Types of Money Investments
No matter what you do for a living or how much money you make, you need to invest your money wisely. The sooner you start putting money aside for the future, the larger a nest egg you can accumulate during your working years. Creating a sizable nest egg during your working years is important, since you need to rely on that money when you eventually do retire. Finding the right investments for your hard-earned money is not easy, but it can be very rewarding.
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Money Market Funds
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If you want to earn a return on your money while keeping it liquid, a money market account is the best way to go. With a money market account, you typically earn a higher rate of interest than you would on a checking or savings account. At the same time, you retain instant access to your money. Most banks offer money market accounts, and shopping around can help you find the best possible interest rate. Just make sure that the bank you choose is fully FDIC-insured. You can check the FDIC status of any bank by going to the FDIC website at FDIC.gov. In addition to thier minimum balance requirements, some money market accounts limit the number of checks you can write or the number of withdrawals you can make, so be sure to read the terms and conditions carefully before signing up.
Certificates of Deposit
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If you can afford to leave your money tied up for awhile, you might be able to get a better return with a certificate of deposit from your local bank. The terms on CDs vary from as short as three months to as long as five years. Typically, the longer the term, the higher the interest rate, so you need to balance the interest rate against the possibility that you will need the money before the CD matures. If you do need to withdraw the money early, you will generally have to pay a penalty and give up some of the interest you have earned.
One way to invest in CDs is to create a ladder. By purchasing a one-year, two-year, three-year, four-year and five-year CD at the same time, you spread out your terms and ensure that there is always a CD coming due. If interest rates are favorable, you can roll the money over, and if interest rates have dropped, you can shop around for a better investment elsewhere.
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Bonds
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When you buy a bond, you are essentially loaning money to a company, a municipality or a government. In exchange for that loan, the entity agrees to pay a set amount of interest, just as you do when you take out a loan at the bank. Bond investments run the gamut from safe and conservative choices like U.S. Savings Bonds and Treasury Bonds, to more risky high-yield bonds. The most important thing to keep in mind with bond investing is as the interest rate goes up, so does the level of risk. Because there is no risk of default, United States government bonds typically pay the lowest interest rates. Municipal bonds and high-grade corporate bonds generally pay more than government bonds, because even though the risk is small, these bonds are not backed by the United States government. High-yield corporate bonds tend to pay the most, since these bonds are issued by companies whose financial futures are somewhat uncertain.
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References
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