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Sometimes, investing can seem tricky, if not overly complicated. That's because there are no shortage of investment opportunities for Americans to choose from. In no particular order, you could buy:
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Stocks
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Corporate bonds
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Treasury bonds
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Banks CDs
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Real estate
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Mutual funds
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Hedge funds
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Index funds
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Exchange-traded funds (ETFs)
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Precious metals or commodities like oil
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Cryptocurrency (tread carefully)
You could also stick with a cash-equivalent investment, such as a savings account or high-yield checking account, or choose to invest your money into a business. As I said, the choices are plentiful, especially considering the number of stocks, corporate bonds, ETFs, mutual funds, and real-estate options available.
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However, the real question is: Do any of these investment vehicles actually work? In other words, do any of these investment opportunities offer a guaranteed way to make real money?
While nothing in investing can ever be a 100% guarantee, statistically, one investment opportunity has never let investors down, as long as one criterion is met.
Understanding the difference between a nominal and real return
Before we dive into that specific investment vehicle, you'll note my decision above to italicize the word "real" when discussing "real money." This is to bring your attention to the fact that while many of these investments will generate a positive nominal return, not all of them have sufficiently outperformed inflation over time. And if your investment isn't keeping pace with the rising cost of goods and services, then you're technically losing real money.
For example, bank savings accounts, bank CDs, and Treasury bonds are among the safest investments on this list. Money held in a bank is generally protected by the Federal Deposit Insurance Corporation, and the U.S. government has yet to fail to meet an interest payment or fully redeem a maturing bond.
Yet, yield often correlates with risk. Since these are very low-risk investment tools, they also have relatively low yields. Good luck finding a bank savings account at the moment that comes anywhere close to topping the existing inflation rate, according to the Bureau of Labor Statistics, of 2.9%, based on the Consumer Price Index for All Urban Consumers over the past 12 months.
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While some investment tools do offer inflation-topping potential, the results tend to be negligible. According to data found in Robert Shiller's book Irrational Exuberance, the appreciation in home prices between 1950 and 1997 outpaced the average inflation rate by (drum roll) 0.08% per year. In fact, prior to 1998, inflation-adjusted home prices were hardly above par over the previous 107 years! If you're OK with pretty much keeping pace with the inflation rate, then buying a home has done a pretty good job of doing that. But it's not going to guarantee you a real money return.