Untold opportunities await you in the world of investing. Photo: Flickr user Klearchos Kapoutsis.
We all want to take advantage of the best investment opportunities out there, but if you're relatively new to the investing arena, it can be a bit confusing trying to sort out the countless asset classes, account types, and investing strategies. Here's a quick review of three of the best kinds of investment opportunities.
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Choose retirement accounts
First off, though you can open a regular brokerage account for yourself at any good brokerage, or invest directly in a mutual fund through the mutual fund company, be sure to take advantage of the retirement accounts available to you first, as they offer some tax advantages and can help you grow a nest egg for retirement.
Through your job, for example, you might be able to contribute to a 401(k), 403(b), or similar account, and your employer may even chip in some matching dollars. If matching funds are available, contribute as much as you need to reach the maximum -- that's free money! On top of that, your money grows tax-deferred until you withdraw it in retirement, when it's taxed as ordinary income. You're limited in how much you can contribute to a 401(k) or 403(b) fund each year, and for 2014, the limit is $17,500, plus $5,500 for those 50 or older.
Then there are IRAs. The two main kinds are the traditional and the Roth, both of which limit you to $5,500 in contributions for 2014, plus $1,000 for those 50 and up. With a traditional IRA, you contribute money on a pre-tax basis, so the value of your contributions is subtracted from your taxable income, thereby reducing the tax you pay now. The Roth IRA, meanwhile, accepts only post-tax contributions, so you get no tax break up front. But if you follow the rules, it's withdrawn in retirement completely tax-free. Either way, these retirement accounts both allow your savings to grow tax-deferred. That's a huge advantage, so you should make use of an IRA if you can.
Next, what should you invest in? For those of use who are at least a decade from retirement, it's hard to beat the stock market for wealth-building. Check out this data from Wharton Business School professor Jeremy Siegel, who has calculated the average returns for stocks, bonds, bills, gold, and the dollar between 1802 and 2012:
Source: Stocks for the Long Run.
It's clear that over the very long run, stocks outperform bonds. What about over shorter periods? Well, check out these statistics from Siegel, reflecting how often stocks outperformed bonds over various rolling periods between 1871 and 2006:
Source: Stocks for the Long Run.
It can be smart to keep some money in bonds, but your dollars are likely to grow fastest over the long run in stocks.
Choose dividend-paying stocks
Finally, know that while you can fulfill your stock market investing needs with a simple and inexpensive broad-market index fund such as the Vanguard Total Stock ETF or the Vanguard Total World Stock ETF , you might also want to add a little extra oomph to your portfolio with some individual stocks. If so, consider dividend-paying companies.
Dividends are a great investing opportunity, because as long as they're being paid by a healthy and growing company, you'll be collecting them in rising and falling markets alike, and they will likely be increased regularly, too. A dividend is a sign that a company is confident in its ability to generate cash -- at least enough to cover its dividend obligations.
Dividend-paying companies also tend to be mature and are often familiar to everyday consumers, which is a good thing in investing. You want to have a handle on the company, how it makes money, and its competitive position. Some appealing dividend-payers these days include Ford Motor Company , recently yielding 3.2%; Verizon Communications , yielding 4.5%; and Las Vegas Sands , yielding 3.4%.
Ford is profiting from rising auto sales over the past few years, and many are anxiously awaiting sales numbers for its new aluminum-bodied F-150. (The F-150 is the top-selling vehicle not only for Ford, but the entire North American continent.) Ford's stock has pulled back recently, in part because of weakness in Europe and currency issues in Latin America, but it's doing well in its key markets of North America and China. The expense of many new product launches is weighing it down a bit in the near term, but those new products, including a new Mustang, should serve it well in the long run.
Verizon Communications has been outperforming AT&Tin wireless revenue and new subscriber growth in 2014, and it also boasts higher operating margins than its rivals. It also now owns the only nationwide 4G LTE network, which should help it continue to generate gobs of free cash flow (recently topping $15 billion annually). Meanwhile, AT&T has been cutting prices to attract more customers, while Verizon has been doing less of that and is thereby positioned to reap greater profits.
Las Vegas Sands has been hurt by weakness in Las Vegas and a slowdown in the large and crucial market of Macau, but it remains well positioned to profit in the long term from gamblers around the world. Revenue, earnings, and profit margins have been growing, as has free cash flow, which is approaching $4 billion annually. The company recently hiked its dividend by 30%, and it plans to buy back some $2 billion of stock. It has been building more properties in an effort to attract more mass-market gamblers.
Tax-advantaged retirement accounts, the stock market in general, and these three companies specifically all make solid investment opportunities.
The article 3 Investment Opportunities to Take Advantage of Now originally appeared on Fool.com.
Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, ownsshares of Ford and Verizon Communications. The Motley Fool recommends and owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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