Investment Instruments: Top Choices to Consider in 2023
The investment market can be compared to a vast ocean filled with diverse investment opportunities. However, just as an inexperienced fisherman may go all out to catch the wrong fish, those lacking the expertise and experience in the investment market are also prone to making poor investment choices. In the financial market, investment instruments are akin to fish, and it takes a considerable level of knowledge and skill to choose among the various options available therein.
That being said, if what you are looking for is the best investment instruments in 2023, look no further. This article will equip you with important knowledge in the areas including, why you should consider investing, how to invest money to make money, the best long-term investment instruments, and ultimately, how to navigate the most popular investment instruments as 2023 comes to a wrap. So let’s dive right into it.
The Investment Market Explained
Scrap the jargon, an investment market is a subset of the broader financial market where investors buy and sell investment instruments (i.e. assets) usually for an extended duration rather than short-time trade. Here, there are many factors to be considered, so before diving in head first (especially as a beginner), it is important to set your priority and most importantly, equip yourself with the basic understanding of the following:
Navigating the world of Investing
People invest for a variety of reasons, all of which are ultimately aimed at one thing—profitability.
However, besides generating profits, people also invest in order to achieve specific and more dynamic financial goals such as retirement savings, Insurance, and so on In any case, setting your priority is very crucial when developing a sound investment strategy. This not only serves as a roadmap for your investment journey, but also helps you identify and align your investment goals, risk tolerance, and time horizon to make informed decisions that suit your financial needs and aspirations.
The first step in setting your investment priorities is defining your investment goals. This may include creating an emergency savings account, building a retirement fund, paying off debt, funding education expenses, buying a home or even achieving financial independence. Regardless of which one you decide to prioritize, it is important to do your due diligence in researching the best investment approach to adopt. Here, things like the best investment plans, and the best investment accounts, must be considered.
Another area of consideration is your risk tolerance. At this point, you must ask yourself the important questions: “How comfortable are you with the possibility of investment losses?” Your answer to this question will not only determine how risk-averse you are but also the type of investment to explore. Typically, some investors prefer conservative investments which come with lower potential returns but greater stability, while others are more willing to take on higher levels of risk for the potential of higher returns. Knowing which side you belong to will help you choose investments that align with your comfort level.
Additionally, it is crucial to have a clear understanding of the time horizon associated with each investment plan. This knowledge allows you to assess whether the investment will mature and be accessible when needed, further helping you to determine whether or not to pursue such an investment in the first place. If an investment has an excessively long maturity period, it can potentially jeopardize your other financial obligations or goals.
Furthermore, It is important for you, as an investor, to be aware of certain limitations that may impact your investments even if you get everything else right. One of these limitations is geo-location accessibility, which essentially has to do with your eligibility to participate in certain investment instruments. For instance, factors like regulatory compliance, and platform availability in your region may leave investors with limited choices when selecting the perfect investment instruments.
Other factors that may also pose limitations in this regard include tax law, legal jurisdiction, currency exchange, trading hours, and political and economic impact. As such, investors need to be aware of these factors and ensure that they conduct thorough research ahead of making investment choices.
Once you have all these metrics evaluated, then you can allocate resources to your investment portfolio or account accordingly in the form of diversification. This particular practice involves diversifying your investments across different asset classes, such as cryptocurrency, stocks, bonds, real estate, and cash, to manage risk and potentially enhance returns. While at it, you must ensure that the allocation reflects your priorities and, can be monitored, periodically reviewed, and adjusted as needed.
Generally, setting investment priorities may go beyond the scope of what we have discussed so far. However, by defining your goals, assessing your risk tolerance, and considering your time horizon among other factors, you can develop a well-rounded investment strategy that supports and allows you to stay accountable to your financial objectives, while making informed decisions in the dynamic investment landscape. Oh, and also, it is important to identify the market segment that presents the most favorable opportunities, which leads us to the next point.
Investment Market Segmentation
Essentially, the investment market is divided into three broad segments: Equities, Fixed Income, and Derivatives, three of which are composed of different asset classes, providing a diverse range of investment opportunities, and returns. In the same manner, each category also offers unique and varying levels of risk and potential limitations. So, how does this segmentation influence your investment choices? Let’s dig in.
1. Equities: The segment is mainly composed of Stocks, and typically involves buying and selling shares of publicly traded companies. By buying into these stock options, investors in the equity market become stakeholders of the companies they buy into and may benefit from capital appreciation (i.e. increase in stock price) and dividends.
2. Fixed-Income/Debt Securities: The fixed-income market involves bonds, which are further classified as debt securities. These asset classes are typically issued by governments, municipalities, or corporations. How this basically works is that Investors lend money to the issuer in exchange for periodic interest payments (i.e. coupon payments) and the return of the principal amount at maturity. It is also important to note that, when investing in bonds, the average maturity is calculated based on the weighted average of maturities of various bonds held within a portfolio.
3. Derivatives: This investment segment is multifaceted by nature. Specifically, derivatives are financial instruments whose value is derived from an underlying asset, index, or rate such as options, futures contracts, swaps, credit derivatives, and other complex financial instruments. While theses derivative types are unique in their own ways, they all rely on a primary asset such as fiat currency, digital currency like cryptocurrency, or mineral resources like gold to provide real values.
With that in mind, derivatives are often used for purposes like hedging, speculation, and risk management. As such, it is crucial to understand the idea that engaging in the investment market entails analyzing market trends, evaluating risk and return potential, and conducting thorough research on investment choices. In essence, investors require a combination of knowledge, discipline, and a long-term perspective, to achieve a desirable outcome across each market segment.
Popular Investment Instruments in 2023 (By Category)
The investment market offers more than enough opportunity across various segments and instruments. According to a Google search, there are at least 24 types of derivatives, over 65K stocks, and thousands of bonds issued worldwide. So, whether you're a beginner looking to dip your toes into the investment world or a seasoned investor seeking safe and high-return options, there are investment instruments tailored to suit your needs. Now, let's explore some of the most popular investment instruments in 2023, categorized for easy reference.
Good Investments for Beginners
Considering there is a steep learning curve in the investment market, it's important for beginners or first-time investors to start with instruments that offer simplicity and diversification. In that case, there are several investment instruments tailored just for this category of individuals, some of which include:
1. Index Funds: Index funds are a type of mutual fund or exchange-traded fund (ETF) that aims to replicate the performance of a specific market index, such as the S&P 500. This type of investment instrument provides broad market exposure and is known for its low fees and passive investment strategy. Investors can save themselves the hassle of funding multiple stocks individually, by simply investing in one that offers exposure to a basket of stock options. This way, they can mitigate risk exposure while maximizing profits both in the short and long term.
2. Exchange-Traded Funds (ETFs): ETFs are similar to index funds, however, the former are traded on stock exchanges like individual stocks. They offer diversification, flexibility, and the ability to invest in a wide range of asset classes, including stocks, bonds, and commodities. While index funds focus on stocks of profitable companies, there are other ETFs focused solely on bonds, and other commodities, or a combination of the different asset classes.
3. Mutual Funds: Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. These funds are typically managed by experienced fund management professionals or established organizations, making it easier for beginners to access a wide array of investments. When you invest in a mutual fund, your money gets spread across various investments, and any profits earned are then shared among all the participants in the fund. For someone who is still finding their foot in the investment world, this is definitely a convenient way to benefit from diversification and collective gains.
4. On-chain Index Tokens: On-chain index tokens are a relatively new investment instrument enabled by blockchain technology. These tokens represent ownership in a diversified portfolio of cryptocurrencies. While it works in a similar fashion as the traditional ETFs, they provide exposure to the cryptocurrency market with the convenience and security of blockchain technology. A worthy name championing this relatively new on-chain asset class is Nealthy, is a blockchain startup that makes it possible for investors to diversify their cryptocurrency portfolio with one click.
Safe Investments with High Returns
Investors seeking a balance between safety and high returns can consider the following investment instruments:
5. Treasury Bonds: Treasury bonds are typically issued by governments, and in other cases, corporations, and municipalities. While bonds are usually issued as debt securities, they are considered one of the safest investment options to explore. Not only do they offer fixed interest payments, but investors also get back their principal amount at maturity.
6. Blue-Chip Stocks: Blue-chip stocks are shares of well-established, financially stable companies with a history of reliable performance. Think of Google, Microsoft, Apple, and Amazon among others that are known for their stability and potential for long-term growth. By buying the shares of these companies, investors can tap into a well of treasure that is relatively safe and boasts high returns.
7. Diversified REITs: Real Estate Investment Trusts (REITs) allow investors to gain exposure to the real estate market without directly owning properties. Similar to how index funds or ETFs work Diversified REITs invest in a portfolio of commercial properties, providing income through rental payments and the potential for capital appreciation. This way, investors can gain exposure to a diversified portfolio of real estate investments.
8. Gold and precious metals: Valuable natural metals like gold, silver, and diamonds have always held significant value and are widely recognized as both a store of wealth and a safe investment option. These valuable metals have a reputation for maintaining stable prices, making them suitable for trading in physical form or electronically through gold reserves. Whether you choose to physically possess gold or invest in a share from a reputable reserve, you have the opportunity to benefit from this relatively stable market, particularly over the long term.
Low Risk, High Return Investments
Investors looking for low-risk investments with the potential for high returns can consider any of the following options:
9. Dividend-Paying Stocks: Unlike the typical stock, where investors can trade their share in real time base on current price, dividend-paying stocks, on the other hand, are shares of companies that distribute a portion of their profits to shareholders in the form of dividends periodically. Unlike regular stocks, this investment instrument provides a more stable income alongside the potential for capital appreciation.
10. Peer-to-Peer/Liquidity Pooling Platforms: Peer-to-peer lending platforms provide a pool where individual borrowers or investors can either contribute to liquidity or be matched directly to an individual lender. This platform allows investors to earn interest both short and long-term, either by lending money directly to borrowers for a short-term profit or to stake in a liquidity pool for a long-term reward. Moreso, for security purposes, these platforms often provide risk assessment tools to help investors make informed lending decisions.
11. High-Yield Savings Accounts: High-yield savings accounts offer higher interest rates than traditional savings accounts. Unlike the latter, high-yield savings accounts provide a safe and liquid investment option for investors looking to earn a competitive return on their cash holdings.
Another interesting thing about this investment instrument is that the interest earned compounds over time, allowing account holders to earn interest not just on their initial deposit but also on the accumulated interest, leading to accelerated growth of the savings over the long term. Additionally, this type of account provides an extra layer of security for investors as they are typically regulated by reputable regulatory agencies like FDIC.
*On-chain Index Tokens: As mentioned earlier, on-chain index tokens allow investors to gain exposure to diversified portfolios of cryptocurrencies. They offer the potential for high returns in the rapidly evolving cryptocurrency market, hence their second appearance on this list.
Best Way to Invest Money Short Term
For investors with short-term investment goals, the following instruments can be suitable:
12. Money Market Accounts: Money market accounts are safe and reliable accounts provided by banks and credit unions. They are designed to earn interest on your funds while still allowing easy access to your money. These accounts offer competitive interest rates, making them a suitable option for holding cash in the short term. They provide a balance between liquidity and earning potential.
13. Certificates of Deposit (CDs): Offered by banks with specific terms and fixed interest rates, CDs are essentially deposit accounts. When you invest in a CD, for instance, you agree to keep your money in the account until the maturity date. While this instrument is similar to higher-yield accounts, they typically offer higher interest rates. Albeit, they are suitable for short-term investments with a specific time horizon. Additionally, CDs are backed by FDIC insurance, which means your investment is protected up to a certain amount in case the bank fails.
14. Short-Term Bond Funds: Short-term bond funds invest in fixed-income securities that have shorter maturities. These funds provide income through regular interest payments. They are designed to offer relatively low volatility compared to longer-term bond funds. Short-term bond funds can be an attractive option for investors seeking stability and income in the short term. They are suitable for those who want to preserve their capital while still earning a steady return on their investments.
Long-Term Investments for Retirement
Investors saving for retirement goals decades into the future can consider these long-term options:
15. Roth/Traditional IRAs: Individual Retirement Accounts(IRAs) are valuable retirement savings accounts that offer significant tax benefits. With IRAs, an investor has the option to choose between Roth IRAs and Traditional IRAs. These accounts allow your investments to grow over many years without being taxed on the earnings. You can invest your funds in various options such as mutual funds, ETFs, stocks, and more, while enjoying the flexibility to build a retirement portfolio that suits your needs.
16. 401(k) Plans: 401(k) plans are retirement savings plans sponsored by corporate employers. They provide a convenient way to save for retirement through automatic deductions from your paycheck. One of the benefits of a 401(k) plan is that your contributions are often matched by your employer, which means you receive additional funds to grow your retirement savings. The money you contribute to a 401(k) plan grows on a tax-deferred basis, meaning you don't have to pay taxes on it until you withdraw the funds during retirement. It's a popular and effective way to build a nest egg for your future.
*Mutual Funds: Retirement savers can select mutual funds targeting retirement time horizons between 20-40 years. This may include the likes of target date funds that gradually shift to more conservative assets over the duration of the investment.
17. Health Savings Accounts (HSAs): This type of investment instrument is composed of tax-advantaged accounts, usually in the United States. These types of accounts allow investors to save money for qualified medical expenses in conjunction with High Deductible Health Plans (HDHPs). A few examples of institutions that offer Health Savings Accounts include HSA Bank, Optum Bank, Health Equity, and Fidelity to name a few.
Aggressive Growth Investments
Higher risk investments with the potential for outsized returns include
* Individual Stocks: Picking stocks of innovative companies in growing industries like Tech, Cybersecurity, Green Energy, AI, or Automation can lead to huge gains but also losses if choices don't pan out. So, in addition to conducting thorough research, you must ensure that your risk tolerance matches your investment.
18. Venture Capital Funds: Investing in startups, especially at a later stage can be quite challenging, however, this investment instrument provides a better approach for interested individuals. Notably, VC funds invest in private startups with the potential for exponential growth. By funding the liquidity pool of a VC of choice, an investor can tap into a long-term benefit from the portfolio of companies within the VC. However, these are highly illiquid long-term investments with significant risk of total loss, so you must be aware of what you are getting into.
19. Cryptocurrencies: This digital asset class has made its way to the top of the investment ladder in recent years, stealing the attention of investors away from traditional trading instruments. For instance, legacy cryptocurrencies like Bitcoin remain very speculative and volatile in the short run, but some investors are betting on their long-term potential, and it is the same for thousands of other crypto tokens out there. When considering an investment in cryptocurrency, it is important to carefully study each project and its potential viability in the long term. One way to deduce this is through their use cases and tokenomics.
H3: Other Alternative Investment Ideas
20. Impact Investing: Impact investing involves putting your money into companies, organizations, and funds with the intention of generating social and environmental impact alongside financial returns. This approach not only allows you to contribute positively to the world but also potentially make a profit therein. Impact investments can focus on various areas, including clean energy, education, healthcare, and poverty alleviation. In deciding your choice of project, it is important to choose one that resonates with your ideologies. Generally, research impact-focused funds and organizations ensure they align with your values and goals, and consider the social and environmental impact of your investments.
21. Art and Collectibles Market: Investing in art and collectibles can be a unique and potentially profitable venture. These days, there are seamless ways to go about this, leveraging innovative projects like Non-Fungible Tokens (NFTs). Like traditional art pieces and collectibles, the value of NFTs can be appreciated significantly over time, especially if they are from renowned artists or historical periods. To succeed in this market, it's essential to educate yourself about art valuation, market trends, and the reputation of artists or collectible items. Consider consulting art experts or appraisers to make informed investment decisions.
22. Renewable Energy Projects: In a world clamoring for sustainable climate solutions, Investing in renewable energy projects is often, more than not, a good idea. Renewable projects like solar or wind farms, offer an opportunity to support sustainable energy solutions while earning returns on your investment. These projects are also crucial for combating climate change and transitioning to a greener future, thereby offering frontliners an unfair advantage in the investment market. However, before investing, you must do the due diligence to research the credibility and track record of the project developers, as well as the regulatory environment and potential government incentives therein.
No matter what investment you decide on, it's important to keep in mind that all investments come with their unique risks. One way to minimize these risks is to diversify your portfolio by investing in a variety of assets. Additionally, by consulting with a financial advisor who can provide personalized guidance based on your financial situation, an investor can seamlessly navigate the investment world with less burden to carry while achieving their investment goals in a matter of time.
Investment instruments are constantly evolving, providing investors with a wide range of opportunities to make money both online and offline. However, regardless of your financial goals, timeline, and appetite for risk, diversification has proven to be the most sustainable approach to navigating the world of investment instruments and asset classes alike. Considering an investment in the crypto world? Nealthy offers an easy path to exploring diverse cryptocurrencies. Get started from here.