- Putting your money in an empty mayonnaise jar buried under a tree is one approach to keeping it safe, but bank savings accounts and certificates of deposit, U.S. Treasury bills and money market mutual funds pay interest and are very safe places to accumulate money or keep it secure for a short period of time until it is needed for a large purchase. Some investors keep the bulk of their portfolios in these investments because the shorter holding periods make them less susceptible to interest rate and market risk. However, safety comes at a price. These investments pay very low rates of return.
- Higher returns are available from long-term bonds. Dividend-paying common stocks, such as utility stocks, and preferred stocks also pay higher returns than short-term investments. High-quality young companies, such as technology or new industry companies, present the possibility of price appreciation owing to the growth of the issuing company. The resulting rise in the price of its stock can provide excellent returns over time; however, it is impossible to tell how long you will have to hold this stock to achieve adequate price appreciation or even whether the company will grow as expected.
- Investing in individual stocks and bonds requires research before you buy, as well as considerable effort to regularly monitor the financial condition and potential of the issuing companies. If you don't want to take on such responsibility, packaged investment products such as mutual funds, exchange-traded funds and unit investment trusts are a good choice. If you have more than $250,000 to invest, a bank trust department or investment adviser can provide customized portfolio management, but the cost of this service is significant.
- The Internet and online brokerage firms have made it possible for individuals to easily trend trade or day trade securities for profit. The downside of this activity relates to naive individuals hoping for huge profits without putting in the extensive study of trading techniques and financial due diligence on the companies issuing the stock they plan to trade. To trade professionally requires significant skill and full-time effort, but it can pay off handsomely.
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