10 Best Types of Investment Vehicles

There are many types of investment vehicles that you can add to your portfolio to earn income from different assets. Diversifying your portfolio also helps you manage risk by reducing reliance on a single asset, such as stocks or real estate.

You may consider investing in several of these ideas to have multiple income streams from traditional and alternative assets. Many opportunities are easy to start since several platforms offer fractional investing, which lets you begin with a small portfolio balance.

Top Investment Vehicles

These investment vehicles have different income potentials, risk levels, and liquidity. You may utilize several of these for short-term and long-term ways to earn passive income. 

Note: These options are listed alphabetically. You should perform your due diligence before investing in any of these opportunities. 

1. Bonds

Investment-grade corporate and government bonds are one of the most common investment vehicles for investors with a conservative risk tolerance level. This asset has less downside risk than stocks but offers significantly lower growth potential.

You can earn a fixed income from bonds through recurring dividends. There are several ways to invest in bonds, including bond mutual funds in your retirement account or small-business bonds through Worthy Bonds. 

Another option is to buy U.S. Treasury bonds that pay a fixed yield until maturity. This yield can be higher than that of savings accounts with variable interest rates. 

While bonds are relatively low-risk, they are unlikely to outperform the stock market over the long term. Additionally, bond ETFs and mutual funds can have fluctuating share prices.

2. Certificates of Deposit (CDs)

A bank certificate of deposit (CD) can be easier to purchase than individual bonds because the minimum investment is usually between $100 and $1,000. As a result, the yields are competitive and potentially higher.

You can build a CD ladder of short-term and long-term bonds to get exposure to different rates. This strategy can also help you earn a higher interest rate for longer when future CD yields are lower than current yields.

Typically, CDs with longer terms have higher yields because you commit your funds for a longer period. However, you cannot redeem your deposit early unless you forfeit several months of interest income.

Another alternative is a no-penalty CD that you can request a redemption as soon as seven days after funding your account.

3. Exchange-Traded Funds (ETFs)

An exchange-traded fund (ETF) can be one of the more desirable investment vehicles compared to individual stocks since you can get exposure to multiple companies with a similar investment amount.

A single fund can hold from a few hundred to a few thousand positions.

An ETF can invest in these assets:

• Stock index funds (i.e., S&P 500 or the Russell 2000)
• Industry sectors (i.e., healthcare, tech, industrials)
• Bonds (corporate and government)
• Real estate
• Precious metals
• Commodities

The minimum investment can be the current cost of a single share. Additionally, many investing apps offer fractional investing with a minimum of either $1 or $5.

Earning dividend income from these funds is also possible when the underlying companies reward shareholders.

4. Health Savings Account (HSA)

A health savings account (HSA) is a tax-advantaged way to save for future medical-related costs for you and your family. It’s similar to a 529 college savings plan, but it’s for your health. 

First, you receive an upfront tax deduction for the contribution amount. Next, you can make tax-free withdrawals when using your funds for most medical treatments and supplies.

You’re eligible to open an HSA if you have a high deductible health plan (HDHP) through your employer or a government-run health insurance exchange. Consider looking for HSA-eligible health plans during open enrollment.

There are several HSA providers with many similar investment options. A portion of your account balance will be used for interest-bearing accounts to cover short-term medical needs. Then, you can invest your long-term assets into stocks and ETFs with more growth potential. 

5. Individual Stocks

Setting aside a portion of your portfolio for dividend stocks or companies that fit a particular strategy, such as energy stocks, is also one of the most popular investment vehicles.

Selecting single stocks instead of an ETF can also help you avoid companies that don’t align with your goals. Individual stocks are easy to invest in, as many online brokerages are commission-free and provide fractional shares. 

You may also appreciate this asset class because you can hold stocks for as little as a few hours or for multiple decades. In addition, it’s possible to make money from share price appreciation, and many companies award dividends. 

There are also many stock research sites that can help you compare your investment options and be more knowledgeable about the potential risks and rewards of purchasing certain stocks.

6. Money Market Accounts

A money market account can be an excellent alternative to high-yield savings accounts and bank CDs for parking your short-term cash and earning a competitive interest rate. 

Most accounts have a low or no minimum initial deposit requirement and no ongoing balance thresholds. This product is FDIC-insured for up to $250,000 and usually doesn’t charge account service fees.

Similar to a savings account, the interest rate is variable, and you can quickly transfer funds between short-term investments to chase a higher yield. As you earn a higher interest rate, you can make up to six withdrawals per month. 

Your bank may also provide a debit card and checks to pay bills, but a free checking account remains a better option for this task.

7. Mutual Funds

Depending on your investment account type and brokerage, you might be able to invest in mutual funds. This offering is similar to an ETF in that it invests in multiple stocks or bonds, but the share price updates only once a day, after the market closes. 

It’s common for mutual fund investors to build the 3-Fund Portfolio to get exposure to most stock and bond sectors. This investment strategy also has low fees and is easy to rebalance as your risk tolerance adjusts.

You may also consider a target-date retirement fund that holds stocks and bonds. It can have a low minimum investment and automatically becomes more conservative as retirement approaches.

There are also mutual funds that try to beat the stock market or its investment benchmark. However, these funds have a higher expense ratio due to frequent portfolio rebalancing.

8. Precious Metals

Many investors like to invest in gold and other precious metals, including silver, platinum, and palladium, as alternatives to stocks, bonds, and other assets. 

In particular, gold and silver are popular inflation hedges because they have served as stores of value for thousands of years. People tend to buy precious metals when there is uncertainty in the stock market or when they want to convert fiat currency into a physical asset.

To buy physical gold or silver, you can purchase coins or bars. Your cost is the metal’s current spot price plus the exchange premium. The premium goes up when demand is high, which can make it harder to sell your asset for a profit because the spot price must rise more.

If you don’t want to store a physical asset, several precious metals ETFs are linked to the spot price. You won’t own the metal, and most don’t earn dividends or royalties.

9. Real Estate

There are several avenues to invest in real estate.

These include:

• Crowdfunded real estate
• Farmland
• Real estate stocks and REITs
• Owning rental property

The investment minimum and management requirements for these investment vehicles differ by strategy. Stocks and REITs can offer the lowest minimum investments and holding periods, but can be more volatile.

Real estate crowdfunding sites are growing in popularity since you can earn competitive returns on commercial and multifamily real estate without managing the property.

However, you must usually hold your shares for at least 5 years to avoid early-redemption penalties. Buying rental properties is the most expensive and time-consuming option since you’re responsible for maintenance and screening tenants. 

10. Retirement Accounts

An individual or workplace retirement account lets you invest and only pay taxes once on the balance. Whether you pay taxes upfront or at withdrawal depends on the account type.

Your retirement plan options include:

• Traditional 401 (k), 403b, 457, and TSP: Initial contributions are tax-deductible, but you pay taxes on the withdrawal amount. 
• Roth 401 (k), 403b, 457, and TSP: Initial contributions are tax-free at withdrawal, but any employer matching contributions are tax-deferred. 
• Traditional IRA: Your contributions are tax-deductible but subject to taxes at withdrawal. 
• Roth IRA: Your contributions grow tax-free, and you can invest in stocks and bonds through your preferred individual brokerage.
• Self-Directed IRA: Invest in alternative investments and have either a traditional or Roth IRA tax treatment.
• Solo 401k: A retirement account similar to a traditional 401k for small business owners.

Each plan has different investment options, fees, and contribution limits. IRAs tend to offer the most flexibility and lowest fees but have lower limits than employer-sponsored plans.

How to Monitor Your Investments

A net worth tracker can be the easiest way to track your investment performance and current portfolio value across multiple accounts and asset classes.

Several of these services are free, including Empower (previously Personal Capital), and offer additional financial planning tools. 

For hands-on monitoring of stocks and funds, consider a portfolio analyzer. This will track your holdings, suggest changes to your asset allocation, and offer model portfolios to manage risk.

Learn more: Empower Retirement App Review (formerly Personal Capital)

Summary

Owning multiple investment vehicles provides more ways to practice risk management and earn investment income. You may also be able to generate monthly income in addition to benefiting from appreciating asset prices. 

In most cases, it’s possible to invest small amounts of money so that you can get exposure sooner while maintaining a diversified portfolio.