If you don’t have access to an employer-sponsored retirement plan, you could get an individual retirement plan (IRA) or a Roth IRA. There are a number of types of retirement plans such as workplace retirement plans, sponsored by your employer, including 401(k) plans and 403(b) plans. Retirement PlansĪ retirement plan is an investment account, with certain tax benefits, where investors invest their money for retirement. That said, you have to make sure you won’t need the money during the term of the CD, as there are major penalties for early withdrawals. How you can make money: With a CD, you make money from the interest that you earn during the term of the deposit. CDs are good long-term investments for saving money. There are no major risks because they are FDIC-insured up to $250,000, which would cover your money even if your bank were to collapse. While the risk is low, so is the potential return. The longer the loan period, the higher your interest rate is likely to be. When that time period is over, you get your principal back, plus the predetermined amount of interest. You give a bank a certain amount of money for a predetermined amount of time and earn interest on that money. Certificates of Deposit (CDs)Ī certificate of deposit (CD) is considered to be a very low-risk investment. And just like mutual funds, you can make money from an ETF by selling it as it gains value. You can further minimize risk by choosing an ETF that tracks a broad index. How you can make money: ETFs make money from the collection of a return amongst all of their investments. ETFs are often recommended to new investors because they’re more diversified than individual stocks. Their price fluctuates throughout the trading day, whereas mutual funds’ value is simply the net asset value of your investments, which is calculated at the end of each trading session. Unlike mutual funds, which are purchased through a fund company, shares of ETFs are bought and sold on the stock markets. Exchange-Traded Funds (ETFs)Įxchange-traded funds (ETFs) are similar to mutual funds in that they are a collection of investments that tracks a market index. But note there is typically a minimum investment and you’ll pay an annual fee. You can buy them directly through the managing firm and discount brokerages. How you can make money: Investors make money off mutual funds when the value of stocks, bonds and other bundled securities that the fund invests in go up. The risk is often lesser, though, because the investments are inherently diversified. Mutual funds carry many of the same risks as stocks and bonds, depending on what they are invested in. Mutual funds can invest in a broad array of securities: equities, bonds, commodities, currencies and derivatives. A passively managed fund, also known as an index fund, simply tracks a major stock market index like the Dow Jones Industrial Average or the S&P 500. Fund managers often try to beat a designated market index by choosing investments that will outperform such an index. An actively managed fund has a fund manager who picks securities in which to put investors’ money. Mutual funds can be actively managed or passively managed. Mutual FundsĪ mutual fund is a pool of many investors’ money that is invested broadly in a number of companies. Treasury bonds, notes and bills, however, are considered very safe investments. The company you buy a bond from could fold or the government could default. There is still some risk involved, of course. The rate of return for bonds is typically much lower than it is for stocks, but bonds also tend to be a lower risk. After the bond matures, meaning you’ve held it for the contractually determined amount of time, you get your principal back. How you can make money: While the money is being lent, the lender or investor gets interest payments. Treasury issues Treasury bonds, notes and bills, all of which are debt instruments that investors buy. Companies issue corporate bonds, whereas local governments issue municipal bonds. Generally, this is a business or a government entity. When you buy a bond, you’re essentially lending money to an entity. The risk, of course, is that the price of the stock could go down, in which case you’d lose money. How you can make money: When you buy a stock, you’re hoping that the price will go up so you can then sell it for a profit. Some examples include Exxon, Apple and Microsoft. Many of the biggest companies in the country are publicly traded, meaning you can buy stock in them. When you buy stock, you’re buying an ownership stake in a publicly-traded company. Stocks, also known as shares or equities, might be the most well-known and simple type of investment.
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