As you may have noticed, there are several categories of investments, and many of those categories have thousands of choices within them. So finding the right ones for you isn’t a trivial matter.
The single greatest factor, by far, in growing your long-term wealth is the rate of return you get on your investment. There are times, though, when you may need to park your money someplace for a short time, even though you won’t get very good returns.
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Here is a summary of the most common short-term savings vehicles:
Short-term savings vehicles
- Often the first banking product people use, savings accounts earn a small amount in interest, so they’re a little better than that dusty piggy bank on the dresser.
- These are a specialized type of mutual fund that invest in extremely short-term bonds. Unlike most mutual funds, shares in a money market fund are designed to be worth $1 at all times. Money market funds usually pay better interest rate than a conventional saving account does, but you’ll earn less than what you could get in certificates of deposit.
- This is a specialized deposit you make at a bank or other financial institution. The interest rate on CDs is usually about the same as that of short- or intermediate-term bonds, depending on the duration of the CD. Interest is paid at regular intervals until the CD matures, at which point you get the money you originally deposited plus the accumulated interest payments. CDs through banks are usually insured up to $100,000.
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Long-term investing vehicles
- Bonds come in various forms. They’re known as “fixed-income” securities because the amount of income the bond generates each year is “fixed,” or set, when the bond is sold. From an investor’s point of view, bonds are similar to CDs, except that the government or corporations issue them, instead of banks.
- Stocks are a way for individuals to own parts of businesses. A share of stock represents a proportional share of ownership in a company. As the value of the company changes, the value of the share in that company rises and falls.
- Forex is actually the short form of the word Foreign Exchange. It refers to the simultaneous buying and selling of a currency pair. In Forex, currencies are always traded against one another and quoted in pairs. For example, USD/JPY refers to the US dollars and Japanese Yen pair. Some of the major currencies being traded on the Forex market are Swiss Franc (CHF), Euro (EUR), British Pound (GBP) and the Japanese Yen (JPY). All these currencies are traded against the US dollar (USD).
- Mutual funds are a way for investors to pool their money to buy stocks, bonds, or anything else the fund manager decides is worthwhile. Instead of managing your money yourself, you turn over the responsibility of managing that money to a professional. Unfortunately, the vast majority of such “professionals” tend to underperform the market indexes.
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| Platform recommendation: OmniForex Trading Platform EasyForex Trading Platform |
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