Investment Cheat Sheet: Choosing an Investment That Fits You
As a Certified Financial Planner™, one of the most common questions I get is:
“What’s the best investment for me?”
The truth? Choosing an investment has no one-size-fits-all answer. The “right” investment depends heavily on your goals, time horizon, risk tolerance, and even tax situation. But if you’ve ever felt overwhelmed by all the investment options out there (mutual funds, annuities, ETFs, and more) you’re not alone.
CHOOSING AN INVESTMENT: THE BREAKDOWN
This cheat sheet breaks down some of the most common options for choosing an investment, with a quick look at who they might be right for.
1. Mutual Funds
WHAT IS A MUTUAL FUND? A mutual fund is like a big basket of investments that lots of people put their money into together.
Imagine you and a group of people all want to invest, but you don’t know which stocks or bonds to buy, or you don’t want to do all the research yourself. So, you all chip in some money, and a professional (called a fund manager) uses that pooled money to buy a mix of investments, like stocks, bonds, or other assets.
You own a small piece of everything the fund owns. As the value of those investments goes up or down, the value of your portion goes up or down too.
It can be a simple way of choosing to invest in many things at once, without needing to pick individual stocks yourself.
Best for:
- New investors looking for diversification
- Retirement accounts like 401(k)s or IRAs
- Those who don’t have the time, interest, or experience to pick their own investments.
- Those that want to spread out risk.
- Long-term goals (5+ years)
WHY THEY CAN WORK: Professional management and built-in diversification can make mutual funds a solid foundation for many portfolios.
2. Exchange-Traded Funds (ETFs)
WHAT IS AN ETF? These funds are a lot like a mutual fund (it’s a basket of investments) but you buy and sell the fund like a stock.
Think of it like a pre-packed grocery basket. Inside the basket are many items (stocks, bonds, or other investments), and the whole basket is sold as one unit. When you buy an ETF, you’re buying a small share of everything in that basket.
Unlike mutual funds, which are usually priced just once a day, ETFs trade on the stock market. That means you can buy or sell them throughout the day, just like you would with shares of a company.
In short: ETFs can be a simple way to invest in lots of things at once, with the flexibility of buying and selling them during the day.
Best for:
- Cost-conscious investors
- Those managing their own taxable brokerage accounts
- Those wanting a passive account (not actively managed by a fund manager)
- Those comfortable managing their own portfolio
WHY THEY WORK: ETFs often have lower fees and may have higher tax efficiency compared to mutual funds, making them a popular choice for DIY investors.
3. Fixed Annuities
What they are: A fixed annuity is like a contract with an insurance company where you give them money now, and they promise to pay you a steady, guaranteed income later.
It’s kind of like buying yourself a personal pension.
Choosing a fixed annuity is selecting an investment that gets you paid right away (with an immediate annuity) or grows your money with payments coming later (with a deferred annuity). The key word is “fixed” which means your income or interest rate is locked in and guaranteed, no matter what happens with the stock market.
In other words:
- You give the insurance company a chunk of money.
- They grow it at a set interest rate, or promise to pay you a certain monthly amount.
- It’s steady, predictable, and usually used for retirement income.
Best for:
- Conservative investors near or in retirement
- People looking for guaranteed, predictable income
- Those concerned about market volatility
- Those looking to supplement other sources of retirement income
- Those wanting a “Set it and forget it” option
WHY THEY WORK: Fixed annuities can offer confidence, especially when you want to reduce risk in your later years. Watch for surrender charges and make sure you understand the contract terms.
4. Variable Annuities
WHAT ARE VARIABLE ANNUITIES? Insurance products that allow you to invest in sub-accounts (like mutual funds) while also offering features like increased death benefits or income guarantees.
Best for:
- Investors seeking tax-deferred growth outside of retirement accounts
- Those who want optional lifetime income riders
- People okay with higher fees for added guarantees
WHY THEY WORK: They offer a mix of investment growth potential and protection, but they’re complex and usually come with higher fees. They’re best suited for specific goals, not general investing.
5. Individual Stocks
WHAT ARE INDIVIDUAL STOCKS? A stock is a small piece of ownership in a company. When you buy a stock, you’re choosing an investment in the form of a tiny share of that company. If the company does well (makes money, grows, becomes more valuable), the stock usually goes up in value, and you might earn money when you sell it. If the company struggles, the stock can go down and you can lose money when you sell it.
Some stocks also pay you a portion of the company’s profits, called dividends. Stocks let you invest in companies, and your money grows (or shrinks) based on how those companies perform. They offer higher growth potential than safer investments, but also come with more risk.
Best for:
- Experienced investors who want to build their own portfolios
- People with a higher risk tolerance
- Those interested in specific sectors or companies
- Long-term investors who can handle the ups and downs
WHY THEY WORK: Stocks offer unlimited growth potential, but also come with volatility. Can be used to complement a broader, more diversified strategy.
6. Bonds
WHAT ARE BONDS? A bond is like a loan you give to a company or government, and they pay you back with interest.
Imagine your friend needs to borrow $100 and promises to pay you back in a few years with interest. That’s basically how a bond works.
When you buy a bond, you’re lending money to a business, city, or government. In return, they agree to pay you regular interest (like a thank-you payment), and then return your original amount at a set date in the future.
Bonds are a way to earn steady income with less risk than stocks, but usually with lower returns.
A few key points:
- You’re the lender, not the owner.
- You get predictable income from interest payments.
- When the bond “matures” (ends), you get your original money back as long as the borrower doesn’t default.
Best for:
- Income-focused investors
- People nearing retirement who want lower volatility
- Balancing out stock-heavy portfolios
- Those looking for steady, predictable income
WHY THEY WORK: Bonds can help reduce overall portfolio risk and provide income. The trade-off? You’re choosing an investment with lower returns compared to stocks, especially during inflationary periods.
7. Target-Date Funds
WHAT IS A TARGET DATE FUND? A target date fund is an all-in-one investment designed to help you invest into a portfolio that becomes more conservative until a specific year (usually the year you plan to retire).
You pick the fund based on when you want to start using the money (like “Target 2050” if you plan to retire around 2050). The fund automatically adjusts the mix of investments over time, starting with more stocks for growth when you’re younger and gradually shifting to safer investments like bonds as you get closer to that date.
It’s like having a personal investment plan that changes for you as you get older. They are designed to have more risk early on to grow your money, then more conservative investments later to help mitigate risk.
Best for:
- Retirement savers who want a “set it and forget it” option
- 401(k) participants
- Investors looking for simplicity
- Those who prefer automatic adjustments based on time
WHY THEY WORK: These funds gradually shift from growth-oriented to conservative as your retirement approaches, aligning with your time horizon.
The Bottom Line for Choosing an Investment
There’s no magic investment that works for everyone, but there can be one or a combination that’s likely right for your situation. Think of investing like building a toolbox: each investment has its own job. The key is choosing the right tools for your goals.
Now that you know the options, how do you start choosing an investment? That’s where a comprehensive financial plan comes in. Whether you’re just starting out or re-evaluating your portfolio, a personalized approach often has the potential to perform better than a generic one.
Want help building your investment plan? Let’s talk. We can assist to cut through the noise and build a strategy that fits your life, not just the market trends.
Nichole Coyle, CFP®, CSLP®
Managing Partner, Financial Planner
2300 St. Clair Ave NE
Cleveland, OH 44114
216.621.4644 x1607 office
330.607.2213 cell
nichole@impactcfp.com
Securities and advisory services offered through Cetera Advisor Networks LLC, member FINRA/SIPC, a Broker-Dealer, and a Registered Investment Advisor.
Cetera is not affiliated with the financial institution where investment services are offered or any other named entity.
Investments are: Not FDIC/NCUSIF insured * May lose value * Not financial institution guaranteed * Not a deposit * Not insured by a federal government agency.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
Investing in mutual funds is subject to risk and loss of principle. There is no assurance or certainty that any investment strategy will be successful in meeting its objectives.
Investors should consider the investment objectives, risks and charges, and expenses of the funds carefully before investing. The prospectus contains this and other information about the funds. Contact Nichole Coyle at 2300 St. Clair Ave NE Cleveland, OH 44114 or 234-529-1083 to obtain a prospectus, which should be read carefully before investing or sending money.
Exchange traded funds (ETFs) and mutual funds are sold only by prospectus. Investing in ETFs and mutual funds is subject to risk and potential loss of principle. ETFs in car, trading and commission cost similar to Stocks and frequent training cannot gate the lower cost structure of an ETF. There is no assurance or certainty that any investment or strategy will be successful in meeting its objectives. Investors should consider the investment objectives, risk and charges, and expenses of the fund carefully before investing. The prospectus contains this and other important information about the fund. Contact a registered representative of the issuing company to obtain a prospectus, which should be read carefully before investing or sending money.
Index annuities are insurance contracts that, depending on the contract, they offer a guaranteed annual interest rate, and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, cost of guarantees and features, and make out participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company, not an outside entity. Investors are cautioned to carefully review an index annuity for its features, costs, risks, and how the variables are calculated.
Variable annuities: there is a surrender charge and pose generally during the first 5 to 7 years that you own the contract. Withdrawals prior to age 59 1/2 may result in a 10% IRS tax penalty, in addition to any ordinary income tax. The guarantee of the annuity is backed by the financial strength of the underlying insurance company. Investment sub account values will fluctuate with changes in market conditions.
An investment in a variable annuity involves investment risk, including possible loss of principle. Variable annuities are designed for long-term investing. The contract, when redeemed may be worth more or less than the total amount invested.
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