on a friend’s advice and not an expert is essentially the same as placing a bet at a casino.

A 'real' investor does not simply throw his or her money at any random investment; he or she performs thorough analysis and commits capital only when there is a reasonable expectation of profit. There still is risk, and there are no guarantees, but investing is more than simply hoping luck is on your side.

BREAKING DOWN 'Investment Vehicle'

An investment vehicle is a product used by investors with the intention of gaining positive returns. Investment vehicles can be low risk, such as certificates of deposit (CD) or bonds, or carry a greater degree of risk such as with stocks, options and futures. Other types of investment vehicles include annuities; collectibles, such as art or coins; mutual funds; and exchange-traded funds (ETFs).

There is a wide variety of investment vehicles, and many investors choose to hold at least several types in their portfolios. This can allow for diversification while minimizing risk.


Structured Investment Vehicle

A SIV may be thought of as a very simple virtual non-bank financial institution (i.e. it does not accept deposits). Instead of gathering deposits from the public, it borrows cash from the money market by selling short maturity (often less than a year). Structured investment vehicles are typically created by investment banks and can be a way to achieve ‘off balance-sheet finance’ – raising capital without having to record an associated obligation to repay it.

For example, after the retail arm of a big bank has issued $100m of mortgages to homeowners, the investment banking division might create and sell $100m of IOUs called ‘mortgage backed securities’ to an SIV – a separate company – for cash. The SIV raises the money to buy these bonds by selling $100m of its own IOUs to other investors. 

These IOUs often take the form of short term ‘commercial paper’ because the SIV hopes that it will receive more interest from the bonds it owns (the mortgage backed securities) than it pays to these lenders. The ability of an SIV to keep refinancing itself by selling more commercial paper depends on lenders having confidence in the only assets held by the SIV – its mortgage-backed securities. Otherwise, funding may have to be sought from the original bank.

If you’re worried the stock market might be peaking, you may be wondering if your next venture lays with Structured Products. But are they a good investment? To help you figure this out, let’s delve into whether structured products are a good investment for your portfolio. 

Structured products follow the stock market index (commonly FTSE 100) or what is known as a ‘basket’ of companies. As the value of the FTSE 100 or the basket of companies rises over the 3-10 year period, the probability of the target return rate being met once the investment reaches full maturity increases. It is paramount to remember that there are two different types of structured products.

Structured Deposits

Structured Deposits can be seen as a mixture of a savings account and an investment. With Structured Deposits, your money is protected and even if the value of the underlying stock market index falls. They are considered a lower-medium risk. Typical financial instruments linked to such deposits include market indices, equities, interest rates, fixed-income instruments, commodities, foreign exchange or a combination of these.

How Does Structured Deposits Work?

When you buy a structured deposit you agree to tie up your money for a set time – often three or five years – in return for a lump sum at maturity. The amount you earn depends on how well something else performs – often a stock market index such as the FTSE 100.

Example of a structured deposit: The rules for a structured deposit lasting three years might be as follows for an investment of $10,000.

If the FTSE 100 is higher at the end of the three years than it was at the beginning, you get your original investment back plus interest equal to 15%, giving you a total of $11,500.

If the FTSE 100 is higher at the end of the three years than it was at the beginning, you get your original investment back plus interest equal to 100% of the growth in the index.

So structured deposits give you the possibility of getting a stock market return without risking your capital as you would if you invested direct in shares.

But bear in mind that: You might get less interest than you would have done with an ordinary savings account - or no interest at all. If you invested in shares instead, you would potentially benefit from a rise in the stock market index (share prices) – and you would usually receive income in the form of dividend payments as well.

Who Should Invest In Structured Deposit?
Investors who:
  • Have a medium to long investment time period;
  • Want return of principal (subject to conditions);
  • Have a view on the outlook of the underlying investment.

Return of principal is applicable only when the Structured Deposit is held till maturity and provided that (i) the issuing bank does not become insolvent or default on its obligations or fail in any other way and (ii) you do not choose to terminate the Structured Deposit prior to its stated maturity date.

Structured Investments

Structured Investments are also known as capital-at-risk accounts. They will typically provide you with a higher return than a Structured Deposit account. With this type of structured product, you risk losing the money if the underlying stock market index fails to perform. It’s similar to buying shares in a company.


How Does Structured Investments Work?

When you buy a structured investment, you also agree to tie up your money for a set period. Some of these products offer you a lump sum at maturity depending on the performance of the stock market index or other measure. For examples, if the FTSE 100 is higher at the end of the five years than it was at the beginning, you get your original investment back plus an extra 30% - a total of £1,300.

If the FTSE 100 is at the same level or lower than it was at the beginning, but is less than 50% lower, you get your original investment of £1,000 back but nothing extra. If the FTSE 100 has fallen by 50% or more, the amount of your original investment you get back is cut by the same percentage – so if the FTSE 100 has fallen by 60%, you’d only get 40% of your money back, a total of £400.

Other structured investments let you take a regular income and whether or not you get back your original investment in full depends on how the stock market index or other measure has performed. If the stock market falls, you can lose a very large chunk of your original investment.

Lowes Financial Management conducted a study on 353 Structured Products. 93.77% that matured in the first half of 2017 generated positive returns for investors. 3.68% returned investors’ money without any profit and only 2.55% had a loss on their original investment. All of these products utilised the FTSE 100 Index as their underlying measurement.

As long as you understand the basis, Structured Products are a good investment for all portfolios. To ensure you do not ‘put all your eggs in one basket’, your investments of all types should be diversified over different providers. This includes using different counterparties and time horizons. 

This is how a professional ‘advisor’ would look to construct an investment portfolio on behalf of an investor. To achieve a good investment, a balanced range of investment solutions is the best way to construct your investment strategy. Always ensure you have sufficient liquid monies available for shorter-term needs and that investment volatility (bumps in the road and direction of travel) is always a feature when choosing an investment.

What Are The Benefits Of Structured Products?

Structured Products are a good investment if you don’t want to risk all of your capital. As the majority of your money is set aside for protection, Structured Products offer a medium risk method of investing. You will only lose on this investment if the counterparty or deposit taker becomes solvent.

However, if the worst does happen, you may be entitled to receive compensation from the Financial Services Compensation Scheme (FSCS) or your bank. This is only if you invested in a Structured Deposit as Structured Investments are not protected in the same way.
There are number of crucial difference between SIV and traditional banking. 

The type of financial service provided by traditional deposit banks is called intermediation, that is the banks become intermediate (middlemen) between primary lenders (depositor) and primary borrowers (individual, small to medium size business, mortgage holder, overdraft, credit card, etc.). SIVs do exactly the same, "in effect", providing funds for mortgage loans, credit cards, student loans through securitized bonds.

In more traditional deposit banking, bank deposits are often guaranteed by the government. Regulators assume that deposits are stable as a consequence. On the other hand, the money market for CP is far more volatile. There are no government guarantees for these products in case of default, and both sellers and lenders have equal power at setting the rate. 

This explains why the borrowing side of SIV consists of fixed term (30 to 270 days) rather than on-demand (1 day) deposits; however, in extreme circumstances like the 2007-8 credit crunch, the worried usual buyers of CP, facing liquidity worries, might buy more secure bonds such as government bonds or simply put money in bank deposits instead and decline to buy CP. If this happens, facing maturity of short term CP which was sold previously, SIV might be forced to sell their assets to pay off the debts. 

If the price of asset in depressed market is not adequate to cover the debt, SIV will default. On the lending side, traditional deposit banks directly deal with borrowers who seek business loans, mortgages, students loans, credit cards, overdrafts, etc. Each loan's credit risk are individually assessed and reviewed periodically. More crucially, the bank manager often maintains personal oversight over these borrowers. 

In contrast, SIV lending is conducted through the process known as securitization. Instead of assessing individual credit risk, loans (for example, mortgage or credit card) are bundled with thousands (or tens of thousands or more) of the same type of loans. According to the law of large numbers, bundling of loans creates statistical predictability. Credit agencies then allocate each bundle of loans into several risk categories and provide statistical risk assessment for each bundle in similar manner to how insurance companies assign risk. 

At this point, the bundle of small loans is transformed into a financial commodity and traded on the money market as if it were a share or bond. The bonds usually selected by a SIV are predominantly (70-80%) Aaa/AAA rated asset-backed securities (ABSs) and mortgage-backed securities (MBSs).

Again, the strategy of SIVs is the same as traditional credit spread banking. They raise capital and then lever that capital by issuing short-term securities, such as commercial paper and medium term notes and public bonds, at lower rates and then use that money to buy longer term securities at higher margins, earning the net credit spread for their investors. 

Long term assets could include, among other things, residential mortgage-backed security (RMBS), collateralized bond obligation, auto loans, student loans, credit cards securitizations, and bank and corporate bonds.


Types of Investment Vehicles

The different types of investment vehicles are subject to regulation in the jurisdiction in which they are provided. Each type has its own risks and rewards. Deciding which vehicles fit particular portfolios depends on the investor's knowledge of the market, skills in financial investing, financial goals and current financial standing.

Ownership Investments: Investors who delve into ownership investments own particular assets they expect to grow in value. Ownership investments include stocks, real estate, precious objects and businesses. Stocks, also called equity or shares, give investors a stake in a company and its profits and gains.

Real estate owned by investors can be rented or sold to provide higher net profits for the owner. Precious objects such as collectibles, art and precious metals are considered ownership investments if they are sold for a profit. Capital used to build businesses that provide products and services for profit is another type of ownership investment.

Lending Investments: With lending investments, people allow their money to be used by another person or entity with the expectation it will be repaid with profits. This type of investment is generally low risk and provides low rewards. Examples of lending investments include bonds, certificates of deposit (CDs) and Treasury Inflation-Protected Securities (TIPS).

Investors investing in bonds allow their money to be used by corporations or the government with the expectation it will be paid back with profit after a set period of time with a fixed interest rate. Certificates of deposit (CDs) are offered by banks. A CD is a promissory note provided by banks that locks the investor's money in a savings account for a set period of time for a higher interest rate.

Pooled Investment Vehicles: When multiple investors bring their money together to gain certain advantages they would not have as individual investors, it is known as a pooled investment vehicle. These can include mutual funds, pension funds, private funds, unit investment trusts (UITs) and hedge funds.

In a mutual fund, a professional fund manager chooses the type of stocks, bonds and other assets the fund will invest in on half of clients, who are charged a fee. Private funds generally encompass pooled investment vehicles such as hedge funds and private equity funds and are not considered investment companies by the Securities and Exchange Commission (SEC).

There are many different types of investments that you can put your money in including Gold, real estate, bonds, and stocks etc.

List Of Some Of The Best Investment Vehicles
  • Certificates of deposit
  • Money market accounts
  • Treasury securities
  • Government bond funds
  • Municipal bond funds
  • Short-term corporate bond funds
  • Dividend-paying stocks

High-yield Savings Account
  • Growth stocks
  • Growth stock funds
  • S&P 500 index fund
  • REITs
  • Rental housing
  • Nasdaq 100 index fund
  • Industry-specific index fund

Certificates of deposit: Certificates of deposit, or CDs, are issued by banks and generally offer a higher interest rate than savings accounts. These federally insured time deposits have specific maturity dates that can range from several weeks to several years. Because these are “time deposits,” you cannot withdraw the money for a specified period of time without penalty.

With a CD, the financial institution pays you interest at regular intervals. Once it matures, you get your original principal back plus any accrued interest. You may be able to earn up to nearly 3 percent interest on these types of investments. Because of their safety and higher payouts, CDs can be a good choice for retirees who don’t need immediate income and are able to lock up their money for a little bit.

Money Market Accounts: A money market account is an FDIC-insured, interest-bearing deposit account. Money market accounts typically earn higher interest than savings accounts and require higher minimum balances. Because they’re relatively liquid and earn higher yields, money market accounts are a great option for your emergency savings.

In exchange for better interest earnings, consumers usually have to accept more restrictions on withdrawals, such as limits on how often you can access your money. These are a great option for beginning investors who need to build up a little cash flow and set up an emergency fund.

Inflation is the main threat with Money Market Accounts. If inflation rates exceed the interest rate earned on the account, your purchasing power could be diminished. In addition, you could lose some or all of your principal if your account is not FDIC-insured (though the vast majority are) or if you have more than the $250,000 FDIC-insured maximum in any one account.

When it comes to liquidity, Money market accounts are considered liquid, especially because they come with the option to write checks from the account. However, federal regulations limit withdrawals to six per month (or statement cycle), of which no more than three can be check transactions.

Treasury securities: The U.S. government issues various types of securities to raise money to pay for projects and pay its debts. These are some of the safest investments to guarantee against loss of your principal. Treasury bills, or T-bills have a maturity of one year or less and are not technically interest-bearing.

They are sold at a discount from their face value, but when they mature, the government pays you full face value. For example, if you buy a $1,000 T-bill for $980, you would earn $20 on your investment. Treasury notes, or T-notes, are issued in terms of two, three, five, seven and 10 years. 

Holders earn fixed interest every six months and then face value upon maturity. The price of a T-note may be greater than, less than or equal to the face value of the note, depending on demand. If demand by investors is high, the notes will trade at a premium, which reduces investor return.

Treasury bonds, or T-bonds are issued with 30-year maturities, pay interest every six months and face value upon maturity. They are sold at auction throughout the year. The price and yield are determined at auction. All three types of Treasury securities are offered in increments of $100. Treasury securities are a better option for more advanced investors looking to reduce their risk.

Treasury securities are considered virtually risk-free because they are backed by the full faith and credit of the U.S. government. You can count on getting interest and your principal back at maturity. However, the value of the securities fluctuates, depending on whether interest rates are up or down. 

In a rising rate environment, existing bonds lose their allure because investors can get a higher return from newly issued bonds. If you try to sell your bond before maturity, you may experience a capital loss. Treasuries are also subject to inflation pressures. If the interest rate of the security is not as high as inflation, investors lose purchasing power.

Because they mature quickly, T-bills may be the safest treasury security investment, as the risk of holding them is not as great as with longer-term T-notes or T-bonds. Just remember, the shorter your investment, the less your securities will generally return.

As mention earlier, all Treasury securities are very liquid, but if you sell prior to maturity you may experience gains or losses, depending on the interest rate environment. A T-bill is automatically redeemed at maturity, as is a T-note. When a bond matures, you can redeem it directly with the U.S. Treasury (if the bond is held there) or with a financial institution, such as a bank or broker.


Government bond funds: Government bond funds are mutual funds that invest in debt securities issued by the U.S. government and its agencies. The funds invest in debt instruments such as T-bills, T-notes, T-bonds and mortgage-backed securities issued by government-sponsored enterprises such as Fannie Mae and Freddie Mac.

These government bond funds are well-suited for the low-risk investor. These funds can also be a good choice for beginning investors and those looking for cash flow.

Funds that invest in government debt instruments are considered to be among the safest investments because the securities are backed by the full faith and credit of the U.S. government.

However, like other mutual funds, the fund itself is not government-backed and is subject to risks like interest rate fluctuations and inflation. If inflation rises, purchasing power can be diminished. If interest rates rise, prices of existing bonds decline; and if interest rates decline, prices of existing bonds rise. Interest rate risk is greater for long-term bonds.

Bond fund shares are highly liquid, but their values fluctuate depending on the interest rate environment.

Municipal bond funds: Municipal bond funds invest in a number of different municipal bonds, or munis, issued by state and local governments. Earned interest is generally free of federal income taxes and may also be exempt from state and local taxes.

According to the Financial Industry Regulatory Authority (FINRA), muni bonds may be bought individually, through a mutual fund or an exchange-traded fund (ETF). You can consult with a financial adviser to find the right investment type for you, but you may want to stick with those in your state or locality for additional tax advantages.

Municipal bond funds are great for beginning investors because they provide diversified exposure without the investor having to analyze individual bonds. They’re also good for investors looking for cash flow.

However, individual bonds carry default risk, meaning the issuer becomes unable to make further income or principal payments. Cities and states don’t go bankrupt often, but it can happen. Bonds may also be callable, meaning the issuer returns principal and retires the bond before the bond’s maturity date. This results in a loss of future interest payments to the investor.

Choosing a bond fund allows you to spread out potential default and prepayment risks by owning a large number of bonds, thus cushioning the blow of negative surprises from a small part of the portfolio.

For liquidity, you can buy or sell your fund shares every business day. In addition, you can typically reinvest income dividends or make additional investments at any time.


Short-Term Corporate Bond Funds: Corporations sometimes raise money by issuing bonds to investors. Small investors can get exposure by buying shares of short-term corporate bond funds. Short-term bonds have an average maturity of one-to-five years, which makes them less susceptible to interest rate fluctuations than intermediate- or long-term.

Corporate bond funds can be an excellent choice for investors looking for cash flow, such as retirees, or those who want to reduce their overall portfolio risk but still earn a return. As is the case with other bond funds, short-term corporate bond funds are not FDIC-insured. Investment-grade short-term bond funds often reward investors with higher returns than government and municipal bond funds.

But the greater rewards come with added risk. There is always the chance that companies will have their credit rating downgraded or run into financial trouble and default on the bonds. Make sure your fund is made up of high-quality corporate bonds. When it comes to liquidity, you can buy or sell your fund shares every business day. In addition, you can usually reinvest income dividends or make additional investments at any time. Just keep in mind that capital losses are a possibility.

Dividend-Paying Stocks: Even your stock market investments can become a little safer with stocks that pay dividends.

Dividends are portions of a company’s profit that can be paid out to shareholders, usually on a quarterly basis. With a dividend stock, not only can you earn on your investment through long-term market appreciation, you’ll also earn cash in the short term.

Buying individual stocks, whether they pay dividends or not, is better-suited for intermediate and advanced investors.

As with any stock investments, dividend stocks come with risk. They’re generally considered safer than growth stocks or other non-dividend stocks, but you should choose your portfolio carefully. Make sure you invest in companies with a solid history of dividend increases rather than selecting those with the highest current yield. That could be a sign of upcoming trouble.

For liquidity you can get quarterly payouts, especially if the dividends are paid in cash, are relatively liquid. Still, in order to see the highest performance on your dividend stock investment, a long-term investment is key. You should look to reinvest your dividends for the best possible returns.

High-Yield Savings Account: Just like a savings account earning pennies at your brick-and-mortar bank, high-yield online savings accounts are accessible vehicles for your cash. With fewer overhead costs, you can earn much higher interest rates at online banks. As of May 2019, you can find accounts paying well above 2 percent.

A savings account is a good vehicle for those who need to access cash in the near future. The banks that offer these accounts are FDIC-insured, so you don’t have to worry about losing your deposit. While high-yield savings accounts are considered safe investments, like CDs, you do run the risk of earning less upon reinvestment due to inflation.

Savings accounts are about as liquid as your money gets. You can add or remove the funds at any time, but like money market accounts, federal regulations limit most withdrawal transactions to six per month.

Growth stocks: Growth stocks are one segment of the stock market that has performed well over time.

These stocks tend to be made up of tech companies that are growing sales and profits very quickly, such as Alphabet (parent of Google), Amazon and Apple. Unlike dividend stocks, growth stocks rarely make cash distributions, preferring instead to reinvest that cash in their business to grow even faster.

These types of stocks are among the most popular for an obvious reason: The best of them can return 20 percent or more for many years. But you’ll have to analyze them for yourself to try and figure out which ones are poised to do well.

Buying individual growth stocks is better-suited for intermediate and advanced investors because of the stocks’ volatility and the need to carefully analyze them before buying.

Growth stocks are some of the highest-flying stocks in the market, but they’re also highly volatile. When investor sentiment turns – when the market declines, for example – growth stocks tend to fall even more than most stocks. Plus, unlike government-backed banking products, there’s no guarantee against losing your money. So if you pick the wrong stock, it could become worthless.

However, growth stocks — like many stocks trading on a major U.S. exchange — are highly liquid, so you can buy or sell them on any day the stock market is open.


Growth Stock Funds: For investors who don’t want the hassle of analyzing and selecting individual growth stocks, an alternative is buying a fund of growth stocks.

Growth-stock funds can be good for beginners and even advanced investors who want a broadly diversified portfolio. Investors can select an actively managed fund where professional fund managers select growth stocks to beat the market, or they can choose passively managed funds based on a pre-selected index of growth stocks.

Either way, funds allow investors to access a diversified set of growth stocks, reducing the risks of any single stock doing poorly and ruining their portfolio. The result is an average of the performance of all the stocks in the fund — and over time, that’s likely to be good.

Investing in a growth-stock fund is less risky than selecting and owning a few individual growth stocks. With a fund, the professionals do all the stock selection and management, minimizing the risk that you might select the wrong investments. However, while diversification prevents any single stock from hurting your portfolio much, if the market as a whole drops, the fund is likely to decline, too. And stocks are well-known for their volatility.

For liquidity, growth-stock funds are highly liquid, much like the stocks they invest in. You’ll be able to move in and out of the investment on any day that the market is open.

S&P 500 Index Fund: If you don’t want a growth stock fund but still want higher returns than more traditional banking products, a good alternative is an S&P 500 index fund. The fund is based on the 500 largest American companies, meaning it is comprised of many of the most successful companies in the world.

Like nearly any fund, an S&P 500 index fund offers immediate diversification, allowing you to own a piece of all of those companies. The fund includes companies from every industry, making it more resilient than many investments. Over time, the index has returned about 10 percent annually. These funds can be purchased with very low expense ratios (how much the management company charges to run the fund) and they’re some of the best index funds to buy.

An S&P 500 index fund is an excellent choice for beginning investors, because it provides broad, diversified exposure to the stock market.

An S&P 500 fund is one of the least-risky ways to invest in stocks, because it’s made up of the market’s top companies. Of course, it still includes stocks, so it’s going to be more volatile than bonds or any bank products. It’s also not insured by the government, so you can lose money based upon fluctuations in value. However, the index has done quite well over time.

Furthermore, S&P 500 index fund is highly liquid, and investors will be able to buy or sell them on any day the market is open.

REITs: REIT stands For Real Estate Investment Trust, which is a fancy term for a company that owns and manages real estate. REITs generally don’t pay taxes as long as they pass along most of their income as dividends to their shareholders.

These companies can be a good option for investors who are looking for an easy way to own real estate without the hassle of actually managing it. So those looking for passive income or cash flow, may find REITs especially attractive.

REITs are usually divided into subsectors, so investors can own the type that they like. For example, popular subsectors include housing REITs, hotel REITs, data center REITs, retail REITS and even tower REITs (for all those mobile communication towers.)

Investors should stick with publicly traded REITs, which are traded on major exchanges, and stay away from private or non-public REITs that have lesser protections and higher expenses. Like all publicly traded stocks, a REIT’s value can decline, though the best-managed REITs should move higher over time.

As with other dividend stocks, look for REITs that have a history of steadily raising their dividend over time, rather than selecting the REIT that has the highest current yield.

Like other publicly traded stocks, REITs can be converted to cash whenever the stock market is open. However, you’ll have to take whatever price the market is offering at the time.

Rental Housing: Rental housing can be a great investment if you have the willingness to manage your own properties. To pursue this route, you’ll have to select the right property, finance it or buy it outright, maintain it and deal with tenants. You can do very well if you make smart purchases.

However, you won’t enjoy the ease of buying and selling your assets with a click of the mouse. But if you hold your assets over time, gradually pay down debt, and grow your rents, you’ll have a powerful cash flow when it comes time to retire.

As with any asset, you can overpay for housing, as investors in the mid-2000s quickly found out. Also, the lack of liquidity might be a problem if you ever needed to access cash quickly.

Housing is among the least liquid investments around, so if you need cash in a hurry, investing in rental properties may not be for you.

Nasdaq 100 Index Fund: An index fund based on the Nasdaq 100 is a great choice for investors who want to have exposure to some of the biggest and best tech companies without having to pick the winners and losers or having to analyze specific companies.

The fund is based on the Nasdaq’s 100 largest companies, meaning they’re among the most successful and stable.

A Nasdaq 100 index fund offers you immediate diversification, so that your portfolio is not exposed to the failure of any single company. The best Nasdaq index funds charge a very low expense ratio, and they’re a cheap way to own all of the companies in the index. A Nasdaq 100 index fund is a good choice for beginners.

Like any publicly traded stock, this collection of stocks can move down, too. While the Nasdaq 100 has some of the strongest tech companies, these companies also are usually some of the most highly valued. That high valuation means that they’re likely prone to falling quickly in a downturn, though they may rise again during an economic recovery.

Like other publicly traded index funds, a Nasdaq index fund is readily convertible to cash on any day the market is open.

Industry-specific index fund: Do you like an industry but don’t know want to (or can’t) pick the winners? A good option for you could be an industry-specific index fund.

These funds give you narrow, yet diversified exposure to the industry without requiring you to analyze every company in it. If the industry does well, then the fund will probably do well, too.

An industry-specific index fund is typically an ETF, and some of these have low expense ratios, meaning the ongoing cost of the fund is reasonable.

This kind of index fund can be good for beginners and more advanced investors who want exposure to a specific area.

The big advantage of an industry fund is that it allows the investor to select an industry to invest in, rather than a specific company. However, this kind of narrow exposure to one industry means that a negative development may hurt all the companies in the industry, lessening the benefits of diversification. This fund can be converted to cash on any day the market is open.

Investing can be a great way to build your wealth over time, and investors have a range of investment options – from safe lower-return assets to riskier, higher-return ones. So that range means you’ll need to understand the pros and cons of each investment option to make an informed decision. While it seems daunting at first, many investors manage their own assets.

Investing can be surprisingly affordable even if you don’t have a lot of money.

Investing is great if you have plenty of extra money lying around, but what if you don't?


How To Invest On A Shoestring Budget

If you would like to invest but think you don't have the money, think again. The beauty of investing is that unlike purchasing a car or even a home, it doesn't require a significant down payment. Most people know the "pay yourself first" mantra is easier said than done. The cost of living, as well as the unplanned expenses that always seem to pop up, can make any person feel that saving to invest is an uphill battle, if not a futile one.

Here are some thoughtful ways to put away extra cash without breaking the bank, which will provide you with the opportunity to start investing. Saving and investing is a commitment, but it doesn't have to be painful. Bank of America's "Keep the Change Program" for example, is a small but meaningful way to start or to add to your investing pool. 

It works as an automatic savings plan, rounding every purchase to the nearest dollar, depositing the change daily into your savings account for free. Aside from matching a small portion of your savings, Bank of America also sends you a statement at the end of the year, letting you know how much you've saved. 

Another painless way to save is to use any employee bonuses you receive throughout the year as well as any tax refund for investing instead of splurging. It's a great way to add to your investment funds and one that will reward you down the road.

No 401(k) Plan?

More than 25 million Americans work for small employers that offer no 401(k) plan, but that doesn't mean they can't successfully save and invest on their own. Here are two good alternatives:

Exchange Traded Funds: If the idea of picking your own stocks is scary to you and you don't have the funds to hire an investment advisor, don't worry, there is a solution. You can purchase specific exchange-traded funds (ETFs), which are similar to index mutual funds but are traded more like a stock.

This is important, because during the 1990s the S&P 500 provided an annualized return of 17.3%, compared with just 13.9% for the average diversified mutual fund. Therefore, instead of purchasing all 500 stocks on your own, you can purchase an ETF (like the SPDR Trust) that attempts to mimic the performance of the S&P 500 without the hassle and costs that come with purchasing 500 individual stocks.

ETFs not only provide the opportunity to own a single investment that encompasses a large number of stocks, but it also provides diversification. There are many choices of ETFs, just like mutual funds, so it should be easier to find an ETF that represents the market goals you're looking for.

Researching various ETFs and their performance is easy to do with the number of financial websites available to the average investor. You can search each ETF by entering the ticker symbol, and the information will be readily available to you in bite-sized pieces.

Pick Your Own Mutual Funds: Hundreds of mutual funds will allow you to make a small initial investment of $500 or even less. Morningstar’s mutual fund screener reveals 200 different mutual funds that will accept a $500 minimum deposit. In addition, there are nearly 300 mutual funds from TD Ameritrade that require only a $100 minimum investment. More than 250 funds have no minimum requirement at all.

Be Conservative with Treasury Securities: You won't get rich with these securities, but it is a great place to park your money—and earn some interest—until you are ready to put your money into something riskier. Purchase securities through the US Treasury’s bond portal Treasury Direct. US government securities, with maturities of anywhere from 30 days to 30 years in denominations as low as $100, are available.

Using TreasuryDirect To Buy U.S. Government Bonds

TreasuryDirect is the first and only financial services website that lets investors purchase and redeem securities (like U.S. government bonds) directly from the U.S. Department of the Treasury in paperless electronic form. The TreasuryDirect system is run by the U.S. Treasury's Bureau of the Public Debt.

How To Open An Account With Treasurydirect

Before transacting any business through TreasuryDirect, investors must apply for an account through the online application portal. The process is simple and can be completed in several minutes. 

Investors must have the following in order to open an account: a valid social security number, a U.S. address of record, a checking or savings account at a U.S. financial institution that will accept debits and credits using the ACH payment method, and a valid email address.

Once your account is set up and ready-to-go, you can purchase any type of Treasury security. Orders entered are subject to minimums. For savings bonds, the minimum purchase requirement is $25 per person per year, all the way up to $5,000. For other Treasury securities, an investor may submit bids from $100 up to $5 million for each security type in $100 increments.

Once the order is executed, the positions will show up in your account. Savings bonds usually are issued to your account within one business day. Other Treasury securities are issued to your account within one week of the auction date.

With a bit of effort and diligence, you can invest and do so successfully. Famed investor and hedge fund manager Jim Cramer stated in his book, "Real Money" that he started investing with only a few hundred dollars. It isn't the amount that matters; it's just getting started. That said, using some of the tips above could give you an opportunity to turn pennies into shares in order to save for your retirement.

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