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What do you want to invest in: stocks, bonds, mutual funds? Do you want to open an IRA or buy an annuity? Does your employer offer a 401K? Remember, every investment involves some degree of risk. Most securities are not insured by the Federal government if they lose money or fail, even if you purchase them through a bank or credit union that offers Federally insured savings accounts. Make sure you have answers to all of these questions before you invest:
Not all investment vehicles are created equal or work for your personal financial goals. Some provide steady income and are low risk, but yield small returns on investment; others may provide significant returns, but require a long term investment commitment. There is a wide assortment of investment vehicles available. Some of the most popular include: mutual funds, traditional IRAs, Roth IRAs, savings bonds or bond funds, stocks, and certificates of deposit.
Some investments pay out earnings on a regular (quarterly, monthly, or annual) basis, while others pay out earnings at the end of the investment period or may have age requirements for when you can withdraw your money without a penalty. Make sure your investment income stream matches your investment timeline.
You should also consider the tax ramifications. If you are saving for retirement or for education, consider investments that offer incentives for saving for a particular purpose. Your contributions for some investments are tax deductible, but the earnings are not taxed (e.g. Roth IRA); your contributions to other investments may not be taxed, but the earnings are taxed (e.g. traditional IRA).
You don't have to put all of your money in one investment. Consider diversifying your investment portfolio by placing your money in several investment vehicles. This can protect you from risk; while one of your investments may be performing poorly, another one of your investments can make up for those losses.
|Type of Investment||What is it?||Risk level|
|Traditional IRA||Traditional IRA is a personal savings plan that gives tax advantages for savings for retirement. Investments may include variety of securities. Contributions may be tax-deductible; earnings are not taxed until distributed.||Risk levels vary according to the holdings in the IRA|
|Roth IRA||A personal savings plan where earnings that remain in the account are not taxed. Investments may include a variety of securities. Contributions are not tax-deductible.||Risk levels vary according to the holding in the IRA|
|Money Market Funds||Mutual funds that invest in short-term bonds. Usually pays better interest rates than a savings account but not as much as a certificate of deposit (CD).||Low risk.|
|Bonds and Bond Funds||Also known as fixed-income securities because the income they pay is fixed when the bond is sold. Bonds and bond funds invest in corporate or government debt obligations.||Low risk.|
|Index Funds||Invest in a particular market index. An index fund is passively managed and simply mirrors the performance of the designated stock or bond index.||Risk level depends on which index the fund uses. A bond index fund involves a lower risk level than an index fund of emerging markets overseas.|
|Stocks||Stocks represent a share of a company As the company's value rises or falls, so does the value of the stock.||Medium to high risk.|
|Mutual funds||Invest in a variety of securities, which may include stocks, bonds, and/or money market securities. Costs and objectives vary.||Risk levels vary according to the holdings in the mutual fund.|
For more information about investing check out the Securities and Exchange Commission's (SEC) website. Be sure to note specific tips.The SEC requires public companies to disclose financial and other information to help you make sound decisions.View the text of these files in the Edgar database or call the SEC Toll-Free Investor Information Service at 1-800-732-0330 to obtain free publications and investor alerts, or to learn how to file a complaint.
The Financial Industry Regulatory Authority (FINRA) also provides up-to-date market data and information for a wide range of stocks, bonds, mutual funds, and other securities through its Market Data Center.
Both Standard & Poor's and Moody's Investors Services rate the financial condition of corporations and municipalities issuing bonds. Their ratings are available online and at many public libraries. For ratings of mutual funds, consult financial magazines. To compare expenses, use the Financial Industry Regulatory Authority (FINRA) Mutual Fund Expense Analyzer.
Many employers encourage their employees to save for their retirement by establishing 401(k), 403(b), or 457(b) plans. Employees that participate in these programs elect to have a set amount of their income deducted from their paychecks to save for retirement; these amounts are not subject to income taxes. In many cases, your employer will match a portion of the amount of the money that you contribute into your 401(k) account, which is like getting "free" money. If you stop working at a company, remember to take the money from your 401(k) with you. If you "rollover" the total from your old job to an account at your new job, a traditional IRA, you will not have to pay taxes on the money.
Hopefully after researching your options of investment instruments and professionals, you have arrived at a strategy and investment plan that will allow you to reach your savings goals. However, it is possible that you could have problems with the products you purchased. You may have to solve your dispute with your investment advisor through mediation or arbitration. During mediation, you would meet with the broker to come to an agreement. During arbitration, however, an independent third party will review both arguments and make a decision.
Another alternative would be to contact your state's securities administrator. They will receive and possibly investigate a complaint on your behalf. If necessary, you may also contact the Securities and Exchange Commission to file a complaint or to learn more about your rights as an investor.
Page Last Reviewed or Updated: May 16, 2013