There’s no free lunch in investing. If you’re looking for high returns, you’ll have to take on additional risk. If your time frame is as short as one year, it becomes even riskier to own speculative investments, as you won’t have time to recover from a drop in value.
But with interest rates at the highest levels they’ve been in 40 years, you can still generate fairly high returns in a very safe way through a number of different types of investments. While finding investments that could double your money in a single year is a crapshoot, there are plenty that will pay you significant income without you having to worry that you’ll blow up your entire nest egg. Here are just a few.
U.S. Treasury Bills
U.S. Treasury bills have long been considered the safest investment in the world by most advisors. In most cases, the tradeoff for this security has been extremely low yields. But thanks to the Federal Reserve’s aggressive campaign against inflation, Treasury bills in many maturities are now paying over 5%. For every $10,000 you invest, in less than one year you’d be earning at least $500. Considering you’d be exposing your capital to essentially zero risk, that’s a solid payback in a single year.
High-Yield Savings Accounts
High-yield savings accounts have benefited from rising interest rates the same way that U.S. Treasuries have. While not considered quite as safe, high-yield savings accounts do carry FDIC insurance of at least $250,000 per account. Unless you’re a very wealthy investor, that’s usually more than enough to sleep well at night. Meanwhile, rates on most high-yield savings accounts are approaching 5%, generating a similar return to U.S. Treasuries while remaining completely liquid.
Certificates of Deposit
A certificate of deposit is a bank instrument that shares the same FDIC insurance as high-yield savings accounts. The one drawback to a CD is that you must keep your money invested until it matures or you’ll face an early withdrawal penalty. But most banks offer CDs with maturities as short as one year, six months or three months, so you can earn a decent return on your money over a very short time frame. Depending on the bank and maturity, you could earn up to about 5.75% in the current environment, paying you back about $575 on a $10,000 investment.
Peer-to-peer loans are generally originated on websites that bring together individual borrowers and lenders, rather than going through a bank. While peer-to-peer loans can be riskier than more conservative types of investments, if you do your research and select the most reliable borrowers, you can also generally earn a higher return. According to Forbes Advisor, you can earn between roughly 6% and 36% on peer-to-peer loans per year in the current environment.
If you buy a rental property outright, you’re not going to earn your whole investment back in a single year. However, you may be able to generate enough income to cover your mortgage and other expenses. If that’s true, your tenants will be effectively paying off the property for you while you simply wait and enjoy the capital appreciation. In that sense, your investment will be “paying your back” every year since you won’t be laying out any money from your own pocket.
Even high-quality dividend-paying stocks are riskier to own than more conservative options like savings accounts and Treasury bills, and you’ll have to be prepared to take some losses if you can only invest for a single year. However, their income tends to rise over time and the stocks themselves offer the potential for capital gains. If you run into a bear market in your one-year investment time frame, even blue chip, dividend-paying stocks will generally trade down. However, they tend to hold up better than the overall market, and the income they pay may offset any losses. In more average years, however, high-quality stocks often generate gains of 10%-plus on top of dividend payouts of 2% to 5%.
Caveat: Things To Avoid
If your investment time frame is as short as one year or less, it’s tempting to think more aggressively instead of more conservatively. After all, earning 5% in a year on a Treasury bill or a high-yield savings account is better than nothing, but it’s not exactly doubling your money.
The problem with this type of “get-rich-quick” thinking is that you’re courting a high amount of risk. Most advisors would suggest that trying to make back your entire investment in a single year is gambling, not investing. Even investing in growth stocks is considered aggressive if you have less than a five- or 10-year time frame, as they can lose 20%, 30% or even more over a single year. So, while the investments listed above may not be exciting, in the current interest-rate environment, they’ll pay you back a decent return without exposing you to undue risk.
Source : YahooFinance