• What investment strategy will work best for you?Investment image by Svitlana Boldyryeva from Fotolia.com
  
  Choosing the right savings and investments options can have a huge impact on your future financial security. There are many options available to help you turn spare cash into capital. The right choice for you depends on your goals, your tolerance for risk and your overall financial situation. As a general rule, the greater the risk of a particular investment, the greater the potential long-term return, although that is not always the case.
  
  

Savings Accounts and Bonds

• Government bonds are a secure way to grow your cash.Department of Treasury Building image by dwight9592 from Fotolia.com
  
  Savings accounts are the safest way to keep your cash surplus, especially if the account is insured by the FDIC. However, savings accounts pay very low interest rates, so over time, your money will not grow much and might not even keep up with inflation. Higher-yield savings accounts and certificates of deposit often require you to invest a large amount of money and/or to leave your money invested for a period of time. You need to consider both when you might need your money and the amount of interest you want.
  
  You also can get slightly larger returns from Treasury bonds, which are essentially a loan to the U.S. government, or a corporate bond, which is basically a loan to a company. Corporate bonds pay higher returns than Treasury bills, and they also can be riskier; it is somewhat more likely that a company will default on its debt than that the United States will default. The more financially stable the company, the lower the likely risk--and rate.
  
  

Hedge Funds

• Hedge funds are fairly risky, but could yield substantial returns.investment risks image by Pix by Marti from Fotolia.com
  
  At the other end of the risk/reward spectrum are hedge funds. These are a kind of investment club, usually open only to a limited number of people willing to invest a lot of money. A relatively high percentage of the money in the fund goes to the hedge fund manager, who uses his expertise to try to beat other investment options such as a stock market index. Due to the exclusive nature of hedge funds, they are exempt from many government regulations, such as those regarding the practice of short-selling, in which funds invest with the expectation that a share price will drop. Although hedge funds can produce good returns, they also carry significant risk; the success of the funds depends heavily on the investment decisions of the hedge fund manager.
  
  

Stock Market

• The stock market carries more risk than tradtional savings.stock market analysis screenshot image by .shock from Fotolia.com
  
  Stocks are the most common form of medium-risk investment, although they have substantially more risk than a savings account. Although historically the stock market as a whole has had better returns over time than bonds or cash, there is no guarantee that the stocks you buy will increase during the time frame you need. You can choose individual stocks, or you can invest in a mutual fund, which contains many different kinds of stocks. Some mutual funds have managers who actively pick stocks for the funds, and others simply track an existing stock index, such as the Standard & Poor's 500. You can make your own stock transactions, or you can have a stockbroker or financial adviser handle your stock investments.