By Doing This One Thing, Graham Stephan Says Households Are 'Losing' to Inflation

Keeping large sums of money in a checking account could cost you.

We all like to earn solid returns no matter the investment. However, not all investment vehicles carry the same bang for your buck. According to real estate agent and investor Graham Stephan, the average American household has $10,000 worth of savings, but you may lose out to inflation if you keep your money in a checking account. One of Stephan's recent tweets claimed that "with just a 3% return every year, you could double that amount in 25 years!"

Several excellent options exist if you're looking for a spot to park your savings or invest it for short or long-term gains. Here's a look at some of the best investment options for your savings, according to Graham Stephan.

Start an emergency fund

An emergency is one of the building blocks of a solid financial plan. Think of an emergency fund as insurance that protects you if (and when) an unexpected expense occurs. By socking away money in an emergency fund, you don't need to rely on your everyday funds or pull money from other investments to cover expenses when disaster strikes.

Emergencies that would warrant using your fund include:

• Medical or dental emergencies
• Home repairs
• Car repairs
• Loss of income
• Financial emergencies
• Unplanned travel expenses

You should keep your emergency fund in a separate savings account from your everyday expenses. Keeping it in a high-yield or money market account allows you to earn a competitive rate on the funds while it sits untouched.

Short-term goal fund

You should also set aside money in a separate account for short-term financial goals. Whether it's saving for an upcoming vacation, a down payment on a house, buying a car, funding an upcoming wedding, or other life goals, setting money aside for specific goals will help you fund your goals faster.

It also means you don't need to borrow money from current investments to fund future plans.

Pay down high-interest debt

If you're carrying debt month to month, you're probably losing money thanks to costly interest charges. Not all debt is necessarily bad. Having a mortgage can be a positive, and also gives you a place to live. But if you have credit cards or other debt with high interest rates, it's better to pay off your balance as soon as possible. Stephan says, "clearing credit card debt at 20% interest is a guaranteed return!"

One option that could speed up your debt payoff and save you money is applying for a balance transfer card. Balance transfer credit cards allow you to move existing credit card and other eligible debt balances over to a new card, often with an introductory 0% APR period.

A balance transfer offer allows you to pay off your debt over time without interest charges. Note that many balance transfer cards charge a fee. Make sure the fee is worth moving your balance over and would result in fewer charges than interest on the original balance.

Retirement accounts

Investing in retirement accounts opens the door to higher earning potential thanks to compound interest.

If your employer offers a 401(k), whatever you invest in it is deducted from your taxable income. If they offer an employer match, take advantage of it. It's essentially free money and will help boost your retirement account more quickly.

Other retirement account options include traditional and Roth IRAs. With Roth IRAs, contributions aren't tax deductible, but all of your earnings are tax-free.

Index Funds

Index funds aren't necessarily a sexy pick when investing, but they do the job, especially if you let them build up over time. Stephan says investing in index funds "could earn you 8-10& a year when you reinvest the dividends."

Instead of investing in one company's stock, index funds allow you to own a little piece of hundreds of stocks or bonds based on the index it tracks. The S&P 500 Index, for example, follows the performance of hundreds of companies in the S&P 500.

Index funds are considered low-risk investments because they don't rely on the performance of one or two companies. It's also a low-cost investment option thanks to having lower expense ratios than many actively managed funds.

Individual stocks

You can also invest in individual stocks. There's more risk here, but you could be rewarded with huge payouts if you choose the right stocks. Unlike index funds, your gains depend on a single company's performance.

If you choose to invest in individual stocks, use caution, and understand it could result in losing money. Individual stocks shouldn't make up the bulk of your investment or retirement strategy.

Cryptocurrencies

Another risky yet possibly rewarding investment strategy is cryptocurrency. Cryptocurrency is a digital currency. It doesn't rely on a central bank like other investments. Instead, it relies on a blockchain, which is a publicly distributed digital ledger.

There are thousands of cryptocurrencies to choose from, so the odds of picking the next big coin are unlikely. Still, you could make big gains if you choose correctly. When investing in crypto, Stephan suggests "going 50/50 into $BTC and $ETH or a DCA strategy..."

What's the best option?

Choosing the right investment vehicle for your savings depends on your financial situation and your overall goals. If you don't have an emergency fund yet, start there, and then branch out once it's fully funded. Each of the options discussed above has its own risks and rewards. Find out what fits best with your needs and start earning on your savings, instead of letting it gather dust in a checking account.