Different Types of Investing

You are looking to the future and know that you need to start investing in it now, but how?Everyone tells you something different.Really there are only three different types of investment opportunities. These include cash, stocks and bonds. Now, under each of these headings are sub-types which is where all the confusion begins. Let's try to break them down so they are easier to understand.

Savings Accounts - these are generally the safest place to keep your money as most are insured. These types of investments provide a very small return. They do provide easy access which may be beneficial depending on your circumstances.

Money Market Deposit Accounts - another safe way to invest your money. Generally these accounts are insured and provide you with access to your money. These accounts provide a higher return than that of a savings account; however, there are limits to the number of withdrawals and transfers you can make to this account during a specified time period. Penalties may be incurred if you exceed this number.

CDs (Certificates of Deposit) - this investment is similar to a savings account only it provides a higher return (interest rate). This special type of account requires that the money not be touched for a specific period of time.The longer the time untouched, usually the higher the return. There are penalties for early withdrawals.

For those who want to be a little more aggressive, but consider themselves to be moderate in their investments choose to work with bonds, mutual funds and annuities.

• Bonds - these are a certificate of debt.These are usually issued by the government, but can also come from a company.A bond is a promise of repayment.This repayment is to be made at a predetermined period of time for a specified amount of money.The return (interest rate) is fixed.Bonds can be repaid in months or even years.They are considered tradable and safer than stocks because they must be repaid before stock holders if a company goes bankrupt.
• Mutual Funds - these are professionally managed pools of money.Your mutual fund manager will invest your money in a variety of options (stocks, bonds, securities).The variety depends upon your financial goals and risk choices.Because your money is diversified it helps in reducing your risk of loss.Your profits are usually declared as income on your taxes as well.Most mutual funds require fees for management.
• Annuities - these are contracts sold by insurance companies.The period of repayment is usually specified for specific time intervals after retirement.Money is not accessible without a penalty until a specified age.Money invested is only taxed at the time of withdrawal.Early withdrawals can carry additional tax implications. These provide a relatively safe investment option, with a lower return on investment.
• Those who really want to work their money hard and are not risk averse are considered aggressive investors. These investments include stocks, debt securities, derivatives, and commodities.
• Stocks (equities) - provides you with a share of ownership in the business.The amount of stocks you own determine the amount of return you are entitled too.
• Debt Securities - provides a contract that returns money in fixed periodic payments.It could also include repayment in the form of capital appreciation.
• Derivatives - these are contracts to provide repayment based upon an amount derived from the value of underlying assets.These are used to help minimize the risk of loss due to fluctuations.
• Commodities - these items are similar to stocks however they are traded on a commodities market.They have to be standardized and in a basic, raw state.These are considered very high risk.