Type of Investments general overview

Type of Investments general overview

There are several types of investments people can use to attempt to get more out of their money. The money invested is used in different ways, depending on the type of investment, and each type of investment carries different levels of risk.

One of the most secure investments is a savings account or a certificate of deposit. These investments are made at a local bank, and are considered very safe. The government guarantees the deposit up to $100,000, and the bank uses the money conservatively.  These accounts generally have a very low rate of return.

Money market accounts are the next level of investment. The risk is only slightly higher with these investments, and the returns only slightly higher as well. These investments are made with a bank, mutual fund company or brokerage.

The financial institution invests in very secure notes such as treasury bills, which is essentially loaning money to the central government. In most cases in the western world, governments repay their debts reliably, making these investments quite secure.

Bonds are considered more risky, but still a stable investment. The returns on bond investments are generally higher than on a money market account, but can be negative when the economy plummets.

When you invest in bonds, you are loaning money to a government entity or a business. Most governments do repay their obligations, and they work hard to remain current so that they can retain their ability to get loans.

The last type of investment is the most risky, but also carries the highest potential for returns. Stocks, or equities, give you an ownership stake in a business. If the business does well, you share in the profits. If it does poorly, you help shoulder the loss.

Many people buy stocks through mutual funds, organizations that pool the investment funds of many smaller investors in order to buy large blocks of stocks. This diversifies investments and decreases risk.