Types of Investments

We've already mentioned that there are many ways to invest your money. Of course,
to decide which investment vehicles are suitable for you, you need to know their
characteristics and why they may be suitable for a particular investing objective.

1.Bonds
Grouped under the general category called "fixed-income" securities, the term
"bond" is commonly used to refer to any of these securities founded on debt. When
you purchase a bond, you are lending out your money to a company or government.
In return, they agree to give you interest on your money and eventually pay you
back the amount you lent out.
The main attraction of bonds is their relative safety. If you are buying bonds from a
stable government, your investment is virtually guaranteed (or "risk-free" in
investing parlance). The safety and stability, however, come at a cost. Because there
is little risk, there is little potential return. As a result, the rate of return on bonds is
generally lower than other securities.

2.Stocks
When you purchase stocks (or "equities" as your advisor might put it), you become a
part owner of the business. This entitles you to vote at the shareholder's meeting
and allows you to receive any profits that the company allocates to its owners--these
profits are referred to as dividends.
While bonds provide a steady stream of income, stocks are volatile. That is, they
fluctuate in value on a daily basis. When you buy a stock, you aren't guaranteed
anything. Many stocks don't even pay dividends, making you any money only by
increasing in value and going up in price--which might not happen.

Compared to bonds, stocks provide relatively high potential returns. Of course, there
is a price for this potential: you must assume the risk of losing some or all of your
investment. More information on this type of investment can be found in the tutorial
"Stock Basics." After you have a grasp of what stocks are and how they function, you
might want to read about how to choose them in "Guide to Stock Picking Strategies."

3.Mutual Funds
A mutual fund is a collection of stocks and bonds. When you buy a mutual fund, you
are pooling your money with a number of other investors, which in turn enables you
(as part of a group) to pay a professional manager to select specific securities for
you. Mutual funds are all set up with a specific strategy in mind, and their distinct
focus can be nearly anything: large stocks, small stocks, bonds from governments,
bonds from companies, stocks and bonds, stocks in certain industries, stocks in
certain countries, and the list goes on.
The primary advantage of a mutual fund is that you can invest your money without
needing the time or the experience in choosing investments. Theoretically, you
should get a better return by giving your money to a professional than you would if
you were to choose investments yourself. In reality, there are some aspects about
mutual funds that you should be aware of before choosing them, but we won't
discuss them here.
Alternative Investments: Options, Futures, FOREX, Gold, Real Estate, Etc.
So, you now know about the two basic securities: equity and debt, better known as
stocks and bonds. While many (if not most) investments fall into one of these two
categories, there are numerous alternative vehicles, which represent the most
complicated types of securities and investing strategies.
The good news is you probably don't need to worry about alternative investments at
the start of your investing career. They are generally high-risk/high-reward securities
that are much more speculative than plain old stocks and bonds. Yes, there is the
opportunity for big profits, but they require some specialized knowledge. So if you
don't know what you are doing, you could get yourself into a lot of trouble. Experts
and professionals generally agree that new investors should focus on building their
financial foundation before speculating.