Once you are ready to begin investing, the next step is to decide what to invest in. There are long and short-term options, depending on your goals. Most people prefer to have a combination of both.
Long-Term Investment Options:
- Stocks – a share of ownership in a business, your investment changes based on the value of the company, so there is no guaranteed return or profit on your investment.
- Bonds – also known as ‘fixed-income’ bonds because the income you will generate at maturity of the bond is determined when you purchase it, therefore you know exact how much of a profit margin there is during a set period of time.
- Mutual Funds – By pooling your money with other investors, you can invest larger sums in various ways. This option means someone else is deciding how to manage you money and what to invest in.
Retirement Options:
- IRA – Allows you to put money in a tax-deferred savings, you don’t pay any taxes until you cash out the funds and are taxed based on income rates rather than capital gains.
- Roth IRA – This is different from a traditional IRA, in that there is no tax deduction for initial investment, because it is tax exempt when you pay it out.
- 401(k) – a retirement saving offered by employers
- Keogh – A special IRA that works like a pension fund for people who are self-employed. You are able to invest more than the traditional IRA limits in this type of account.
Short Term Options:
- Savings Account – which will earn you a minimal amount of interest, so while it is readily available, there is little gain.
- Money Market Fund – which is a type of mutual fund with a short-term bond, it will earn you more than a traditional savings account, but not as much as a CD.
- Certificate of Deposit (CD) – the interest rate on CD’s depends on the amount you are investing and the length of the investment term.