Should I Pay Off Debt First or Start Investing?

Types of Investments to Choose

Once you make the decision that investing is in your best financial interest, the next step is figuring out what investment strategy is the best for you. This is a highly personal decision based on the amount of risk you feel comfortable with, the amount you have to invest, and how soon you will need to access your funds.

You may decide to go with a combination of some of these investments to diversify your portfolio. Consider which options may align with your values and your budget.

Certificates of Deposit

For those who want to play it safe with their investment, you can invest your money in a certificate of deposit (better known as a CD) at your bank. The benefit to this investment opportunity is that your principal investment is protected and you earn a guaranteed interest rate.

Unlike the stock market that can be highly volatile, your money is safe in this investment.

Unfortunately, you won’t earn much for this safe investment strategy. Compared to riskier investments such as purchasing stock, you will see a much lower rate of return on a CD.

In most cases, you will earn just a fraction of a percent and your money is tied up for a set period of time. For example, you can sign up for a one-year CD or a five-year CD. If you decide you need that money before your agreed-upon time is up, you will have to pay an early withdrawal penalty fee that could eat away at what you might have earned.

High-Yield Savings Accounts

While a CD may tie up your money for years, you might be more interested in the liquidity of a high-yield savings account. This is another safe option for those looking to invest but worried about losing their money. As long as you choose an FDIC-insured bank, your money is safe in this type of savings account.

You will earn interest on the money placed inside this account, but the rates may be a bit lower than those seen with CDs. Online banks typically offer higher interest rates than brick and mortar locations.

On the other hand, the major benefit to this account is that you have immediate access to your funds if you need them. Some banks may limit you to six withdrawals per statement period, but aside from this, the money is available whenever you need it. This is a good option for storing your emergency fund.

Bonds and Bond Funds

Another relatively safe investment opportunity is bonds or bond funds. These are essentially an I.O.U. to repay debt from a borrower to an investor. In general, the borrower is typically a corporate company or the government.

The bond is issued with a specific end date when the principal of the loan is scheduled to be repaid by the borrower along with interest payments in exchange for the loan.

This is a good investment strategy if you are relatively risk-averse, particularly if you invest in US Treasury bonds. The only way to lose your investment in these bonds would be if the government became insolvent, a highly unlikely situation. Corporate bonds may be a bit riskier, but they also have a higher interest rate or yield.

Exchanged-Traded Funds (ETFs)

Do you have very little time to consider your investment opportunities? Exchange-traded funds are great for investors who want a more passive investment strategy. These funds follow a specific industry or index and help you invest your money in a number of different things at one time.

All you have to do is buy shares of a specific ETF. Much like buying stock, you will want to buy and hold your shares for long-term investments.

The benefit of an exchange-traded fund is that you can choose what you want to invest in. There are funds geared toward specific types of stock such as international, large-cap, or small-cap. You can also invest in a variety of short-term or long-term bonds. The possibilities of what you can invest in with an ETF are practically endless.

Another benefit is how convenient it is to diversify your portfolio this way. Instead of spending your time researching individual stocks for investment, you can choose one specific ETF and gain access to a variety of assets.

Automated Investing or Robo-Advisors

Another key investment strategy is to enroll with a robo-advisor for automated investing. While this is not exactly a specific type of investment, it is more of a hands-off style that makes it easy for you to diversify your portfolio and spend very little time actively managing your investments.

A good robo-advisor will start out by asking you some questions about your investment goals, your tolerance for risk, and when you plan on accessing the funds (for example, if you are using them to save for retirement, you might need access to the funds twenty years from now).

They create portfolios based on your risk tolerance with many of them being labeled by their risk tolerance. For instance, they may have a conservative portfolio and an aggressive portfolio.

This is actually how I choose to invest my own money. My robo-advisor selected an aggressive portfolio for me since I am still rather far from retirement.

It consists of 90 percent stocks and 10 percent bonds. The benefit of these robo-advisors is that I can also set up automatic transfers from my bank account. I schedule a small sum to transfer each payday so that I am consistently growing my investment portfolio.

Mutual Funds

A mutual fund is a great investment strategy if you want a portfolio managed by a professional who aims to generate capital gains. In a mutual fund, many investors come together and pool their money to invest in a collection of assets that may include stocks, bonds, and other types of assets. You earn a portion of the income relative to the amount that you have invested in the fund.

There are a number of benefits to this type of investment strategy. First, you receive portfolio management from an expert who curates the assets, buying and selling as necessary.

It may come at a small cost, but most investors deem this a worthwhile expense. As the mutual fund earns money, you can reinvest those dividends to purchase more shares of the mutual fund which allows your income to continue growing.

One of the main benefits is risk reduction. Each mutual fund is different, but they typically invest in 50 to 200 unique assets which diversifies your portfolio and offers some protection from the volatility of the market.


If you have a lot of time on your hands and don’t mind spending it learning the ins and outs of the stock market, you can purchase individual stocks for your portfolio. They have the potential for higher returns, but investing all of your money in just one type of stock is quite a risk.

Chances are that you will want to spread out your investment across several different types of stock and shares. That way if one of your investments daily, you’ll have many others to count on, which means your retirement or other investing goals won’t be put at as much of a risk.

Unfortunately, there are some real downsides to investing in stock. As most people know, you run the risk of losing your entire investment if you choose the wrong stock. It takes a lot of time to research and make a wise investment decision that will serve you well for the long haul.

You may feel frustrated by the constant fluctuations in stock price, making it tempting to buy and sell frequently. It can really take a toll on your emotions.


Bitcoin and other types of cryptocurrencies have surged in popularity over the past few years. This is still considered to be a relatively new investment opportunity and has proven to be quite volatile. Some lucky individuals have earned excellent gains on buying and selling their cryptocurrency compared to what they may have earned on other types of investments.

However, this extreme volatility means that you may lose money as well.

Cryptocurrency essentially is digital currency that is stored and operated on a blockchain. Miners will create coins using tons of computing power and then get paid for that transaction. They then place the coin on the open market for investors to buy.

The reason this market is so volatile is due in part its long-term stability. No one really knows if it will be valuable in ten years or tomorrow, which has led to major jumps in price and crashes over the last few years. But at the moment, investors can still use crypto to build wealth and invest, but it may emotionally drain you like a stock, so be sure you have the tolerance for an asset like this before you buy your first coin.

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Making Wise Investment Decisions

Even if you still have some debt to pay down, it might be in your best interest to consider starting an investment portfolio as well. It is always wise to start setting aside small amounts of money toward retirement as it can really add up over time. However, it might be best to focus primarily on paying down debt if you have a high interest rate or a high credit utilization rate.

Be sure to set aside an emergency fund as well before you start to heavily invest your extra money.

There are quite a few different investment opportunities for you depending on how you can tolerate risk and how much time you want to sink into your investment strategy.

Some yield low returns but protect your initial investment such as bonds, CDs, or high-yield savings accounts. You can even passively invest through ETFs, robo-advisors, and mutual funds. If you want a more active role, you can invest in individual stocks or cryptocurrency.

No matter how you decide to approach your investment strategy, there are lots of different options. Consider which one aligns closely with your financial goals and prepare to get started as soon as possible!

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