5 Common Investment Vehicles

Not every investment vehicle works or is created equal to satisfy your financial goals. Some investments are low risk and provide a steady income, yet the return is small compared to the investment amount. Other investments may provide returns that are significantly larger, but they may require a commitment for the long term. Investment vehicles are available in many different types including certificates of deposit, stocks, bonds, savings, Roth IRAs, traditional IRAs, and mutual funds.

Some types of investments pay off their earnings on an annual, monthly, or quarterly basis. Other investments pay their earnings at the end of the investment or they can have age restrictions as to when you can take the money without being penalized. You should make sure that the investment income strategy that you select matches your timeline expectations.

An important consideration in any investment is its tax implications. If you happen to be saving for education or for retirement, then you should consider the investment vehicles that were designed for those types of investments. Also, some investments offer tax deductions while the earnings aren’t taxed. In the traditional IRA, the contributions that you make are not taxed, but its earnings are taxed.

You probably shouldn’t put all of your investment money in one place and should seriously consider diversifying your investments by placing money in several different types of investment vehicles. This can work to protect you from risk because typically when a portion of your investments may perform poorly, other ones can make up for those losses.

The following are the common types of investment vehicles available to individuals :

1. Traditional IRA is savings plan for the individual that offers tax advantages for retirement savings. It is available through different securities and the contributions that are made may be tax-deductible while the earnings will not be taxed until they’re distributed. The Roth IRA is a savings plan for the individual where the earnings are not taxed. It is available through different securities and the contributions that are made are not tax-deductible.

2. Bonds and bond funds are known as fixed income securities. The income that is paid by this type of investment is fixed and typically they invest in government or corporate debt obligations. This type of investment risk is low.

3. Index funds invest in specific market indexes. They are designed to mirror the performance of a designated bond or stock. The risk level for this type of investment depends on the index that the fund utilizes. For example, an emerging market fund is riskier than a bond index fund.

4. Stock investments represent a share in the piece of a company. As the stock prices rise or fall, so does the value of the investment. This type of investment is considered a medium to high risk.

5. Mutual funds typically invest in different types of securities including money market, bonds, and stock securities. The risk levels with this type of investment vary depending on the mutual fund holdings.