Since about a year ago, when the World economy was figuratively flushed right down the toilet, interest rates have been at rock bottom. If you are a buyer, this is great news. Loans, mortgages, refinances and the like can be obtained for one hell of a deal. If you are investing, this is awful news. Looking for a CD to stash some money in? Good luck finding one with a rate of even 2%. The same goes for savings accounts. Even online savings accounts that usually have a respectable rate of return are having trouble reaching 1.5%.
What Can You Do?
If you want complete security, there is little to be done to combat the ever-dropping interest rates. Many would suggest to get what you can from the bank or credit union and take it with a smile. I disagree. There are a number of options to beat the piddly offerings from the institutions that offer much higher returns with moderate risk.
With Lending Club and to a lesser extent, Prosper still offering consumer loans in the “social networking” format that makes you the lender, you can get a much better return while sacrificing minimal risk over the accounts at the bank. From everyone I have contacted who has used either of these services, the best course of action is to spread your money out among many well-qualified applicants. This will diversify your investment and make a potential default much less costly than if you were putting all of your eggs in one basket.
Potential Rate of Return: 7-13%
Stocks, ETF’s & Index Funds:
If you re-entered the market earlier this year, you probably have been getting a decent return for the last few months. As I have written about in the past, I’m not an individual stock kinds of guy, but there have been many stocks that have boomed over the past 4-6 months. Chances are, if you have tossed any cash into the market, you have seen a decent return. While it is not for me, those who have investments in the market (like my buddy Stephen) have been seeing their share of plus signs in recent memory.
Rate of Return Since Feb 1, 2009:
Dow Jones Industrial Average: +12%
S&P 500: +12%
401k, Self-Directed IRA, Roth IRA
While these accounts are not for immediate withdrawal of savings, they can (and have been) getting great returns as of late. As it stands right now, my 401k account alone is up over 20% year to date. It is not making up for the immense losses I suffered last year, but I did up my contribution percentage in the nick of time. Nobody is sure what the market will do over the next few months, but I still say it is a good idea to max out these retirement accounts if at all possible.
Potential Rate of Return: 5-25%
Purchasing property, homes or apartments at the prices they are at in most markets could not be a better idea for your finances right now. Many of the above ideas are more for savings of a smaller amount. But if you want the biggest “bang for your buck”, I can not recommend Real Estate investing highly enough. At times, being a “landlord” will seem like more work than a passive income stream, but there are plenty of people who make money while forgoing the traditional renter/tenant relationship. Often called “house flippers”, individuals or business purchase land or property with intentions of immediate resale. If you are not looking for a ton of residual work but still want a return, take this route.
Potential Rate of Return: ???
I wish I could say that you have an infinite number of options when it comes to a great return of investment. Unfortunately, that is not the case. Selecting the best choice for returns on your money will likely be a trial and error process, but do not hesitate to try any and all of the above to see what works best for you. You can also mix and match or even find some of your own investment ideas to beat the laughable offerings of the bank. Just do not settle.