What Are High Yield Investments and How Do They Work?
Everyone knows that if you want to be prepared for your retirement, then you have to put money away for later use. Some people accomplish this through 401k accounts or simple savings. Others want to make their money work a little harder for them.
This is where high yield investments come into play. Want to learn more about these tempting investments? Read on for a deep dive into high yield investments!
High Yield Investments, Defined
You’ve probably heard a lot about investments in general, but what is a high yield investment?
A high yield investment is exactly what it sounds like. It’s an investment that has the potential for a big payout in a relatively short amount of time. By comparison, other investments can take decades to payout. High yield investments have high interest rates attached to them to make them enticing to investors.
Faster turn around on investments means you’re better able to take and invest your profits and grow your wealth at a much quicker rate. This benefit makes them a very popular option amongst ambitious investors.
What Are the Risks?
If you think that high yield investments sound too good to be true, then you should know that they also carry a significant amount of risk.
If the investment pays off, it pays off big, but it also has the chance of going belly up. Many high yield investments have a less than desirable credit rating, and you may end up with nothing and lose the money you invested. High yield investments can also be tougher to sell, which can net you a loss of funds in the end.
Watch Out for Scams
The attractiveness of a high yield investment also makes them ripe for abuse. Many of the world’s most notorious ponzi schemes have started as a high yield investment program (HYIP). One of the most famous HYIPs, ZeekRewards, promised investors a return of 1.5% per day, but it only served to make the founder a wealthy man.
Do Your Research
If you think that a high yield investment sounds right for you, then it’s best to do your homework on it. Most are legitimate investments, but they still carry risk. Spend some time researching what factors play into the returns and then decide if that works for you.
If you can’t afford to lose the money you’re planning on investing, then it’s probably better to wait to invest until you’re in a better financial situation.
Best High Yield Investment Options
If you think that high yield investments might be a good option for you, then you’re probably wondering which ones are the best. We’ve compiled a few for you to check out.
High Yield Bonds
High yield bonds are one of the most common forms of high yield investment. They are considered to be among the safest options for high yield investments.
Bonds have a specific interest rate and a credit rating when they are issued. Higher credit ratings mean lower interest rates because they are less risky. Bonds with lower credit ratings are often referred to as junk bonds, but they have a higher interest rate.
If you’re interested in buying into high yield bonds, but want some diversification of your portfolio, then it’s worth looking into investing in a mutual fund. Mutual funds can contain hundreds of high yield bonds, increasing your chances of making a big profit on your investment.
Startups
A startup is a company that is trying to get off the ground and looking for funding to help bring its product or service to the market. That’s where backers come in. Backers provide some or all of the funding necessary to get off the ground with the promise of a nice return on investment.
Investing in a startup can yield huge returns. It can also mean you lose everything. Regardless, investing in startups has become a very popular endeavor, and, as a result, venture capital has come to prominence.
People who invest in startups should know that they stand the risk of losing everything that they invested should the business go under.
IPOs
Do you ever look at the stock market and wonder what it must be like to have invested in Tesla or Apple when they first went public? Those investors saw huge returns, and you can, too, if you get in on the ground floor.
IPOs, short for initial public offering, is what happens when a successful company goes public and sells shares of stock. IPOs offer discounted shares of stock to willing investors in the hopes that the cost will continue to rise as the company grows. For example, people who took advantage of LinkedIn’s IPO saw a 100 percent return on investment within the same day!
The one caveat, however, is that many IPOs are only available to people who are super wealthy or have an in with someone in the company going public. Otherwise, you will have to wait with the rest of the public to start buying shares.
Are You Ready to Take Control of Your Financial Future?
High yield investments are an excellent way for adventurous investors to make their money work hard and pay off in a major way. They are also some of the riskiest investments you can make, but when they pay off, they pay off big time.
If you think high yield investments might be something you’re interested in, then you should speak with your financial planner. If you don’t have a financial planner, you can always start small to see if they’re a good fit for your investment goals. If you’re more conservative with your money, then it might be best to look for alternative options.
If you’re passionate about personal finance, then you’re probably looking for more awesome info to help you meet your financial goals. Check out the rest of our blog for everything you need to know!
