A short-term investment or a long term one? If you are new to investments, then this is the doubt that’s perhaps bothering you. And as you know, it’s always better to know the rules before settling for the big game, let’s start with emergency reserve funds. For, as you know, it’s emergencies that teach us the virtue of an object and more so, of investments.
As the name suggests, an emergency reserve fund serves for emergencies and after the purpose is solved, it’s replenished again. This is not to be confused with any long-term investment. A family can afford an emergency reserve fund irrespective of their financial status; even as little as $5 a week adds up to huge amounts later. The ideal goal should be to accumulate an amount that equals 12-weeks’ income, but 24 weeks cuts the risk factor out. To house an emergency reserve account, a person may avail the services of – i. Banks, ii. Credit unions iii. Mutual funds. We have many more Investing Help Articles Now Available.
Now, comes the question of the interests, the factor that allures you to make an investment. Banks, though are the safest ones, do not pay a very high interest; credit unions, on the other hand, are an excellent alternative if a slightly higher interest rate is your lookout. But mutual funds outrun both; despite greater risks, they also pay higher rates of interests.
Else, an accumulation fund could be the thing for you, if large and unexpected expenses give you the creeps. These are long-term emergency funds. Ranging between one and five years, it’s the liquidity of an account that matters the most than the higher returns. You may choose between four different options: i. CD (certificates of deposit); Ultra short-term bond funds; short-term bonds and mortgage-backed bond funds. Though these schemes pose a bar upon utilizing the deposited money for a certain period and lack extensive flexibilities, they have an almost nil-volatility with reasonable interest rates and offer attractive yields that make possible any sort of re-investments.
But if you are looking forward to greater securities that comply with fund retirement and can be inherited by your successors, then long-term investments is definitely your cuppa. But these are not get-rich-quick schemes; long-term investments last and grow for many years and can be categorized under five heads, namely:
Secure income investments (e.g. government securities); long-term income investments (e.g. mortgages, municipal and corporate bonds, stock dividends etc.); growth investments (undeveloped properties and balanced mutual funds); speculative investments (common stocks, precious metal etc.) and high-risk investments (oil and gas, collectibles, gems, limited partnerships or commodities).
So maintain a budget, be disciplined and invest; with all three in their right places, no storm shall be strong enough to uproot the family tree. For that, an emergency reserve account should be given the first preference whereas the latter shall follow over time. We have many more Investing Help Articles Now Available.