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People are saving less than ever. According to the St. Louis Fed, Americans went from saving 26.3% of disposable income in May 2021 to saving 4.1% in April 2023. Yikes. What happened? Short answer: Stimulus checks ran out, and everything is still more expensive.
Unsurprisingly, the stock market took a bit of a beating and the Fed raised rates.
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But all that created an opportunity for today’s investors to gain above-average returns. Market lows offer investors good stocks for cheap, and banks are paying savers more on deposits.
Get in on the action while the getting’s good. Here are four places to put your investments for the rest of 2023 and beyond, before things settle down.
1. Certificates of deposit
You can lock in high interest rates by investing in a certificate of deposit (CD), a kind of temporary bank account. You deposit money for a set period of time (known as a term) and earn interest on it once the CD expires. The catch is that you can’t withdraw funds until your CD matures, or else you lose some of the interest you’re earning.
It’s generally a good idea to invest in CDs when rates peak. That way, you can lock in the highest returns for your investments. Online banks offer some of the best CD rates.
2. Emergency savings
You can keep money easily accessible by building an emergency fund. Need to pay for a surprise hospital bill? No problem. You can access funds held in savings accounts at any time. Right now, they offer returns comparable to certificates of deposit.
Savings accounts earn you the most money when interest rates peak. Right now, the best high-yield savings accounts offer at least 4% returns on investment.
3. Stock portfolio
You can earn the highest returns on investment by investing in a diversified stock portfolio. Right now, the market is fearful. Prices are low across the board compared to 2021 and 2020. Savvy investors will make outsized returns if they play their cards right.
Stocks are considered riskier than savings accounts and certificates of deposit. You can lose money on investments, so money experts recommend diversifying your portfolio.
You can invest in a diversified portfolio through a stock broker — ideally, one with low fees.
4. Pay off debt
You can lower your monthly bills by paying off debt. Saving is only half the battle — the other bit, paying off debt, is just as important. Too much debt can overwhelm you, forcing you to withdraw your savings before you’re ready. Debt can even derail long-term retirement plans.
There are several easy-to-follow debt repayment strategies, including consolidation, the debt avalanche, and the debt snowball. Those with debt can try one of these tactics to secure their financial futures.
Which is best?
To determine the best investment for you, consider the following:
- When do you need your money back?
- How much are you paying on your debt?
If you need to withdraw investments by this year’s end, consider limiting investments to a short-term CD or an emergency fund. That way, you don’t risk having the value of your investments plunge or have them locked up when you need to withdraw your money.
But if you plan on staying invested for five years or more, consider investing in the stock market or a long-term CD for higher returns. Quick comparison: The stock market typically offers higher returns, but returns aren’t guaranteed. A CD is a lower-risk, lower-reward option.
If your investment gains lag behind high-interest debt repayments, consider paying that down first. The less debt you have, the less you’ll pay in interest.
How long do you plan to stay invested? Do you have high interest rates on debt? Answering these questions will help you determine where to put your investments for the rest of 2023.
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