Do you have $10,000 in spare change lying around? If so, are you wondering where to invest it?
If so, you have a veritable buffet of options in front of you. Between stocks and bonds, index funds and properties, the options available are many.
Because of how easy it is to buy and sell assets, you might feel a little overwhelmed by the choices. With so many things you can invest your money in, how could you possibly choose? There’s a bit of a “kid-in-a-candy-store” phenomenon at play here. Fortunately, it’s possible to simplify investments into a few basic categories. In this article, I will explore three things you can invest your money into in August 2023.
Option #1: Stocks
Stocks are a natural go-to for investors. Of all asset classes, they’re the one most widely discussed in the media, and they’re perhaps the most “exciting” asset class, owing to their many up-and-down swings.
Stocks can be good investments, provided that you are meticulous and thorough when researching them.
Royal Bank of Canada is a pretty successful company. It has a 28% profit margin. It also has a 14% return on equity. Over the last five years, it has compounded its revenue at 5% and its earnings at 5.3% annualized. These are respectable growth figures for a bank.
One strike that Royal Bank has against it is a relatively steep valuation for its sector. At today’s prices, RY trades at 11.85 times adjusted earnings and 12.9 times GAAP (generally accepted accounting principles) earnings. That’s cheap compared to the S&P 500 but expensive for a bank, so there is some possibility that Royal Bank will underperform its peers in the year ahead.
Option #2: Index funds
Another thing you can invest your money in is stock and bond index funds.
Consider iShares S&P/TSX 60 Index Fund (TSX:XIU). It’s an index fund based on the TSX 60 — the 60 biggest companies in Canada by market cap. With 60 stocks, it has ample diversification. With a 0.16% management expense ratio, it’s not very pricey. Finally, being managed by Blackrock, it has a very smart and responsible team behind it.
Index funds like XIU lower your risk by spreading your eggs across many baskets. They don’t deliver the kinds of explosive returns that individual stocks do in best-case scenarios, but they can perform quite well.
Last but not least, we have Guaranteed Investment Certificates (GICs). These are bond-like instruments that pay you a set amount of interest each year. This year, you can get up to 5.4% in annual interest on GICs! That’s a decent return, higher than the current inflation rate. So, if you invest in GICs today, you have a real shot at earning a positive real return. It won’t be a high real return. But with GICs being fully insured by the government, they are low-risk investments that you can rely on.