When you invest your money, it has the potential to grow over time and help you reach your financial goals. Investments can generate income and/or increase in value, and they can be structured as stocks, bonds, exchange-traded funds (ETFs) or mutual funds.
Before you invest, you should consider your investment goal(s), your risk tolerance and your liquidity needs. You should also know how long you’re willing to hold your investments and whether you’re looking for a hands-off or DIY approach.
Different investment types offer various levels of return, but all come with some degree of risk. The value of an investment may go up or down based on market conditions.
If you choose to diversify your investments by including assets across asset categories, you can potentially reduce your risk that any one particular investment will decline significantly if the markets are not performing well. Stocks, for example, are an equity instrument that gives you ownership stakes in public companies. When the price of a stock rises, you can sell it for a profit. Bonds, on the other hand, are a form of fixed-income investing that enables governments and businesses to borrow money and earn interest.
With a variety of mainstream investments to choose from, you’re likely to find the right mix of assets to help you meet your financial goals. Choosing where to invest, like a 529 plan for education or an HSA for health savings, is another consideration as it can impact how your returns are taxed.
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