Here we find ourselves almost halfway through 2023 and a question to ask yourself is: are you making the most of your money?

Investments are a great way to help grow your finances long-term, but they do involve risk. In this article, we will cover some investment options and the risk/reward of each.

1. Growth stocks

Overview: In the world of stock investing, growth stocks usually promise high growth and along with it, high investment returns. Growth stocks are often tech companies, but they don’t have to be.

Risks:

• Volatile, you’ll want to have high-risk tolerance or commit to holding for three to five years.
• Can lose value quickly in a bear market or recession.

Rewards:

• The world’s biggest companies – the Alphabets and the Amazons – have been high-growth companies, so the reward is potentially limitless if you can find the right company.

2. Stock funds

Overview: A stock fund contains a collection of stocks, often unified by a specific theme or categorization, and will be either an ETF or a mutual fund. The fund company charges a fee for this product, but it can be very low.

A stock fund is an excellent choice for an investor who wants to be more aggressive by using stocks but doesn’t have the time or desire to make investing a full-time hobby.

Risks:

• A stock fund is less risky than buying individual positions and less work.
• If you buy a fund that’s not broadly diversified, it may not be as stable as one that is.

Rewards:

• A stock fund is going to be less work to own and follow than individual stocks
• If you buy a broadly diversified fund, then you’ll have a safer set of companies than if you own just a few individual stocks.
• You’ll get the weighted average return of all the companies in the fund, so the fund will generally be less volatile than if you had held just a few stocks.

3. Cryptocurrency

Overview: Cryptocurrency is a digital currency, which can be volatile. Its volatility is what sets it apart from traditional forms of investments. For some, this is welcomed, while others find it too risky.

Risks:

• Volatile, you’ll want to have a high-risk tolerance.
• Can lose value quickly and is not as predictable as other forms of investments.

Rewards:

• Cryptocurrencies can rise dramatically, when they do we’ve seen returns as high as 500,000% of the coin’s original value.
• Depending on your income level, crypto long-term capital gain tax could be as low as 0%.

4. Dividend stocks

Overview: Dividend stocks can achieve solid returns but typically it is not as fast or as high as other investment options. A dividend stock is one that pays a regular cash payout.

Risks:

• While dividend stocks tend to be less volatile than growth stocks, don’t assume they won’t rise and fall significantly, especially if the stock market enters a rough period.
• If a dividend-paying company doesn’t earn enough to pay its dividend, it will cut the payout, and its stock may plummet as a result

Rewards:

• Generally considered safer and less volatile
• Some top companies pay 3% to 4% annually and can raise their payouts each year

5. Target-date funds

Overview: Target-date funds become more conservative as you age, so that your portfolio is safer as you approach retirement. These funds gradually shift your investments from more aggressive stocks to more conservative bonds as your target date nears.

Risks:

• Target-date funds will have many of the same risks as stock funds or bond funds, since it’s really just a combination of the two.
• More volatile at first but can earn more
• Fluctuates less as it shifts to bonds but earns less as well. Sacrificing return for safety.

Rewards:

• Chance for high rewards from the stocks, then the safety of more predictability shifting to bonds

6. Roth IRA

Overview: A Roth IRA might be the single best retirement account around. It lets you save with after-tax money, grow your money tax-free for decades and then withdraw it tax-free.

Risks:

• A Roth IRA is not an investment exactly, but it comes with little risk of not seeing your money returned

Rewards:

• Grow your money tax-free
• On top of a tax-free withdrawal, you can invest in stocks and stock funds and enjoy their potentially much higher returns – and do it all tax-free

As with all investments, there is financial risk. However, investments can also be a great way to grow your wealth and, on occasion, grow wealth at a lower tax rate than traditional income.

We’d be happy to help you in your tax planning decisions, to discuss tax planning further give our office a call at (402) 932-8815.

Sincerely,

W.E. Stevens PC