The 13 Best Ways to Invest Money for Any Budget

The fastest way to build wealth is to make your money work for you through investments. Everyone’s financial situation is different so how you should invest varies from person to person. There is no one-size-fits-all strategy for investing, but we’ve reviewed the best ways to invest money for any budget.

Investing involves some level of risk regardless of which investment you choose. This is why it’s important to review your income, expenses, assets, and liabilities first to determine your level of risk tolerance. 

Investing goals and timelines can help determine the best investment strategy. Long-term goals such as retirement require different investment vehicles than short-term goals like building an emergency fund or saving for a vacation.

How much time you want to spend managing your investments is also a critical factor in investing. Some investments require active management and ongoing research while others offer a more hands-off approach.

High-Yield Savings Accounts

A saving accounts may very well be the safest place to stash your cash. All savings accounts aren’t created equal, however. The key here is to choose a high-yield savings account over a traditional savings account. Thanks to the higher interest earned, your savings will grow much faster.

High-yield savings accounts are offered by many financial institutions, but the best rates typically come from online-only banks. The lack of brick-and-mortar locations means less overhead so they’re able to pass the savings along to their customers. This means higher returns and fewer, if any, fees.

Choosing a FDIC-insured savings account ensures your money is always safe. While this affords virtually no risk, the potential rewards are also relatively low compared to other investment options.

High-yield savings accounts are a great option for short-term investing. Your funds are always easily accessible and safe while still earning interest. When saving for that next vehicle or trip, consider a high-yield savings account to reach your goal.

Money Market Accounts

Money market accounts typically combine the features of a savings account and a checking account into one convenient investment account. They typically earn higher interest rates than traditional savings and checking accounts, which makes them an attractive alternative.

Unlike a savings account, a money market account often issues checks and a debit card for purchases and ATM withdrawals. These transactions are typically limited so use sparingly to avoid additional fees.

Money market accounts may include a minimum balance requirement to open an account. They may also have ongoing balance requirements to receive the most favorable rates. Be sure to closely review the rates and fees for any account you’re considering.

Money market accounts can make sense for short to medium term investments such as saving for a down payment on a home. If you bank with a traditional brick-and-mortar institution, this will likely be their best alternative to a traditional savings account.

Individual Stocks

Stocks represent ownership shares in a company. If the company grows, then the value of your investment grows as well. Shareholders can profit through dividends and/or capital appreciation.

Most stocks are considered common stock and give shareholders voting rights relative the number of share owned. Some companies may also issue preferred stock, which doesn’t entail voting rights, but provides priority over common stockholders in terms of dividend distribution and asset liquidation.

Investing in individual stocks is generally not advised without diversification. A single stock can fluctuate and lose value rapidly so it’s essential to protect yourself by spreading your investment over multiple stocks.

Index Funds

An index fund is a portfolio of stocks and/or bonds designed to mimic the composition and performance of a financial market index like the Standard and Poor’s 500 Index (S&P 500). 

Index funds can be structured as a mutual fund or an exchange-trade fund (ETF). Mutual funds are traded once per day while ETFs are traded throughout the day on an exchange like an individual stock.

Since index funds are constructed to reflect a market index, there is less active management required. An index fund does not attempt to beat the stock market, but simply match it. This saves considerably on management fees since it doesn’t require a fund manager to try to outsmart the market.

The biggest benefit of an index fund is strong diversification. By investing in a fund comprised of many stocks, you face substantially less risk than investing in individual stocks.

Mutual Funds

A mutual fund allows you to pool your money together with other investors to purchase a portfolio of stocks, bonds, and other equities that are not as easily accessible to an individual investor.

Mutual fund investors own shares of the fund itself and not the actual securities in which the fund is invested. Investors trade their shares at a price set once daily at the end of the trading session. Unlike stocks and ETFs, their value does not fluctuate throughout the day.

When you invest in a mutual fund, you’re typically relying on a fund manager to manage the portfolio. While convenient, this can incur higher fees in some cases so be sure to review the terms. Fees fluctuate depending on how actively the fund is managed. 

Mutual funds are a great way to create a diverse portfolio. People can invest in mutual funds via a retirement plan or a taxable brokerage account.

Exchange-Traded Funds (ETFs)

An exchange-traded fund or ETF is a collection of stocks, bonds, or other securities that provide diversification and easy trading via a stock exchange. ETFs function much like individual stocks.

ETFs are bought and sold throughout the day while exchanges are open. ETFs have ticker symbols and real-time trading data is easily available.

One important difference between ETFs and individual stocks is the process of issuing new share. The ability of ETFs to issue and redeem shares continuously allows the market price to remain consistent with the fund’s invested securities.

Exchange-traded funds generally provide more transparency and tax efficiency than mutual funds. Most ETFs are index funds that track a specific market index such as the S&P 500.

Certificates of Deposit

Certificates of Deposit or CDs are time deposit accounts offered by financial institutions. You deposit funds and agree to keep the funds invested for a specific amount of time while earning a fixed interest rate.

Typically, the longer the CD term, the higher the interest rate earned. Unlike savings accounts and money-market accounts, CDs are not liquid investments. Withdrawing funds before the CD reaches maturity can result in substantial fees.

CDs are attractive investments due to their guaranteed returns and low fees. They generally provide a higher return than savings accounts and money-market accounts with little to no monthly maintenance fees.

Government Bonds

Government bonds are also known as Treasury bonds or savings bonds. These bonds are issued by the federal government to raise money. By purchasing a Treasury bond, you are essentially loaning the government money and earning interest until you sell the bond or it matures.

Treasury bonds or t-bonds are always issued for a 30-year term and pay interest every six months. T-bonds offer a guaranteed, fixed interest rate for the life of the bond. Treasury-backed bonds are traded in public markets and can be purchased via a private broker or directly from the Treasury.

Savings bonds are also issued by the Treasury in the form of EE-bonds and I-Bonds. EE bonds offer a fixed interest rate while I-bond rates are adjusted to protect from inflation. Savings bonds must be purchased directly from the Treasury and are not traded in public markets.

T-bonds are relatively liquid since they are traded in public markets. Savings bonds must be held for at least one year. If sold between years one and five, three months of interest is forfeited as penalty. There is no penalty for cashing in after five years.

Corporate Bonds

Corporate bonds function similar to Treasury savings bonds, but are issued by a company instead of the government. The goal of raising money via debt is the same, however. Purchasing a corporate bond is akin to loaning the company money for predefined term with interest.

Most corporate bonds provide a fixed interest rate, known as a coupon. Payments are issued semi-annually every six months. One corporate bond equal $1000 par value so a bond with a 5% fixed-rate coupon would pay $50 per year or $25 every 6 months. 

Corporate bonds are not traded in public markets so they must be bought and sold with brokers via over-the-counter (OTC) transactions. Most corporate bonds have a maturity date of one to 10 years. If you sell a corporate bond before maturity, you will likely face commissions and fees from your broker.

Cryptocurrency

Cryptocurrency is a form of digital currency that uses cryptography to verify and record transactions. The transactions are recorded on a decentralized, public ledger known as a blockchain.

Traditional forms of currency are managed by a central authority such as country. Decentralized  finance or DeFi technologies such as cryptocurrencies are managed by public peer-to-peer networks. This provides greater transparency and access regardless of location.

The most common way to invest in cryptocurrency is by purchasing coins via an exchange. Popular coins include Bitcoin, Ethereum and various altcoins. Similar to stock investing, the value of a coin can fluctuate based on market demand. The goal is for the value to increase and to then resell the coins for a profit.

Another way to make money with cryptocurrency is by staking. Staking involves holding cryptocurrency in an account that earns interest and fees. The staked coins are used to help facilitate blockchain transactions. This is similar to putting money in a savings account, which earns interest while facilitating bank transactions. The interest earned with staking, however, is generally much higher due to the riskier nature of cryptocurrency.

When investing in cryptocurrency, you’ll need a crypto wallet. To learn more, check out the Best Crypto Wallets for Bitcoin, Ether, and NFTs.

Non-Fungible Tokens (NFTs)

Non-fungible tokens or NFTs are units of code on a blockchain that represent unique digital or physical assets. NFTs act as a verifiable record of ownership using the same blockchain technology as cryptocurrencies. 

The most common use of NFTs at the moment is to represent digital artworks. These NFTs can be bought and sold via exchanges just like stocks and cryptocurrencies. The market determines the value, which fluctuates based on demand. An NFT that increases in value can then be resold for a profit.

Investing in NFTs is arguably the riskiest investment option on this list. The market is still in its infancy and can be difficult to evaluate. A popular strategy is to scout upcoming NFT drops by popular artists or celebrities and invest early.

NFTs are typically traded via an NFT marketplace. To learn more NFT marketplaces, check out the Best NFT Marketplaces to Invest in NFT Art.

Physical Art

While NFTs represent digital art, there is still a well established market for physical art. Artworks  are typically purchased via galleries or auction houses, either in-person or online. 

There are also marketplaces such as Masterworks that allow investors to purchase fractional shares of art. The company purchases the physical art, securitizes it, and then sells shares to investors. Art equity funds function similarly, but often have higher fees and less liquidity.

The value of physical art does not correlate with the stock market so it’s considered an alternative investment like crypto and real estate. These types of investments are a great way to diversify your investment portfolio. 

Real Estate

Real estate is a popular alternative investment vehicle that can produce great returns. Investment properties can provide substantial cash flow and tax breaks in addition to equity appreciation.

Owning rental properties, either single-family or multi-family, is a common strategy. Properties can be purchased with financing and then rented to tenants. The difference in the mortgage and rent payments produces cash flow while equity in the property increases.

The depreciation of owned real estate can be used as a tax deduction. Property depreciation is not a one-time deduction, but rather a yearly deduction that can reduce your tax bill substantially over the useful life of the property.

Real estate investment trusts or REITs are another way to invest in real estate. These funds function similarly to mutual funds, but are comprised of physical properties instead of stocks and bonds. REITs often consist of commercial properties that produce income, which is then distributed to shareholders via dividends.

Renovating and reselling or flipping properties is also popular way to make money with real estate. The process involves buying distressed properties below market rate, renovating to add value, and then selling for a profit.