There are several ways to make your money work for you and reach your financial goals. You’ll have to consider your priorities, preferences and time horizon to find the strategy that’s best for you.
Stocks
When you purchase a stock, you’re buying a stake in a company. Investing in stocks can bring significant long-term gains, but the stock market is volatile. If you’re saving to retire decades from now, you’ll be able to ride out the inevitable ups and downs in the market. As you get closer to retirement age, you’ll want to shift your portfolio to less volatile assets.
Bonds
A bond is a loan that an investor makes to another entity, such as a government or company. The investor receives regular interest payments. If you’re nearing retirement age, or if you’re investing in stocks and want to balance out your portfolio with some less risky assets, bonds can be a good choice.
Investment Funds
Instead of buying one type of stock or bonds, you can invest in a fund that includes a diversified group of assets. That approach can shield you from the effects of market volatility. If some assets don’t perform well, others most likely will. Investment funds can make sense for you if retirement is a long way off and you’re comfortable with market fluctuations.
Investing in a mutual fund is a convenient way to buy a group of stocks, bonds or other assets. An index fund is a specific type of mutual fund that includes stocks in a market index, such as the S&P 500. It aims to provide returns that are in line with the returns of the underlying index.
An exchange-traded fund, or ETF, is another way to invest in a diversified group of assets. Like stocks, ETFs have ticker symbols. You can buy shares in an ETF through a brokerage the same way you would buy shares in stocks.
If you have a shorter time horizon, you might prefer a money market fund. You’ll get modest returns, but you’ll also have low risk.
Savings Account
If you want to set aside money for an emergency or another purpose and have easy access to it, a savings account can be your best choice. Online financial institutions typically offer much higher interest rates than banks and credit unions with physical locations.
Certificate of Deposit
If you put money in a CD, you’ll earn interest at a fixed rate. You’ll have to keep the funds in the CD for a predetermined period. This can be a good option if you want to set aside money for a specific purpose, such as a down payment on a house, and you know when you’ll need it.
Choose an Approach That Will Work for You
All these financial products can grow your money, but they differ in their level of risk and potential returns. Carefully weigh your options and select a strategy that’s right for you.
