While the majority of baby boomers and Gen X-ers plan to rely on their pension funds to retire, 66% of millennials plan to rely on savings.
Having seen worldwide stocks tumble, the housing market crash, and the tech bubble burst, millennials need their investments to be safe and secure. Finding the best investment options that will pay off later isn’t easy for young people.
With the rise of the gig economy and freelancing about to comprise 50% of the workforce, the future is uncertain for young adults. With that uncertainty comes a new approach towards investment.
As older South Africans head toward a retirement cliff, a younger generation needs to reconsider its relationship to savings. Whether you’re a young person or someone looking for the best investment options for a loved one, there are many alternatives beyond pensions.
Here are 7 of the best investments you can make as a young South African.
1. Online Savings Accounts
Because of the lack of overhead that traditional brick and mortar banks face, online banks offer better rates than any other kind of bank.
Make sure that whatever bank you work with has a deposit insurance plan in place. If you do business with a bank in the US, your money will be protected by the FDIC. You’ll be able to access money at any time and it might even make online transactions faster.
Be aware that many of the best interest rates are tied to a few caveats. Usually, you have to open the account with a certain amount of money and maintain that balance. Some will also require that you have your payroll checks immediately deposited into your account.
2. A Money Market Account
A money market account produces a higher interest rate than a standard savings account. They are typically not insured by the bank’s own deposit insurance plan. You can always buy your own plan if you are investing a serious amount of money.
Because of the higher interest rates associated with this type of account, they’re one of the best investment options for young people.
These accounts also have minimums that you must adhere to. If you want the best rate, make sure you stay well above these minimums so that your account is constantly growing and earning.
3. Try a CD
Certificates of deposit allow you to build your money as a short-term investment. You’re required to keep your money in an account for a certain amount of time from 90 days to even 5 years.
By agreeing to have your money tied up in bank business, you’re given a high-interest rate. You’ll end up making more from this than you’d ever get from a standard savings account.
Certificates of Deposit are often also insured to a certain limit. Double check with your bank in case you have to take out your own policy.
4. Floating Rate Funds
A floating rate fund is a kind of mutual fund that has a variable interest rate. Before you dive in, see if your financial institution offers these products. They’re not available in every market.
These funds invest in short-term debts that are typically issued by banks and corporations.
If you see that interest rates are starting to rise, floating rate funds will end up riding that wave. They change every couple of months as the underlying bonds in their portfolios tend to change.
They can be a risky investment, but they can also yield higher returns.
5. Get Some Covered Calls
If you already own stocks, you can sell calls on your own stocks.
Under these terms, if someone else wants your stock, they agree to buy it if it reaches a certain price. In exchange for a premium, potential investors get the right to take your stock for a short period of time.
When that term expires, you keep the premium and can roll the dice again. If the stock hits that set term, then you have to sell at the price you agreed upon. This gives investors the ability to make money on a rising stock.
If that stock skyrockets and you’ve set your call too low, you won’t make much. But that’s a whole lot better than letting the stock peak and trying to sell while it’s on the decline.
6. Pay Your Student Loans
If you’ve taken out loans for university, your debt could be dragging you down. Depending on the institution you borrowed from, you could be paying a much higher rate than any investment would return to you.
Private loans carry the highest interest rates. While you might not be able to afford to pay it all off now, you should find a way to refinance. That could save you some money on payments and lower the amount of money you’ll be paying on interest.
While this might not seem like an investment, it actually clears the path for you to make smart investment decisions in the future. Having your money tied up in monthly payments prohibits you from taking any worthwhile investment risks.
7. Pay Off Your Credit Cards
If you’ve got a lot of credit card debt hanging over your head, it’s time to deal with it. Much like student loans, having a payment to make every month will make it hard to find money to invest.
None of the best investment options will be available to you if you’re constantly paying 12-20% or more on purchases made a year ago.
Best Investment Options Require Some Risk
If you don’t have any money to spare, the best investment options aren’t available to you.
Without the right budget, investment and savings might seem light years away. In order to have the kind of later adulthood and retirement that you want to have, it’s important to start making smart decisions now with your money.
If you’re interested in other ways to make the best of your financial future, check out our list of money-saving tips.