- Investors looking for a way to make the most of their money may find a number of investment venues available, creating a confusing marketplace for those new to the financial arena. While traditional investment vehicles like stocks and bonds are mainstays of investments, a number of alternatives may be safer, less expensive or even more profitable.
- Although markedly different from traditional stocks and bonds, mutual funds allow investors to purchase both of these products as groups of investment items. Mutual funds function much like investment clubs, as portfolio managers pool the resources of numerous investors to invest under a common, predefined objective. Because mutual funds may be purchased by very large numbers of investors, they often create opportunities not available to private individuals.
- Ideal for long-term investing, annuities are an ideal way to augment retirement plans and other financial portfolios geared toward the distant future. Investors who choose annuities may select to make one lump payment or a string of periodic payments toward the investment; in return, the annuity company repays the investor in a lump amount some years later. One example of annuities, life insurance, is specifically designed to repay the investor's family, though some investors choose to redeem their insurance policies and enjoy the funds themselves.
- While most investments tie up an investor's funds until a return is generated, some products are far more liquid. Treasury bills and money market accounts, for example, provide investors with convenient access to their funds anytime the investor experiences a need to withdraw cash. Certificates of deposit, or CDs, are also considered cash equivalents, though many financial institutions require investors who liquidate their CDs before maturity to pay a nominal fee. Although cash equivalents are more convenient for many investors, they generally yield a lower interest rate and, as a result, less profit.
- From time to time, cities and towns experience the need to raise funds by issuing municipal bonds. Much like government and corporate bonds, municipal bonds allow investors to issue loans to the issuing municipality. As the bond matures, the interest paid by the municipality increases and higher profit is produced. Like other types of bonds, municipal bonds are relatively safe investments, though they are also somewhat less profitable than their riskier counterparts.
- The ultimate in long-term investments, retirement accounts allow investors to set aside funds for use after their main income (from a job) has ended. Typical retirement account types include 401k and Independent Retirement Accounts (IRAs), though various flavors of IRAs add some selection to the list of available retirement options. As an added incentive for those saving for retirement, most retirement accounts defer taxes until the funds are withdrawn.
