Investing is generally riskier than saving, so take time to understand various investment options and how they work. Do not invest more than you can afford to lose because no investment is guaranteed.

You should only consider higher-risk investments after you have built a strong financial foundation. Remember, there is no guarantee that higher-risk investments will provide higher returns.

Short-Term, Low-Risk Investments

Savings Accounts	Let you save money while earning guaranteed interest. Highly liquid — you can withdraw funds whenever needed. Your money is usually federally insured up to $250,000* for each account. Rates of return are low.
Money Market Accounts	Let you save money while earning a higher rate of return than regular savings accounts. Highly liquid — you can withdraw funds whenever needed and may be able to write checks against the balance. May require a minimum balance to earn interest. May charge service or transaction fees.
Certificates Of Deposit (CDs)	Let you save money while generally earning a higher rate of return than regular savings accounts and money market accounts. Money has to remain invested for a specified period — anywhere from 90 days to 10 years. Substantial penalties are charged for early withdrawals. Considered a low-risk investment, but not all CDs are federally insured.
U.S. Savings Bonds	One of the safest investments you can make. Pay a fixed amount of interest. Mature in 1 to 30 years. It is generally best to hold savings bonds until they mature. Selling them earlier usually results in a reduced return or penalty. Earnings are exempt from state and local income taxes, but not federal income taxes.
U.S. Treasury Bills (T-bills)	One of the safest investments you can make. Earnings are exempt from state and local income taxes, but not federal income taxes. Loans to the federal government. Maturity dates vary and are 1 year or less. Generally, the longer the maturity, the higher the rate of return.

*The standard FDIC insurance limit of $250,000 per depositor will continue untill December 31, 2013.

Long-Term, Higher-Risk Investments

The following investments offer higher potential rewards, but at higher risk levels. Remember, there is no guarantee that higher-risk investments will provide higher returns.

Stocks	Represent partial ownership in a company and are bought and sold in units called shares. Generally offer potentially higher returns with higher risk. A registered brokerage firm can help you buy and sell individual stocks. You generally are charged a commission or sales fee for each transaction. Make sure the individual you are working with has a securities license and works as a registered representative of a brokerage or mutual fund company.
Corporate And Municipal Bonds	When you purchase a bond, you are lending money to the institution that sold it (the issuer). In return, you receive a certain rate of interest over a specified period — usually from 1 to 30 years. When the bond matures, the issuer promises to pay the principal amount. Corporate bonds are only as reliable as the company that issues them and you may lose money if you sell prior to maturity. Municipal bonds are issued by state and local governments to help pay for schools, streets, airports and other public works. Risk and liquidity vary greatly among these bonds, so exercise caution when considering them.
Real Estate	Should be considered a long-term investment. While you own real estate, you are subject to property taxes. Federal income tax deductions may be available (for example, for property tax payments, interest charges and maintenance expenses).
Mutual Funds	Pool the money of many investors into portfolios of a variety of stocks, bonds or other investments. Different funds are designed to achieve specific investment goals and carry different levels of risk. Allow you to invest in a variety of industries and categories of securities including stocks, bonds and money market investments, which may be difficult to do individually without having large amounts of money to invest. Generally considered a better option for inexperienced investors as compared to purchasing individual securities.

Retirement Plans

The following investment options are designed for long-term retirement planning. You are generally subject to federal income tax and a withdrawal penalty for withdrawing funds before you reach a certain age.

401(k) Plans	Employer-sponsored retirement plans which may be offered to employees of for-profit businesses. Allow you to invest pre-tax dollars up to certain limits. You lower your current income for federal income tax purposes and are subject to taxes on withdrawals. Your employer may pay you for participating in this plan by matching a percentage of your contribution up to a set percentage of your salary. If your employer has a match option, you should generally attempt to contribute at least enough to your 401(k) plan to obtain the entire match.
403(b) Plans	Employer-sponsored retirement plans which may be offered to employees of nonprofit organizations and public education institutions. Allow you to invest pre-tax dollars up to certain limits. You lower your current income for federal income tax purposes and are subject to taxes on withdrawals. Your employer may pay you for participating in this plan by matching a percentage of your contribution up to a set percentage of your salary. If your employer has a match option, you should generally attempt to contribute at least enough to your 403(b) plan to obtain the entire match.
Traditional Individual Retirement Accounts (IRAs)	You may be able to deduct your contribution from your taxable income, thus reducing current federal income tax. You are subject to taxes on certain withdrawals.
Roth IRAs	Let you save after-tax dollars for retirement. Qualified withdrawals are federal income tax free and penalty free.

Choosing Your Investments

Once you have an idea of what investment instruments are available, you can consider specific alternatives. Take your time. Carefully research each option. Make sure the investments you choose match your goals and risk tolerance.

Next: Protect Your Money

Updated Thursday, March 25, 2010

HELPFUL FORMS & LISTS

Personal Budget Work Sheet