Investment may be explained as buying any financial product or any financial item with the hope that it will give good returns in the future. In other words, it can also be said that investing money means you are using your money in such a way so that you can make more money in future. Once you have decided that you will be investing your hard earned money, the next step is to select the right investment vehicle and the amount of cash you will be investing.

Types of investments There are 3 types of investments. They are-

1. Stocks: Companies sell stocks and the proceeds are used for the improvement and growth of the company. When you are investing in stocks, you are becoming a shareholder by purchasing “share of ownership” in the company or corporation. There are 2 types of stocks. They are-

• Common stock – Shareholders or investors enjoy an ownership percentage. Common stockholders have the right to vote.
• Preferred stock: – Investing in such stocks doesn’t give voting rights to the investors but they are entitled to dividends.

To enhance your chances of getting good returns from stock investment, you can talk to a good stock investment broker who can help you to buy as well as sell stocks depending on the existing market conditions.

2. Cash Equivalent: In cash equivalent, the rate of return is more stable. However, return is usually very low. As such the return fails to meet financial requirements when there is inflation. Cash equivalent investments may be of the following types-

• Mutual Funds
• Money Market
• Passbook Savings
• Certificate of Deposit

3. Bonds: When you purchase bonds, you are lending your money to a company or to the government. You are lending money to the organization from whom you are buying the bonds. Bonds are usually made available to the investors for a limited time period. During this period, bondholders receive interest payments. Interest payment amount is decided by the issuer of the bonds. Issuer of the bonds may be a company or the government. Bonds offer a steady income flow and are better investment vehicles as compared to stocks. However, returns from bonds are less as compared to stocks because they are more stable. Under certain circumstances, it may vary. Bonds are highly prone to risks. Bonds may be subject to interest rate risk, credit risk, and repayment risk.

Every investment is associated with some risk or the other. You can minimize risks by avoiding pitfalls in your investment process. In addition to the ROI or the return on investment, peace of mind is equally important.

For additional help in investing and for setting up a 401k, 401kMaze is a great place to get started learning.

Related Resources:

Michigan 401k plans – Symphony Investment Group – Michigan based investment advisor offering financial planning, 401k management, retirement planning, investment advice and separate accounts to individuals and group plans.
Successful Investment Articles – This blog is a collection of articles, tips, investing resources and investment guidelines.