There are a many different types of investments to chose from, which can be broken down into the following categories:
Cash and cash equivalents
These investments are like cash because they are generally safe and give you quick access to your money. However, they may have relatively low rates of return compared to other kinds of investments (remember – for higher potential return, you have to be willing to take higher risks).
Fixed income securities
Fixed income securities are like a loan – you lend your money to a government or company for a certain period of time and in return they promise to pay you a fixed rate of interest throughout the life of the security. Bonds are a type of fixed income security. With a bond you will also be repaid for the “face value” at the end of its term (maturity date).
When you buy stocks or “equities” you become a part owner in a business. You have certain rights as a shareholder depending on the type of stock or share that you purchase. These can be more risky than fixed income investments; however, they may also provide a higher potential return. Remember, higher potential return also means a higher risk of losing some, or all, of your investment.
Investment funds are a collection of investments from one or more types of securities. When you buy an investment fund, you’re pooling your money with many other investors (like in a mutual fund). This allows you to invest in a variety of investments for a relatively low cost and leave the investment decisions to a professional manager.
These are some of the most complicated types of investments. For this reason, they usually have higher-than-average risk in return for higher-than-average potential gain. They are typically meant for very knowledgeable, or affluent, investors who can afford to take higher risk.
To learn more about the different types of investments available to you, download our complete Investments at a Glance guide.