Few business opportunities can produce safe high yield investments, and to find stocks, bonds, or other assets which can do both is even more difficult. The consensus says the higher the risk, the greater the return; to find an opportunity with both, a mix of techniques are needed.
The High’s of Low Yield
A safe place to put your money, such as a bank account or money market account, is going to have a low interest rate. Although some offer better yields than others, the biggest advantage is their liquidity, which leaves money available for a sudden opportunity. Certificates of deposit tend to fare better, but the funds are locked in for a pre-determined time period.
There are better returns in buying bonds or bond etf’s, but they are not FDIC insured. Bond disadvantages include locking money away until the bond matures, and penalties for taking it out early. However, exchange traded funds which follow bond indexes can be traded as easily as stocks, with less risk.
Alternatives to Low Interest
There are still excellent real estate values to be had for the right investor. Even more opportunities are available through the buying of mortgage notes sitting on the books of lending companies. This requires an active participant willing to learn about the business; in essence, these notes are sold at steep discounts and re-sold at a slightly higher price to investors.
A variation of this are ‘unsecured subordinated notes.’ These notes put the investor on the side of sub-prime loans issued to corporations, and they can pay double digit interest rates. The stipulations involve locking the money in; the longer the term of the note, the higher the return, and no FDIC guarantees.
The drawback to this ‘safer’ high yield investment is the potential for it to be, well, risky. Since they are much like small junk bonds, there is nothing but the business backing them to ensure a profit. If the business is healthy and the investor believes in it, then adding it to a portfolio makes sense, so long as they are diversified.
An excellent alternative to low interest passive accounts are tax lien certificates. Sold at auction by many states, the certificates represent unpaid property taxes by homeowners. An individual can purchase a tax lien certificate, offsetting the loss to the state, and earn as much as 9-16%, depending on the state.
The risk is minimal; if the homeowner catches up on their back tax, the certificate holder takes the profit made and loses nothing. If they default, the new lien holder may have an opportunity to buy the property at a deeply discounted price. There is both risk and opportunity in this aspect, as a dilapidated building may require capital to repair; on the other hand, a large profit can be made if the property has a high market value.
Conclusion
For the benefits of both worlds, invest in traditional ‘safe’ financial instruments while diversifying into riskier, but more profitable ventures as well. Many markets, such as commodities, are labeled volatile, but can make a conservative investment if they are understood. Research each asset class and understand the options for the best results.
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