If someone asked you what’s the best way to invest your money, how would you answer?
The truth is, there are many paths to building your nest egg — probably way more than you’ll ever use. You can choose your options based on:
- How much money you’re willing to invest
- How risky you want to be
- How long your money will be tied up, and more
It’s important to note that all investing involves at least some risk — and those with some risk shouldn’t necessarily be avoided. The better way to invest your money is simply by understanding your options and what works for you and your goals.
Don’t underestimate the value of starting small. It’ll set you up for healthy savings habits while building your wealth with little hands-on effort. Questions on investment solutions that will help you work toward your financial goals? Contact the IHMVCU Investment Services team.
Certificates of deposit (CDs)*
Minimum: $250
Maximum: None (only NCUA insured up to $250,000)
Risk level: Low
Not to be confused with the shiny discs we once used to play our favorite music (are those CDs even a thing anymore?), certificates of deposit are savings accounts that don’t require a hefty chunk of change to get started. CDs are available for a variety of terms, most often from 90 days to five years. Because CDs are insured up to $250,000 by the National Credit Union Administration (NCUA), they’re considered extremely conservative. In a sometimes unreliable world, a CD is one of the least risky options for growing your nest egg.
PRO TIP: WORTH THE WAIT: Generally, the longer the term, the higher your return rate. If growth potential with a low amount of risk is your objective, opt for a CD with a higher interest rate and keep your money in for the longest time possible for higher earning potential.
Fixed annuities**
Minimum: $10,000
Maximum: None
Risk level: Low
There are several kinds of annuities, including fixed deferred annuities (FDA) and fixed indexed annuities (FIA). With an FDA, a guaranteed interest rate is locked in for a certain timeframe, then can be adjusted each year after. Taxes grow deferred in this type of annuity, meaning you don’t pay taxes until you withdraw money from your investment.
An FIA gives you more growth potential because the interest rate is tied to one of the market indexes annually. You still get your guaranteed principal and interest rate with the parameters of insurance, but you may also receive additional gains if the stock market performs well.
Both annuities accept all types of money, including funds from traditional and Roth IRAs. The payout phase starts when you receive regular income from your annuity, which can be delivered as a lump sum or as consistent payments for a set number of years.
PRO TIP: WEIGH YOUR OPTIONS: Trying to decide between a CD and annuity? Consider your age. Annuities are considered retirement accounts and carry the 10% withdrawal penalty to access funds before age 59½. A CD might make a better fit if you’ll need the money earlier. However, when comparing equal timeframes, annuities pay a higher interest rate (generally at least one whole percentage point), so in this case it literally pays to wait.
401(k) contributions
Minimum: None
Maximum: $19,500 (with additional $6,500 catch-up for age 50+)
Risk level: Varies
Investing in a 401(k) can be a great tool to make your money work for you and is one of the more common strategies for today’s workforce. With a 401(k), a portion of your paychecks will go directly into an investment account. Contributions to a traditional 401(k) are tax deferred, meaning you only pay taxes on contributions and earnings when you withdraw the money. However, withdrawals before age 59½ will include penalties. With a Roth 401(k), you’ll pay taxes up front, but qualified withdrawals will be tax-free.
*CDs are NCUA insured to specific limits and offer a fixed rate of return if held to maturity, whereas investing in securities is subject to market risk including loss of principal.
**Fixed Indexed Annuities (FIA) are not suitable for all investors. FIAs permit investors to participate in only a stated percentage of an increase in an index (participation rate) and may impose a maximum annual account value percentage increase. FIAs typically do not allow for participation in dividends accumulated on the securities represented by the index.
**Annuities are not NCUA insured. Surrender charges apply. Guarantees are based on the claims paying ability of the issuing insurance company.
**Fixed annuities are long-term investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA / SIPC). Insurance products are offered through LPL or its licensed affiliates. IHMVCU and IHMVCU Investment Services are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using IHMVCU Investment Services, and may also be employees of IHMVCU. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, IHMVCU or IHMVCU Investment Services. Securities and insurance offered through LPL or its affiliates are:
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.