Investors with a very short time horizon, low risk tolerance and/or no need or desire for long-term after-tax investment returns that exceed inflation can simply put their money in a cash-like alternative such as a savings account, bank certificate of deposit (CD), money market fund or short-term Treasury bills.

But those who need -- or desire -- to earn attractive after-tax returns that exceed inflation and create real long-term wealth for themselves and their families will have to take on more risk.

While there are a few other ways to earn attractive after-tax, after-inflation returns that we will discuss shortly, stocks and ETFs have several significant advantages that typically make them the easiest ways to achieve attractive returns on your savings and enable you to access that savings when you need it.

With a few key principles we will detail in this guide, you can invest quickly and easily in good stocks and ETFs with relatively low risk. And you can sell stocks and ETFs quickly and easily to access your savings whenever you need it (unless it is in a retirement account, in which case there may be tax penalties for withdrawing money).

Other vehicles for generating attractive returns on your savings- such as starting a business, investing in real estate or trading futures and options- are generally more difficult, complicated, risky, time consuming and/or illiquid (meaning you cannot quickly and easily sell them for cash). Nevertheless, let’s look more closely at these alternatives...

Starting a business can be a great way to generate attractive returns on your savings and create wealth, but it is obviously a major and risky undertaking. If you have a great business idea and passion for it, then- by all means- go for it! However note that 50% of businesses typically fail within their first five years. And if they succeed, they usually require lots of hard work, time and stress. It is not easy to “cash out” of a business, unless you have taken it public on a stock exchange and can easily sell shares. Selling a business is usually very time consuming and the value you get for the business can be far lower than you might expect.

Real estate investing is similar to starting a business, but is typically somewhat easier, less time consuming, less risky and less illiquid. But it does require specialized knowledge of how to value real estate, how to buy and sell real estate, how to finance it with a mortgage, local real estate market conditions, how to rent it out on a steady basis with limited vacancies, how to repair and improve a house or building, etc. It is not something that can easily be done in one’s spare time. Also, real estate can be very illiquid, particularly during a recession, when you may need the money most or want to exit a losing real estate investment.

Unlike starting a business or investing in real estate, financial derivatives like futures and options are highly liquid- just like stocks and ETFs- but they are generally more complicated, risky and require more specialized knowledge than investing in stocks and ETFs. 

Futures generally require lots of leverage (i.e., borrowing), which presents an additional set of complications that are not necessary when investing in stocks and ETFs, such as margin calls when the investment goes against you. Also, futures contracts expire and need to be rolled over into new contracts to maintain a position.

Options can be very complicated and volatile...but the worst feature of options is that they operate to a kind of deadline, expiring worthless when they reach what is known as their expiration date. That means you can lose up to your entire investment in an option if the price doesn’t move as far in the direction you hoped it would in the time required before expiration day. The options trader needs to be right about the direction and magnitude of a price move...AND the order to not lose up to the entire investment in an option. Stocks and ETFs have no expiration date, so you have much more flexibility and time to reach your investment objectives with them. This is why futures and options are generally best left for professional derivatives traders.

For a more detailed discussion of investing in Stocks and ETFs, please see our free Special Report titled “How To Invest For Bull And Bear Profits."

Investing Insights
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