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Understanding Personal Finance Terms
Part III: Other Types of Financial Investments
Besides investing in your retirement fund, there are also many other ways to secure your financial future. Each different option has risks that should be taken into consideration before actually handing over your money. They include the following:
· Money Market Fund: This is a type of investment where you take your money and invest it into short term government and corporate debt securities. You pay a low amount for the investment and the yield fluctuates depending on the interest. This type of investment is extremely safe because their market value does not change.
· Certificate of Deposit: Otherwise known as CD. This is a short term (can be from 1 month all the way up to 5 years) that you invest your money in. You go to a bank or financial institution and deposit your money into a CD and earn a higher interest rate on your money then a regular savings account would. The catch is that your money must stay in this CD for the entire term, but if you choose a shorter term CD then you can either pull it out or roll it over depending on your needs.
· Bond: This is an interest bearing security where you get paid interest on your bond for a very specific time frame. Very simply it is an IOU in which you are loaning your money to someone and getting paid interest on your money. At the end of the term, you get the full amount of the bond back. Bonds can be issued by the Federal government (Treasury Bonds), State Government (Municipal Bonds) and other big corporations. Each Bond is subject to certain taxes.
· Other Stocks and the Stock Market: You do have the option to invest your money into the stock market. Today, you have the option to go through a broker or you can even do trading yourself online (for a small fee). This type of investment is not highly recommended unless you have extensive knowledge of the stock market and how to sell, buy and trade stocks. It is important to understand that it is difficult to know exactly what the stock market is going to do at any given time. One day you could be up 10 grand and the next day lose it all.
Figuring out how to invest your money wisely is difficult. Armed with the knowledge about each of the different other types of investments out there to choose from will open up a whole new avenue for you to explore. However, each of the investments has its own pros and cons. Just by understanding what each of the terms means can help you to better discuss with a financial advisor where you should put your money. It will be up to you to determine which one is right for your money.
Julianne Alzamora has 7 years of experience as a freelance writer. Her articles can be seen in several financial websites about investing, investment strategy, personal finance and topics on real estate.
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