What Are the Main Types of Investing?

Approximately 150 million Americans own stock which is a 2% increase from 2021. Most Americans hold stocks through mutual funds or retirement accounts, but a small percentage directly buy stocks. Now is the time to start investing and save money for the future.

If you’re looking to start investing, jumping right in is scary since there is so much to learn. If you begin with learning about the common types of investing, you’ll better be able to see a good starting point based on your financial situation.

Are you ready to build wealth and security? Keep reading this guide to learn everything you need to know about the types of investments to consider.

Bonds

Bonds are investments in the form of a loan you make to the government or a company. When you buy a bond, you get your money back plus additional interest.

Bonds are fixed-income investments which are investments with a fixed interest rate.

US Treasury Bonds are the most well-known type of bond. CDs and money-market funds are also popular options. 

Fixed-income investments offer you a steady income and are less risky than stocks. US Treasury Bonds and state and city government bonds are the least risky since the government backs them. Corporate bonds carry less risk, but you could lose money if the issuer defaults.

Many people like bonds because they diversify investments, and you won’t lose all your money when the market has fluctuations. However, bonds can offer you lower returns than stocks, so investing in both stocks and bonds is wise. 

You’ll generally get interest payments on your bonds twice a year, and the principal loan is paid off by the maturity date.

You can buy bonds from a broker in person, online, or directly from the US government.

Stocks

Stocks are all about investing in a specific company. When you buy stock, you buy a small share of the company’s assets and earnings. This makes you a shareholder since you share some of the company’s profits.

When investing in stocks, the trick is to buy stocks that are most likely to increase in value in the future. When stocks rise in value, you can sell them for profit or keep them. Some stocks also pay dividends, which are regular payments to shareholders. Usually, you get dividends each quarter, but remember that not all stocks have this option.

For public companies, you can buy stock through a stock market exchange like the New York Stock Exchange. 

Stocks are a great way to grow your investments over time, and you can even get into buying and selling stocks regularly. Stocks are easy to get started with since you can go online and find reputable brokers like Merrill Edge and Fidelity Investments. 

Finally, if you want to get serious about stocks and learn how to trade like a pro, check out My Investing Club to learn more.

Mutual Funds

If you don’t want to spend time picking individual stocks or bonds, mutual funds may be a better option for you.

A mutual fund is a company that pools together funds from numerous investors. Then they invest this money in bonds, stocks, securities, and money market funds. 

You’ll end up with a group of investments known as an investment portfolio.

Mutual funds have fund managers that do investment research for you and monitor your investment performance. 

Mutual funds make for smart investments since they allow you to diversify your investments. The idea of diversifying your investments is that you don’t put all your eggs in just one basket. For example, if you invest only in stocks and the market crashes, you put yourself at higher risk.

Mutual funds are also one of the more affordable ways to invest. You can usually buy mutual funds for a low dollar amount. Additionally, it’s easy to redeem your shares when you need to.

You’ll make money from mutual funds when the value of stocks, bonds, and other investments increases.

You can buy mutual funds directly from an investment company or fund provider. You can also find plenty of mutual funds via an online brokerage.

Certificate of Deposit (CD)

Much like a bond, a CD is a very low-risk investment and a great place to begin making investments. This is because CDs are safe since they’re protected by the Federal Deposit Insurance Corporation (FDIC).

With a CD, you’ll give a bank or credit union a specific amount of money for a set period. You’ll earn interest on the money during this time. Once this period ends, you’ll get your original investment back plus the interest.

Compared to bonds, CDs can give you a better return when interest rates are high. If you invest in a CD for an extended period, you’ll get better interest rates.

You’ll make money during the term of your CD deposit from interest. This makes CDs an excellent long-term investing strategy. But you’ll need to ensure you don’t need the money before the term ends since there are high penalties for early withdrawals.

Retirement Plans

Retirement plans are investment accounts that offer specific tax benefits. You can choose from different retirement accounts like 401(k) and 403(b) plans. These employer-sponsored plans allow you to make tax-deferred contributions over time. 

403(b) plans are available for government employees and nonprofit organizations. 401(k) plans are offered by private companies.

If you’re self-employed or don’t have access to an employer-sponsored retirement plan, you can get a ROTH IRA or an individual retirement plan (IRA). IRAs are available at most financial institutions; you don’t need an employer to invest in one. They also offer many of the same tax benefits as a 401(k).

You can contribute pre-tax earnings to an IRA, but the federal government places limits.

ROTH IRAs work the opposite of a traditional IRA since you’ll fund them with after-tax dollars. This way, you won’t pay income taxes even when you retire.

Retirement plans provide an avenue to buy bonds, stocks, and funds using tax advantages. 

You can make money by investing as much as possible and taking more risks with stocks.

Learn More About These Common Types of Investing

Now that you know more about these common types of investing, you can focus on the investments that work for you.

Be sure to do thorough research before investing. Don’t be afraid to get expert help if it’s your first time working with investments. You’ll get helpful advice on investing wisely and reaching your financial goals.

Visit the rest of our blog today for more financial tips that will help you make the most out of your money!

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