Smart Ways to Invest Your Money This Year

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published 13 January 2024

With the S&P 500 index of the largest U.S. stocks rising about 26% on a total return basis (price change plus dividends) in 2023, many folks are looking for smart ways to invest in 2024.

But as the old saying goes, past performance is no guarantee of future returns. It's important to take stock of the current economic environment as well as your personal risk tolerance before plowing your hard-earned cash into what's popular.

The good news is that there are plenty of smart ways to invest your money this year. In fact, for most investors with a modest amount of cash, it's easier than ever before to put just a few hundred dollars to work and improve your personal finances significantly.

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Smart ways to invest your money: CDs

With the recent increase in interest rates, it's easier than ever before to tap into safe returns that are nearly guaranteed. One of the most rock-solid options out there is a CD, or certificate of deposit. CDs are similar to high-yield savings accounts – these vehicles are basically just bank accounts where you get a fixed rate of return – only can't withdraw your money before a deadline without penalty.

"For disciplined consumers, CDs can be a great way to set aside money while earning higher interest rates on their balances," writes Kiplinger contributor Seychelle Thomas in her feature on whether or not CDs make a good investment. "However, it's critical to have a readily accessible form of savings even if the rates aren't as high compared to a CD."

If you don't need your cash immediately, a 1-year CD can offer as much as a 5.5% return right now. Rates, minimum deposits and durations may vary, so make sure to shop around for the best option that fits for you.

Smart ways to invest your money: Bond funds

If you want more "liquid" interest-bearing assets that are low-risk, bonds are a good option. Bonds are investment vehicles where investors give some cash to governments or corporations in exchange for repayment plus interest. Think of it as you, the investor, acting as the bank, and getting paid for the service of loaning out your money.

Rather than do the research for individual bonds, many investors prefer bond funds – which can include both traditional mutual funds or bond ETFs (exchange-traded funds). Both of these options are baskets of hundreds or even thousands of bonds, offering built-in diversification and a structured way to invest your money on Monday but get it back out on Tuesday if you really need it.

The largest bond fund at present is the Vanguard Total Bond Market ETF (BND), with more than $300 billion in total net assets. As the name implies, it holds a wide array of bonds from corporate debt to U.S. Treasury bonds to mortgage-backed securities.

There are other more tactical options, but with almost 11,000 individual bonds in BND, you get easy access to the totality of this marketplace in a single holding. Right now, this Vanguard bond fund yields 4.3% – meaning the investment offers a slightly smaller rate of return than CDs, but more flexibility.

BND also trades as a mutual fund, the Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX). It requires a $3,000 initial investment.

Smart ways to invest your money for growth: Stocks

If CDs are all but guaranteed to give you your principal investment back, and bonds offer low volatility but more liquidity, stocks round out the list of smart ways to invest your money with a more aggressive but also potentially more profitable option to invest your money.

Stocks are investment stakes in publicly traded companies. And unlike the prior two options, stocks don't deliver a fixed rate of return. Instead, they generally deliver profits by appreciating in value based on those companies achieving better results.

The big success story many folks talk about is Tesla (TSLA). If you invested just $1,000 in its stock on the first day it traded back in 2010, you would have about $140,000 today! Of course, predicting future performance is easier said than done. There are plenty of horror stories, too. Some companies ultimately do go bankrupt and investors lose everything.

So, as with bonds, the safer route is typically to invest in a diversified basket of stocks via an ETF or mutual fund. The largest and most popular vehicle out there is the SPDR S&P 500 ETF Trust (SPY) with almost $500 billion in assets. Tied to the popular S&P index of the 500 largest U.S. stocks that includes Apple (AAPL) and other popular names, this S&P 500 ETF gives you exposure to the biggest companies on Wall Street in one holding that's easy to buy and sell.

Just remember that stocks are much riskier than bonds or CDs. So make sure you assess your own goals and risk tolerance before investing in SPY or any other stock market investment.

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Jeff Reeves writes about equity markets and exchange-traded funds for Kiplinger. A veteran journalist with extensive capital markets experience, Jeff has written about Wall Street and investing since 2008. His work has appeared in numerous respected finance outlets, including CNBC, the Fox Business Network, the Wall Street Journal digital network, USA Today and CNN Money.