There are numerous investment options. Determining which are best depends on the investor, the amount of money that she has available, and her goals. Individuals with little or no experience are strongly urged to consult with an investment adviser before making decisions. They may be advised to choose low-risk options such as bonds or annuities. If an investor can tolerate the risk, stocks or mutual funds may be more appropriate.
When selecting from the investment options, one of the most important factors for many people is risk. Those who are interested in low-risk options may want to consider treasury or municipal bonds. These are loans that the investor makes to government entities in return for repayment with interest. It is important for individuals to realize that these investments are generally long-term and the returns may not be as impressive as some of the riskier options.
CDs, or certificates of deposit, are investment options that are attractive to many because, like savings accounts, they are federally insured if purchased with institutions in the US. Considering this, there is essentially no risk that an investor will lose the money she invested. The basic rules of these types of investments tend to require a person to make a deposit into an account. The money must remain in that account until the CD matures, which could be in several months, a year, or several years. In return, a person will receive his deposit with interest, which is usually higher than that provided by a savings account.
Annuities are another of the relatively safe investment options. When a person buys an annuity, she gives a company, usually one in the insurance business, money that the company will invest. In return, at some point in the future, the investor will receive set payments on a regular basis. There are usually restrictions with regard to when a person can begin receiving payments. In many cases, however, once the payments begin, they continue for life.
If a person chooses to invest in the stock market, her risk of loss substantially increases. Stocks are basically pieces of ownership in a company. If a company performs poorly or suffers some type of financial trouble, such as a major lawsuit, its value and thereby the value of its stock will drop, resulting in losses. On the contrary, if the company does well or experiences a financial boost, its stock’s value increases and the investor will experience gains.
Choosing individual stocks can be difficult and time consuming. If investors do not make wise decisions, they may lose substantial portions, if not all, of their invested funds. Individuals are commonly advised to consider mutual funds as an alternative to the stock market. These are large portfolios that may consist of solely stocks or stocks and other investment items. When a person buys shares in a mutual fund, she buys portions of ownership of a mixture of investment vehicles instead of individual stocks or bonds, and this commonly reduces her risk of loss.