Types of Investments

There are many types of Investments. There are safe ones, risky ones, in-between ones. The most common types of investments are these.

Source: investopedia

From highest to lowest risk (and consequently highest return to lowest return):

Stocks are individual shares in company (such as 50 shares of Google). You buy a a part of the company. You make money if the stock increases in value (if the company does well). These can earn you lots of money if you choose the right company. You can also lose your shirt. Key word: Diversify!

Invest in stocks for the long-term: retirement, or for at least 10 years. This is not a place to store your down-payment cash.

Mutual funds: A collection of stocks and bonds. A mutual fund can have hundreds of different companies' stocks in a variety of industries (health care, technology, manufacturing). Can be high- or low-risk, depending on its balance of stocks vs bonds. Good for diversification. A 10% average annual return is respectable. More on mutual funds here .

Money Markets: A type of mutual fund that is low-risk. You can often write checks using money from these accounts. Good for short-term investments (2-3 years), since you can be pretty sure your money will be safe and get a decent return (5% or so -- shop around).

Bonds: An investment based on debt. "When you purchase a bond, you are lending out your money to a company or government." Low-risk. Good if you need steady income and cannot tolerate risk. Folks in retirement tend to have these types of investments.

CDs (Certificates of Deposit): An investment that is set for a fixed time period at a fixed rate, say $500 for 6 months at 4.6%. Local banks sell CDs. Low-risk, because you know how much money you will make from the start. There is usually a penalty for early withdrawal.

Savings accounts: Your garden-variety savings account you have at the bank. Barely beats inflation, if at all.