Introduction
Savings Accounts
Bonds
Money Market Accounts
Mutual Funds
Stocks

Introduction

The following chart shows a general graph of low risk to high risk investments.



When investing, low risk generally come with low returns or earnings. High risk investments can provide high returns but good or even positive returns are not guaranteed, that is why they are high risk.

Savings Accounts

Savings accounts are offered by Banks and other financial institutions to provide you with a place to safely keep your money. To get you to use their service, these companies provide a low return on the money you hold in this account, which is your investment. The financial institution will, in turn, use your money on other ventures. That's right; they use your money to fund higher return investments, which is how bank can afford to pay you a low return. Banks give you the option to move your funds in and out of these accounts at any time without penalty.

Bonds

One way to think of a bond is that it is a loan that you give to the bond issuer. Just like with a loan that you take out, the issuer pays you interest for using your money for a set length of time. Bonds are generally low risk, especially government bonds. The mature value of the bond is the called the face value. There is a down side to bonds, if the bond is cashed in before the maturity date or the end of the loan term, then the bond will not pay the face value.

Money Market Mutual Accounts

Money market mutual accounts can provide earnings similar to the earnings of bonds without the restrictions of having your money tied up for long periods of time. These accounts pool together the buying power of thousands and thousands of investors and use that mutual buying power to invest in money market securities.

Mutual Funds

Mutual fund managers re-invest the money that you invest in the fund into a mix of stocks, bonds, and other securities. The fund manager attempts to control the level of potential risk by targeting types of investments that historically provide the types of returns expected for the particular category of fund. By investing in several stocks the risk from having one or a few of the stocks perform poorly is minimized by the other investments. Likewise, by investing in several bonds and lower risk securities, the fund manager can cushion the impact of a period where the stock market in general is performing poorly. There are several types of mutual funds; by design the funds provide different levels of risks and returns. Mutual fund investing is a great way to take advantage of the earning potential of stocks and still provide some level of risk controls.

Stocks

With high risk investment, you have the opportunity to make a lot more money. Stocks are an example of high risk investments. A stock is a deed of ownership of a company. If the company does well, your stock value should go up and you make money. If the company does poorly, the stock value should go down and you loose money. Of course that is an over simplification, but for now it gives you the basic idea.

For advice on how to invest your money, please talk to a financial advisor. For more in-depth information on investing, occasionally check this area of our website. We will continue to provide good information. You can also surf the web.