What are Some of the Most Common Types of Investments?

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Answered by: Gilberto, An Expert in the Investing 101 Category
Beginner investors have a choice among basic types of investments to meet distinct financial goals. Each type of investment offers distinct benefits, risks and carries certain costs and trading fees. To maximize the returns on your investment capital, avoid making investment decisions without fully understanding how a particular investment works. Since you face the risk of losing money when you invest, always take some time to learn at least the basic functions of the investments you choose.



Certificate of Deposit

A certificate of deposit (CD) is one of the most basic types of investments and works like a savings account but with some differences. Like a savings account, you deposit money in a CD and you receive interest on the amount of your deposit at regular intervals. But, unlike a savings account, you agree to lock in your money in a CD for a particular period of time. For example, a 2-year CD means that your money is locked in the CD for two years, during which you earn interest. CDs are typically low-risk investments and pay slightly higher interest rates than traditional savings accounts.

Exchange Traded Funds



An exchange traded fund (ETF) is a single investment vehicle made up of a group of stocks that represents an index. An index is a group of stocks that represent a certain industry, region of the world or sector of the economy. For example, the Down Jones Industrial Average (DJIA) is an index that measures and tracks the stock prices of the 30 largest companies in the United States. According to the New York Stock Exchange (NYSE), an ETF allows you to invest in a variety of stocks with the convenience of buying shares in a single entity.

Mutual Funds

A mutual fund is one of the easiest types of investments because this account pools the money of many investors and invests all the money in one portfolio of investments. The money managers overseeing the mutual fund invest your money in a variety of investments. In turn, all the investors in the mutual fund share the profits, losses and costs associated with the mutual fund. Mutual funds are popular because investment costs are low and you spread out your risk throughout diverse investments.

Money Market Accounts

A money market account works like a combination of a savings and checking account. Money market accounts often pay a slightly better interest rate than a traditional savings account and allow you to write a limited number of checks or withdrawals every month. In turn, the bank that holds your money market account invests the money in your account in short-term investments such as corporate bonds

Bonds

Bonds are debt obligations issued by large corporations to fund ongoing operations or finance the expansion of the business. Investors buy bonds in return for regular interest payments and the value of the bond after a certain time. Bonds can last as little as a few days or as along as several years, during which you receive interest payments from the bond issuer.

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