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For financial advisers – compiled by our team of experts, qualified in pensions, taxation, trusts and wealth transfer.
Taxation of corporate investments
Key points
- Companies are subject to corporation tax on income and gains from their investments
- Corporate investing can impact business property relief (IHT) and entrepreneurs’ relief (also known as business asset disposal relief) (CGT)
- Investment bonds are not subject to chargeable event legislation but are taxed under the loan relationship regime
- Some small companies can achieve tax deferment on investment growth (historic cost accounting)
- Unit trust/OEIC taxation depends on the asset mix of the fund
Jump to the following sections of this guide:
- Tax implications for business owners
- Impact on IHT relief
- Impact on CGT relief
- Investment bonds
- Unit trusts/OEICs
- Other investments
Tax implications for business owners
From time to time companies will find themselves with more capital than they need in the short term. If the company decides not to distribute the funds or utilise them within the business then it could invest rather than leaving them on deposit.
In addition to the tax on the investments themselves there may also be tax implications for the business owners.
Impact on IHT relief
Individuals who own a share of an unquoted trading business will normally qualify for * IHT business property relief (BPR) after two years of ownership. But cash built up in the company bank account or investments held within the company could be regarded as an ‘excepted asset’ and not qualify for BPR.
Cash and investments within the business will generally be excepted assets unless they have been used within the business in the previous two years and are held at the time of the transfer for a future business purpose, such as a specific project or acquisition. A business holding excepted assets could still qualify for BPR but the relief would not extend to the value of those excepted assets.
There is an added danger if the company has excessive levels of cash or investments. BPR would be lost entirely if the primary purpose of the business is deemed to be investing rather than trading. If in doubt, the business should speak to their tax advisers.
* From 6 April 2026 only the first £1 million will get 100% BPR relief on business assets, qualifying assets over £1 million will be given 50% relief.
Impact on CGT relief
Business owners may benefit from business asset disposal relief (entrepreneurs relief) on disposals of business interests. The relief is provided by a special rate of CGT of 10% on disposals up to a cumulative lifetime limit of £1 million for disposals made on or after 11 March 2020. From 6 April 2025 the rate of CGT will increase to 14% and from 6 April 2026 to 18%, on disposals up to £1 million. Like BPR, this relief is restricted to trading and not investment businesses. Holding substantial cash and other investments could contribute to a company losing its ‘trading’ status. The test for entrepreneurs’ relief is all or nothing. If cash and investments trigger a loss in relief it affects the full value of the business disposed of; not just the non-trading assets.
The legislation defines a “trading company” as a company which carries on trading activities and does not carry on other activities to a substantial extent. HMRC’s view is that substantial means more than 20%. But this isn’t simply based on the value of investments on the company’s balance sheet. It is tested across a number of factors such as time spent managing investments and revenues from non-trading activities etc. Determining whether this 20% test could be breached requires specialist tax advice.
Taxation of investments
Companies are subject to corporation tax on the income and gains they receive from the investments they make.
How company held investments are taxed will depend upon the accounting basis the company uses and the type of investment they hold.
The size and nature of a company determines the accounting standards they can use, and this should be checked with the company’s accountant.
If a trading company qualifies as a micro-entity, they can use the historic cost basis of accounting for ALL their investments (cash, investment bonds and OEICs). Historic cost accounting effectively means that tax is only payable where a withdrawal is taken in the accounting period. Companies regarded as ‘investment companies’ will not qualify as a micro-entity.
Micro-entity status means that tax deferment is possible and the company may be able to plan the timing of withdrawals to its advantage. For example, a withdrawal could be taken in a year where there are losses available to offset against the investment gains.
To be eligible for the Micro-entity regime, the company must meet two of the following criteria:
- Turnover of £632,000 or less
- Balance sheet assets of up to £316,000
- Average of 10 employees or less
For all other companies the type of investment will determine how they are accounted for and subsequently how they are taxed.
Investment bonds
A company owned investment bond or capital redemption bond is assessed for corporation tax under the loan relationship rules and not the chargeable event legislation.
Generally companies which are not micro-entities will need to use the fair value accounting basis for their bond investments. Under this basis, the investment bond is valued at its market value – i.e. the surrender value at the end of each accounting period. Any growth (or loss) over the value from the previous accounting period (the carrying value) will be included in the loan relationship account and be subject to corporation tax. There is no tax deferment as gains are taxed each year even if no withdrawals are taken.
Loan relationship example
- ABC Ltd invested £500,000 into an investment bond on 1 April 2023
- On 31 March 2024 the value was £550,000
- On 31 March 2025 it was £540,000
- The policy is surrendered on 1 Aug 2025 for £600,000
There have been no withdrawals. Assume that the company’s accounting period runs from 1 April to 31 March and that the values on 31 March and 1 April each year are identical.
Non-trading credit for 2025/26 £60,000 £100,000 Fair Value Historic Cost Value as at 31 March 2024 £550,000 £500,000 Less carrying value at 1 April 2023 (£500,000) (£500,000) Non-trading credit for 2023/24 The example illustrates how, under the fair value basis, gains and losses are assessed annually, whereas with historic cost accounting they’re deferred until proceeds are actually withdrawn from the bond.
The non-trading credits will be subject to corporation tax at the company’s applicable rate in the accounting period in which they arise. Any non-trading debits can be offset against profits in the same accounting period. If there are insufficient profits in the current year to offset the debit those losses may be carried forward and set against future profits of any kind.
Partial surrenders
When a company makes a part surrender of an investment bond, the amount withdrawn is deemed to be part of their original capital and part investment growth. As a company is not subject to the chargeable events rules, the 5% tax deferred allowance cannot be used. Neither does it make any difference if part surrenders are taken by encashment of individual segments or across the bond. The growth element of the proportion withdrawn is subject to corporation tax.
Company owned investment bonds were subject to the chargeable event legislation prior to 1 April 2008. There was a deemed surrender of such bonds but with taxation of the gain deferred until a withdrawal is taken. There’s an exemption from the loan relationship regime for investment bonds taken out by companies before 13 March 1989 that haven’t been enhanced.
Grossing up for onshore bonds
Companies are given a credit for the corporation tax deemed to have been paid within an onshore bond. The credit is not given on a year by year basis – it’s only provided when money is withdrawn from the policy.
The profit from the contract is grossed up by the 20% tax paid within the fund. For fair value the profit from the contract is the sum of all of all the non-trading credits and debits over the investment term. Any subsequent corporation tax payable by the company on its loan relationships will receive a deduction for the deemed tax paid within the fund.
Historic cost
The non-trading credit on surrender is simply grossed up by 20% to reflect the tax paid within the fund which then acts as a deduction against the corporation tax payable.
Non-trading credit on surrender £100,000 Grossed up non-trading credit £100,000 x 100/80 £125,000 Corporation tax £125,000 x 25%* £31,250 Less tax treated as paid £125,000 – £100,000 (£25,000) Tax due £31,250 – £25,000 £6,250 *This assumes the full rate of corporation tax is payable. Companies with annual profits below £250,000 will pay a reduced rate of corporation tax and just 19% if profits are under £50,000.
Fair value
It is profit over the term of the contract which is grossed up to determine the tax treated as paid. This is to reflect that the company has paid corporation tax each year without any credit given for the tax deducted from the fund.
Non-trading credit on surrender £60,000 Profit from contract £50,000 – £10,000 + £60,000 £100,000 Grossed up profit £100,000 x 100/80 £125,000 Tax treated as paid £125,000 – £100,000 £25,000 Grossed up non-trading credit £60,000 + £25,000 £85,000 Corporation tax £85,000 x 25% £21,250 Less tax treated paid (£25,000) Amount available to offset other liabilities -£3,750 Losses
Companies can offset any losses on their investment bonds against corporation tax. Losses can arise on an annual basis if the value of the bond investments has fallen over the accounting period where the fair value basis is used. Where there’s a loss, a debit will appear in the loan relationship account and is offset against any non-trading credits in the loan relationship account in the same accounting period.
If there are insufficient credits in the loan relationship account to fully offset any losses, the resulting deficit can be either:
- offset against any profits of the company in the current accounting period, or
- carried forward to the next accounting period and set against
- any company profits (losses arising from 1 April 2017 onwards), or
- non-trading profits (carried forward losses that arose before 1 April 2017)
Unit trusts/OEICs
The taxation of the income and gains on OEICs or unit trusts, for corporate investors is determined by the mix of the underlying assets within the fund.
- Where the fund manager invests greater than 60% of the fund in cash or fixed interest (such as gilts and corporate bonds), the fund will be classed as a non-equity fund and income will be treated as an interest distribution
- Where the fund contains less than 60% in cash or fixed interest, the fund will be classed as an equity fund and income will be treated as a dividend distribution
Non-equity funds
Income
Interest distributions are paid gross and will be subject to corporation tax under the loan relationship rules.Capital gains
Gains are subject to corporation tax under the loan relationship rules. Companies are taxed on realised and unrealised gains on an annual basis. Investment gains will be a non-trading credit in the loan relationship account and losses will result in a non-trading debit.Micro-entities will be able to benefit from tax deferment until disposals are made as they will be able to use the historic cost basis on non-equity unit trusts and OEICs.
Equity funds
Income
Dividend distributions received by UK resident corporate bodies have to be split into that part which relates to dividend income and that part which relates to other income. This is known as ‘streaming’. The part relating to dividend income (known as ‘franked’ income) of a fund is not liable to tax in the hands of the corporate investor.The part relating to other income of a fund (known as ‘unfranked’ income) is taxable as if it were an annual payment in the hands of the investor and is subject to corporation tax.
Capital gains
The capital gains of equity funds are not subject to the loan relationship rules. All companies are only taxed on capital gains when there is a disposal, including fund switches. Unrealised gains are not taxable so there is the potential for tax deferment on growth. Realised gains are subject to corporation tax. Indexation allowance is still available to reduce the gain but for disposals from 1 January 2018 is frozen at the December 2017 factor.Unlike an individual investor, a company does not have an annual exemption. Any losses that arise can be offset against the company’s corporation tax liability.
Other investments
As well as investment bonds and non-equity mutual funds, the loan relationship rules cover most other corporate investment vehicles such as:
- bank or building society deposits
- gilts
- corporate bonds
- capital redemption policies
- certain life assurance policies
Life assurance policies (both onshore and offshore) which have a surrender value, purchased life annuities and capital redemption policies are all included within the loan relationship account. There’s an exemption for pre 14 March 1989 policies. This exemption doesn’t apply to purchased life annuities or capital redemption policies.
Term assurance and critical illness contracts used for business protection purposes generally won’t be included as they typically don’t include a surrender value. Such policies remain subject to the chargeable events legislation.
Corporation tax rate
Companies will pay corporation tax on any profits arising from income, capital gains or loan relationships which arise in the accounting period.
From April 2023 there was no longer be a single flat rate of corporation tax. Companies with small profits less than £50,000 will pay 19%.
There will also be a return of the marginal relief for companies with profits between £50,000 – £250,000. Corporation tax is calculated on the full profits using the main rate of 25% and then marginal relief is applied to provide a gradual increase in the effective rate of tax payable.
However, a simple way to calculate the corporation tax where marginal relief applies is to calculate tax in bands in a similar way to calculating income tax , using the rate of 26.5% on profits between £50,000 and £250,000.
Profit Bands Applicable tax rate £0 – £50,000 19% £50,000 – £250,000 26.5% Companies with profits over £250,000 will pay a full flat rate of 25% on ALL their profits.
Profit extraction
A company may decide to transfer a corporate investment to an employee or shareholder. But this will typically have tax implications.
Transfer to employee/director
The transfer of an investment bond or non-equity mutual fund will trigger a potential charge to corporation tax on any untaxed gain under loan relationships. In the case of an equity type mutual fund there will be a disposal with any capital gain being subject to corporation tax.
The employee receives a benefit that is subject to both income tax and Class 1 national insurance. The employer will also be subject to national insurance but should be able to offset the transfer value as a trading expense in its accounts.
Transfer to shareholders
Again, the transfer will be subject to corporation tax under loan relationships or the disposal of an equity type mutual fund as appropriate.
The transfer will be taxed in the shareholder’s hands as a distribution of dividend income. The company cannot offset dividend distributions against their taxable profits.
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Best Investments: Where to Invest in 2025
There are a lot of ways to invest money — high-yield savings accounts, CDs, bonds, funds, stocks and gold are all options. The best investment for you depends on investment goal, timeline and other factors.
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Chris Davis- Brokerage accounts
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Chris Davis is a Managing Editor on the Investing team. As a writer, he covered the stock market, investing strategies and investment accounts, and as a spokesperson, he appeared on NBC Bay Area and was quoted in Forbes, Apartment Therapy, Martha Stewart and Lifewire, among others. His work has appeared in The Associated Press, The Washington Post, MSN, Yahoo Finance, MarketWatch, Newsday and TheStreet. Previously, he was the content manager for the luxury property management service InvitedHome and the section editor for the legal and finance desk of international marketing agency Brafton. He spent nearly three years living abroad, first as a senior writer for the marketing agency Castleford in Auckland, NZ, and then as an English teacher in Spain. He is based in Longmont, Colorado.
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Michael Randall, CFP®, EA is a senior wealth advisor at Myers Financial Group, a fee-only fiduciary wealth management firm based in San Diego, California. Michael is passionate about investment advice, wealth management, and tax planning. Prior to his time at Myers Financial Group, Michael worked as a financial advisor at a $4B wealth management firm with offices along the West Coast. Michael earned an undergraduate degree in economics at the University of California, Berkeley. He volunteers as a University of California, Berkeley alumni ambassador. Michael is a certified financial planner and an IRS enrolled agent.
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Arielle O’Shea leads the investing and taxes team at NerdWallet. She has covered personal finance and investing for over 15 years, and was a senior writer and spokesperson at NerdWallet before becoming an assigning editor. Previously, she was a researcher and reporter for leading personal finance journalist and author Jean Chatzky, a role that included developing financial education programs, interviewing subject matter experts and helping to produce television and radio segments. Arielle has appeared on the “Today” show, NBC News and ABC’s “World News Tonight,” and has been quoted in national publications including The New York Times, MarketWatch and Bloomberg News. She is based in Charlottesville, Virginia.
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Alieza Durana- Investing basics
Alieza Durana is a former investing writer at NerdWallet. She has over a decade of journalism experience covering housing, labor, gender and public policy issues for the Eviction Lab, The Fuller Project for International Reporting, New America and Slate. Her work has appeared in USA Today, The Washington Post, The Atlantic and Harvard Business Review. She is based in St. George, Utah.
Lead Writer
When investing becomes a roller coaster ride — as it has this year, with steep market reactions to tariffs and recession fears — it’s more important than ever to focus on proven, diversified investments that will help you ride the highs and lows.
But what’s the best way to invest, especially during periods of volatility like right now?
That answer is unsatisfying: It depends.
There is one piece of advice that remains steady even when the market isn’t, and that’s to avoid timing the market or trying to buy the best investment at the right time. It often backfires. Instead, focus on the best investments for your goals, which don’t change with every market whim.
11 best investments right now
Here are the best investments, roughly ordered from lowest risk to highest. Keep in mind that lower risk typically also means lower returns, while taking more risk is likely to offer you a better return on your investment over the long term. “Long term” is a key word there — for stock or other high-risk investments, you should aim to leave your money invested for at least five years, which should allow you to ride out any lows.
1. High-yield savings accounts
OK, a savings account isn’t technically an investment, but rates continue to be high, even following a series of cuts by the Federal Reserve last year. That’s earned them a place on this list, especially for people who have a short-term goal or can’t stomach the market volatility. Online savings accounts offer higher rates of return than traditional bank savings or checking accounts.
Best for : Savings accounts are best for short-term savings or money you need to access only occasionally (think of an emergency or vacation fund).
Where to open a high-yield savings account: At an online bank, which will typically pay higher rates than what you’ll get at traditional banks with physical branches.
Good to know : Some brokerage firms pay high rates on uninvested cash as well — rates that are similar to what you’d earn in a high-yield savings account. These are worth considering, especially if you plan to also invest in one of the options lower on this list and want to keep your money in one place. See our list of the best brokerage accounts for high interest rates .
2. Certificates of deposit
A certificate of deposit is a federally insured savings account that offers a fixed interest rate for a defined period of time. Now may be a good time to lock in that fixed rate — unlike a savings account, CD rates won’t fluctuate if interest rates go down.
Best for : A CD is for money you know you’ll need at a fixed date in the future (e.g., a home down payment or a wedding). Common term lengths are one, three and five years, so if you’re trying to safely grow your money for a specific purpose within a predetermined time frame, CDs could be a good option. It’s important to note, though, that to get your money out of a CD early, you’ll likely have to pay a fee. As with other investments, it’s a good rule of thumb not to buy a CD with money you might need soon.
Where to buy CDs: CDs are sold based on term length, and the best rates are generally found at online banks and credit unions.
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Learn More3. Government bonds
Bonds can offer investors a relatively safe form of fixed income. A government bond is a loan to a government entity (such as the federal or municipal government) that pays investors interest over a set period of time, typically one to 30 years. Because of that steady stream of payments, bonds are known as fixed-income securities. Government bonds are virtually a risk-free investment, as they’re backed by the full faith and credit of the U.S. government.
The drawbacks? In exchange for that safety, you won’t see as high a return as you might with other investments. If you were to have a portfolio of 100% bonds (as opposed to a mix of stocks and bonds), it would be substantially harder to hit your retirement or long-term goals.
Best for : Conservative investors who would prefer to see less volatility in their portfolio. This is true despite some of the fluctuations government bonds have seen in 2025. Bonds’ fixed income and lower volatility make them common with investors nearing or already in retirement, as these individuals may not have a long enough investment horizon to weather unexpected or severe market declines.
“Bonds offer a ballast to a portfolio, usually going up when stocks go down, which enables nervous investors to stay the course with their investment plan, and not panic sell,” says Delia Fernandez, a certified financial planner and founder of Fernandez Financial Advisory in Los Alamitos, California.
Where to buy government bonds: You can buy individual bonds or bond funds, which hold a variety of bonds to provide diversification, from a broker or directly from the underwriting investment bank or the U.S. government.
4. Corporate bonds
Corporate bonds operate in the same way as government bonds; you’re only making a loan to a company, not a government. These loans are not backed by the government, making them a riskier option. And if it’s a high-yield bond (sometimes known as a junk bond), these can actually be substantially riskier, taking on a risk/return profile that more resembles stocks than bonds.
Best for : Investors looking for a fixed-income security with potentially higher yields than government bonds, and willing to take on a bit more risk in return. In corporate bonds, the higher the likelihood that the company will go out of business, the higher the yield. Conversely, bonds issued by large, stable companies will typically have a lower yield. It’s up to the investor to find the risk/return balance that works for them.
Where to buy corporate bonds: Similar to government bonds, you can buy corporate bond funds or individual bonds through an investment broker.
5. Money market funds
Money market mutual funds are an investment product, not to be confused with money market accounts, which are bank deposit accounts similar to savings accounts. When you invest in a money market fund, your money buys a collection of high-quality, short-term government, bank, or corporate debt.
Best for : Money you may need soon that you’re willing to expose to a little more market risk. Investors also use money market funds to hold a portion of their portfolio in a safer investment than stocks or as a holding pen for money earmarked for future investment. While money market funds are technically an investment, don’t expect the higher returns (and higher risk) of some other investments on this page. Money market fund growth is more akin to high-yield savings account yields.
Where to buy money market funds: Money market mutual funds can be purchased directly from a mutual fund provider or a bank, but the broadest selection will be available from an online discount brokerage.
6. Mutual funds
A mutual fund pools cash from investors to buy stocks, bonds or other assets. Mutual funds offer investors an inexpensive way to diversify — spreading their money across multiple investments — to hedge against any single investment’s losses.
Best for : People saving for retirement or another long-term goal. Mutual funds are a convenient way to get exposure to the stock market’s superior investment returns without having to purchase and manage a portfolio of individual stocks. Some funds limit the scope of their investments to companies that fit certain criteria, such as technology companies in the biotech industry or corporations that pay high dividends. That allows you to focus on certain investing niches.
Where to buy mutual funds: Mutual funds are available directly from the companies that manage them, as well as through discount brokerage firms. Almost all of the mutual fund providers we review offer no-transaction-fee mutual funds (which means no commissions) as well as tools to help you pick funds. Be aware that mutual funds typically require a minimum initial investment of anywhere from $500 to thousands of dollars, although some providers will waive the minimum if you agree to set up automatic monthly investments.
» Need an investment account to get started? Learn how to open one
7. Index funds
An index fund is a type of mutual fund that holds the stocks in a particular market index (e.g., the S&P 500 or the Dow Jones Industrial Average). The aim is to provide investment returns equal to the underlying index’s performance, as opposed to an actively managed mutual fund that pays a professional to curate a fund’s holdings.
Best for : Those with long-term savings goals. They are more cost-effective due to lower fund management fees and are less volatile than actively managed funds that try to beat the market.
Index funds can be especially well-suited for young investors with a long timeline who can allocate more of their portfolio toward higher-returning stock funds than more conservative investments, such as bonds. Young investors who can emotionally weather the market’s ups and downs could even consider investing their entire portfolio in stock funds in the early stages, Fernandez says.
Where to buy index funds: Index funds are available directly from fund providers or through an online broker.
8. Exchange-traded funds
Exchange-traded funds (ETFs) are like mutual funds in that they pool investor money to buy a collection of securities, providing a single diversified investment. The difference is how they are sold: Investors buy shares of ETFs just like they would buy shares of an individual stock.
Best for : Investors with a long time horizon. Beyond that, ETFs are ideal for investors who don’t have enough money to meet the minimum investment requirements for a mutual fund, because an ETF share price may be lower than a mutual fund minimum.
Where to buy ETFs: ETFs have ticker symbols like stocks and are available through brokerages. Robo-advisors also use ETFs to construct client portfolios.
9. Dividend stocks
Dividend stocks can provide the fixed income of bonds as well as the growth of individual stocks and stock funds. Dividends are regular cash payments companies pay to shareholders and are often associated with stable, profitable companies. While share prices of some dividend stocks may not rise as high or quickly as growth-stage companies, they can be attractive to investors because of the dividends and stability they provide. Keep in mind: Dividends in taxable brokerage accounts are taxable in the year dividends occur. On the other hand, stocks (that do not pay dividends) are primarily taxed when the stock is sold.
Best for : Any investor, from first-timer to retiree, though specific types of dividend stocks may be better depending on where you are in your investing journey. Young investors, for example, may do well to look into dividend growers, which are companies with a strong track record of consecutively increasing their dividends. These companies may not have high yields currently, but if their dividend growth keeps up, they could in the future. Older investors looking for more stability or fixed income could consider stocks that pay consistent dividends. Taking the dividends as cash could be a part of a fixed-income investing plan.
Where to buy dividend stocks: Like others on this list, the easiest way to buy dividend stocks is through an online broker.
10. Stocks
A stock represents a share of ownership in a company. Stocks generally offer a larger potential return on your investment than lower-risk investments, such as government bonds, but also may expose your money to higher levels of volatility.
Best for : Investors with a well-diversified portfolio who are willing to take on a little more risk. Due to the volatility of individual stocks, a good rule of thumb for investors is to limit their individual stock holdings to 10% or less of their overall portfolio.
Where to buy stocks: An easy way to buy stocks is through an online broker. Once you set up and fund a brokerage account, you’ll choose your order type and become a shareholder.
11. Gold
In case you haven’t heard, gold is hot right now, as it tends to be when the stock market is volatile. Gold functions as a hedge against those fluctuations. But it’s even hotter than most analysts would expect — gold’s price has risen nearly 40% over the last year, and it has repeatedly hit record highs. Many gold stocks are having banner years as a result.
So, should you buy a bunch of gold bars and stash them in your basement? You could, but the easiest way to invest in gold is through more common financial instruments like the aforementioned ETFs, index funds or stocks. You can purchase these through an online brokerage account or even your retirement account and gain exposure to gold’s soaring prices without having to store physical gold.
Best for: Investors looking to hedge against stock market volatility or to diversify a small portion of their portfolio. Like any other investment, gold shouldn’t make up the bulk of a portfolio.
Where to buy gold: Some online brokers allow you to purchase physical gold, though fees can vary pretty widely and can be high. The most approachable option is gold stocks or gold funds.
Ready to start investing in any of the options above? You need a brokerage account if you don’t already have one.
About the authors
Chris Davis is a Managing Editor on the Investing team. He has covered the stock market, investing strategies, investment accounts and cryptocurrency, and his work has appeared in The Associated Press, The Washington Post, MSN, Yahoo Finance, MarketWatch, Newsday and TheStreet. See full bio.
Alieza Durana is a former NerdWallet investing writer. Previously, she was a writer for USA Today, The Washington Post and The Atlantic, and also appeared in The New York Times, NPR, CNN and other national media. See full bio.
Best Investments for 2025
Best Investments for 2025
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