11 Best Investments in 2020

12/3/2020 11 Best Investments In 2020 | Bankrate
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11 best investments in 2020
By James Royal
Oct. 5, 2020 / 12 min read
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T
o enjoy a comfortable future, investing is absolutely essential for most people.
Why invest? Investing can provide you with another source of income, help fund your
retirement or even get you out of a nancial jam in the future. Above all, investing helps
https://www.bankrate.com/investing/best-investments/ 1/16
you grow your wealth — allowing your nancial goals to be met and increasing your
purchasing power over time. Or maybe you’ve recently sold your home or come into
some money, then it’s a wise decision to let that money work for you and grow over
time.
While investing can build wealth, you’ll also want to balance potential gains with the
risk involved. As 2020 showed with the COVID-19 pandemic, markets can become
volatile very quickly. In March, the market rang up some of its biggest daily declines
ever, followed by some of its strongest rises ever. After a strong sell-o early in the year,
the market rebounded and set a new all-time high in the summer, despite an ongoing
recession. Concerns surrounding the presidential election year may also be driving
markets to be more volatile.
Regardless of the overall climate, you have many ways to invest — from very safe
choices such as CDs and money market accounts to medium-risk options such as
corporate bonds, and even higher-risk picks such as stock index funds. That’s great
news, because it means you can nd investments that o er a variety of returns and t
your risk pro le. It also means that you can combine investments to create a well-
rounded and diversi ed – that is, safer – portfolio.
What to consider
Risk tolerance and time horizon each play a big role in deciding how to allocate your
investments. The value of each can become more obvious during periods of volatility.
Conservative investors or those nearing retirement may be more comfortable allocating

a larger percentage of their portfolios to less-risky investments. These are also great for
people saving for both short- and intermediate-term goals. If the market becomes
volatile, investments in CDs and other FDIC-protected accounts won’t lose value and
will be there when you need them.
Those with stronger stomachs and workers still accumulating a retirement nest egg are
likely to fare better with riskier portfolios, as long as they diversify. A longer time
horizon allows you to ride out the volatility of stocks and take advantage of their
potentially higher return, for example. Be prepared to do your homework and shop
around for the types of accounts and investments that t both your short- and long-
term goals.
If you’re looking to grow your wealth, you can opt for lower-risk investments that pay a
modest return or you can take on more risk and aim for a higher return. Or you can do
both and take a balanced approach, having absolutely safe money now while still giving
yourself the opportunity for growth over the long term. Below are a range of
investments with varying levels of risk and potential return.
Here are the best investments in 2020:

High-yield savings accounts
Certi cates of deposit
Money market accounts
Treasury securities
Government bond funds
Short-term corporate bond funds
S&P 500 index funds
Dividend stock funds
Nasdaq 100 index funds
Rental housing
Municipal bond funds
Overview: Best investments in 2020

1. High-yield savings accounts
Just like a savings account earning pennies at your brick-and-mortar bank, high-yield
online savings accounts are accessible vehicles for your cash. With fewer overhead
costs, you can typically earn much higher interest rates at online banks. Plus, you can
typically access the money by quickly transferring it to your primary bank or maybe
even via an ATM.
A savings account is a good vehicle for those who need to access cash in the near
future.
Risk: The banks that o er these accounts are FDIC-insured, so you don’t have to worry
about losing your deposit. While high-yield savings accounts are considered safe
investments, like CDs, you do run the risk of earning less upon reinvestment due to
in ation.
Liquidity: Savings accounts are about as liquid as your money gets. You can add or
remove the funds at any time.
2. Certificates of deposit
Certi cates of deposit, or CDs, are issued by banks and generally o er a higher interest
rate than savings accounts.
These federally insured time deposits have speci c maturity dates that can range from
several weeks to several years. Because these are “time deposits,” you cannot withdraw
the money for a speci ed period of time without penalty.
With a CD, the nancial institution pays you interest at regular intervals. Once it
matures, you get your original principal back plus any accrued interest. It pays to shop
around online for the best rates.
Because of their safety and higher payouts, CDs can be a good choice for retirees who
don’t need immediate income and are able to lock up their money for a little bit. But
there are many kinds of CDs to t your needs, and so you can still take advantage of the
higher rates on CDs.
Risk: CDs are considered safe investments. However, they do carry reinvestment risk —
the risk that when interest rates fall, investors will earn less when they reinvest principal
and interest in new CDs with lower rates, as we saw in 2020. The opposite risk is that
rates will rise and investors won’t be able to take advantage because they’ve already
locked their money into a CD.
Consider laddering CDs — investing money in CDs of varying terms — so that all your
money isn’t tied up in one instrument for a long time. It’s important to note that in ation
and taxes could signi cantly erode the purchasing power of your investment.
Liquidity: CDs aren’t as liquid as savings accounts or money market accounts because
you tie up your money until the CD reaches maturity — often for months or years. It’s
possible to get at your money sooner, but you’ll often pay a penalty to do so.
3. Money market accounts
A money market account is an FDIC-insured, interest-bearing deposit account.
Money market accounts typically earn higher interest than savings accounts and
require higher minimum balances. Because they’re relatively liquid and earn higher
yields, money market accounts are a great option for your emergency savings.
In exchange for better interest earnings, consumers usually have to accept more
restrictions on withdrawals, such as limits on how often you can access your money.
These are a great option for beginning investors who need to build up a little cash ow
and set up an emergency fund.
Risk: In ation is the main threat. If in ation rates exceed the interest rate earned on the
account, your purchasing power could be diminished. In addition, you could lose some
or all of your principal if your account is not FDIC-insured (though the vast majority are)
or if you have more than the $250,000 FDIC-insured maximum in any one account.
Liquidity: Money market accounts are considered liquid, especially because they come
with the option to write checks from the account. However, federal regulations limit
withdrawals to six per month (or statement cycle), of which no more than three can be
check transactions.
4. Treasury securities
The U.S. government issues various types of securities to raise money to pay for
projects and pay its debts. These are some of the safest investments to guarantee
against loss of your principal.
Treasury bills, or T-bills have a maturity of one year or less and are not technically
interest-bearing. They are sold at a discount from their face value, but when they
mature, the government pays you full face value. For example, if you buy a $1,000 T-bill
for $980, you would earn $20 on your investment.
Treasury notes, or T-notes, are issued in terms of two, three, ve, seven and 10 years.
Holders earn xed interest every six months and then face value upon maturity. The
price of a T-note may be greater than, less than or equal to the face value of the note,
depending on demand. If demand by investors is high, the notes will trade at a
premium, which reduces investor return.
Treasury bonds, or T-bonds are issued with 20-year and 30-year maturities, pay interest
every six months and face value upon maturity. They are sold at auction throughout the
year. The price and yield are determined at auction.
All three types of Treasury securities are o ered in increments of $100. Treasury
securities are a better option for more advanced investors looking to reduce their risk.
Risk: Treasury securities are considered virtually risk-free because they are backed by
the full faith and credit of the U.S. government. You can count on getting interest and
your principal back at maturity. However, the value of the securities uctuates,
depending on whether interest rates are up or down. In a rising rate environment,
existing bonds lose their allure because investors can get a higher return from newly
issued bonds. If you try to sell your bond before maturity, you may experience a capital
loss.
Treasuries are also subject to in ation pressures. If the interest rate of the security is
not as high as in ation, investors lose purchasing power.
Because they mature quickly, T-bills may be the safest treasury security investment, as
the risk of holding them is not as great as with longer-term T-notes or T-bonds. Just
remember, the shorter your investment, the less your securities will generally return.
Liquidity: All Treasury securities are very liquid, but if you sell prior to maturity you may
experience gains or losses, depending on the interest rate environment. A T-bill is
automatically redeemed at maturity, as is a T-note. When a bond matures, you can
redeem it directly with the U.S. Treasury (if the bond is held there) or with a nancial
institution, such as a bank or broker.
5. Government bond funds

Government bond funds are mutual funds that invest in debt securities issued by the
U.S. government and its agencies.
The funds invest in debt instruments such as T-bills, T-notes, T-bonds and mortgage-
backed securities issued by government-sponsored enterprises such as Fannie Mae and
Freddie Mac. These government bond funds are well-suited for the low-risk investor.
These funds can also be a good choice for beginning investors and those looking for
cash ow.
Risk: Funds that invest in government debt instruments are considered to be among the
safest investments because the securities are backed by the full faith and credit of the
U.S. government.
However, like other mutual funds, the fund itself is not government-backed and is
subject to risks like interest rate uctuations and in ation. If in ation rises, purchasing
power can decline. If interest rates rise, prices of existing bonds drop; and if interest
rates decline, prices of existing bonds rise. Interest rate risk is greater for long-term
bonds.
Liquidity: Bond fund shares are highly liquid, but their values uctuate depending on
the interest rate environment.
6. Short-term corporate bond funds

Corporations sometimes raise money by issuing bonds to investors.
Small investors can get exposure by buying shares of short-term corporate bond funds.
Short-term bonds have an average maturity of one-to- ve years, which makes them
less susceptible to interest rate uctuations than intermediate- or long-term.
Corporate bond funds can be an excellent choice for investors looking for cash ow,
such as retirees, or those who want to reduce their overall portfolio risk but still earn a
return.
Risk: As is the case with other bond funds, short-term corporate bond funds are not
FDIC-insured. Investment-grade short-term bond funds often reward investors with
higher returns than government and municipal bond funds.
But the greater rewards come with added risk. There is always the chance that
companies will have their credit rating downgraded or run into nancial trouble and
default on the bonds. Make sure your fund is made up of high-quality corporate bonds.
Liquidity: You can buy or sell your fund shares every business day. In addition, you can
usually reinvest income dividends or make additional investments at any time. Just
keep in mind that capital losses are a possibility.
7. S&P 500 index funds
If you want to achieve higher returns than more traditional banking products, a good
alternative is an S&P 500 index fund.
The fund is based on hundreds of the largest American companies, meaning it

comprises many of the most successful companies in the world. For example, Berkshire
Hathaway and Walmart are two of the most prominent member companies in the
index.
Like nearly any fund, an S&P 500 index fund o ers immediate diversi cation, allowing
you to own a piece of all of those companies. The fund includes companies from every
industry, making it more resilient than many investments. Over time, the index has
returned about 10 percent annually. These funds can be purchased with very low
expense ratios (how much the management company charges to run the fund) and
they’re some of the best index funds to buy.
An S&P 500 index fund is an excellent choice for beginning investors, because it
provides broad, diversi ed exposure to the stock market.
Risk: An S&P 500 fund is one of the least-risky ways to invest in stocks, because it’s
made up of the market’s top companies. Of course, it still includes stocks, so it’s going
to be more volatile than bonds or any bank products. It’s also not insured by the
government, so you can lose money based upon uctuations in value. However, the
index has done quite well over time.
Liquidity: An S&P 500 index fund is highly liquid, and investors will be able to buy or
sell them on any day the market is open.
8. Dividend stock funds

Even your stock market investments can become a little safer with stocks that pay
dividends.
Dividends are portions of a company’s pro t that can be paid out to shareholders,
usually on a quarterly basis. With a dividend stock, not only can you earn on your
investment through long-term market appreciation, you’ll also earn cash in the short
term.
Buying individual stocks, whether they pay dividends or not, is better-suited for
intermediate and advanced investors. But you can buy a group of them in a dividend
stock fund and reduce your risk.
Risk: As with any stock investments, dividend stocks come with risk. They’re generally
considered safer than growth stocks or other non-dividend stocks, but you should
choose your portfolio carefully. Make sure you invest in companies with a solid history
of dividend increases rather than selecting those with the highest current yield. That
could be a sign of upcoming trouble. However, even well-regarded companies can be
hit by a crisis, so a good reputation is nally not a protection against the company
slashing its dividend or eliminating it entirely.
Liquidity: You can buy and sell your fund on any day the market is open, and quarterly
payouts, especially if the dividends are paid in cash, are liquid. Still, in order to see the
highest performance on your dividend stock investment, a long-term investment is key.
You should look to reinvest your dividends for the best possible returns.
9. Nasdaq 100 index funds

An index fund based on the Nasdaq 100 is a great choice for investors who want to
have exposure to some of the biggest and best tech companies without having to pick
the winners and losers or having to analyze speci c companies.
The fund is based on the Nasdaq’s 100 largest companies, meaning they’re among the
most successful and stable. Such companies include Apple and Amazon, each of which
comprises a large portion of the total index. Microsoft is another prominent member
company.
A Nasdaq 100 index fund o ers you immediate diversi cation, so that your portfolio is
not exposed to the failure of any single company. The best Nasdaq index funds charge a
very low expense ratio, and they’re a cheap way to own all of the companies in the
index.
Risk: Like any publicly traded stock, this collection of stocks can move down, too.
While the Nasdaq 100 has some of the strongest tech companies, these companies also
are usually some of the most highly valued. That high valuation means that they’re likely
prone to falling quickly in a downturn, though they may rise again during an economic
recovery.
Liquidity: Like other publicly traded index funds, a Nasdaq index fund is readily
convertible to cash on any day the market is open.
10. Rental housing
Rental housing can be a great investment if you have the willingness to manage your
own properties. And with mortgage rates hitting all-time lows recently, it could be a
great time to nance the purchase of a new property.
To pursue this route, you’ll have to select the right property, nance it or buy it outright,
maintain it and deal with tenants. You can do very well if you make smart purchases.
However, you won’t enjoy the ease of buying and selling your assets in the stock market
with a click of the mouse. Worse, you might have to endure the occasional 3:00 a.m.
call about a broken pipe.
But if you hold your assets over time, gradually pay down debt, and grow your rents,
you’ll have a powerful cash ow when it comes time to retire.
Risk: As with any asset, you can overpay for housing, as investors in the mid-2000s
quickly found out. Also, the lack of liquidity might be a problem if you ever needed to
access cash quickly.
Liquidity: Housing is among the least liquid investments around, so if you need cash in a
hurry, investing in rental properties may not be for you. On top of this, a broker may
take as much as a 6 percent cut o the top of the sales price as a commission.
11. Municipal bond funds

Municipal bond funds invest in a number of di erent municipal bonds, or munis, issued
by state and local governments.
Earned interest is generally free of federal income taxes and may also be exempt from
state and local taxes.
According to the Financial Industry Regulatory Authority (FINRA), muni bonds may be
bought individually, through a mutual fund or an exchange-traded fund (ETF). You can
consult with a nancial adviser to nd the right investment type for you, but you may
want to stick with those in your state or locality for additional tax advantages.
Municipal bond funds are great for beginning investors because they provide
diversi ed exposure without the investor having to analyze individual bonds. They’re
also good for investors looking for cash ow.
Risk: Individual bonds carry default risk, meaning the issuer becomes unable to make
further income or principal payments. Cities and states don’t go bankrupt often, but it
can happen. Bonds may also be callable, meaning the issuer returns principal and
retires the bond before the bond’s maturity date. This results in a loss of future interest
payments to the investor.
Choosing a bond fund allows you to spread out potential default and prepayment risks
by owning a large number of bonds, thus cushioning the blow of negative surprises
from a small part of the portfolio.
Liquidity: You can buy or sell your fund shares every business day. In addition, you can
typically reinvest income dividends or make additional investments at any time.
Bottom line
Investing can be a great way to build your wealth over time, and investors have a range
of investment options – from safe lower-return assets to riskier, higher-return ones. So
that range means you’ll need to understand the pros and cons of each investment
option to make an informed decision. While it seems daunting at rst, many investors
manage their own assets.
But the rst step to investing is actually easy – opening a brokerage account. Investing
can be surprisingly a ordable even if you don’t have a lot of money. (Here are some of
the best brokers to choose from if you’re just getting started.)
Learn more:
Best low-risk investments
Best Roth IRA accounts
10 tips for buying rental property
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment
strategies before making an investment decision. In addition, investors are advised that past investment product
performance is no guarantee of future price appreciation.
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12/3/2020 11 Best Investments In 2020 | Bankrate

INVESTING Advertiser Disclosure

11 best investments in 2020

Conservative investors or those nearing retirement may be more comfortable allocating

Here are the best investments in 2020:

Overview: Best investments in 2020

3. Money market accounts

A money market account is an FDIC-insured, interest-bearing deposit account.

5. Government bond funds

6. Short-term corporate bond funds

7. S&P 500 index funds

The fund is based on hundreds of the largest American companies, meaning it

8. Dividend stock funds

9. Nasdaq 100 index funds

11. Municipal bond funds

Best Roth IRA accounts

10 tips for buying rental property

America's top-rated home insurance

Does switching car insurance save money?

You may also like

The 15 best investments of 2020

8 best low-risk investments in November 2020

8 best low-risk investments in December 2020

Press room Compare rates

Careers Latest news

Advertise with us Popular topics

Site map Glossary

Privacy policy / California privacy policy

Do not sell my info

Understanding Bankrate’s averages

GLBA annual notice

How we make money

Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate is

Bankrate, LLC NMLS ID# 1427381 | NMLS Consumer Access

© 2020 Bankrate, LLC. A Red Ventures company. All Rights Reserved.

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