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Personal Finance - Most Common Investment Plans

Aug 17, 2007
Fifty years ago, the average worker didn't need to worry about saving for his retirement. If he stayed with the same company for 20, 25 or 30 years, he was guaranteed a pension, in addition to a monthly social security check form the United States government, and medical benefits under Medicare. Still, those same workers generally saved about 10% of their paychecks for a rainy day, leaving many with a tidy retirement fund.

Today's workers aren't offered those same retirement benefits, yet, many fail to put even 5% of their annual salary into a 401K retirement plan, let alone save additional funds on top of that. Today's worker, (no matter how much, or how little they make), must become a savvy investor in order to guarantee a comfortable future.

Whether you can put aside $50 a month, or $500, learning a few investment basics is crucial in order to get the best future bang for your current buck. Here are a few of the most common investment opportunities available to both the high and low-end investor:

Stocks:
Stocks, or equities, are a way to invest a small portion of ownership in a specific company. The number of shares that you buy, in proportion to the number available, determines how much of the company you actually own. Known as the best opportunity for long-range growth, stocks can be a risky short-term investment.

There are three types of stocks available for purchase:
-Large-cap stocks, from well-established companies
-Small-Cap stocks, represent lesser-known companies with fast-growth potential
-Mid-Cap stocks, lie between the large-cap and small-cap risk range

Bonds:
Basically an IOU from a company or government, bonds are a relatively safe investment. Bonds are issued as a way for corporations and government agencies to raise money quickly. Bonds come with a guarantee that the purchaser will get back their original investment, with a set amount of interest at a specific date. These fixed-income investments come in several categories, or grades:

-AAA, AA or A offers relatively low risk
-BBB, are medium grade
-Bonds lower than BBB have higher risk of default
-Junk Bonds, offer the highest risk, and are often worth nothing by their maturation date

Cash Equivalents:
This is a type of short-term investment that is easily converted into cash, such as Treasury or T-Bills ( a government note offering low interest) and money market accounts, Although a safe investment, their return can be rather low.

Mutual Funds:
This popular investment is a simple way to expand your investment portfolio, by allowing investors to pool their money in a collection of stocks, bonds, and cash equivalents, in order to make the most profit at the least risk. The rationality with this type of investment is, if one fund does poorly, another will make up for the loss.

Investing money wisely takes a little research and experience, but today's options make investing an option for just about everyone - no matter how much or how little they have to invest.
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