Before you focus on high return investments, or investing of any kind, you should make sure you are not paying high interest on debts.
If you’re paying more in interest on debt you owe than you can earn through investments, you’re going to immediately lower your return on investment.
In other words – the interest you save by reducing debt is higher than what you are likely to earn through investing.
For example, if you’re paying 18% interest on credit card balances and will only receive 9% return on your best investment – it’s costing you 9%.
The first step to any investment plan should be to pay off all high interest debts.
If you are debt-free, or have only low-interest debt, you have some options for easy to manage high return investments, including high interest savings accounts, peer to peer lending services, starting a business, and low cost index funds.
Whichever methods you choose, you’re best results will come from setting up automatic deposits for both saving and investing, according to a schedule you can comfortably afford.
1. High Yield Savings Accounts or Certificate of Deposits
It’s a good idea to have about three to six months of living expenses saved in an emergency fund. You never know what’s going to happen, and if you find yourself with reduced income or without a job – this fund can save you from getting into debt or excessive struggling. (Make sure you track all of your spending with a budgeting tool like Mint.)
Online bank accounts generally offer higher interest rates than your local bank, and you also have the option of saving the money in a Certificate of Deposit although it’s not as easy to take it out when you need it.
Yes, I know that this isn’t very “high” at the moment, but it does pay to shop around. I’ve seen cases where people have been able to get close to 2% with certain bank promotions while others leave it in accounts paying .15%. If you don’t have a large sum, then it’s not worth it to switch. But if you have a couple hundred thousand, keep your eyes out.
2. Lending Club Investing
Once you have money set aside for emergencies, you can look at peer to peer lending services, like Lending Club. Lending Club advertises a 5.80% to 9.59% rate of return on investments for people who lend money to other people through their site. Investing in peer-to-peer lending couldn’t be easier: you can hand select your loans or just invest into a portfolio of loans.
3. Start a Business
For a successful business owner, a business offers a high return on investment opportunity. If you have skills that allow you to start a business selling products or offering services, you may find becoming a business owner offers the highest return on your investment of any other type of investing you could participate in.
Technology has made it possible for many business owners to start their business for very little financial investment. Chris Guillebaeau’s best seller $100 Startup shares countless examples where unsuspecting entrepreneurs were able to make solid income without much capital up front.
Not sure what business to start? Here’s a look at the top 13 small business ideas.
4. Invest in Low Cost Index Funds
If you prefer buy and hold investing over the ups and downs of the stock market trading, you might consider a service like Betterment.com which lets people invest in index ETFs for little cost.
The annual management fee of this site is between .15% and .35% of your average balance up to $25,000. You can get started with no minimum balance, no holding periods, no transaction fees and no other expenses.
Another option for the buy and hold investment philosophy is to use a program liked Capital One ShareBuilder that allows you to slowly grow your portfolio with consistent investments.