Nasdaq 100 index funds
An index fund based on the Nasdaq 100 is a great choice for investors who want to have exposure to some of the biggest and best tech companies without having to pick the winners and losers or having to analyze specific companies.
The fund is based on the Nasdaq’s 100 largest companies, meaning they’re among the most successful and stable. Such companies include Apple and Amazon, each of which comprises a large portion of the total index. Microsoft is another prominent member company.
A Nasdaq 100 index fund offers you immediate diversification, so that your portfolio is not exposed to the failure of any single company. The best Nasdaq index funds charge a very low expense ratio, and they’re a cheap way to own all of the companies in the index.
Risk: Like any publicly traded stock, this collection of stocks can move down, too. While the Nasdaq 100 has some of the strongest tech companies, these companies also are usually some of the most highly valued. That high valuation means that they’re likely prone to falling quickly in a downturn, though they may rise again during an economic recovery.
Liquidity: Like other publicly traded index funds, a Nasdaq index fund is readily convertible to cash on any day the market is open.
Rental housing
Rental housing can be a great investment if you have the willingness to manage your own properties.
To pursue this route, you’ll have to select the right property, finance it or buy it outright, maintain it and deal with tenants. You can do very well if you make smart purchases.
However, you won’t enjoy the ease of buying and selling your assets with a click of the mouse. Worse, you might have to endure the occasional 3:00 a.m. call about a broken pipe.
But if you hold your assets over time, gradually pay down debt, and grow your rents, you’ll have a powerful cash flow when it comes time to retire.
Risk: As with any asset, you can overpay for housing, as investors in the mid-2000s quickly found out. Also, the lack of liquidity might be a problem if you ever needed to access cash quickly.
Liquidity: Housing is among the least liquid investments around, so if you need cash in a hurry, investing in rental properties may not be for you. On top of this, a broker may take as much as a 6 percent cut off the top of the sales price as a commission.
Municipal bond funds
Municipal bond funds invest in a number of different municipal bonds, or munis, issued by state and local governments.
Earned interest is generally free of federal income taxes and may also be exempt from state and local taxes.
According to the Financial Industry Regulatory Authority (FINRA), muni bonds may be bought individually, through a mutual fund or an exchange-traded fund (ETF). You can consult with a financial adviser to find the right investment type for you, but you may want to stick with those in your state or locality for additional tax advantages.
Municipal bond funds are great for beginning investors because they provide diversified exposure without the investor having to analyze individual bonds. They’re also good for investors looking for cash flow.
Risk: Individual bonds carry default risk, meaning the issuer becomes unable to make further income or principal payments. Cities and states don’t go bankrupt often, but it can happen. Bonds may also be callable, meaning the issuer returns principal and retires the bond before the bond’s maturity date. This results in a loss of future interest payments to the investor.
Choosing a bond fund allows you to spread out potential default and prepayment risks by owning a large number of bonds, thus cushioning the blow of negative surprises from a small part of the portfolio.
Liquidity: You can buy or sell your fund shares every business day. In addition, you can typically reinvest income dividends or make additional investments at any time.
