﻿ Different Types of Investments
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The Three Different Kinds of Basic Investments Include Stocks, Bonds and Cash.

There are also three types of investors: conservative, moderate and aggressive.
Each one of these types of investment have numerous types of investment vehicles that fall under them. For example, there are mutual funds for each category.



Preferred Stock - The most upscale type of stock is of course Preferred Stock. Preferred stock isn't exactly a stock. It is a mix of a stock and a bond. The owner's of preferred stock can lay claim to the assets of the company in the case of bankruptcy, and preferred stock holders get the proceeds of the profits from a company before the common stock owners. If you think that you may prefer this preferred stock, be aware that the company typically has the right to buy the stock back from the stock owner and stop paying dividends.




State and local Governments also sell bonds. Unlike bonds issued by the federal government, these bonds usually have higher interest rates. This is because State and Local Governments can indeed go bankrupt, unlike the federal government. State and Local Government bonds are free from income taxes on the interest. State and local taxes may also be waived. Tax-free Municipal Bonds are common State and Local Government Bonds.


Understanding Bonds



For instance, if you plan to retire in ten years, and you've not saved a single penny towards that end, you need to have a high risk tolerance - because you will need to do some aggressive " risky " investing in order to reach your financial goal. On the other side of the coin, if you are in your early twenties and you want to start investing for your retirement, your risk tolerance will be low. You can afford to watch your money grow slowly over time.

Realize of course, that your need for a high risk tolerance or your need for a low risk tolerance really has no bearing on how you feel about risk. Again, there is a lot in determining your tolerance. For instance, if you invested in the stock market and you watched the movement of that stock daily and saw that it was dropping slightly, what would you do? Would you sell out or would you let your money ride? If you have a low tolerance for risk, you would want to sell out, if you have a high tolerance, you would let your money ride and see what happens. This is not based on what your financial goals are. This tolerance is based on how you feel about your money!

There are several different types of investments, and there are many factors in determining where you should invest your funds. Of course, determining where you will invest begins with researching the various available types of investments, determining your risk tolerance, and determining your investment style, along with your financial goals.

If you were going to purchase a new car, you would do quite a bit of research before making a final decision and a purchase. You would never consider purchasing a car that you had not fully looked over and taken for a test drive. Investing works much the same way. You will of course learn as much about the investment as possible, and you would want to see how past investors have done as well. It's common sense!

Learning about the stock market and investments takes a lot of time but it is time well spent. There are numerous books and websites on the topic, and you can even take college level courses on the topic which is what stock brokers do. With access to the Internet, you can actually play the stock market with fake money to get a feel for how it works. You can make pretend investments, and see how they do. Do a search with any search engine for Stock Market Games or Stock Market Simulations. This is a great way to start learning about investing in the stock market.

If you are ready to invest money for a future event, such as retirement or a child's college education, you have several options. You do not have to invest in risky stocks or ventures. You can easily invest your money in ways that are very safe, which will show a decent return over a long period of time.

  1. First consider bonds. There are various types of bonds that you can purchase. Bonds are similar to Certificates of Deposit. Instead of being issued by banks, however, bonds are issued by the Government. Depending on the type of bonds that you buy, your initial investment may double over a specific period of time.
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If you're taking a vacation, you plan carefully. You decide on a foliage tour or a visit to a theme park, a bed and breakfast or a condominium, one week or two. You try to avoid common "traps" of vacation travel -- crowds, long waits, and high prices. Investing for retirement is a lot like vacation planning: the more carefully you choose your strategies, the more comfortable you expect to be when you retire. And, like vacation planning, you need to avoid investing traps that can snare your savings.

Watch the Store - To reach your goals, monitor your investments. Correct mistakes quickly. A frequent error investors make is to carefully design their retirement investment strategy and then expect it to perform on automatic pilot. Look at your account regularly to be sure your investments are performing as you anticipated. If, over a reasonable time, your investments don't meet your needs, make any necessary changes.

Don't Overdo It - You're investing for retirement and that's a long-term proposition. Don't worry about daily market gyrations. If you sell every time an investment declines slightly, you'll not only forego some good opportunities for capital appreciation, but you'll also never have a restful moment. By matching your mutual fund's performance against that of similar funds and appropriate benchmarks, you'll be better equipped to spot a trend that's not just a flash in the pan. A quarterly check can tell you whether your fund is under-performing or keeping up with its peers and relative benchmarks.

Don't Be Too Conservative - If you invest all of your money in a money market or similar fund, your risk may decrease but so will your return potential. Investing in funds that seek to preserve your principal means that your return probably won't do much more than keep up with the current inflation rate. To have enough money for a comfortable retirement, you need some investments that offer long-term growth potential. Diversifying your investments among different asset classes can help to reduce your risk. When you diversify, you put some of your money in conservative investments such as market funds or even corporate or government bonds and the rest in investments that seek higher returns although typically at a higher level of risk.

Don't Make Unnecessary Withdrawals - In a financial crunch, you may be tempted to take money out of your retirement account. But, if you take an early withdrawal, you may be subject to a penalty as well as income tax at your current ordinary income tax rate. Just remember that any money you withdraw from your account is not being invested for your future. Bottom line: Leave your money invested until you retire.



Don't put all of your eggs in one basket! You've probably heard that over and over again throughout your life ... and when it comes to investing, it is very true. Diversification is the key to successful investing. All successful investors build portfolios that are widely diversified, and you should too!






Now is a good time to invest in your home.


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