There are various types of investments; some investments are safe with moderate returns, while some give great returns but have a risk attached to it. So, the smartest way to invest is by diversifying your portfolio. You should maintain a proper ratio between the equity (high risk) funds and the debt (low risk funds).
You need to put some money in the equity funds to increase the value of the fund, but as the time for admission approaches-you can gradually shift your money from the high risk equity to the comparatively safer debt fund.
Opting for aggressive investments is a better option as it helps you to fight inflation. One can easily argue that stocks are risky, but despite of recession and the economic slowdown leading to a bear market- the stock market has outperformed.
STOCKS AND MUTUAL FUNDS
The stocks and the mutual funds are market dependant, i.e. the return on your investment will depend on the condition of the market. The broker will charge you a minimal amount for holding the stocks which are called as brokerage. Similarly, mutual funds are market dependant, but they are comparatively safer. The minimum amount needed to invest in mutual funds is $10,000. Investing in mutual funds gives you an added advantage as most mutual fund companies allow you to shift your funds. The shift of funds is not chargeable.
Note- Investing in the blue-chip funds can give you great returns and they are the safest stocks to bet on. Now, you must be wondering-what exactly does it mean?
BLUE- CHIP FUNDS
Blue – chip stocks constitute the blue-chip stocks. The stocks of well-established companies, that have been extremely successful over the years are called as blue-chip stocks. These companies generally have a market capitalization worth billions. The stocks are expensive, but comparatively safe.
BONDS WITH HIGH RETURNS
The bonds are an effective form of investment, as they are debt instruments with moderate returns, and less risk. However, if you want to maximize your Returns, high yield bonds are always a good option. They are also called as junk bonds, because they pay a higher rate of interest; therefore, carry a greater risk. Junk funds comprise of different types of bonds, so the investment is diversified, resulting in reduction of the risk of investment.
BONDS WITH MODERATE RETURNS
If you can compromise a little with the returns, you can expect a risk free return on your investments. These bonds have a specific time period for maturity. However, if you want to draw your money before the maturity then the rate of interest might reduce, but if you consider locking your money till the maturity of the bond, you will be awarded with the fixed return. The current annual rate in the United States is around 5.5%.
EE SAVINGS BONDS
This is one of the best options for investment for those who are planning to use their money for the purpose of education.
Owning a home can be the best form of investment; it cuts your rental expense, and helps building an asset; the asset can be of immense help in the future.
When the admission officer designs your financial aid, he/she doesn’t consider your borrowings. Therefore, without subtracting the liabilities from your assets, they decide the amount that you will have to pay.
Let us consider an example, for our better understanding-
Assume that you have $20,000 in assets, and you have taken a credit card loan of $4,000, which is your liability.
The financial expert will calculate your net asset as $16,000, but as far as the Financial Admission Officer is concerned- Your net asset will still be $20,000.
Note- Consumer loans and outstanding credit card bills are not considered by the college.
However, most colleges consider debts like mortgages. So, owning a home can be really valuable, and play a big role in supporting your long term goals.
In other words- Owning a home can turn out to be a particular type of college fund. Home equity is a great option, as it will enable your child to borrow against your home.
Owning a home and taking the help of home equity, has its own significance, as it enables you to reduce your total assets in the eyes of the Financial Admission Officer (Mortgages are recognized as debt). Therefore, you reduce the cost of education.